Kwacha Economics

Zambia Budget Speeches (2002 to 2022)

2022-04-08T02:27:00.002-07:00

Zambian Budget Speeches

Zambia Budget Speeches from late 2000s are relatively easy to come by. I however have noted that it is almost impossible to find Budget Speeches from earlier days especially in soft copy.

In my part to ensure we have these documents preserved for generations to come, I now share my personal collection of the Budget speeches with an initial period (of the those I have) from 2002 to 2022. I will however, be striving to add to this collection as new documents come my way or the order ones are scanned from hard copy to soft copy.

Budget Speech Download

Economics of Street Vegetables - Forwarded Post

2020-02-24T22:35:00.000-08:00

This morning, I received a Whatsapp forward which brought some insights to what contributions we make to those ladies selling tomatoes. I love buying from these ladies and gentlemen on the street. But I also have strong views on street vending - I only respect those who vend orderly and in high hygiene places. There are places I strictly do not think we should buy from as they cause more problems than any good. But some - are the only places I would buy as even the multinational stores don't compare to the contributions you make to the family by just buying vegetables that you really need.

Here is the forward:-

A MUST READ WRITE-UP.......👏👏👏👏👏

By Portrice Chanda

Yesterday, I went to bed with a smile. I haven't done that in a long time. And the person responsible for that is a 55 year old woman i had an encounter with early last year. Almost a year later, we met again yesterday, different place, different circumstances and different story.

I was standing in a queue at Livestock Services yesterday when someone tapped me on my shoulder, I turned to check who it was, "How are you sonny?" I had no idea who this woman greeting me was, I, nevertheless, greeted back with as much confidence as I can, though, my face and tone gave me away. "I can see you don't remember me, I am the woman you scolded for buying things like tomatoes and vegetables in Shoprite a year ago at Ibex Mall" She reminded me while laughing. "Oh yes, I now remember, and you told me where to fuck off" I retorted while laughing as well.

While on the queue, both of us waiting to be served, she went on to tell me the sequence of events that followed after our encounter, and I must add, it cheered and inspired me immensely.

Perhaps, let me start from the beginning.

Early last year, around February or March, I was in Shoprite, Ibex Mall, doing some shopping when I noticed a woman getting a lot of Tomatoes, Onion and Vegetables. Without thinking, influenced by my strong view that Zambians must support Zambian businesses, I went closer to this woman and said, "Aunty, do you think it's wise for you to be buying vegetables and tomatoes in foreign owned Supermarkets like Shoprite, instead of buying from our women lining our streets? By you buying from them, you will be changing not only their family economics and the economics of the farmers where they get these vegetables, but also enhancing the Zambian economy. But here you are, sending your money to South Africa and promoting the South African economy. Where is your patriotism? I understand you buying certain things here, but not vegetables"

The woman was not amused and it showed in her tone when she responded; "Who the hell do you think you are to decide for me where I should buy things? Are you my husband or is it your money?"

So it happened that when she went home, she thought about it and realized I had a point. Slowly, she developed a habit of buying veggies and tomatoes from women on her way home, she is a teacher at one of the government schools in Mtendere.

As fate would have it, she had no idea that one of the poorest girls in her class, was being kept by her grandmother, who happened to be selling veggies and tomatoes on the street. She (teacher) was the grandmother's biggest customer. The teacher and this vegetable selling grandmother developed a very good relationship, the teacher even started tagging along her friends to buy from this grandmother.

The teacher was noticing that one of the poor girls in her class, who came with a torn uniform, heavily patched, no food and lacked many school requirements, suddenly had a new uniform and was now coming with packed food for break. She was now paying for most requirements at school and her school work improved a great deal.

So one day, on her way home, the teacher, as usual, passed by to buy veggies, tomatoes and onion from the usual grandmother, she was surprised to find her pupil there, assisting her grandmother. "Iwe Mary, what are you doing here? The teacher asked. "I am helping my grandmother, she sells here" Mary answered, equally surprised to see her teacher there. The grandmother was also surprised, she had no idea that her biggest customer was the teacher to her grandchild. The grandmother went on to tell the teacher how she has been struggling to take care of her grandchildren, failing to provide even the basics as business was tough, but because of people like her, who gave her a lot of business, things are looking up. "Now I can even afford a new uniform for Mary instead of patching the old one all the time, thanks to you and your friends" The grandmother told the teacher while shedding tears.

Since then, this woman has been looking forward to meet me, just to say thank you. And she couldn't believe her eyes when she saw me on a queue mu Livestock.

"And today, I want to thank you sonny for making me realise how much small things like this can make a difference not only to individuals involved but the general economy of our country. Many are times, we overlook these little things, but they are big, as my experience has taught me, thanks to you. By the way, what is your name?"

"Portrice, Portrice Chanda, madam" I responded while rushing to the counter as it was my turn to be served.

As I sat there, being served by the cashier, my mind was all over the place, thinking about what difference we would make if every Zambian did his bit, lifting each other up. What a monumental dent we would make on the evil triplets of poverty, joblessness and inequality!

Comrades, Zambia belongs to you and me, and we carry, at all material times, to make it a better place. Together, we can move this country forward.

Disclaimer

I have tried to find this person who is the alleged author but couldn't, so all rights to the material are his. If they can contact me, I would gladly take it down or link to their work if it is online and not only on social media and particularly Whatsapp forward.

Zambia's Avoidance of Double Taxation Agreements (DTAs)

2017-09-10T05:22:00.000-07:00

A Double Taxation Agreement (DTA) is a contract/ treaty signed by two countries (contracting states) to avoid or minimise territorial double taxation of the same income by the two countries.

Each country has it's own laws and sometimes a person may be a resident of one and earns in come in another. Without agreements, the person maybe subjected to double tax on the same income in the country he is a resident, and the country he earned that income. This is basically the double taxation that is aimed at being reduced in an agreement. This is because without this agreement, a person will be demotivated to earn income if he will be taxed twice on the same income. So why would he earn the earn in another country when that country will tax him and the country he is a resident in, will also tax him? It will be a double lose for him as he may just be working to pay taxes in two countries.

To avoid this double taxation, country agreement on how they will reduce the taxes applied and make the person benefit and be motivated to invest or work to earn income. However, like most relief that is given, people take advantage of this and aim at eliminating or reducing their share of taxation to such levels that some countries, mostly developing countries, will end up without ever taxing the income that the person earns. This is the main reason why tax avoidance has been prominent recently. Sadly, the developed countries took advantage of this and enabled their citizens (companies included) to benefit from such and has resulted in massive illicit flows of resources from developing countries. If there was a fair share, no problems would exist.

Fortunately, injustice anywhere is a threat to justice everywhere, the same methods that were being used have now hit the developed world so much that what was a problem for developing countries, is not a "world problem". Almost all developed countries have found themselves in the same mess they tolerated. This is what has led to massive fights to end tax avoidance. We now have developed countries chasing companies and tax avoidance cases being so prominent when it has existed for developing countries for a long time. Some of the headlines in this topic are: Bank BNP Paribas loses £35m UK tax avoidance case, Ladbrokes loses £71m tax avoidance case, HMRC wins 22 out of 26 tax avoidance cases in 2016-17, David Beckham and other celebrities lose £700m tax case, etc.

A serious search on this topic will show how wide-spread this financial problem is. Until the world is ready to agree on a fair share for the tax payer, we may have the problem increasing beyond control. Many NGOs have since been formed to try and help developing get a fair deal from the world economics. That clearly shows the problems being faced.

Zambia has also been hit hard. We have companies that are always in lost making and not able to pay tax. How that is possible for a company to continue operating when you are always making loses shocks the brains in me. But this exists to an extent that I think the company will never pay tax unless we have someone put his foot down and deals with this situation. The day we will have this country getting tough on such issues, a lot of things will change. Until then, the handling of tax problems with kid gloves will continuously encourage this problem. Ever wonder why China kills tax offenders and has a great tax compliance rate? The way you handle tax issues, determines how your tax compliance will be. If you offer tax incentives to some businesses, expect the others not to pay as well. Everyone should be treated the same for tax purposes. Why would some people face no taxes merely for representing the people and you expect the people to pay taxes? These are issues that should be addressed for mother Zambia for you to expect changes in the way things are handled.

