Mining and Employment

I love the debates that comes out of mining sector. But most of it is actually lack of understanding of several issues. That is where the problem is.

Mining essentially involves depleting of natural resources and degradation of the environment when extracting the needed resource from the ground. The official definition will go as: mining means extracting minerals from the earth. So whatever decision one has to make about mining, it should address the depleted resources, the negative externalities of that depletion, the cost on environment (wont include this in externality), the positive externalities (such as job creation, revenue for tax collectors, etc), etc

Now a rational decision on this issue will have to weigh the costs and benefits before any decision to allow mining to take place anywhere. For Zambia and other developing countries, I think the costs and benefits should also take into account the costs of collecting that revenue in the wake of tax avoidance and tax evasion. It certainly wont pay, to include revenue which no one will ever collect!

So can we sum all the costs and then the benefits? Will any mining project pass that test? Frankly, I think mining in this country has more costs than benefits since the privatization jump on our roofs. We have seen more depletion and rarely few positive outcomes! Even Switzerland makes more tax revenue from our mines that we do. I think we are lost in the "employment" fight we don't see the real costs to this nation. If our aim was to really get the maximum benefit from mining, a lot of things would be done differently. Since that is not the aim, but employment, our aims fall short of any benefits. Let me explain.

Mining Efficiency

For this country and indeed any country to achieve mining efficiency, that is, extract the minerals at least cost and sell them at high price, we need to look at the costs of that extraction. Costs are many and include, royalties, labour, fuel, rentals, licenses, etc. A reduction in one of those elements will reduce the cost of extraction and surely makes for a good bargain.

However, the country imposes a cost on the mines through demand not to lay off workers. Hallo! We want efficiency, so the mining company would really do good in that area if they reduced the work force and instead invest in capital equipment that would extract the minerals cheaply compared with a man with a pick! Are we then saying we can do with the inefficiency in the mining sector as long as the people are employed? I have heard people say, they would rather have that since mines "cheat" in taxes. My view is different, if we need to do something, we must do it the best way we can. If we can't do that, we should as well close the mines and find something else to do. Mining companies may actually be motivated to "cheat" on the basis of balancing their books since we have bloated there work force. Now if we offer no conditions to them, we will have a better bargaining stand since all mining companies need to do is carry out an efficient operation.

My take on the mining would actually be to run them on a whole new platform that will force efficiency and productivity in the country. Many compare with Chile. This is a wrong comparison. They don't even need value addition as it is useless for them. Our case if different. We own less in the mines compared to 50% of which they own. Therefore, our aim should be to get more from these mines in form of value addition. The country will get more from the value added compared to exporting of raw minerals. If the companies want to export the raw minerals, we control it through taxes. Anyone exporting should pay export tax! Right now, there is no motivation to add value to the copper that we export. Tax revenue has also eluded the country. Meaning we are losing out on both fronts!

What Value Addition?

The value addition I talked about, still remains. It is here.

The setting up of "support industries" around the mining sector will bring in better rewards, especially if we stop the export and tax leakage in the current exports of the mining sector.

Environment Stance

There exist a principle in environment which states that: Polluter pays principle. This simply means whoever will bring about harm to the environment will have to clean it up and pay for all the costs related to that pollution.

So our position for someone to setup a mine in a lake is simple, how then will that person clean up the environment. When that issue has been clearly sorted out, we move now to the other costs, then look at the revenue one will make and address the positive externalities on that end. 

But what shocks me, is people talking about the employment that will be created by the mine and ignoring the cost of that environment! We are doing it wrong, lets start from the cost aspects and only move to looking at the employment when the cleaning up of the environment has been addressed. What value is a mine employing 2000 workers and then a million die from environmental degradation? Are we really so into making jobs available that we will even jeopardize our environment to get people employed?

What are our cost - benefit analysis on this issue? Environmental issues are one thing that should come first, everything else second. What villagers are there who would cost the country's environment to be employed. What genuine revenue will come out of this.

Mining Should Not Be For Employment

Mining sector should therefore not be looked at as an employment engine. It is a resource sector whose returns should be pumped into the economy, clean up the mess it generates and ensure these returns are pumped back into high growth sectors of the economy.

The "support industries" should then be the area of focus for employment. These will employ more and will have great efficiency in the mining sector. The people will benefit more from this than imposition of employees on the mines. It is a modern world which uses modern technology, the mines are not any different. If they can't contribute to tax revenues, do we really need them to operate in this country?

Bank Holiday Pt. 2: Banks, ATMs will be closed

Bank Holiday

December 31st, 2012 has been declared a Bank Holiday. I have heard a lot of people missing this point and some think it is just an intention.

The holiday was declared and a statutory instrument issued to that effect. Moreover, the Re-domination of Currency Bill, was passed in Parliament and is now an Act. So the day is a holiday.

What to Expect on 31st December, 2012

All banks, ATMs and Other financial institutions will remain closed to the public. There will be of course their staff working as the day was declared a holiday for the transition to the new Kwacha (the Re-based Kwacha). All software need to be installed and launched will be done on that day and any short-comings rectified before 1st January, 2013.

So you wont use the ATMs. Of course strategic places like International Airports, Border points will have working ATMs and some banks, but the rest of the country will not. So if you will need money for the usual New Year Eve running around, make sure you have it in cash. For emergencies, run to the Airport! All ATMs will be loaded with the new notes (ZMW and not ZMK) in readiness for 1st January, 2013.

I'm not sure about swiping. You may have to find out on that issue. 

The good news at the moment is that most banks have already started implementing the new Kwacha (ZMW). What is interesting is that some banks (wont mention them) did not plan well on the issue and did not implement critical issues related to the change. Most businesses also did not know that this would actually cost them money to upgrade not only infrastructure but software as well. So the new Kwacha is here, but are we ready to start working with it just now? Coins, new kwacha scent, etc

Do counters have places to place the coins? Do you have machines to count the new notes? Do we have places to get vending machines from? 

Welcome come the new year with the new Kwacha! Kwachaecon will be there for the first notes and will upload as soon as it comes in.

Happy kwacha economy.

Effects Of No Electric Power On The Economy

I have ignored confronting ZESCO on the issues on power and what they are doing to this economy. But I have noticed, the more we ignore the issue, the worse the situation turns out to be.

So no ignoring and I have put on my fighting gloves as this issue cannot be ignored any further.

Electricity As Power In The Economy

One thing is for sure, in our country Zambia, the issue of power is important as it is the only source of energy for feed our hungry needs for economy progress. Not even our phones would work without power for a week. My laptop cannot be on without power for over two hours - maybe thats why I'm thinking of Asus Transformer with the potential of over 10hrs of no power!

I have bought a laptop charger for my car as I can buy fuel and charge whilst driving. That handles my problem - but only temporarily. The main problem is ZESCO. And since we are not doing anything about, it stays the same.

ZESCO Company or Baby Fed!

I have always wondered what is so special about ZESCO that makes it take us for a ride this long. Then I ask myself, if this company is a public enterprise, it should respect us as the owners and provide the necessary things or we may sell or shut it down. That it exactly what it means. Zambian people own it! So they should control it.

There are two things which shock me about how we handle business in Zambia. And until we find a way to stop this behavior, we will always be in trouble. 

Why? Just look at this:

• We negotiate taxes! We negotiate the birth right of being a nation so we can give people or foreign companies "incentives". The mere fact that this country is peacful and welcomes the investor is an incentive enough. But we go ahead and give then even the little we could have got from them. We need to stop this and move on progressively.
• We spoon feed a company (like ZESCO). It ends up depending so much on government. It gets loans with no plan of how it will repay them. And the debt is stuck on government. Because of that, it over charges the people while companies like mines get "favourable" rates. It may make sense to you but, it does not to me! If this was a company setup logically, it would put rates that make sense from the mines and not hammer the people.
  
  The sad part of this is that, mines get favourable treatment from all over, when they needed to be paying their equal share of the taxes. So you and I pay not only our taxes, but the mines' taxes and the salaries for ZESCO employees. Then power is taken away from our homes and put in the mines for the mines to rip even more wealth. Is this fair?

In doing the above, we have ended up being a failed generation. There is little we can show our children the positive contributions we made to the country. Zambia is in the state it is today because we don't do anything about it.

ZESCO's Tax Contribution

Do we know the tax contribution of ZESCO? I think we should know. We should also know how much loans they contract as we end up paying for this. I don't think it is too much to ask. We own the company. We should know how much taxes it pays, the dividends, then the amount of foregone customs and taxes that ZESCO enjoys. Then we should look at how much we are paying the workers. Its just fair and right for us owners.

