Time To Nationalize

It is always interesting to look at how Economist look at different views they have on an issue in the economy. An interesting view if you are an Economist in the field also.

I have been looking at the issue of the mines and the outcomes of which party is in charge of the mines. Right now, we are made to believe mines are not making any profit and so their contributions to taxation. Seriously if the operations are so bad that no one pays taxes, it would not make business sense to even own the mine. So why don't the owners leave? Why would anyone continue with a business operation which does not make sense (both generic, economic or business sense). If it really was the case, they would have left. 

I believe they have not left because all these loses that they complain about is a properly engineered part of transfer pricing! They find all loses in the chain and the money and profits show up in Switzerland. How else will a company pay taxes in Switzerland over Zambia's minerals when Switzerland has no copper? That is an issue that shocks me. 

My perspective is even strange to other economists. I think it will make good sense if the same loses that the mining companies are complaining about leading to no payment of taxes to be enjoyed by government. Why can't government take over the burden from the mining companies and the little resources enjoyed by the owners of the mines be ploughed back into Zambia? The country will not experience loses as much as the mining companies. The difference will be, there will be worry about the loses and exports since all returns from the mining activities will be back here in Zambia!

I know any modern Economist avoids using the words of nationalization and favours privatization. I believe things should be looked at a different angle altogether. Zambia has been using modern economic theories and perspectives since time in memorial, have we seen any goodness out of that? When the mines were owned by the people of Zambia, the mining towns were doing way better than today. Even ZESCO was selling electricity properly and a rate better than it is today. So the two experiences we have had should give us a lesson we can surely use to our advantage. Even the football pitches were a marvel to be in. Need we forget the schools that we all dreamt of going to? So what has changed with going back and getting the best out of it.

From where I stand, the whole western world has ganged up on Africa and its resources. There is too much complex way of ripping the resources of Africa such that if we try to follow the logical steps, we will be doomed. Ireland, Luxemburg, Netherlands and now even Mauritius have been set up in such a way that they will use all possible ways of reducing taxes so that Multi-Nationals find their way to Africa through these places and rip all the resources. There is 10 times more resources leaving Africa than the ones coming in in form of "AID"! Had this been a straight forward business, Africa would have been far better than any country in Europe or the Americas. But that does not appear to be.

Moreover, if we look at the China arrangement, you will agree with me that China does not follow the "modern" economics. They use planned economy and have been heavily criticized by the west. Did the Chinese system fail them? No they have producing for the world! So anyone looking at a way to develop, would surely think China is a way to go! They have more state owned enterprises competing in the world than you would imagine. We have taken these as our brands for some reason without looking at them and their history. Look at these:

ZTE Corporation (Zhongxing Telecommunication Equipment Corporation)

ZTE is no upstart. The company was founded in 1985 by a handful of state-owned companies affiliated with the Ministry of Aerospace Industry and has grown along with China's big phone companies, which are ZTE's top customers.That is pure genius!

China National Petroleum Corporation (CNPC)

British Broadcasting Corporation (BBC)

ABN AMRO Bank N.V. 

Bharat Electronics Limited

So why do we fear nationalization  After all I think the mines will contribute more to the economy when all their owners are Zambians. Many countries have a way of dealing with State-owned enterprises, we can find a way that can work if we divorce politics from the running.

I know its wishful thinking, but it is worth every typed word. We should nationalize the mines - The benefits far, far out weigh the costs (I am a student Economist, I should know that!)

Zambians lackadaisical???

I have always been a person advocating for serious approach to work and all associated with it. I think a lot more can be done when we take it with hard work and the seriousness it deserves.

I proudly say, the lazy people are always willing to let things be the way they are and are not keen on seeing change or fighting for it. Partly I assumed was the casual approach that most of us Zambians have to certain things. However, in all the countries that Zambians have gone to or emigrated to, the situation is different. They work harder, are united like a serious community, are found in all high earning positions etc. So the coming of the Chinese seem to show us as being lazy?? Well, I think the cultural differences may show up in areas of serious concern.