For those interested in looking at Zambia's DTAs, the revenue authority has a list of treaties that Zambia signed and are in force. They also have a list of tax rates that are applicable in some of these treaties. This is shared below and shows: Status of the DTA, Entry into force, Applicable Rates (Dividends, Interest, Royalties and Technical Fees). With these days you can now understand things much more clearer when you read ActionAid Sweet Nothings Report or watch the BBC's Why Povery: Stealing Africa.

The DTAs are summarized as follows and can be found here:

Amendment:

After some enquiry, I realise I needed to defintion some terms for easy undertsanding of the table.

The term “technical fees” means payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any service of a technical, managerial or consultancy nature. [source]

Digital Migration: Zambia's Direction Part I

2017-09-03T08:11:00.002-07:00

The Zambian digital migration direction seems to be non-Zambian driven and with little benefits to content providers and citizens. Serious, what has come out of this apart from a creation of a company when we expected many companies being handled by one distributor of content. What are the current licenses for content creators of digital media? Where can you even find such information? All these have no one particular person to push the agenda on a public point of view. So we have a process with little information and only seeing channels popping up in digital and then going into encryption, etc

But lets first look at this point from an angle we can handle for today. A simple introduction to such elements and then look at it in detail in follow-up write-ups.

So let's start simply with definitions of concepts that are involved.

Digital Migration is a world-wide programme coordinated by the International Telecommunications Union (ITU) for countries to change the technology used in terrestrial television transmission from analogue to digital. This process was supposed to be completed by June 17, 2015.

The advantage of digital over analogue transmission include these important ones:

1. Clearer signal reception (High resolution picture of HD compared to analogue)

2. A wider selection of channels (the reduced spectrum entails more channels can be transmitted as compared to analogue) So a variety of channels will result at lower transmission cost - this follows on point 3 below

3. Reduced broadcasting stations’ cost. More companies can come into the broadcasting sector with reduced costed. Less is needed to setup broadcasting studios as before.

So simply put - digital migration is moving from analogue transmission to digital of the TV signals we used to receive in our homes with those antennas.

Basically the simple explanation will make things easier as it makes simple things out of this process which seems to be complicated in Zambia. First the only complication that was expected was the delay due to limited funds to buy the necessary equipment for the process. However, we seem to find ourselves in more complications as the process now seems to have been taken over by private entities and we are not sure what is expected at the end. I will explain this.

From the simple directive by the ITU, you would expect the simple change in your life will be the removal of analogue TVs and replacement with digital TVs. and from business and entertainment part of it, you expect more players in the sector with high quality products. Some issues in Zambia's digital migration are as follows:-

1. The delay to migrate has obviously created a problem in that few companies can now compete with countries in the region that migrated earlier. They have gotten better at creating content and will be supplying such content to Zambia at lower costs to make it impossible for our local content providers to compete. This puts most local content providers in a very bad position as they may not find means to produce and compete.

2. We are also facing teething problems with this process and probably not learning from the mistakes other countries made and corrected.

3. We seem to have moved from "digital migration" to "get topstar" decoder - of the two are not the same and this must be communicated effectively.

4. There is so much politics in the issue that is totally technical - maybe it is because of the money involved. But on this blog, politics are not on focus and ignored at best.

This post will focus of 3 above.

We need to clearly stick to the ideal situation of digital migration and then focus on the benefits that will come from this. Particularly, move local channels from analogue to digital. Then add more local content. So for a person owning a digital TV, they should see this improvement on their TV. If you want to encrypt the channels - the leave the ones which are supposed to be free to air (FTA). The likes of ZNBC. Encrypt those that are transmitted for purposes of making money. But I do believe our local content channels should be given a platform to be free of charges and subscription.

I mention as I have followed the digital migration process as I prepared and got myself a digital TV many years ago. I saw the first transmissions from GoTV (encrypted of course as I expected), and then the local channels being added including ZNBC 3. Then QTV, Prime TV, etc in digital transmission. Then the local channels got encrypted with only ZNBC 1 and ZNBC 2 remaining FTA. Now I have no problem with ZNBC 3 being encrypted if it was meant to be like that. Right now you can only access the local channels on TopStar. If this is the way things will be, can we spread the right message that - those without TopStar should only expect to watch ZNBC 1 and 2 and the rest on TopStar at a subscription.

Very few will have means to pay for local content at the same amount as more entertaining programs as European football which are only a few kwachas away. I'm then forced to ask, what are we doing to the local content providers if the aim is to charge subscription for these. Can we now compete with the likes of eTV and OVHD (www.openviewhd.co.za) at no cost? Do we expect these channels to grow when they start giving viewers a charge before they even make a name for themselves? These are issues of public interest which differs to a focus on "get a TopStar decoder" addressed below.

With a focus on get a TopStar decoder, people will only need to go out there and get a TopStar decoder and pay for it. With such, you throw it to the people to decide on which content they should pay for: - TopStar, GoTV, Kwese, DSTV, StarTimes, Zuku, and other various online IPTV services.

With a monopolised system in premium content grabbed by Satellite TV providers, who would look at such content providers which wont provider world class series, sports, pay-per-view, etc which is based on license holders for Zambia. Such license is not controlled by any authority in Zambia. Which law would compel premier league to equally distribute rights without making monopolies in this country, ZICTA? Or will game of thrones be thrown at any of the service providers bidding for Lusaka, or other provinces?

These are issues that need serious attention for our nation. What is the benefit of digital migration to a country if everyone is required to pay subscription to watch local channels? What advantage will the local channels have over foreign based channels which already have great advantage in terms of content and licenses?

Can policy be made over digital migration process to the benefit of the country both at producer level of content and viewers of the content. Let's not pick this process into making it into a monopoly of content distributor who will bring nothing but content from their countries. Right now, check all these content suppliers and the content they bring. Not one of them comes with Zambia content apart from bundling whatever they have with the FTA channels in Zambia and their country's content. We should at least promote our content in a way that will benefit content providers and viewers. We can't even watch our own local league without paying a foreign company for it. Next we will be paying foreign companies to make cartoons in Bemba and Nyanja! Then what benefit is that to us?

Let's not waste this opportunity to improve lives by making digital migration a wonderfully beneficial process to local content creators. The Zambian people have hunger to access local content, do not kill that with foreign content.

Education vs. Entrepreneurship: Why the Debate?

2017-04-25T20:37:00.000-07:00

There are so many social media posts related to education and entrepreneurship. I have no idea why people think your education should be directly related to your richness or your company. One serious deals with learning about "things" and the other is about transactions or wealth creation. There are people who combine these on the basis of their creativity in the field they know very well or who were the first to think of the idea. It however, does not mean every computer guy will have Facebook or Google.

The more I read about this, the more I realise it's mostly promoted by people who want to prove that they "made it" in life without education! Yet, the same people will always be pushing their children to study and get an education. That should clearly remind you that this is not an area of comparison. Otherwise, they would ensure none of their children stepped a foot in class.

I have been promoted to reflect on this issue based on a statement that is attributed to a Dr. Sokuni which dangerously goes as far as saying "Education is important for you to READ, WRITE AND LEARN HOW TO SPEAK ENGLISH so you can communicate, transact and do your own Business" (read here). By implication, this means countries like the USA, Australia or UK will never need schools or education because they speak English all their lives. They merely should be born and start transactions. With no regard to why these same countries invest huge sums of money into education, he makes such a serious uninformed statement!

Let's put things in great perspective - Bill Gates and Steve Jobs were speaking English and writing by the time they got to the 5th grade. So did to Larry Page and Sergey Brin. Their companies started on completely different levels. Some of them dropped out and others earned degrees (PhDs for that fact). Did this stop them from starting companies that deal in information technology? Did they need to merely know how to transact after learning how to speak and write in English? Or take Jack Ma, would he even say his English is close to being perfect? Does he even need English to transact? He needs Chinese to make money.