Economy Effects
Without power, we can't power up our laptops and make reasonable income. We can't run servers from our houses to power up net-stations in Zambia. So we end up paying for server space in Europe or Asia. This is an out-flow of resources to other countries. Will government get taxes from that money? No way my friend. So we are probably the only country in the world without a ".com" community. And thats just 12-20 volts of power for our PCs and laptops. That partly explains why South Africa has almost every company with .co.za and in Zambia even government institutional websites have".com", ".org" or ".net". e.g. www.zambianconstitution.org (surely we are not even proud of .org.zm.

That is the cost of such critical elements in Zambia's economy like electricity and so on.

Computers people are all over the country. But have no means to be supported. All great .com companies are run and start from homes as it is cheaper and will give you time to start the busines, see the mistakes and then go on a full time scale. With ZESCO in existence, you will be in sane to even think of running your PC without a power backup system. All my websites are hosted in Asia. When they ask me why, I give excuses about not having time to configure and manage them all day. Truth - no there is now way I can run them here without paying through my nose to ZICTA and which ever of our 13 service providers - not sure who many actually host from the 13!

So my .com dream died when I looked at the cost of doing anything in that direction in this country with such power and expenses which favour foreigners and the rich.

Now imagine those with ideas of electronic inventions. Or manufacturing items. We are killed before we even start. Thats is the real effect of such power nonsense.

These are issues that should come into play for every company that receives such unwarranted favorable treatment. I know we all want this to happen to the mines, but surely, why not to every company that seems to know be doing the right thing.

I think we should be given a platform to do this. Not all of us can be politicians in order to put in place favorable business environments for our business. So we need to be looked at as well.

I am a Zambian I deserve Better! And ZESCO is not helping in any way. It should be made to do this just like all mines that feel taxes should not be paid coz they invested in the mines. Yes, but I am a Zambian, I own the minerals. You own the means to extract. If we disagree, you go with your means, I look for someone or I do it myself. But will you find the mineral I own? No! So I deserve better.

I am a Zambian, I Deserve Better!

Tax Incentives :(

I have always had problems with tax incentives.... simply because I believe if someone is investing, he is not doing you (as a country) a favour. He is in it for the money, he knows he can make enough profit without incentives before he starts, and the tax incentives simply make him "super-normal" profits! Prove me wrong! No one single person would invest if the profit margin is non-existing or if the profit is only coming in after the tax incentive!!!

My looking at tax incentive maybe wrong to some of you. But in the same vein, thats why I have little understanding of the role of Zambia Development Agency (ZDA). I seriously need someone to educate me! If you are doing a course and the school says do all your assignments, tests, etc, but to encourage, we wont mark them as we will give you those marks (about 50%) and you just need to get more than 50% from both the assignments and the final exam to pass the course - who would let such a chance go begging???? That my people is how I see the tax incentive.

I have always said, to an economist, only two things are certain: death and paying of tax! We will all die, and we all should pay tax! So the logic of tax incentive violates my belief - and I can prove it!

Tax Needs

Taxes are paid for infrastructure, security and other public goods which governments put up. So if a real investor asks for tax incentive, ask him if he can do the roads, pay the police, hospital staff and their buildings while he is running his investment. If he refuses, he shouldn't get the tax incentive! No one investor would be willing to not pay taxes if he wont be assured of security through the police, courts of law, access roads, etc. So if he asks for tax incentive, he simply wants someone else to pay for those services! Just on this point, whats the role of ZDA? To unfairly ask people to pay for services used by these wealthy companies?

Incentive Benefits

I have been looking at a report that will show me the benefits of tax incentives in Zambia (as opposed to the benefits the country would have had if taxes were  paid)! I believe that is the single most important reason for continuing with incentives in this country. Without it, we shouldn't even think about it. What benefit would tax incentives bring if they provide no benefits? We would be doing a dis-service to ourselves, our children, and our children's children!

Getting High on Incentives

I think we have reached a point that we get high on incentives, we may even start asking companies to invest through an incentive of not requiring them to register as a company. Seriously when we reach a stage of allowing companies to steal, as an incentive, we can't sink lower than that. This is through what someone called the VAT "incentive". My little education would not understand this, but I believe people think this is possible.

