Finance Minister Felix Mutati presented a K64.5 billion ($6.6bn) 2017 National Budget to Parliament emphasizing that "we cannot spend money which we do not have". This, against the backdrop of a 20% rise in the price of copper (the country's top export) courtesy of Chinese speculators, the removal of fuel subsidies (which cost the treasury K2.7 billion in 2015) and news that the 2016 budget deficit was set to come in at 10%.
Road infrastructure will continue to be a priority and was allocated K8.6 billion (excluding dismantling of arrears in the sector). The Farmer Input Support Program (FISP) will receive more than double its allocation in 2016. K11.4 billion will be allocated to paying down both domestic and external debt (K7.1bn in 2016). The Minister also put emphasis on dismantling of arrears for which key announcements will be made over the coming weeks. No mention was made of the $500m in VAT refunds owed to mining companies.
Here are 10 key takeaways from the Ministers 2017 speech:
1. Cost-reflective electricity tariffs will be attained by the end of 2017
Context: Politicians have avoided this for decades for fear of angering the electorate -- this has kept tariffs at $0.06/Kwh which kept private investment at bay and led to demand exceeding supply. The energy generation mix is also not diversified - one of the key reasons why the country is experiencing a power deficit.
2. Government set to disengage from procurement of 'finished petroleum' products as of March 2017
Context: The Government currently imports petroleum 'feedstock' (which goes for processing into petrol, diesel, paraffin etc at INDENI refinery) and 'finished' petroleum product (petrol and diesel). The importation is filled with middlemen and inefficiency which the populace ends up paying for with one of the highest pump prices in the region.
3. New railway projects to be financed under the Forum on China-Africa Cooperation (FOCAC)
Context: The majority of cargo (and passenger traffic) in Zambia is moved by road which is currently more efficient than rail because the infrastructure is better. Inter-country connectivity between Zambia and it's key neighboring countries (especially the ones with coastal access) is not where it needs to be.
4. University Loan Scheme to replace bursary system
Context: Higher education institutions do not have a sustainable and efficient method of financing their students' education requirements. The current bursary system needs to be replaced with something that future generations can rely on.
5. Skill development levy of 0.5% of total emoluments paid by employers for fund co-run by private sector
Context: There is a gap between the skills that employers want and what is currently available on the market (in addition to what is being churned out by various educational entities). This has limited the economic mobility of the working age population and the dynamism of the economy.
6. Social Health Insurance Scheme (bill)
Context: For various reasons (which really should be obvious!), the economy has very few social safety-nets which everyone, regardless of social class/income level, has the opportunity to participate in.
7. Viability of key State-Owned Entities to be reviewed: ZESCO, ZAMTEL, ZNBS, INDENI, TAZAMA, ZRL, ZSIC
Context: State-owned Entities are the epitome of why the Government should not be running businesses -- they are big, inefficient and a drain on the treasury. Most of them have significant influence in the sectors where they operate.
8. Capital allowances for Property Plant and Equipment (PPE) used in farming and agro-processing up to 100% (from 50%)
Context: Zambia is a prime candidate from agriculture and agro-processing -- the Government has already put in place a number of tax and non-tax incentives to stimulate the sector. The commercial farmers have taken full advantage and will continue to do so but the smallholders and emerging farmers need to follow suit.
9. Surtax of 5% on imported goods that are produced locally
Context: Zambia has a very low manufacturing base and most goods, from food to furniture, are imported (mostly from South Africa). There are a few manufacturers that are growing quickly and getting to a level where the quality of their produce is consistently good.
10. Export duty of 10% on Maize and no more export bans
Context: A prolonged regional drought has led to significant demand for maize which has been produced in good quantities in Zambia over the last few seasons. For fear of a threat to food security, the Government has been periodically banning exports of the product which has stopped farmers from benefiting from lucrative opportunities to export maize through formal channels. Smuggling has of course been rife.
There were a number of other tax and non-tax measures which will annoy, delight and require significant sensitization. The bottlomline is that the Government needs to mobilize more revenue so that it can cut down on tapping domestic debt markets (which has been negatively affecting the private sector) -- many businesses are currently having a tough time accessing cash from commercial banks at reasonable rates. There's a lot to like in this budget from a social and commercial perspective but will the Ministers bellowing words result in robust implementation or will it continue to be mediocre at best?
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *