Dambisa Moyo Vs. Bill Gates

I was very disappointed to watch Bill Gates' response to a question on Dambisa Moyo's "Dead Aid". Watch

Seriously it is one thing working on codes and programming and living in a country full of poverty and "Aid". Dambisa Moyo is Zambian, a poor country which is a massive recipient of aid. Bill Gates and visisted it on several occasions and probably was taken to meet some of the poor people he "helps" out. But the issue is the experience on the matter and not being a by-stander and being led to meet poor people so you can dish some aid to them. The two have had completely different perspectives of the same thing.

But that is not the issue as I saw it. They are people who have simply empathized on the poor and got a great understanding of the issue in totality  So we would expect that Gates can have a good understanding of the issues that are being addressed here. Maybe even better that Dambisa.

But surely saying Dambisa's book promotes evil is a hit below the belt no matter how much you think you know the issues. I don't think it even comes close to being an insult, it is disgraceful of the man. Look at the facts on the table. I will use some well known sources for easy of reference:

"despite one trillion dollars in western aid over the past sixty years, the economic lot of the average African has only gotten worse. Most Africans now live on one dollar per day, and sub-Saharan Africa remains the poorest region in the world. Despite a deluge of aid between the years of 1970 and 1998, poverty on the continent skyrocketed from 11 percent of the population to 66 percent, which means over six hundred million Africans are now impoverished." (Guernica)

Meaning, the more aid keeps coming to Africa, the poorer the people are becoming. Logically, a rethink of the whole system is in order. But does that re-thinking worth being called "promoting evil"? Surely have respect for intellectual alternative that is being offered. With due respect if this was an area that she has no connection with, you wouldn't disregard one that much, but an economist from Africa talking about an alternative to the system and that is promoting "evil"?

I think the whole thing was probably mis-understood by Gates. Someone credited as being an analyst of great intellectual standing would not go out and literally be so "un-intellectual". I don't think he has even looked at his competitors over the years as that! 

The more I read about the issues, the more I realize the people involved in the debate and unfortunately, can easily be grouped into only two - promoters of aid and promoters of alternative thinking. The promoters are mostly from donor groups or individuals and the alternative thinkers are from poverty and aid recipient countries!

I have never seen anything worth talking about aid. It is mostly used by so called "donors" to get what they want. I even coined a word for one - Gay-Aid. Where the "gay rights" are used in order to get "aid". Malawi is an example of that outcome. Without serious brain gears turning, you reralize the problem of "aid". It does not work to improve people's livelihoods but makes a good thing to use for the west to get their way. African leaders have long been known to use aid to win elections or control certain views all of which do not promote growth and economic prosperity.

On the other hand, if people are being taught to improve and infrastructure built from the financial sector, they would be great responsibility in making sure the goodness of the spirit to build is achieved. This is unlike a situation where one stands with a plate for a donation from Gates foundation to eat. Why would any government think of improving and providing for the people? After all, gates will do it while they steal the wealth through corruption and bribers from west countries' companies. Responsibility and the desire to work and produce results is killed by aid. I seriously look for evidence of a continent that developed from aid! I would be give you a large one which has not move forward over decades because of aid. The facts are on the table not debating the person. 

Guernica and other worthy of read sources have facts that Mr. Gates should have disputed and provided his own facts and not debate the person presenting her facts! It is always that simple!

Sorry, I may get derailed when people disrespect the whole issue of intellectual debate that I may divert myself but when facts are presented, an ad hominem in this time and age is really a hit below the belt!

Tax Avoidance Now Hitting The West

Africa has been trying for many years to find a solution to tax avoidance. There was little interest from Europe and the USA. Mostly because they actually gained from this tax that escaped from Africa and landed in their banks.

But life is a funny thing. What goes around, surely comes around. Now the USA is at pains to stop tax avoidance. Apple is accused of $74bn US tax evasion and thats what the news is all about.

The good news that has come out of this confusion is the push for harmonized tax system that will make it impossible to avoid paying their rightful contribution to the nation's treasury. Good news fro countries like Zambia whose tax base has been greatly eroded by such actions of multi-nationals.

I believe the way out is simple. Most tax havens would die without helping multi-nationals avoid taxes. So if there is a move to stop that, these tax havens will reject such a move. Do you think Ireland and Mauritius to agree to measures that will make it impossible for them to get money into their economy? But on the other hand, if the countries being affected unite to fight this kind of tax treatment and setup was to make these companies pay, great things can come up. Maybe even disagree to have Tax Agreements with these nations to force them to comply and make tax avoidance a thing of the past.

A positive outcome of this whole tax avoidance to me is the indication that the world is slowing becoming a solid market place, where if you ignore what is happening in Africa - tough luck, it will hit you in America harder than you thought. Apple is hopefully a beginning so that the world can come up with a solid united fight against tax evasion and avoidance.

SI 32 of 2013

Sorry I have been out of touch on serious assignments. But I think we need to have some space for one of the few happenings in the economy of Zambia - Statutory Instrument no. 32 of 2013.

I will have to do a blog on this but you should look at it from and see what it has for you. I know there are a lot of lies about it and some dreams too. I will offer my opinion as soon as I have time. It can be found here.

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!)

Zambia Launches First Ever Citizen's Budget

Zambia has today, 26th February, 2013 launched the first ever Citizen's Budget. This is in line with ambitions to make government operations transparent and enable the ordinary citizen participate in the economic issues of the country. Being informed will surely get people talking and will contribute effectively to the operations of government.

By a simple definition:

"A Citizens Budget is a non-technical presentation of the Government budget which is intended to enable the public, including those who are not familiar with public finance, understand Government plans."