Let me explain my failure to understand the VAT incentive.

VAT is a consumption tax paid by you and me on final goods that we buy for consumption. For example cooking oil, soft drinks, etc. So the company selling you these things will "hold the tax" and submit to the revenue authority. You pay, they take it to government. If you give that company a tax holiday for that kind of tax, you are asking people to pay to the company (for their operations) and not for public services! Is this normal? I think there is no difference in that action with some someone thieves high-jacking an armored vehicle taking taxes to the Bank of Zambia! Money is illegally being pumped into the company by people who don't want to invest in that company and for no benefits. Its like you simply change the one who is supposed to tax from the tax authority (in this case ZRA) to the company. I think the issue would actually make sense to someone people if you explain it better like this:

The action is like asking government to give back the taxes paid by the people to the company to do with it as it wishes. So the government goes and cuts a cheque equivalent to what that company brought in as taxes. 

There is no basis, no logic! The tax burden is born by people, the company has nothing to do with VAT. They don't pay it, they simply collect it for government. So if you give them what you call an "incentive", you simply giving them money or investing in their company as a government! I would add and say, thats theft! 

I think the only logical tax incentive is to allow every single entity to pay the correct amount of tax due, so that in time, they can pay less as the requirements are met. Without this, they actually open up an imbalance in taxes required, and would lead to more taxes paid in future. I always say, paying less taxes, is actually asking to pay more taxes!

If our taxes don't meet today and tomorrow's requirements, we will need to pay more taxes in future! Don't believe me? What taxes do you think people in Greece are paying compared to what they paid some years ago? Any failure to raise money by a government will lead to people paying more to meet those demands. I know a government can borrow, but ultimately, those loans will be repaid from taxes in the end! There is no one single source of revenue for government that can replace taxes. Actually with tax incentives, you may end up paying taxes to make up for the taxes that a company needed to pay. More so if that is a foreign company which would just pack its bags and leave!

We have to one day call for the end of a thinking that one needs to incentivize investment! Investment comes with or without incentives. As long as someone knows that they will make a great incentive, the business environment itself is enough incentive. Zambia has incentives in that area, investments are safe, we just need to get the taxes and build great infrastructure as the last incentive - not giving companies money! 

Using Taxes for Business ...

I was shocked to listen to this "enlightened citizen" on what Government should do about taxes to businesses in order to improve the business climate. Unfortunately he touched an area I have great interest in - Taxes!

I don't know why people in Zambia think business can only do well when they don't pay taxes! Please! Businesses have to take taxes into account whenever they take all other costs into account! What sense will that bring? A company will be better off not paying taxes and not have infrastructure or buildings to operate from? Or be exposed to all manner of crime? Or operate without knowing what tomorrow will be like as there may be a possibility of war or demonstrations?

Taxes have a serious place in a country and will mean the success or failure of a company. They enable a government to operate, carry out policies, employ law enforcement and construct roads and airports which the same company paying taxes will use to either sell his produce or transport it to its clients. Bottom line, it makes a country function. Failure to pay taxes results in a country borrowing money which will mean its citizens have to pay more taxes, or run-down infrastructure! If companies don't pay taxes, the government will still need to function and so citizen will be taxed more in PAYE, VAT or other taxes to raise the much needed cash.

So, anyone talking about taxes should really understand the situation on the ground before they open their mouth. Zambia is surrounded by poverty! It relies on donors to meet some expenses! So the taxes are not raising enough revenue for its operations. Remember the gold rule of economics - Never borrow for consumption! You can only borrow for investment as you are assured of raising the borrowed amounts. So as long as the government is borrowing to meet consumption purposes, we are doomed! And since our taxes have not yielded enough money to run the basic functions of government, we should never even think of avoiding taxes! Taxes to an economics exist as real as death to any human being. Death is certain, and so taxes are also certain.

I think we all need to take a different approach to taxation and move with them in a way that we respect paying taxes! It is shocking to find even church leaders want to buy vehicles without paying taxes!? Money donated by the people. That money donated has actually a law which will allow people donating to claim taxes out of it! I'm sorry, but that is real greedy and we must root this out and as Zambians understand that taxes are what makes Zambia!

