A TOUGH ECONOMIC BEGININNG, THE YEAR 2015
Continued from yesterday
President Edgar Lungu being a listening President and the fact that his government seeks to liberate the Zambian people from poverty through maximizing revenue collection that can be used for developmental projects in the country, H.E President Lungu and his Patriotic Front government took time to study the submissions and as you will see later in following article, the 30% corporate tax removed was reversed in 2016 among other adjustments to the mining tax regime.
As a result of these tax changes made in 2015, Kalukeki Kawezi in his article entitled ‘Foreign Direct Investment, Threat or Help?’ in the Partners Guide Magazine, 2016 Election Special Edition reported that Glencore, the owners of Mopani Copper Mines threatened to lay off over 4,000 and reportedly cancelled over USD $800 Million worth of Copper projects in Zambia.
Again, in the same year, 2015, First Quantum Minerals (Zambia’s largest Copper producer) also delayed investment projects worth USD $1.5 Billion in Zambia against a background of a taxation system at the time that they argued slowed down job creation and inevitably deterred entrepreneurs from investing in the country.
From a global perspective, it is evident that the economy of Zambia was directly impacted by the plummeting Copper prices at the international market mainly caused by the slow consumption of copper from the world’s biggest copper consumer, China, as it continued to rebalance its economy.
Furthermore, the International Monetary Fund (IMF) in 2016 argued that the lower prices of energy and other commodities at the international market, and the gradual tightening in monetary policy in the United States of America in the context of a resilient U.S recovery as several other major advanced economy central banks continued to ease monetary policy was another factor that affected growth adversely in emerging markets and developing economies in which Zambia falls.
The world economic growth was estimated at 3.1% while that of Zambia’s stood at 2.9 in the same year, falling only short by 0.2% to the world economic growth rate.
This in global context goes to show that the country managed to grow at a fairly slow rate yet very competitively compared with the global economic growth rate attained.
This was mainly attributed to the overall economic performance of China which hard a spillover effect on other economies through trade channels, as the case with Zambia, and weaker commodity prices as well as diminishing confidence and increasing volatility in financial markets (IMF 2016: 1). The manufacturing activity and trade remained weak globally, reflecting not only developments in China but also subdued global demand and investment more broadly and notably a decline in investment in extractive industries.
This is true as in the case of Zambia where two mining giants, Mopani Copper Mines and First Quantum Minerals with a total work force of over 6,000 miners, declared that they had halted investments in the country due to the unstable mining tax regime after government revised the mining taxes in 2015.
From the foregoing, it is clear that while investment was not favourable at the time, the issue of tax was surely not the main reason for the halt in the investment as figures show that global demand and trade were low and in turn affecting investment in extractive industries.
Global economic factors prevailing at the time adversely affected the nation and yet under the able leadership of President Lungu the economy remained resilient and growth was projected in the following year.
Arising from the impacts of a subdued global economy as well as other local economic factors that affected the nation negatively under the year 2015, the government of President Edgar Chagwa Lungu made several continued attempts to stir economic growth with an aim to reduce poverty and create employment for the majority Zambian people. The President working closely with then Finance Minister, Honorable Alexander Chikwanda and the entire cabinet made resolutions as indicated above to revise the mining tax regime in an effort to simplify tax regulations and attract investment in the sector.
Another intervention by the PF government of H.E President Edgar Chagwa Lungu was to take measures to address the impact of power shortages that rocked the year 2015 arising from low water levels at Lake Kariba and in the Kafue River and the inability over the years to attract investment in Electricity Generation on account of low electricity Tariffs, H.E President Lungu said while addressing parliament in September, 2015. According to H.E President Lungu (2016; 2), government took immediate measures to a deal with the power shortages ranging from the importation of electricity from the neighbouring countries; adjusting the price of electricity from an average retail tariff of 5.64 to 10.35 cents per kilo watts per hour for commercial entities to attract increased investment in electricity generation; to developing alternative sources of energy such as solar and thermal and promoting the use of energy efficient electric bulbs.
