Transcript Document

“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
The Unusual Business
ECONOMICS ASSOCIATION
OF ZAMBIA
Economic Crisis W/shop
“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
MUNA HANTUBA
EAZ CRISIS RESPONSE TEAM
ECONOMICS ASSOCIATION
OF ZAMBIA
Economic Crisis W/shop
“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
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CONTENTS
EXECUTIVE SUMMARY
INTRODUCTION
OBJECTIVES
THE MACROECONOMIC FRAMEWORK
– Outlook for growth and poverty; external outlook; fiscal prospects,
public expenditure and management, decentralisation
• ECONOMIC SECTORS Mining
–
–
–
–
Agriculture
Tourism
Manufacturing
SMEs and Empowerment
ECONOMICS ASSOCIATION
OF ZAMBIA
Economic Crisis W/shop
“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
CONTENTS
• • INFRASTRUCTURE AND SERVICES
–
–
–
–
Financial services
Energy
Transport
Construction
• SOCIAL SECTORS
– Education
– Health and HIV/AIDS
– Social protection
• THE CHALLENGE OF IMPLEMENTATION
• CONCLUSIONS AND RECOMMENDATIONS
ECONOMICS ASSOCIATION
OF ZAMBIA
Economic Crisis W/shop
“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
CRISIS RESPONSE OBJECTIVES
•
• Conduct a situation analysis of the Zambian economy,
• Generate specific short-term proposals for 2009 Budget
• Generate an agenda of topics for implementation within
6 months
• Share information and receive feedback
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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MACRO ECONOMY - PAST PERFORMANCE
GDP growth
average 5% in recent years
Employment
marginally increased
Population
Living
Per
continues to increase over 3% a year
standards not improved
capita income still low compared to region
Inflation
Real
managed to reach single digits but now over 14%
interest rates up
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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MACRO ECONOMY - 2009 PROSPECTS

Import bill likely to increase

Forex reserves expected to come down

GDP growth targeted at 5%

Kwacha weak – Zkw5,000

Reserve requirement kept up

Base rates not likely to decline significantly

Inflation target to 12%, maybe difficult to achieve
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
ECONOMIC REVIEW

Aggregate measure of production & employment weak

Rising political and economic risk index

Weak global demand for base metals

Mining & manufacturing output dampened

A number of mining investments aborted

Fuel prices generally low but not enough

Maize price to increase (poor harvest)
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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Macro Economic Framework
IMPACT ON ZAMBIA OF
• Export value about half of 2008
• Government revenue about K1 trillion lower than 2008
• GDP growth down – to 5% (MTEF), 3.7% (EIU)
• Redundancies in mining and related industries.
• Ministry of Labour needs to quantify and prepare.
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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THE MACROECONOMIC FRAMEWORK
Impact
on Zambia of
•
• Lower mineral export prices
• Reduced financing for direct investment, as
well as the appetite for risk;
• On the plus side, lower oil prices; and
• Zambia may benefit from facilities being
developed to assist low-income countries
manage the crisis
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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Macro Economic Framework
External sector policy
• Exchange rate volatility has damaged NTEs.
• Depreciated exchange rate will only help diversification if
exporters expect it to be sustained. Therefore
• Maintain a market-determined exchange rate, but
• Set up a “rainy day” fund, so as to offset “Dutch Disease”
impacts of exchange rate appreciation;
• Re-examine the liberal capital account regime. Risk of a
return of short-term portfolio inflows during & beyond 09
relatively low, a future spike in the copper price and high
local interest rates could again provoke an appreciation of
the Kwacha.
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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Macro Economic Framework
Fiscal policy
• Create fiscal space by reducing spending on general public
services (43% of budget) and personal emoluments (nearly
9% of GDP) = austerity
• Keep deficit and domestic borrowing low to avoid upward
pressure on interest rates and crowding out of private
sector
• Raise PAYE threshold to stimulate spending and
compensate for inflation
• Seek donor assistance to fill remaining gap
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“Business Unusual: Policy Implications for
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Macro Economic Framework
Public expenditure management – short term
• Tough austerity starting at head of state level – e.g. reduce
entourage. Budget savings not large, but important to send
a signal
• Control vehicle use
• Reform vehicle purchase protocol for civil servants & MPs
• Reduce number of ministers and deputy ministers
• Zero tolerance for corruption
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“Business Unusual: Policy Implications for
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Macro Economic Framework
Public expenditure management – medium term
• Accelerate PEMFA reforms, notably IFMIS
• Strengthen treasury management
• Institutionalise annual public expenditure review
• Pass a Budget Act to ensure effective parliamentary
oversight – regular reporting, external borrowing approval
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“Business Unusual: Policy Implications for
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Macro Economic Framework
Decentralization
• Essential to improving service delivery and accountability,
but only 3% of LA revenue comes from central
government. Only 8% spent on service delivery
• Set performance benchmarks for LAs
• Introduce revenue sharing
• Reform LA revenue sources, but reduce incentive to
introduce nuisance taxes
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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SECTOR REVIEW
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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AGRICULTURE

Major prospect for diversification and poverty reduction

Review and reform FSP

Zero-rate VAT on agricultural products to the extent
possible

Prioritise livestock development and disease management

Encourage early irrigated maize

Accelerate implementation of farm blocks

Improve extension and research for small farmers

Allocate 10% of the budget to agriculture

Mobilise the Irrigation Fund under CEEC
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“Business Unusual: Policy Implications for
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TOURISM

Market likely to suffer from recession in US and Europe,
cutback in mining exploration and local business tourism