The bottom line in all this is, one does not need an official or formal education to start a business or to be innovative. It is not a requirement. So why would you judge people on an aspect which is not a requirement in that particular field?

Take Bill Gates and Steve Jobs as an example - every one knows what they did and how they earned their money. Yet few people (even those reading this blog) know who Larry Page and Sergey Brin are. Why? Because they followed the path which Gates and Jobs did not. So everyone will talk about the most unlikely person to get rich. Simply labeled as you can make it without a degree. Larry Page and Sergey Brin on the other hand have made the money too, but they got through a straight path of degree all the way to PhDs! As of 2016 Forbes richest people in the USA (check here), they are 9th and 10th with a combined worth of $76bn from Google.

So Larry Page and Sergey Brin or indeed Jeff Bezos are not your everyday examples of how to make it in life because, they went through a straight path in education - the dangerous trend in Zambia where we think you need miracles in making it - not hard work! Check how many "pastors" are among the rich people - because they offer you miracles. Say to your neighbour "money" will always ring on a TV screen near you. Yet, none of these would stand and tell you the real thing of working hard to earn what you need. It has even gone into motivation speakers also with questionable qualities. My cousin always says the easiest people to rob are the miracle seekers because they will come and give you even the little they have and go home happy and dancing, not to the police.

We need to understand the need for hard work or innovation, in order to push for success in our country. Education is a tool to help you understand the world we are in and sharpen your skills in areas important to the individual. Amazon and Google are companies created by people with a degree in computer science or engineering. These skills need an investment in knowing the field. Of course you can hire much educated people like at Microsoft - but can you compare the success of companies/ businesses started by uneducated people and educated ones? Further, not every one is an entrepreneur. Skills and talents differ.

Ultimately, you can't compare education and entrepreneurship. Clearly where does the debate come from? People can be entrepreneurs with or without an education. Some people have even gone further and said, education is a sure way to have a backup when your innovation is not taken up by the public. I actually think it is an aid to life as it widens knowledge and creativity. For that I would make sure my children get an education level to help them succeed than hope for miracles. Further, even the one who performed the most miracles and died on the cross was not a rich person - so whoever emulates him, should not be covered in wealth, but be a symbol and a true follow of the one he preaches about.

Zambia's 2017 Budget Summary

2016-11-13T16:28:00.000-08:00

The 2017 Budget was announced this past Friday, 11th November, 2016. I will present a summary. I will not comment on the issues I expected from this budget or what has been done. This is just a summary - maybe a little highlight of what a particular issue means.

The 2017 Budget is under the theme:

“Restoring Fiscal Fitness for Sustained Inclusive Growth and Development.”

Due lower economic activity in the advanced economies, the global economic growth in 2016 is projected at 3.1 percent this is slightly lower than the 3.2 percent recorded in 2015. In emerging and developing economies, growth is projected at 4.2 percent in 2016, growing the 0.2 percet from 4.0 percent recorded in 2015. Sub-Saharan Africa growth is projected to fall to 1.4 percent in 2016 from 3.4 percent in 2015. In addition world trade is projected to grow by 2.3 percent in 2016 which is lower than the 2.6 percent growth recorded in 2015.

For Zambia, growth is projected to be just above 3 percent in 2016 against a target of 5.0 percent and to marginally rise to 3.4 percent in 2017.

The macroeconomic objectives for 2017 are:

achieve real GDP growth of at least 3.4 percent;
attain end year inflation of no more than 9.0 percent;
attain domestic revenue mobilisation of at least 18.0 percent of GDP;
limit the overall fiscal deficit to no more than 7.0 percent of GDP on a cash basis;
maintain domestic borrowing to no more than 2 percent of GDP;
build up foreign exchange reserves to at least 3 months of import cover by end 2017; and
support the creation of at least 100,000 decent jobs.

Government will promote industrialisation as a means of diversifying the economy through facilitating value addition in the agriculture, mining and forestry sectors. In 2017, Government will facilitate the development of the Kafue Iron and Steel Economic Facility Zone and the Kalumbila Multi Facility Economic Zone.

In order to ensure efficiency and disengage Government from the (energy) sector, the procurement of finished petroleum products will with effect from 1st March, 2017 be undertaken by the private sector. Government’s role will be limited to regulation. Government is examining the viability of Indeni and TAZAMA pipeline. Fuel prices will be adjusted in line with changes in market conditions.

Emphasis will be on the construction of roads that support economic growth and foster regional trade. These include the Chingola-Solwezi, Kitwe-Chingola dual carriage way, Lusaka-Chirundu Link 4, Mpika-Chinsali, Chinsali-Nakonde and Solwezi-Kipushi.

In trade sector, Government will:

Operationalise the Bilateral Trade Agreements with the Democratic Republic of Congo and the Peoples Republic of Angola;
Provide for advance ruling on rules of origin for goods originating from countries with which Zambia has signed trade agreements. These include SADC and COMESA member states as well as India and China;
Implement a Single Window platform for various border agencies to enhance trade facilitation; and
Establish trade centres at the borders of our major non-traditional export markets beginning with Kasumbalesa, Kipushi and Chirundu.

The IDC has been directed to conduct a situational analysis of all SOEs under its portfolio with a view to recapitalise those that have a good business case and hiving off those that are not viable. In 2017, SOEs to be reviewed include Zesco, Zamtel, Zambia National Building Society, Indeni, TAZAMA Pipeline, Zambia Railways and Zambia State Insurance Corporation.

The 2017 Budget by function is:

The resources are as follows:

The PAYE bands are:

The revised vehicle Carbon tax rate are:

The 2017 Budget has also introduced the border crossing fee applied to all motor vehicles as a revenue measure. The fees applicable are:

Therefore, the 2017 Budget resource envelope is broken down in K '000 (millions of Kwacha) as:

Other notable changes in the 2017 Budget include:

Cross border visa increase from K1,000 to K1,500

Transit visa from K2,000 to K3,000

Increase of Advanced Income tax from 6% to 15%

Also introduced with the 2017 Budget are:

Skills development levy - 0.5% on payroll payments for companies that pay Company Income tax

Tourism levy - 1.5% on total bills paid to hotel, motel, lodge, etc

Customs Duty Changes

Airtime excise duty increase from 15% to 17.5%

Semi-processed edible oil increase duty from 5% to 15%

Spare parts duty increase from 5% to 15%

Plastic carrier bag duty from 25% to 40%

Cotton wool duty to 15%

VAT Changes

No VAT refund for: Motor Vehicle parts, Fuel (petrol), Fuel (10% of Diesel cost) - only 90% VAT can be claimed now, air conditioning and domestic refrigeration equipment, mobile phones, Television sets, decoders, video players window coverings (curtains and blinds), construction of houses for staff,

This is all I could quickly put up from the Budget. A lot has been done and frankly I expected a different budget considering that the country is in economic challenges in which demand is expected to be stimulated and certain measures avoided which would increase costs to businesses or citizens.

The Dying Ability to Analyze

2016-10-29T05:33:00.000-07:00

I get interested in topical issues in Zambia at any one time. In all cases, my interest is to see how people look at issues and their take on them. Sadly, every single time, I have ended up being given the political side. The famous words we use in Zambia being "you are being political". Some have taken this as an insult really - because they feel you have undermined their thinking. I believe this is the right term and happy it has gained following in Zambia. Let me explain.

If you try to get a definition of politics (simpler way is just to google "define politics"), it will give you definitions that involve views, power, etc and I'm yet to find one which says .... analysis ...., etc. Like the simple definitions are:

"the activities associated with the governance of a country or area, especially the debate between parties having power"

"activities aimed at improving someone's status or increasing power within an organization"

Which all point to that fact that analysis of issues are not the core issue of politics. The fields which have analysis at the core and "technocrat", "scientist", "expert", etc. So I expect these to have the issues analysed before they are brought to public consumption.

Honestly, the worst people in this are people who would make sure you know what qualification they have in the field and go on rampage to give opinions and claims with no analysis whatsoever! That is killing the nation because someone will pick up your lie and assume it is gospel truth and contaminate others. We have to be responsible in issuing claims or political statement. We should not mention qualification in an area or field is you will give a party position, mention the party or philosophy you subscribe to. Let people who will objectively respond to an issue or their expertise use their qualification.

