COMMENT - Neoliberal economic theory fails again. Inflation is in the single digits, but this has not brought down the cost of money, as bank lending rates are still over 20%. This is obviously a major hurdle for SMEs. Also, the mines use over 50% of power produced by ZESCO, and pay fewer tariffs than ordinary people. Again, this smells of corruption. Foreign owned mines are a net drain on the Zambian economy.
Chilipamushi accuses banks of running cartel
By Kabanda Chulu in Kitwe
Tue 27 July 2010, 04:02 CAT
COPPERBELT University senior lecturer Davidson Chilipamushi has accused commercial banks in the country of operating a cartel hence the failure to reduce lending (interest) rates despite the inflation rate declining to 7.8 per cent.
In a free market economy such as Zambia, the rate of inflation should be able to bring down interest rates to a level equivalent to that of the country’s inflation. For instance,
the rate of inflation is currently at 7.8 per cent and it is expected that interest rates should also be in the range of eight or 10 per cent.
Despite government’s efforts to bring down the rate of inflation to single digit levels, lending rates are still high, the lowest being about 20 per cent offered by some banks.
Government has reduced its borrowing from commercial banks, therefore the yields on treasury bills and bonds have declined thus offering banks alternative ways to make profits such as lending to the private sector and other entrepreneurs.
“This is very surprising that banks have not reacted in the down turn of inflation rates by reducing lending rates, for instance, the rate of inflation is currently at 7.8 per cent and it is envisaged that interest rates should also be in the range of eight or 10 per cent and banks will still make profit but this is not happening, why?” Chilipamushi asked, in an interview last Friday.
“And this is a hindrance to the development of the economy which needs to be addressed and the competition authority should take a keen interest in this matter because there is an apparent tacit collusion if I may say so because it doesn’t make sense that the rates for all banks are high although some have reduced but still remains high and someone was saying that there are many cars in the street since banks are dishing loans but this growth is not tangible since it is not translating into poverty reduction.”
He said the failure by banks to reduce lending rates was stifling development because investment decisions that had to be made by companies and individuals were delayed.
“It is surprising that this is happening, banks and even micro finance institutions are also charging higher rates despite government making efforts to ensure macroeconomic stability, and players are failing to respond, for instance, government is reducing borrowing from the banking sector therefore yields on bonds and treasury bills also come down in line with the desire not to borrow so much from the banks,” Chilipamushi said.
“This situation compels banks to look for alternatives from which they can make money than the easy way of buying bonds and treasury bills and it appears to me that, the alternative still remains lending to the private sector so there must be a balance between alternative investment sources.”
And Chilipamushi said Zesco Limited should stop looking at increasing electricity tariffs as the major source of its capital investments. Chilipamushi said shareholders of Zesco must recognize that the huge problems facing the company require the entity to be restructured to manageable levels.
“It appears the only source of capital investments as of now is through tariffs they charge to consumers out there but what Zesco needs to do is to look for alternative sources of funding to sustain their activities and that is making it saleable or bankable either through restructuring and bringing their books to date by reducing their debts on the balance sheets then people will have confidence. There are several sources of funding including locally at the stock exchange,” Chilipamushi said.
“What Zambians are looking forward to is to ensure that this Zesco is brought into the market and it has to be listed so that you and me can buy interest in it and I don’t know if that is a hindrance in their (Zesco) quest to move forward but they just have to restructure themselves and ensure that they operate on a commercial basis and get on the market and expand capacity to borrow and meet their expenditure requirements.”
He said Zesco does not operate as a commercial entity since it lacked a strategic plan.
“On paper Zesco had undergone commercialization but I don’t believe Zesco is operating as a commercial entity, firstly it has to be restructured and strategize and unbundling is not an issue and the issue is making Zesco viable as a single entity and in the absence of a proper study being done, it is difficult to recommend unbundling,” said Chilipamushi.
Lusaka Stock Exchange (LuSE) general manager Beatrice Nkanza has used every opportunity requesting struggling government entities such as Zesco, Indeni, Tazama, ZSIC and others, to raise part of their capital investment on the stock markets.
Nkanza has explained that due to the strict process of listing, companies could raise funds through bond issuance and other debentures.
Zesco has applied to the Energy Regulation Board (ERB) requesting for 36 per cent electricity tariff adjustment because it requires more than US $850 million to increase power generation capacity.
Zesco also wants to have in place cost reflective tariffs whereby consumers would pay for the power they use but surprisingly the mines that consume over 50 per cent of Zesco’s power production pay less tariffs compared to domestic consumers.
