The stakes are high and oh, yes they are … the world economy is in shambles and there is very little time for the Banda Administration to honey moon. With the Kwacha depreciating against hard currencies, commodities prices going down and our purchasing parity dwindling, the next few years will call for extraordinary paradigm shifts.
The Zambian government has already cut this year’s economic growth forecast to 6% from 7% following a 58% drop in copper prices in London in the last six months. For a country whose 63% of all government revenues depend on the exports from copper and cobalt to the outside world, we don’t envy the Banda Administration taking over the Zambian Enterprise at a time such as this.
Even though fiscal year 2007 only gave us a 5.4% GDP growth, government was optimistic the projected 7% was feasible but with the global financial crisis, reduction in foreign investment will impact growth forecasts for a country that relays heavily on FDI.
Further, the imposition of a 25% profit windfall tax and an increase to 3% from 0.6% on mining royalties is another factor that may be a huge cause for concern in this economic downturn because technically corporations don’t pay taxes they simply pass them on to consumers.
Such higher taxes lead to mining companies imposing wage freezes until such a time that they would increase their operating revenues above the taxable threshold, the resultant being less consumer spending coupled with less factory orders due to stagnant income and or liquidity that lead to other effects.
On top of that the global financial squeeze has the capacity to force institutional investors to withdraw foreign exchange in government securities. This has already hurt the kwacha and government has to do double time to stabilize the local currency using other fiscal measures that would curb inflation as well.
As the local currency depreciates a lower purchasing parity making goods imported into the Zambian Enterprise more expensive than usual kicks in due to balance of payments in our current accounts. The spiral is long winding and thus the call for more focus from us at the Zambian Chronicle.
Fortunately for President Rupiah B Banda, he is an economist who would have a good grasp of the economic issues at hand but what will work against him is what we call the “Expectations Game” from the electorate.
With Levy having enjoyed relative growth during a time the world economy was growing, the average Jim and Jack will not buy Rupiah’s story of the world undergoing a recession, in fact every Jim and Jack thinks RB should do better … and who on God’s earth would blame them?
We don’t even care how good a team RB may assemble, if such a team misses the crux of the matter, there might be very little the Banda Administration may be able to achieve if it does not use the right mix to turn this global economic malaise to its advantage.
Different economic theories apply to different scenarios to leverage and mitigate prevailing circumstances. It’s more like different medicines being used for different diseases and what worked there and then may not in the here and now.
Having analyzed all scenarios involved we at the Zambian Chronicle see the normative approaches that are great at offering prescriptions and recommendations on what should be done to not only help lower “expectations” but also help reach the targeted growth and forecast.
Neo-Keynesianism might be the best route here. This is because this theory looks more at what government involvement would be in terms of the General Theory of Employment. The Japanese used this theory after World War II captioned it and called it “Total or Full Employment”.
By mandating that every Japanese be employed they created revenue through taxation of their able-bodied working citizenry. The Japanese government deliberately embarked on construction of airports, highways, bridges and other infra-structures using borrowed money until they had enough reserves of their own.
The Zambian Enterprise has enough reserves to start with and can do with what we have on hand to seriously begin applying Neo-Keynesianism. While this economic theory has other variations like effect(s) of interest rates and money supply, the main impetus though is on total employment deliberately commissioned by government and or using government incentives.
Upon completion, government can start levying toll charges on these roads, bridges, airports, etc. to recover construction costs and meanwhile as more people enter the work force, consumer spending increases, government revenue goes up with taxation kicking in a multiplier effect and the rest is history.
This will not be easy to achieve though because it will require changing the way we think and operate. Every one has to have a sense of urgency and move in the right direction all pulling for mother Zambia knowing our time is now.
These are serious times; the Banda Administration is at the bleak of making it or breaking. Levy’s shoes are way too big for any one to fill and times have changed, what worked for us then may not now and we all owe it to ourselves to move the nation forward.
We wish the new administration God’s Speed as the honey moon dies down but time is of the essence otherwise there will never be another MMD administration (not that we are rooting for the MMD) if the right economic mix is not adopted, it is now or never.
Live Long & Prosper; that’s this week’s memo from us at the Zambian Chronicle … thanks a trillion.
Brainwave R Mumba, Sr.
CEO & President – Zambian Chronicle
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