I believe this will help people know who to listen to, and not any person who has been given a microphone to speak should be believed. In this same sense, I think the authority charged with higher education should also make it a point for people who have received honorarily degrees not to use them. I get confused to hear a "Dr Something" said something in which he deliberately ignored the facts or has no clue what the facts are. Further, we as a people need to realize that when one takes on the hat of politician, they want employment and will say anything they can to get that job regardless of what the truth is. They are politicians at the end of the day!

The effect of misinformation is so bad that certain sectors that rely on confidence would fail to stand regardless of what you do as a damage control measure! We may not clean up the mess in time. All for a position? Really?

I remember someone showing off after voting in the referendum in August that "I couldn't vote for that thing! It says the moment you get married, your wife will have more power than you in your home and marriage!". I was so shocked and I said "No! You didn't read it." He never said a word after that. I could see the guy fighting in his mind of what to do or say which would repair the damage. But what can you say when you have no idea on an issue you wanted to by pass without the facts? That is the sickening levels we have reached! This same person may have told all his family as a person who knows what he was talking about.

Then there are those twitter who say whatever their mate says and repeat it over and re-tweet as much as they can manage in a day. In the end, they don't realize they only speak about it among themselves connected by a political line which they can't think outside of. Really people, if you speak among yourselves with no outside endorsement, so to speak, what exactly are you doing - re-convince yourselves like a cult? You know you have a good position when other people not linked to your by that common line support your idea. Otherwise, it is meaningless in the world of building support. You will have the same people supporting you on the basis of the line you have.

The dying ability of people to analyse must serious be checked before it gets out of hand. We need to push to a position where we only speak if we know something but speak on what we have no idea. Zambia needs you to think, read and be exposed to an issue before you speak about it.

Prices of Television Services and the Case of a Monopoly

2016-10-19T21:57:00.001-07:00

The following are extracts from a draft school project paper (not of an exact title). It looks at monopoly, reproducible product and the case of television in Africa. This is basically for academic purposes and the should not be used without the author's permission in any way. Note: Academic purposes.

Academic queries and corrections are always welcome. I have used all sources that were used in this paper to ensure that even the extracts fit in with the reference rules. I also expect a lot of errors as this was draft work.

For personal interest only.

Edit: After the publication of this blog. Major changes came such as the price slash of DSTV services in Uganda. Story is here.

================================

1. Introduction

Imposition and enforcement of protection rights to a good that can easily be reproduced is a difficult task. With passage of time and advancement in technology, goods and services which were once impossible to reproduce have become reproducible. This is a case for broadcasting services. With the advancement of the internet broadcasting has become a reproducible good. Therefore, it has become increasing difficult to maintain a monopoly in markets of reproducible goods. Broadcasting is one of such a sector.

A monopoly has traditionally been defined as a situation in which a firm holds a 100% share of the market. (Cabral 2000, p. 69). However, this relies on a well-defined market or in some cases a well-defined sector in which we can identify market players. With the advances in technology, most markets have overlapped and some may fail to be addressed by the traditional view of monopoly or sectors. This advance in technology has also created markets that cut across countries and continents, especially with the use of the internet.

For simplicity, a monopoly therefore, can be defined based on Milton Friedman (2009) definition that a monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. Taking into account the market or sectors in global scale as highlighted above.

Although for this case, the traditional definition is sufficient, the later definition is a better way to address this particular case. This is because nowadays it is possible to define a market as the whole world when considering sectors like communications in general and internet in particular. This has made it possible for smaller firms or individuals to establish themselves and compete with bigger players in one market at lower costs. Some costs are lower due to circumventing the payment for property rights to the material they possess and in other cases they operate anonymously to avoid detection by law enforcement agencies and tax authorities. This can be through pirating of music, software or other forms of digital media that includes television broadcasting through the internet. This has enabled small firms to compete against large media companies that own and operate very big television stations or record labels. The internet has substantially reduced costs for these small content sellers as compared to the traditional brick and mortar businesses. As postulated by Bokos (2001 p. 71) lower search costs in digital markets will make it easier for buyers to find sellers with the lowest price which promotes price competition among sellers. The costs are now so low that even small genuine firms can out compete big and established businesses.

For this article, the piracy that will be addressed will be related to digital media and in particular, audio and video broadcasts. Therefore, the definition of piracy that will be considered is one from Merriam-Webster dictionary which defines piracy as the act of illegally making television or radio broadcasts. (Merriam-Webster, 2016).

This paper looks at the effect of a monopoly protected by property rights and charges high prices on services that can easily be reproduced. It examines the inefficient allocation of such resources to the public, in a way that it is then threatened by cheap pirated alternative goods and services. The next section will look at the current Pay TV in Africa: History and Current Situation. Section 3 will look at Threats to the Pay-TV Monopoly. Section 4 will look at monopoly in the subscription based television services and its cause. Section 5 will then look at the effects of property rights on competition in the market. Section 6 will address costs to society from monopolistic market arrangements. Section 7 will make then look at future aspects and a conclusion.

2. Pay TV in Africa: History and Current Situation

The simpler view of the current subscription based television in Africa would best be understood by taking a look at how television has evolved over time. From 1939 when RCA televised the opening of the New York World's Fair and a speech by President Franklin Delano Roosevelt, who was the first president to appear on television, there have been many changes in television (Stephens, 2000). Technically, from the early models of mechanical, electronic, colour, digital, smart and the now 3D television, all these changes have brought a lot more benefits for consumers of television services. On the payment front, television has moved from the free broadcast or free to air (FTA), pay or subscription based television to the pay-per-view television. In all these stages, competition has been the major driver for innovation and driven by the profit motive of broadcasters. For this paper, focus will be on subscription based (pay-tv) and pay-per-view television in Africa.

To start with, history of subscription based or pay television in Africa is strongly linked with MultiChoice, a South African pay-media company which is a subsidiary of Naspers, which offers the DStv television service. DStv covers the continent of Africa.

Since the launch of MultiChoice’s DStv platform in 1995, most pay-tv challengers have failed to compete with it. The only notable one was GTV which was operated by Gateway Broadcast Services based in London, England. The main strategy of GTV which aided it to compete with DStv was to acquire the English Premier League (EPL) broadcast rights and offered a lower price to win customers from DStv. GTV’s business strategy depended on two ideas – football and price. Capturing the British Premier League rights, in a $30 million three-year deal, was the foundation the company aimed to build on and be dominate in the sector. This is because MultiChoice had used the football rights to its advantage over the years. It over priced its services and used the money for more investment in acquiring more rights to content from different providers. These included television series, more sports and exclusive rights of local leagues in Africa.

2.1 Broadcast Right Protection

Sport broadcasts have been the major driver of pay-per-view television and most subscription based television in Africa and has been dominated by DStv. This has been mainly because DStv has the rights to broadcast the EPL matches across Africa where there is a large following. This strategy worked well for DStv and it dominated the African continent. The high prices it charged enabled it to expand and establish a strong base. Further investments were done and more football league rights from other countries were acquired and added to the platform. This strategy was undertaken by GTV when it started its operations by making sure it acquired the broadcast rights for the EPL. Entering the pay-tv sector late, GTV managed to acquire a lot of subscribers who previously were on DStv or those not subscribers. The reason was the football broadcast rights and a cheaper charge than DStv. GTV came and shook the market as they had premier league rights and were charging a fraction of what DSTV was charging. Furthermore, they made it possible for existing DSTV customers to continue using their old satellite dish by only requiring them to buy a new decoder (Nairobiwire.Com., 2015), this reduced the cost of migration from DStv to GTV for the customers, especially that even the decoder was also well priced compared to the DStv one.