In the long term, the PF government under the leadership of H.E President Edgar Lungu has partnered with the Government of Zimbabwe to develop a 1,800 Megawatt (MW) power station at Batoka Gorge in Southern Province; the expansion of the Kafue Lower Hydro Power Plant which was completed in 2018 and commissioned and is now generating an additional 750 MW of electricity; increasing power generation at Chishimba and Musonda Falls; upgrading Lusiwasi Hydro Power Project in Serenje District and commissioning of the coal-fired power station at Maamba Collieries. This Maamba Collieries project was completed in July 2016 and now contributes an extra 300 MW to the national grid. In addition, the government of H.E President Edgar Chagwa Lungu commissioned the 120 MW Itezhi-Tezhi hydro power station in Central province of Zambia in March, 2016 and is now contributing to the reliability, stable and quality of power supply in the country (Lungu 2016; 2).
In addressing the effects of drought experienced in most parts of the country like Sikongo which brought about crop failure due to poor rains during the 2014/2015 farming season, the PF government of H.E President Edgar Chagwa Lungu took an in-depth vulnerability and needs assessment in 48 districts in Central, Luapula, North-Western, Copperbelt, Eastern, Muchinga, Southern and Western Provinces. According to H.E President Lungu in his address to Parliament on 15th September, 2015, his government took immediate interventions of relief food to 131,158 households covering 798,948 people in 31 districts as well as rehabilitation and sinking of 1,598 boreholes in all the 48 assessed districts and provision of water through dams and water schemes.
In sum, the Zambian economy performance in 2015 was that inflation rate was at over 21%, light years above the 7% initially forecast such that 14% more than the target while the external debt stood at USD $ 6.4 Billion (1.3% of the GDP), below the internationally accepted threshold of 40% and when the domestic debt and the ratio of total public debt to GDP it came to 52.7% which was 3.3% below the international threshold of 56%.
Customs and excise duty was below target by 26% due to reduced import volumes whilst mineral royalty collections underperformed by 37% due to reduction in rates. Furthermore, in 2015 the government of the Republic of Zambia managed to raise a total of Kw34.1 billion in revenues and grants against a budget target of K35.4 billion, i.e. it underperformed by 4% while during the same period government spent K 51.26 billion (10% above the set target of K 46.6 billion). Fiscal deficit in the year 2015 was over 8% of GDP while Zambia’s main diversification sector, agriculture also contracted by 8% while mining sector significantly slowed due to among many reasons those highlighted above such that it only grew by a 1.5%. Positive growth was also recorded in the construction, transport and communication and manufacturing (Mafa, 2016).
Despite this dismal economic performance, it is absolutely very clear that the resolve, vision and plan of H.E President Edgar Chagwa Lungu remained on course as he walked the talk in his unparalleled stance to bring about economic emancipation to the people of Zambia while engaging both local and global adverse impacts to the Zambian economy.
This can be seen from a number of interventions highlighted above that the PF government under the able leadership of President Edgar Chagwa Lungu took in 2015. This is the more reason that the people of Zambia should have confidence in the leadership of H.E President Lungu and the PF government seeing how well and determined they remained under very difficult circumstances to diversify and sustain the economy of Zambia during such a troublesome year.
ABOUT THE AUTHOR
Lengwe Cornelius Bwalya (BIRD-MU; DPPPR-ZIDIS; CD-ComDev) is the Founder and Executive Director of RHOMA Foreign Relations Institute, an International Affairs Policy Think Tank registered in Zambia. Mr. Lengwe Cornelius Bwalya is also a blogger, Image Builder and an International Relations and Political Analyst with over 5 years’ experience in both national and International politics. For comments, suggestions or questions, please email email@example.com or visit rhomaforeignrelationinstituteorg.wordpress.com or simply call on +260 950 004 050. © RHOMA Institute 2020