The China-Zambia relation has been one of mistrust and serious concern economically. They are known to pay less to Zambian workers, have little or no respect for the country's laws and feel like the bosses of this small population. Chinese goods are considered fake and weak or unreliable. Words like "gonga" are always associated with Chinese goods. In particular the Chinese dual-sim phones with TV! And they come in many shapes some claiming to be Iphone, others Nokia and those that have no name to steal, are simply called MP4 phones. Now whoever got a chance to buy one, will confess of the ills of these phones.

Now I wondered why we always say we have a lot of Chinese people among us and yet, we never see them in night clubs, malls, or mingling among us. So to read on The Economist that these people consider us lazy ... or by the exact terminology lackadaisical made me wonder. So my first action was to coin the exact meaning of this word. To understand the perspective as I saw it, I will quote the meaning I came across it.

lack·a·dai·si·cal

adjective /ˌlakəˈdāzikəl/  Lacking enthusiasm and determination; carelessly lazy - a lackadaisical defense left the Spurs adrift in the second half

So is it "carelessly lazy" or "lacking enthusiasm and determination" that Zambians have? Seriously I think we need a serious check with such words being labelled on us.

On one hand, these are the companies that give slave wages and expect people to work and be productive? I have heard of people say 'work as you are paid' and 'you are valued as a worker, as much as you are paid'. Lackadaisical!? Maybe our change in country management, especially that people say the new leader has no room for laziness will make us move from being considered lackadaisical! Hard work is what I feel has been a problem in many aspects of the Zambian life but I don't think we ever reached a level of carelessly lazy! We have done a lot more with the little that we are given. I know corruption is a big issue in the country. And a serious approach to that will make things a lot better.

Lackadaisical is a word that we Zambians should not be placed next to. We have to do our ultimate best in all that we have. We can start by cleaning out the mess that corruption has brought, make every single investor abide by the laws of the land and bring value to their investment and not seem to be begging for investment. I firmly believe anyone coming to invest will have looked at the business gain before they get on the plane to Lusaka! So why should they come and ask for incentives? Or make requests which have no business logic! This is the disaster we have to work on!!

We need to start from scratch and make an investment worth while. No need to have investors for the sake of being investors when the overall value addition is zero!

Zambia-China Relation

There has been alot of debate on Chinese investments in Zambia and the negative/ positive results this will achieve. I have not had a good time to look at alot of these investments and loans that Zambia gets from China. So I will reserve my comments on the topics for now. I would have done a good service to myself had I taken my reading on China - Zambia relation and come up with a good academic paper on the issue, I may look at that and see how it goes in the near future.

Anyway, this appeared like good reading. I came across it as I searched for that elusive bi-lateral agreement between Zambia and China of 2003! I copied and paste, then informed the author, not good, but better late than never right???

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Zambia: From the World Bank to China and Back

By Peter Bosshard*


African governments have often praised Chinese investment as the panacea for their infrastructure sectors. Zambia’s experience demonstrates that it is not. A Chinese hydropower project on the Kafue River has brought up the whole conundrum of financial problems, environmental impacts, hydro dependency and delays that is typical for large dams. Mining is the mainstay of Zambia’s formal economy, and consumes a lot of energy. When the copper sector started booming in 2002, finding new sources of energy became a necessity.

Since the mid-1990s, the Zambian government had tried to attract funding from the World Bank and private investors for the Lower Kafue Gorge Dam, a 750 megawatt hydropower project on a tributary of the Zambezi River. In December 2003, the government signed a Memorandum of Understanding to build the dam project with Sinohydro, a large Chinese hydropower developer. China Exim Bank was supposed to provide 85 percent of the funding. “After the World Bank dragged its feet on the project for years, we reached an MoU with the Chinese within three weeks”, Israel Phiri, a Zambian government official, announced triumphantly in 2004. Lower Kafue Gorge seemed to become a symbol for the fast pace of Chinese dam building around the world.