This competitive strategy worked very well for GTV also and led to the splitting of broadcast rights into three regions of Africa: - Nigeria, South Africa and the rest of Africa. Each of these had to be bid separately and a different broadcaster was awarded broadcast rights for that region. GTV having a share of the largest region dominated the market and almost led the seemingly end of DStv monopoly with the exception of South Africa where GTV did not win the bids for the broadcast rights. This was a very expensive undertaking. At the outset, acquiring the English Premier League (EPL) rights needed a huge amount of funds. As pointed out by Sunwords.com (2009), GTV faced an uphill task from the outset, and made some early mistakes as it was facing a dominant incumbent, Naspers, and its DStv pay-TV network. Its master stroke was to secure the EPL rights, thereby ensuring it immediately got a large and fanatical customer base. A mass migration from DSTV to GTV and thousands of Kenyans became first time Pay TV customers due to the pricing model of GTV (Nairobiwire.com, 2015). This was witnessed in other parts of Africa as well which had the GTV television services.

Although, the investment to acquire the rights paid off and a large customer base was acquired, this did not translate into profits and good enough returns. It may have been good in the long-run, but the short-run determined how far the strategy would go. The short-run needed funds to operate and systematically find a way to pay back the funds used to acquire the EPL rights in the first place. This should have been built into the programming and pricing structure in order to ensure they raise enough money for operational profits. However, the organization’s programming was built around the EPL and therefore GTV struggled to show that it was anything other than a one-trick pony – the rest of the channels offered were never really exciting (Sunwords.com, 2009).

The organization strategy of GTV of securing and being protected by football rights instantaneously made it succeed in its sector in the short-run. However, this did not protect it from the costs associated with huge investments without consideration of one’s financial capacity in the long-run. Securing the EPL games also set it up for future problems: it was forced to bid a huge amount to acquire the rights from DStv (Sunwords.com, 2009). The only way was to source further injections of funds for it to continue to exist. The financial crisis that hit the world in 2008, was the major stroke in the life of GTV. It could not secure enough funds to continue operating despite being clearly protected in the market through the broadcast rights. Things did not go well for GTV.

2.2 End of GTV Era and Re-emergence of DStv Service

In the end, GTV paid the ultimate price, it could not mobilize resources to continue operating despite 700 million dollars in investment, GTV pulled the plug and television screens across the continent lost connection (ICT 4 Entrepreneurship. 2009). The company had to close down even though it had broadcasting rights protection in the market. The protection was for a period of more than three years, however, short-run operating costs made it impossible for the company to sustain its operations. GTV secured its future with broadcast rights but could not save its present.

With the going down of GTV, DStv regained control of English Premier League rights and established its monopoly once again. This time however, DStv has solidified its presence in the sector and across the continent. Secondly, competitors can clearly see how GTV collapsed in an attempt to take over and they cannot take the risk. This has made it hard for any competitor to challenge them. Consequently, their pricing structures has been cemented into monopolistic tendencies and even tend to have discriminatory pricing structure from country to country. Further, it also has bundled the packages in such a way that you can only get the English Premier League matches (its most sort after offering), on its most expensive package and highest package on its service – the premium bouquet. The reaction of the people in this case has been attempts to boycott its service and threats to withdraw their subscription. Nigerians and Zambians took it further with petitions to boycott the service (Techzim, 2015) after the price hike. Complaints may be right, a closer look at the prices will show that in US Dollar, the prices vary in interesting ways with no justification apart from the fact that they are a monopoly facing no competition and can price their services the way they want.

Table 1		DStv Price – 2016

Country	Access (USD)	Family (USD)	Compact (USD)	Compact Plus (USD)	Premium (USD)
Zimbabwe	11	21	32	55	81
South Africa*	6.54	14.47	22.78	30.31	50.13
Botswana	9.94	16.01	26.52	38.82	57.77
Zambia	8.65	21.35	33.44	58.83	85.21
Namibia	7.27	11.57	21.16		46.23
Kenya	10.43	21.36	37.25	63.58	93.38
Mozambique**					57.13
Nigeria	9.05	18.09	30.15	47.34	70.25
Ghana	13.05	24.8	61.23	69.19	103.13
Tanzania	10.75	23.32	38.64	67.21	100.14
Swaziland	7.93	13.15	21.08	31.06	46.2
Uganda	11.44	21.97	38.52	67.71	100.51

Source: DStv Country specific websites May 2016 prices at May 2016 US Dollar Exchange rate
* Prices include 2016 price increases in South Africa

** Different bouquet types/ names due to Portuguese language

As can be seen from table 1 and figure 1 (below), the price difference for the “premier bouquet” the lowest being Swaziland at US $46.20 and the highest being Ghana at US $103.13. The difference is over 50% (US $56.93). The lowest priced bouquet called “access bouquet” also sees the lowest price being in South Africa at US $6.54 and the highest again being in Ghana at US $13.05. The difference is US $6.51 which makes Ghana slightly less than paying twice for the same bouquet. Considering that the charges for rights and broadcast through Satellite is the same for the regions with slight costs of labour and taxes. Taking into account that differences with broadcast rights for Nigeria and South Africa may be different as they are bid separately, we would expect the rest of African countries having slightly less differences. However, with the collapse of GTV, the whole Sub-Sahara Africa is bid as one therefore, there is a standard cost. Even the satellite coverage for the three areas – South Africa, Nigeria and Rest of Africa are on two satellites. In some countries, you can pay for any of the two satellites as the coverage overlaps in areas, indicating that the costs are ultimately the same. Being the sole provider for decades in some countries, DSTV finds it easy to increase prices with little or no objection from consumers (Thenerveafrica.com, 2016). The discrimination pricing is possible as it is impossible or very costly to buy decoders and pay for the DStv services in another country due to residence requirements for one to have access or pay for the services in any country. Consumers have no choice but to buy from their country of residence where they have the necessary documents to access the services.

This has made it possible for DStv to charge different prices even when the service is cheaper in a neighbouring country as the service is not portable and carried to another jurisdiction.

Figure 1.

Source: DStv Country specific websites May 2016 prices at May 2016 US Dollar Exchange rate
* Prices include 2016 price increases in South Africa

** Different bouquet types/ names due to Portuguese language

The monopolistic tendencies of DStv have continued over a period of time leading to a form of abuse of their position in pricing and services. However, the broadcast rights make it impossible for DStv to be challenged in any way. All forms of protest or boycott fail because DStv platform is a private owned company which has been regarded as a luxury. Therefore, it is illogical for anyone to protest when they can simply withdraw from their services. As highlighted:

“I find this quite amusing. People are literally petitioning a private company to reduce the prices of a luxury item. Yes, I think DStv is a luxury and you have a choice to subscribe or not. DStv is not the internet, people. It is not electricity! And the price increases don’t need to make exchange rate sense to customers, they just need to make profitability sense to shareholders.” (Techzim 2015)

This has led to failure of any protest or any resistance to try and change the status quo and the abuse by DStv of its customers through pricing. DStv therefore, not only has a control over the clients in Africa, they also can set any price they want. This is more so with the fact that DStv is a multinational platform which has used its spread to make as much profit as possible through the discriminating pricing based on location or country specific consideration. This has led to people trying to find a way to deal with this problem through alternatives which may not be legal. This is due to the social costs imposed on society by DStv through this inefficient allocation of services.

3. The Social Costs of Monopoly

As it has been highlighted by many scholars, monopoly has a social cost because its pricing has allocative inefficiency. The price set by a monopoly is greater than the marginal cost (Cabral, 2000 pg. 75). Competition in the sector would achieve efficiency, however, broadcast rights present a challenge for regulators. This is because broadcast rights are awarded by a third party – the English Premier League or The Spanish La Liga for example. Therefore, to encourage competition, there is need to look at the way broadcast rights are awarded. The rights make it impossible for fair competition in the sector. They create a monopoly which has been reduced but not avoided in some developed countries like the United Kingdom and Belgium. In the UK, from the possible seven bids of the packages of matches, one firm is not allowed to win more than five of the auctions (Sloman Economics, 2015). This makes possible for other firms to compete for other packages available unlike in Africa where all matches are awarded to one broadcaster. If this mode of bidding could be replicated in Africa, consumers could benefit.