Reduce cost of Jet A1 fuel (mainly taxes)

Address issues raised by airlines

Reform licensing

Infrastructure improvement
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“Business Unusual: Policy Implications for
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MANUFACTURING

Indications that retail sales are falling

Examine tax and duty reductions to reduce bread prices,
encourage local edible oil production and stimulate
Zambian commercial transport

Expedite report and recommendations of Business
Licensing Reform Committee to reverse growth of
bureaucracy and red tape

Revisit Industrial Minerals Act to allow wide participation

10 detailed recommendations are in the paper
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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MINING
Restore investor confidence
 Ensure enabling Regulatory & tax regime to
 encourages new investment & take due account of the
special position of high-cost mines producers
 Firm position against re-nationalization, but be prepared to
increase GRZ’s minority shareholding or temporary capital
injections, or to hold assets while a buyer is sought;
 Review the licensing system to expedite consideration of
applications;
 Aggressively address the issues that make fuel and
infrastructure costs high.
 High potential for value adding in gemstones
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“Business Unusual: Policy Implications for
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SMEs & EMPOWERMENT

Crucial sector for job creation and Zambian advancement

Address financing constraints through banks, CEEC and
DBZ. Consider equity fund

Help develop bankable projects from large number of
proposals in district plans

Technical, entrepreneurial and skill training
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
INFRASTRUCTURE & SERVICES
Financial services

Performance has improved, but narrow base and high cost

Sources of external finance likely to become limited

Risk of high defaults and impact on loan books

Risk of higher cost of finance

Reduced portfolio and direct investment flows

Exchange market volatility
ECONOMICS ASSOCIATION
OF ZAMBIA
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“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
INFRASTRUCTURE & SERVICES
Financial services

Mobilise resources from institutional funds

Encourage SME lending

Introduce options for hedging in foreign exchange market

Pursue sovereign credit rating
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
INFRASTRUCTURE & SERVICES
Energy- Fuel

Consider a feedstock procurement agency

Keep economic viability of Indeni and Tazama under
review. Consider options for more competition in supply

Biofuels

Energy ministry about to finalise sector strategy
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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INFRASTRUCTURE & SERVICES
Energy- electricity

Maintain effort to finance Kafue Lower and Maamba,
despite external finance difficulties

Review options for independent operators

Promote rural electrification and alternative sources
ECONOMICS ASSOCIATION
OF ZAMBIA
Economic Crisis W/shop
“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
INFRASTRUCTURE & SERVICES
Transport & communications

Scale up road rehabilitation and maintenance, since
financing is available

Re-concession railway system

Expedite Mchinji-Chipata rail link

Upgrade airports

Encourage Njanji commuter rail systems

Accelerate fibre optic ICT infrastructure
ECONOMICS ASSOCIATION
OF ZAMBIA
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“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
INFRASTRUCTURE & SERVICES
Construction

Fastest-growing sector in recent years,

Major employer

Encourage labour-intensive construction

Formalize construction industry

Lower interest rates

Re-introduce advance payment, price escalation. Introduce
performance bonds to reduce construction prices

Capacity building and anti-corruption measures
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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SOCIAL SECTORS
EDUCATION

Stabilise financing at UNZA

Strengthen and expand higher education building on
private initiatives

Shift emphasis towards science and engineering

Scale up technical and vocational training and link more
closely to labour market
ECONOMICS ASSOCIATION
OF ZAMBIA
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“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
SOCIAL SECTORS
HEALTH & HIV/AID

Total health spending has doubled in last 6 years, especially HIV, TB
and malaria

But shortfall to sustain ART scale-up and address human resource
crisis

Short-term measures:

Improve cost-effectiveness of procurement, implementation and asset
management

Ring-fence ART/TB programmes

Advocate for external resource mobilisation

Improving diagnostic facilities to halt treatment abroad
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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SOCIAL SECTORS
HEALTH & HIV/AID –medium term measures

Introduce health insurance

Set up HIV fund

Public/private partnerships to support ongoing private
expansion

Complete basic health care package

Address implementation challenges – multiple donors and
political consensus-building
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
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SOCIAL SECTORS
SOCIAL PROTECTION

Growing recognition of role and importance in poverty
reduction

Extend targeted social transfer programmes

Review and expand food security pack

Increase allocations for school feeding and bursaries

Develop capacity for proactive labour market
policies,concentrated on areas, especially Copperbelt,
where formal unemployment is likely
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
OVERALL PROSPECTS DIM

Fundamentals weak

Lack of ingenuity

Weak industrial infrastructure

Feeble aggregate demand

Undeveloped financial & capital market

Inadequate social protection
RESULT
• Lack of fortification
ECONOMICS ASSOCIATION
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“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
THE CHALLENGES OF IMPLEMENTATION

Strengthen Accountant General and Auditor General for
better accountability

Review and accelerate PSRP, especially pay reform

Strengthen implementation monitoring and evaluation,
starting at head of state and/or Cabinet level

Comprehensive anti-corruption strategy
ECONOMICS ASSOCIATION
OF ZAMBIA
Economic Crisis W/shop
“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
CONCLUSIONS & RECOMMENDATIONS
Business Unusual =

reprioritise to create and preserve jobs

maintain and improve services

re-commit to private sector led, public sector supported
growth

food security

Equitable sharing of burden
ECONOMICS ASSOCIATION
OF ZAMBIA
Economic Crisis W/shop
“Business Unusual: Policy Implications for
Zambia of the Global Economic Crisis ”
THANK YOU
ECONOMICS ASSOCIATION
OF ZAMBIA
Economic Crisis W/shop