Or so Zambia’s government hoped. During the next few years, it repeatedly issued promising statements about the progress of the project. First, construction was supposed to begin in 2004. Later, construction was supposed to start in 2006. In January 2007, the country’s energy and water minister announced again that Lower Kafue Gorge was “coming through very well”, and that Zambia would negotiate a construction contract for the project very soon. The government also kept signing agreements for other hydropower projects left and right. Yet on the ground, nothing happened.

The reasons for the delays seem to lie in the problems of Zambia’s electricity sector. According to a recent report by the International Monetary Fund (IMF), the country’s state-owned electricity utility is “a troubled company, beset by inefficiencies and high costs”. One third of all customers are unmetered, and staffing costs and distribution losses are very high. Tariffs are low by regional standards, but at $500-600, connection fees are unrealistically high for the large majority of the population. The IMF report proposes to steeply increase electricity tariffs for all consumers. The government in turn argues that the World Bank’s push for privatizing the electricity sector was unrealistic, and the main cause for the electricity shortage.

Unlike the IMF, China officially attaches no strings to its loans and grants. Yet in February 2007, a senior OECD official observed that China Exim Bank “does not hesitate to discuss changes in project-related governance to ensure loan repayment (e.g., pressure to raise electricity tariffs to finance hydropower projects), while claiming that it does not specify firm conditions”. China may be dragging its feet over Lower Kafue Gorge for the same reasons as the World Bank five years earlier.

Sinohydro also interfered with the environmental impact assessment for the project. The dam would have serious impacts on the Kafue Flats, a wetland of international importance with two national parks. Anabela Lemos and Daniel Ribeiro, two experts on the Zambezi, report that Zambia’s power utility chose the project site after a balanced assessment of economic, social and environment factors. However, Sinohydro told the utility that this was not how they did things in China and that they wanted the site to be assessed only according to economic factors. In the end, the original site was selected, but, Lemos and Ribeiro say, “the role of the Chinese dam builders in trying to focus only on the economics of the project does not bode well”.

On February 26, a representative of Zambia’s power company announced that her utility was now discussing a $600 million financing package to boost power generation with financiers from Japan, India and western countries. The first priority was on the Lower Kafue Gorge Project. The World Bank’s International Finance Corporation was undertaking a feasibility study for the project. The IMF estimates that completing the dam would take six to eight years, with mobilization of finance as “a central challenge”. Five years after Zambia turned from the World Bank to Sinohydro, Lower Kafue Gorge seems to be back to square one.

While the government chases its dream of multiple new dam projects, the country’s existing power infrastructure is falling into disrepair. According to the IMF, more than a quarter of Zambia’s power plant capacity is currently being repaired because of neglected maintenance. In mid-February, the failure of a generator caused widespread power outages. Maintaining infrastructure is just as important as building new projects, but less prestigious and often neglected.

Meanwhile, the country’s power sector strategy with its focus on large projects has left poor people in the dark. A full 98 percent of rural people and 60 percent of urban dwellers don’t have access to electricity. In July 2007, the power utility began to ration electricity supply to residential consumers in order to service the growing mining industry. And the proposed new hydropower projects will not be used to expand power supply to rural areas, but to serve the mining companies and export power to other countries.

I am not an expert on Zambia’s power sector, but supporting mining companies through large dams seems to be a highly questionable development strategy. If the copper boom fades away in another five or ten years, Zambia will be straddled with an overcapacity of expensive power plants. If Zambia guarantees the mining sector a secure supply of power from additional hydropower projects but climate change reduces the stream flow in the Zambezi Basin, the government will have to cut out residential consumers from power supply altogether in order to fulfill its guarantees to the mining companies.

It seems to me that mining companies could take care of their own power supply by developing their own projects (as long as they follow the state’s social and environmental guidelines), or by negotiating power purchase agreements with foreign suppliers. Rather than taking on huge risks for a few private companies, the state and international financial institutions should concentrate their resources on expanding access to electricity in poor areas, particularly in the countryside. This will not require risky and potentially destructive dam projects, but support for decentralized, renewable energy technologies.

*Peter Bosshard is the policy director of International Rivers. His blog appears at www.internationalrivers.org/en/blog/peter-bosshard