A critical analysis of the market and legal challenges would need to be looked at for any regulation to be effected on DStv platform. This would entail country specific regulation measures, but these would need cooperation with the broadcast rights organisations. There are complex mechanics of not only domestic law, but international law and regulatory intervention. These are needed to reduce losses in welfare due to the existence of a monopoly. While at the same time, conforming to competition control laws of domestic markets. This is the only way to protect consumers from the losses in consumer surplus due to monopoly type of market as shown in figure 2.

Figure 2. (follow the link)

Source: tutor2u from: http://www.tutor2u.net/economics/blog/unit-3-micro-monopoly-and-economic-welfare

4. Threats to the Pay-TV Monopoly

There are many motives to pirate on the internet and media in particular. Most of these have roots in not only the way the material is presented, but also the price that is attached to the media. In the case of DStv, the complaint has been on the pricing that they have implemented over the region of Africa as highlighted above and figure 3 below. The social cost due to the high cost make people seek alternative ways to access live broadcasts of mostly live sports which may not be legal. They may also resort to downloading television series and movies online. The cost to all this is the subscription to internet service providers. Although illegal, it is made easier and easier with some applications providing video on demand and anonymous downloads.

Figure 3.

Source: DStv Country specific websites May 2016 prices at May 2016 US Dollar Exchange rate
* Prices include 2016 price increases in South Africa

** Different bouquet types/ names due to Portuguese language

High price has been known to encourage piracy. As highlighted by Cheng et. (1997 pg.53) a consumer's final decision on acquiring software or a reproducible good depends on three variables: the cost of pirating, the price, and his or her reservation price. This is because in the case of reproducible consumer product such as computer software and in this case broadcast signals, consumers have the alternative of reproducing the product – that is, pirating - the software instead of purchasing it (Cheng 1997 pg. 53). Considering that broadcast of video and audio is a reproducible product, pirating has spread rapidly with many websites and applications for desktop and laptop computers; tablets and phones offering the broadcasts at minimal or no cost. Such applications and websites have become very popular in the entire African continent.

Table 1.

Premier League international rights deals for 2016-19

Territory	Rights holder
Australia	Optus
Brazil	ESPN
Caribbean	Cable & Wireless
Central America	Sky
Central and Eastern Europe	IMG
Central Asia	IMG
Finland/Sweden/Denmark	MTG
France & Monaco**	Altice
Germany/Austria/Liechtenstein	Perform Group
Hong Kong	Letv
India	Star
Israel	Charlton
In-flight, in-ship	IMG
Latin America	DIRECTV
Malaysia	Astro
MENA	beIN
Norway	TV 2
Poland	nc+
Singapore	Singtel
Spain	Movistar
Sub-Saharan Africa	SuperSport
Turkey	Saran
United States	NBC Sports*

Source: premierleague.com (2016)

Therefore, the only threat that DStv has, is from illicit provision of their broadcast. Bearing in mind that DStv has rights to broadcast in sub-Sahara Africa, any broadcast of the football match by anyone else would be considered pirating. This can be considered the biggest threat that DStv has at the moment. DStv acquired license for the Sub-Saharan Africaas shown in table 1 Above. The current license period of three years runs from 2016 to 2019 for which it paid £ 296 million for Sub-Saharan Africa.

4.1 Threat from Illicit Service Providers - Piracy

In view that DStv has broadcast rights, it is prone to threats from pirated broadcast of its major niche in the market – the English Premier League. This is because, with the increase and development of streaming services for audio and video, it is easier for someone to broadcast the football matches on the internet with minimal costs compared to satellite and decoder method used by DStv. It is even cheaper for the client receiving the broadcast as they don’t need extra equipment apart from phones; tablet, laptop or desktop computer;t or an IPTV Box capable of receiving audio and video through the internet. The cost of setup therefore, is very low and in most cases negligible.

Furthermore, the high cost and complexity of blocking such pirated streams online, makes such attempts of blocking impossible. As observed by Swains (2015) as the cost of TV rights for sporting events has escalated apparently without limit, so has the ease by which conventional broadcast methods can be circumvented or pirated. All this has been despite the best efforts of global authorities. This has made it possible for people to access the restricted content easily and cheaply. People are watching more live sport than ever, whether or not they have paid for it. The audience of unauthorised streams is estimated in the millions (Swains 2015). The contention is that broadcasters are holding sport fans to ransom due to the very high pricing for sports events and the premier league in particular. However, the illegal streaming has not only affected sports, it has covered all areas of digital media from music, television series to movies. “Hard-goods piracy” in the form of DVDs has now all but vanished. Today the main facilitator of piracy is high-speed internet, with users either downloading or streaming the content (Morley, 2015).

In Africa, high-speed internet was the only obstacle to DStv’s monopoly, however, the increased penetration of high-speed/ broadband internet in Africa will present a major threat as this will enable piracy to spread with the penetration of broadband internet. This is because one merely has to have high-speed internet and they can access online streaming sites for football, series, music and movies. This will hurt DStv and shake its monopoly grip in the live sports broadcast sector. Further, the fact that most streams originate from outside Africa, it will be hard to enforce the copyright infringement in other continents. The costs will be very high and the task an impossibility. Further, the open software community is constantly developing ways in which streams can be organised and accessed as well as developments to reduce costs of broadcasting. These developments are used by people who are pirating to ensure they deliver pirated content cheaply to consumers. Just like the ability to share files has developed so much. It is worth noting that these developments are meant for legal means but are used by illegal sharing communities due to the demand for the content. For instance, Kodi, which has been used for piracy through software add-ons, made by illegal providers, came out to issue a statement after being blocked by apple store that there was a wave of sellers who decided to make a quick buck modifying Kodi, installing broken piracy add-ons, advertising that Kodi lets you watch free movies and TV (Kodi, 2016). This however, could not be stopped as an add-on provider may offer services for free and make their money through advertising on the application.

4.2 Threat from Other Service Providers

The potential market for Pay-TV is sub-Sahara Africa has meant several options for would be competitors in the market. Several service providers have come up taking into account the lessons learnt from the fall of GTV. In particular, ZUKU a Mauritius registered company has operations in Eastern, Central and Southern Africa; TopTV, a South Africa based company; and StarTimes , a Chinese owned Pay-TV which has covered Eastern, Central and Southern Africa have launched services in the past two years to rival MultiChoice’s DStv platform (Mark, 2014).

The increased number of service providers will entail the further splitting of the regions for broadcast rights if the providers provide a strong enough force for DStv and if particular countries are willing to regulate the granting of rights to their countries to encourage competition. Such a situation would be good for consumers as the competition will entail better service, lower prices and a customer care which a monopoly would not provide.

Additionally, StarTimes has the money to bid for the English Premier league as it has already established base with the much needed Africa related content through programs produced by the company. It is also believed to have the needed funds to mount a chance at broadcast rights as it acquired TopTV (Advanced-television.com, 2013) and trades as StarSat in South Africa and other countries. It has now become a real threat to MuiltiChoice and DStv. This is the first legitimate strong competition to DStv since the collapse of GTV. The Chinese owned company is believed to be preparing to break DSTV monopoly and will bid in the next round of bidding for the EPL. President of StarTimes, Pang Xinxing is quoted to have said it was not fair and it was abnormal the lack of premium sports content on affordable subscription TV packages in South Africa (Vermeulen, 2013).

The other credible competition is from Netflix, a United States based online content provider. This threat is not of the EPL and live sports events, it is a threat in video-on-demand services that are offered by MultiChoice. Netflix has a niche in this area. MultiChoice faces the threat posed by the fast growing Video-On-Demand industry in Nigeria, especially Netflix, this is because the online provider has a huge collection of media which is easier to provide through internet (thenerveafrica.com., 2016). It is expected that Netflix will capture a large market once the internet problems have been resolved and ecommerce takes shape. Ecommerce in Africa is very low, current ecommerce figure of US $10bn is expected to increase to US $75bn in 2025 (Bright, 2016). This is shown in figure 2. At that point, it is expected that more profits will be earned in Africa. This is why Netflix has strategically invested in Africa even when internet speeds are still low. The strategy is to get returns when the internet and ecommerce in particular develops in Africa for the current investment.