This is expected to inform the people in a clear and simple language on what is contained in the 2013 Budget. Considering that the Budget itself is highly technical and complex, it is mostly understand by people involved in the budget. The ordinary people barely get a grasp of the budget. You would be shocked to see what things are contained in the Budget if you have a chance to analyse it.

I agree, it is sad to see what one would have to to get all the things complied in our Budget. So next stop is finding a way that this can easily be done and presented to the public.

So the idea of Citizen's Budget has come at the right time, and at a time that Zambia needs to be more open and inclusive. A time that every ordinary person should know what the budget contains and what it will mean to him and others around him.

We have opened up the Budget to a wide spectrum of people and views. This is an improvement as now people will be seeing what is planed, what the intention is, what is expected, and the ultimate outcome. People will be able to follow the Budget in a clear and simple manner. The promise by the Minister of Finance of releasing the Citizen's Budget on an annual basis is welcome and something to smile about.

You can get the 2013 Citizen's Budget here(PDF file of about 2.5 MB).

2013 Citizen's Budget

Zambia Sugar's Sweet Nothings Report

Another report has come out clearly showing how multi-nationals are not helping Zambia by simply paying their fair share of taxes. What is sad is that this company comes from the UK where they send aid to Zambia but the amount of aid is far less than what Zambia losses out in taxes. 

ActionAid did a research "Sweet Nothings" which is contained here. Take time to read it and watch a clip here.

I think we need to seriously look at our tax laws and especially our Agreements with tax havens to avoid tax being avoided by Multi-nationals. Having spent time looking at the activities of many of these companies, I have unbelievably been convinced, if there is any suspicion of tax avoidance or evasion, this country must take matters into its own hand and deal with it.

There is no point is getting aid, which is most cases is fraction of what is being stolen from here. The legal system is not doing us justice. We need to amend what needs mending and cancel what needs to be cancelled. How long do we need to scream "trade not aid"? I actually think we should change that to "fair trade not aid".

Mining Taxation - What Are We Doing About It?

Many economists in Zambia right now call for windfall tax for the mines in order to make mines contribute their fair share of taxes. Basically the idea is that mining is receiving a lot of returns as the copper prices are high. We should therefore setup a mining tax regime that will be able to capture that "extra" profit that the mines are getting. Its a fair argument and one that makes sense when you look at it. Every work pays taxes, Zambia being a small economy, the taxes needed to provide services are smaller. Therefore the profits that the mines make in a day would nicely cover all the expenses.

However, we must never live believing the mine owners are interested in the wellbeing of Zambians. If they did, the economy of Zambia right now would be far better than were it is right now. Only a fraction of what they get would change everything. But its that greedy and selfishness of mine owners that make the windfall tax a useless path for me. I know a lot of economists would be shocked to hear that. But I have points that need to be taken into consideration before you judge me.

Stealing Benefits Them

Mine owners will do everything they can to steal every little Ngwee they can from Zambia and proudly send it to the west without a problem. Switzerland makes more money from mining of copper than Zambia. Do the Swiss people have windfall tax?

These people will proudly contribute to the tax in Switzerland than Zambia where the copper comes from. All sorts of transfer pricing and complex avoidance of tax methods are employed to make sure they pay nothing to Zambia and pay a lot more to Europe.

The point is, its not the windfall that will make someone eager to steal wealth from our mines to contribute a fair share. They aim at stealing and having a windfall tax when there is a complex plan of transfer pricing, will bring little to the treasury in any case.

Most mines "sell" the produce at "arms length" to their sister companies. Now if that was true, Zambia would raise money tax revenue from copper that Switzerland. Since it isn't, there is a proper case to assume the "arms length" being talked about does not exist. If there was even an ounce of honest in mining companies, the returns from copper would be in levels that we would not complain about.

Government Has Sovereign Right to Tax 

We have to remember for this discussion that a government has the sovereign right to tax. Government is the only power that can tax or not. It has control on what it can tax and how it can tax it."

Allison Christians

"Tax policy creates and reflects relationships between the market, the citizen, and the state. As a result, traditional tax policy discourse centers around the premise that decisions about taxation should be made exclusively within nations, independent of outside concern and interference."

What we need to add to that is that, tax avoidance has outside interference and its that outside force that make certain decisions irrelevant. Windfall tax being one of them. It is easier to avoid the complexity of taxing these companies that make people choose a simple path of windfall tax. I think otherwise. We should remember that our government has the right to tax without interference, and it should make the right decision to tax.

So unless there is no way of detecting the avoidance of tax in the system, the government should make the right decision and take necessary steps to tax all that need to be.

Are We Going Back on Tax?

I always complained about lack of export duty on mineral outputs. Seriously, this is a wasting asset and we allow it to go out of the country without the exporter paying anything? That was a bad thing that the previous government took on board.

 

However, this has been nicely worked on and there is progress in that direction. What worries me is the loss of the "Sovereign Right" to tax. What we cried about on copper seem to have been transferred to Manganese!

Manganese is it now the new plan to change from copper to manganese? Or is it that the new players in the powers are linked to manganese? This is something we need to work on and not go back on taxation.

 

Why allow people to export and not pay for the wasting assests and you complain about the failure of the mining industry to contribute to the revenue share!

 

Nothing is more to my heart that a failure of the system due to the people involved in it. Seriously, we have the most sacred job of taking care of the country now for future generations to benefit from the wealth that we have. But the moment we come into the picture, we come up with plans of making sure people "steal" the assets that are needed to develop the country. We should not make statements which are parallel to what is happening on the gorund we must take it upon ourselves to ensure we do what is right for the nation. This clearly is not happening at the moment. It has not been happening for the past 30years or so. Zambia is bigger than all of us and we must be within our powers what is right.
I seriously didn't expect that the country's wealth will continue getting out of this country without paying the simplest of all charges - export duty. But it is happening.