We will gain more by being patriotic by paying taxes than buying flags at the time of a football match. Imagine if each Zambian spent K20,000.00 for the betterment of the country or to help the country with infrastructure development? That's how University of Zambia was built. And now people's children are getting an education unmatched! This is an example of a tax working. So we should now make it a point and make sure foreign investors understand that much as we appreciate the business they bring here, they should pay for peace, infrastructure, stability, resources, human capital and so on. They can do that by paying taxes. These in turn will make them have a business to run and move along. Remember, they are just here to make money - nothing else! If it was not for money, they would have not been here.

Potential of the Zambian Music Industry

Music is known as a 'main hobby' by main people. As everyone of us has a link to music regardless of what we do in life or what we consider our hobby.

Zambian music has been on an upward trend for now. We had a great music industry years back. It not only was enjoyed in neighbouring countries, but sold as far as Kenya and Uganda. This not only contributed sizable income to musicians like Paul Ngozi or Air Power Band, but was a contribution to our economy. Musicians did not only attract attention as role models for the younger generation, but they could live reasonably well compared to other careers.

However, a period of silence in music did not help the industry. Not only was the following cut completely down, but the musicians themselves lost identity. We forgot what Zambian music was. The great Witch sang in English and local languages, but now, if you sing in English, its 'Zambianism' is questioned. So the question is then brought into light, what is 'Zambian music'?

The issue of identity is a crucial one when you are trying to promote music back to the level where it had once been. The identity and the economics of the industry will need to be looked at in a serious way. If a Zambian writes in English, like Dambisa Moyo, will that make it lesser Zambian than her writing 'Dead Aid' in Nyanja? If not, then why would that count differently to Zambian music?

JK has gained international recognition from being part of one8. Has he become less Zambian? Cri$i$ has been on the scene since the days I rapped! He has received little attention as a great musician because he has very few Nyanja or Bemba rhymes! But hes music is as Zambian as the Luangwa river! We need o address this fact alot more to have any influence and impact in the world industry. We can't compare ourselves to South African music as they not only have a great market and industry for their music regardless of the language. We have to aim at less than 13million Zambians. Of that 13million, not all can afford to buy the CD. Moreover, even the percentage that can buy will not be a Nyanja or Bemba speaking person. So language not only will kill your worthiness, but will reduce your potential market even further by making it impossible to sell in neighbouring countries - well, unless it is in Nyanja as Malawi becomes a potential market. Now contrast that with a great song done in English? I'm sure you don't have to be an economist to see the returns on that as being greater than the others.

I know Kalindula cannot produce an English version, but seriously, all these young artists struggling to do an RnB version in Bemba or Ragga in Nyanja should give us a world of opportunities the other way round. After all, I believe there is a generation of musicians who would produce better Kalindula than the Kali-rap (Kalindula and Rap)!

Improving the Music Industry
There are two aspects that we need to improve our music in order to make any meaning contribution to the world.

1. The Music Economics: We need to work out the economics in the industry and not only make music that sells, but music that sells to the largest possible audience. That way, we will maximize returns in the music industry investments, push the market value of our music products and claim a percentage of the world music industry.
2. Find and define what Zambian music is. No one person or small group of people can. This is an identity that must be established by our music as compared to the whole world.

The economics of music have to be understood and systems put in place to have any such impact as outlined. There is potential in the industry, but like all potential, it is worthless unless that potential can be turned into a finished product. A product worth of not only Zambian market, but SADC and COMESA. Then it can be counted not only on the African continent, but the world market. Right now, we have no returns from the industry worth talking about. We also need to look at other elements that will make our returns be meaningful. We produce CDs which are pirated with 5minutes of being pressed! The world over, has slowly been moving from CDs and Vinyl to online and digital format. There is more returns from live performances that CD sells. Is there a single online store for Zambian music? No! We have plenty streaming websites, and anyone on earth can hear Zambian music. I have even come across torrents that have alot of Zambia mp3s included. Who benefits from this? Not one Zambian musician. But that shows you that people out there world appreciate Zambian music if we know how to market it, and produce high quality products which will even bring in revenue for the country, so that more investment can be called for in the industry.

We need to unite and help Zambian music develop penetrate markets and bring us returns. Thats the only way, we will appreciate the potential returns that can be enjoyed from Zambian music.