Figure 2.

5. Conclusion

The MultiChoice/ DStv issue in Africa illustrates the complexities in industrial organization for multinational companies and the issues of property rights and monopoly. The company will ensure it maximizes profits and use all forms that can help it from price discrimination based on location, use of exchange rates to any other form that will reap the most profits. In so doing, many people will be unable to enjoy the products and alternative services will be provided in form of pirated signal and broadcasts. This creates a threat especially at the time that pirating broadcasts over high-speed internet has become so cheap and so easy.

This threat of piracy will make price increases hurt the monopolist. At the same time, it makes it expensive to enforce the property rights as infringement is spread across the entire world. Someone pirating a signal they legally paid for in Australia to other parts of the world will be difficult to block and almost impossible to be handled by one company or one law agency. Even with the united content right holders, the cost of trying to eliminate such pirates would be cheaper with a reduced price for the service than hunting for live broadcast pirates across the world on the internet. This would encourage more legal subscription and economies of scale from the number of people that legally subscribe. As it has shown in countries where many providers have emerged, price wars have resulted in lower prices in the services provided. When Kenyan telco Safaricom entered the pay-TV fray earlier this year with its 4G-enabled Big Box decoder, East African rival Zuku — spurred on by the region’s heated price wars — chose the moment to take a swipe at the competition (Vourlias, 2015).

In addition, a monopoly will more or less open the door to competition when it makes super normal profits. These competitors may come up with value added services which would kill the monopoly when the competition gets fierce. As shown by the collapse of GTV, it is possible for a company to collapse even when it is protected from competition through the property rights that are granted. MultiChoice/ DStv is therefore not protected from collapse just because it has rights. It is enjoying over-charging its consumers while at the same time opening doors for them to seek alternatives. Piracy of football games can cause it to have great losses and enable competitors to increase subscription numbers leading to its lose of its market share. After all, if people can source for other alternatives, they would not pay DStv.

In the time of high-speed internet, a strategy for a monopolist is to ensure it makes enough profits in such a way that it prevents an attack on its power and market share. This is through reasonable prices and customer care that would make it hard for competitors to enter the market, even when they don’t pay for broadcast rights. Prices that would be good enough to prevent a mass exodus in search of alternatives or illegal options. After all, broadcasting is a reproducible good.

Social costs of a monopoly call for regulation from the state as it is associated with allocative inefficiency. For a sector which is affected by many cross border activities, regulation may take time, but once the legal challenges have been dealt with, regulation may open up competition for totally unprepared companies which have been monopolies for a long time. These may fail to compete favourably.

The coming of the Chinese company – StarTimes (also trading as StarSat in some countries) on the African market is expected to improve the services offered and overall African Pay-TV. This is because StartTimes has the ability to challenge DStv. This competition is needed to improve services for the whole continent. Efforts to ensure competition in the sector has therefore intensified and consumers will not be abused with high prices in the long-run. For the past few months, DStv has introduced a channel of football on its low-end bouquets due to the competition that has been mounted by cheaper bouquets from StartTimes and Zuku. This is in a bid to fight competition but also to maintain market power with a large customer base.

This case of DStv in Africa clearly shows the various issues that result in industrial organisation in the face of monopoly, discriminatory pricing and competition in the real world. Ultimately the companies will take any advantage to maximize profits. It is therefore important that regulations are up to the task of ensuring there is competition but at the same time give rights for innovators of technology in order to encourage innovation. However, in the case of more rights not attached to an innovation, it is important to encourage competition and prevent abuse of consumers. For DStv, there is no innovation protection but mere rights to prevent access a service and charge a high price. There is no “property” created by DStv but just restriction to broadcast and charging more for access.

This type of protection is merely granted to businesses that want to profit from a natural monopoly arrangement as a private company when they have not created or developed anything. Competition in such a sector should be encouraged.

Of interest to country specific DSTV websites, these are not included in the references but can easily be followed from DSTV website as follows: e.g Botswana

(http://eazy.dstv.com/en/bw/get-dstv/packages/compare/select/premium )

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Techzim., 2015. Retrieved: May 5, 2016 from http://www.techzim.co.zw/2015/03/angry-zambians-nigerians-dstv-price-increases/#.VzLJjPn5iUk

Thenerveafrica.com., 2016. Retrieved: May 5, 2016 from http://thenerveafrica.com/4038/the-nigerian-senate-might-be-a-bigger-problem-to-south-africas-dstv-than-netflix/

Vermeulen, J., 2013. DStv sport broadcasting monopoly “abnormal”: StarTimes. Available online. Retrieved: May 20, from: http://mybroadband.co.za/news/broadcasting/90901-dstv-sport-broadcasting-monopoly-abnormal-startimes.html

Vourlias, C., 2015. Pay-TV Operators Embark on Price Wars in Africa. Retrieved: May 12, 2016 from: http://variety.com/2015/tv/global/discop-pay-tv-operators-embark-on-price-wars-in-africa-1201635769/

Zambia Referendum 2016 Issues

2016-08-07T11:44:00.001-07:00

I have been asked on the issues of the Referendum and what issues we should look at. So I took time to look at various websites and the people encouraging the "No" vote. The most important observation is that people have not read it and so have carried what they think into the advise and decision they made. As usual, the problem of people not reading is what leads to many problems in Zambia as people depend on what their "people" advise them. Funny enough, this issue has even people I consider learned enough to read have avoided to read. So here are simple sources of the document in un-edited form. These can be accessed here: 01 (CSPR Zambia), 02 (PDF scanned document), 03 (ECZ Cartoon - Understanding Referendum.

I have avoided picking political party links as they look at the Referendum on the basis of what they want, not exactly what the people should consider.

I also should point out the interest people should take by looking at the old constitution and compare it with the Bill you will be voting for.

Take note, the National Referendum is on Part III and Article 79. Part III is the famous Bill of Rights. The rights have been enhanced as more have been added compared to what was there. I should point out that "Gay Rights" have not been added as some people have been saying. Please ask them to point to where this is when they tell. Our interest at Kwacha Economics is the addition of the "Economic, Social, Cultural and Environmental Rights". This is a thing that every Zambia should take time to understand and they will be happy with this inclusion.

The most interesting excuse given to vote "No" is because the constitution has added the "grade 12 clause" which has been promoted by some political parties. I may be incorrect, but I think from the Mvunga commission, there has been a call for this limitation on Members of Parliament (MPs). So I think this has been backed on this need. Our interest on this blog is simple, how do you entrust people to make the law without the basic education? What kind of laws would they make? These are issues we need to address before we look at the Grade 12 requirement. The issue of it being discriminatory is interesting as this is the basic job requirement for MP which we have tried to set for many years.

After reading the Bill I'm sure you will be like me - hoping for a "Yes" vote. After all, a "no" should have something higher than establishing improving on the rights of the people as it will be a rejection of these improvements and going back to the old Bill of Rights. That is the stand. I see no reason anyone would want to vote "No" unless the rights are aimed at being suppressed.

You are free to engage me on this issue as to why a "no" is promoted.

Zambian Election Issues

2016-08-05T02:21:00.000-07:00

It is always interesting to get into an election and evaluate the various issues of importance to voters. Well, if at all there are issues that are being offered. This year's elections have the same things that leave a bad taste in my mouth and I thought I should bring out what I consider to be issues for me to make a good elections for a country among the "longest period of democratic elections in Africa" - Zambia!

There elections come with the bad elements of name calling, ego promoting, terrible coverage of candidates, "busitele" campaign songs (if only our musicians produced such songs for the night clubs - we would groove for sure, and this year something worse was added - violence! We cry for issue based politics, so maybe we have different definitions of issues so I thought I could bring this out as I expect the issues to touch on economy, human development, achievement of national goals, etc. Here are my "issues" which I think would have made me enjoy the campaigns.