Labels: BANKING, BEATRICE NKANZA, CARTEL, DAVIDSON CHILIPAMUSHI, LENDING RATES, LUSE, ZESCO
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Makungu attributes low interest rates to lack of business for banks
By Kabanda Chulu
Tuesday September 25, 2007 [04:00]
UNIVERSITY of Zambia head of mass communications department Kenny Makungu has said the reduction in interest rates is not because of an improved economy but lack of business for commercial banks. And Economics Association of Zambia (EAZ) has observed that there was need to
break down the invisible cartel that most commercial banks apply when doing business.
During a media workshop for economic and business reporters held last week in Lusaka, Makungu said there was need to expose the anomalies behind the positive macroeconomic indicators because they do not relate to the situation on the ground. He said reduced rate of inflation should result in lower prices and a general improvement in standards of living.
“Almost all the macro economic indicators are showing signs of growth but we are not seeing this on the ground or maybe there is a small group of people who are seeing the benefits of these indicators and there is need to expose this anomaly because it is not tangible,” Makungu said. “If the economy is improving where is the money going to because people in the streets do not have the purchasing power and the reductions in interest rates is not because of an improved economy but lack of business for commercial banks.”
Lately, there is intense competition among banks in the country that has resulted in the banks introducing various promotions in order to attract customers. Several banks have reduced interest rates from over 40 per cent to below 20 per cent and the rate of inflation currently stands at 10.7 per ecnt.
Recently the EAZ stated that there was need to break down the invisible cartel that most commercial banks used to apply in the country. The EAZ has also projected that many commercial banks would continue to feel the pressure due to the government’s reduced participation in treasury bills.
The EAZ also anticipates base rates to come down to as low as 10 per cent by 2008 in order to meet the international trends that is at the same level with the rate of inflation.
The EAZ stated that continued reduction of interest rates, which was spearheaded by Zambia National Commercial Bank (ZNCB), when it reduced rates from 20 per cent to 15 per cent last January, would be a turn around for the country’s economy since funds would be readily available for businesses to borrow.
The EAZ stated that shortage of capital to finance and expand businesses in Zambia had been the major obstacle stifling economic growth.
“The big banks have played the role of influencer in issues of interest rates and they have refused to reduce even when inflation rates went down and also when Felix Mutati was deputy at finance ministry, he used every fora to plead for the reduction of base rates but to no avail,” it stated.
“So one has to believe that there has been an invisible cartel among these banks which ZNCB has literally broken down and it seems this is the only solution that will work since the rest of the banks will follow.”
The EAZ observed that about 75 per cent of all businesses in the country fail to take off because of high capital costs offered by commercial banks.
“There is a lot of viable business plans in the country and almost every sector needs capital injection for expansion but high costs of capital offered by these banks is stifling the intended economic growth and we hope this reduction of base rates will improve things,” it stated. “And owing to these high costs companies literally work for banks to liquidate the high interest loans and given this scenario no economy can grow.”
And according to the medium term expenditure framework (MTEF), the government has indicated intentions of maintaining borrowing from the gross domestic product (GDP) at not more than one per cent in 2007 and 0.5 per cent in 2008 and 2009 respectively.
The government’s participation in the bonds and treasury bills market has reduced since they want to limit borrowing from the GDP and one per cent of GDP would entail the government to only borrow about K500 billion, which a few banks could manage to lend out while others would have no choice but to lend out to the business community.
Labels: BANKING, CARTEL, INFLATION, INTEREST RATES
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Nujoma calls for unity in mineral exploration
By Gweny Phiri
Friday March 02, 2007 [02:00]
FORMER Namibian president Sam Nujoma has called on professionals, academicians and governments to work together with a common vision and purpose of action in exploiting the abundant mineral resources in Africa. Nujoma, who is in the country for a study tour, on Wednesday visited the Nchanga Open Pit mine in Chingola and the Konkola Deep Mining Project (KDMP) in Chililabombwe. He said there was need for professionals in industry, academicians and governments to work together in exploiting the abundant mineral resources in Africa for economic development.
He said part of his study tour aimed at stimulating interest and discussions on how people in Africa could develop manufacturing industries based on local mineral materials which would promote economic development through employment creation and increase productivity to add value. Nujoma said the governments needed to develop policies and framework which would ensure equitable exploration and production of mineral resources with due regard to the local communities, national development and the environment. He said industrial concerns needed to invest in educational and training institutions in order to promote research and development.
He said copper resources were abundant in the sub-region and they could provide a means for economic development if the copper producing countries began to invest in downstream projects that would add value to copper produced including the production of electronic products from copper. He said in order to develop, Africa has to develop itself and create local manufacturing industries to promote, protect and develop its mineral wealth for the benefit of its people. He said people have to consciously and actively participate in the struggle for economic independence.
Labels: CARTEL, MINING, NUJOMA
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