Human Rights

This covers all areas of human rights that us as a people should solidify and ensure are protected. They cover not only the rights that are supposed to be given to me through the Bill of Rights in the constitution, but should have all aspects of human development perspective and what the candidates will do to ensure we have these, or not have them. This is more so, with the fact that without knowing who is backing them, and the element of "donors" to impose what they consider should be the rights of Zambians, we need them to spell and commit to what they will do on this angle. It is critical. I don't want to wake up and be given rights that the western world consider rights. We as a people must ensure we decide what these rights are. So what is the stand on this issue is a basis for my vote.

What will be the position on gender based violence, equal employment on basis of gender? What will be the policy for the disabled? What initiatives will be used to achieve equality among citizens of different gender, race or tribe? How can we see you achieve this for us to follow your progress? What policy are you going to employ to achieve this?

This being the case, what is your stand on the referendum - in particular the Bill of Right. What is your message on the referendum vote and why? What rights do you hold as priority and why?

Education

What education should be given as compulsory to all children of this country. What is the plan that is setup to ensure this is attainable. Again, I don't want to wake and be told my children who are English speaking at home will have to learn in a language they don't know because someone at the Ministry of education misinterpreted a report on "familiar language" as a base for education or instruction and replaced it with "local language of the area". So imagine what a Child born of two different tribes and leaving in a different area will get when the child brings homework in that area's language! Such policies which did not even attempt to ask parents has to be enforced as policy. Worse still when the world (including China) is aiming at teaching the children English as a critical language for development, we are teaching them local languages and in local languages! What is the use of the child learning a language they will never use at home or in their life? Is this the type of policy that will continue? So what happens to the right for the children to be educated in a universally accepted language or official language? This is an issue I expected to be addressed for early childhood learners - none of the candidates has brought it up. Not a single one!

The introduction of computer and IT education is commendable. We also have had a policy that allows importation of Computers, Phones, Network items, etc without the payment of duty. This is a policy which shows a good planning behind it. We should however expect an improvement and encouraging of IT development skills on a very serious level as it would ensure a great competitive advantage in the world. We can't claim to have a large labour force to compete in the world with the likes of China, but if we educate our children well in IT and ensure competitiveness, we already have an advantage of English to be able to easily enter the world (assuming they this wont be destroyed by the language policy mentioned above). We could have software engineers and software developers which could well do as good and hope it goes into circuit board development - we have the copper! This is the greatest form of employment with the purpose of entering the world. But which candidate or party has such ideas? Who has even taken a leaf on what the world development challenges is the country facing regarding education in IT? We are a small population which can't compete in labour and cheap labour with the likes of Asian countries, however, we can use our highly educated people in IT to take over the bigger portion of the money in IT developement - just research on how much China gets for each iPhone (which is labeled "made in China" compared to the countries that make the software for it). So what is wrong with thinking of sending the hardware to China but developing the software here?

Developing of bursary loans has been on the lips of many for university students. We try to find a way to fund the public institutions and prevent student riots, yet we can't see the importance of such a loan will do. Which student will riot when they know they will be paying very soon for the loan they obtained? Ever wonder why the only ones who complain after a closure of an institution are self-sponsored students? In addition, the loan scheme would also enable the universities meet its obligations of paying lecturers on time and avoid the strikes. It is easy to look in the region of the most successful universities and see what policy has done to ensure they offer the best education and best conditions for its lecturers. We are not an island and we can learn easily.

Media

The time Chanda Chimba and ZNBC went on to create a program on one Micheal Chilufya Sata (MHSRIP), some people where so happy and rejoiced on this. They were happy that they will ensure he won't be voted into power. I don't think this worked, it might have even enhanced his chances of going into being the president of the nation. All the possible "evils" he did were so to speak "exposed", but he got the vote. The problem then, which still is, is that people did not fight to end this. There is no program now (hopefully wont be), but the issues of the "national broadcaster" being a propaganda tool for the government has continued. Now we have people complaining because they are now facing the same thing that Sata faced through Chanda Chimba's program. Should we leave it as that - a tool to be used by any government that comes into power? Has anyone addressed this?

I don't want to address the issue of the Post Newspapers as to me this issue has two wrongs and we can't take one and leave the other. I have said it before in many forums that, if you owe government in any way, you have to make good or something will follow you regardless of how it comes. I have also asked the question, if the Post paid the "owing" would they be in this position today. The law allows one to pay and then seek legal means on the so called "debt". That is an issue for another day.

Apart from hearing the issues of what the law provides for and how one candidate will address the two issues above, I think I have only heard a promise of re-opening the Post - what will be the stand on the debt? Was a law broken in the closure? These are issues we need to hear. I for one would love to hear one look at the issue of protecting government revenue and handling issues of how companies should handle they issues pertaining to government debt and payment of taxes.

Most critical, Zambia was one of the first countries to hand television, we have nothing to show for it. We are constantly being exploited by foreign companies in pay-tv since the death of CASAT. Does any of them even thing of promoting such business? Why for instance should Zambia which pays a lot on football channels not have a local company to provide the football leagues? We can't even watch our own league on our channels. Yet we wonder why we constantly come out losers in competitions? There is need to promote media and Zambia's own content, not only for adults, but children as well. Our children are being exposed to "pornographic" forms of children programs or ones filled with gay themes. We as parents even pay for this. We read "Tona" cartoon some time back or Kalulu what policy is being taken to bring this back? Imagine having a Maliogo's adventures as a series (I know Banja and such are being produced but I'm talking about free programs for our children with Zambian cultures being exposed to them). I don't think Nickelodeon has any Zambian theme for the children, why should I not ask for Zambian content?

Further, what is the stance on piracy? I know of a song for one party which was "pirated" by another one. I expected this to ignite the debate on what it means to piracy in Zambia. Are our musicians getting their pay for their creation? This is a presidential campaign level that a song is copied and it dies just like that? Really? I serious wanted a stand, we even have musicians standing as MPs, they should be addressing these issues. Every campaign creates an unforgettable song, what happens to the artist after the elections? They will only be remembered when another election comes along? To some, this is a life and only source of living, we need to do something. Why shouldn't Zambian music be exported? We are a small population which can benefit from exporting and making our music "international", we need policy to ensure that. Most importantly I want a party that thinks in that line.

Foreign Policy

What is the stand on foreign policy (SADC, COMESA, AU and the world)? What is the stand on trade with outside world as a country and not a trading bloc? What are we benefiting from the trade blocs we are in? Are we even gaining anything in SADC apart from being an open market for SADC goods? What is the gain of having the China LDCs PTA for Zambia? What are we doing or plan to do to ensure we benefit from this? What should be our priority? What is the stand on Double taxation agreements or taxation of foreign entities and in that, the expected stand on tax evasion and tax avoidance for foreign companies?

These are issues the presidential candidates are supposed to answer. I see more "South African malls" than local ones. Are we a dumping ground for their "potatoes" for instance? Are they paying the right taxes and declaring profits? We have very little in form of contribution from our own enterprises in consumer goods and media. We seem to be a market for one country than our own companies. It is sad enough we don't own the mines, but what exactly do we own as a country. Even creations made in Zambia are now owned by some Dutch companies who we must pay for use, yet we wonder why we don't make any returns on the companies in this country.

Realistic Perspective

Sadly, following the debates around, I would add "rainfall" under foreign policy as it suits politicians to ignore what is happening and use the opportunity to blame others for low water levels - after months of rejecting and refusing that we had low water in our dams. They still blame the copper and closing of mines on this. I dislike that idea with a passion - it implies they think of me as being so dull that I can't read and analyse the global economy. When issues are so obvious, they say you should have planned for the rainfall and load-shedding! Yes, so should have been all of us when we left the country for 50 years with no improvement on power, mining, roads, rail, infrastructure in general, etc. If you need to blame, pick something within the term of the person. The moment you become unreasonable, I don't think you can help the country much. This is what is leading to what someone calls "over-procurement", there has been nothing, you bring it in the shortest possible time - Kwacha falls and people still want you to bring in other things immediately while this should not affect your current account balance! We should know what will happen when we correct one thing. This will entail a certain reaction in the economy - we need to hear what you would have done differently - that is a basis for a vote. If it was a mistake - explain where/why it was a mistake and what would have been done differently. A mere statement of no planning is what caused this, without an accompanying method of what your plans would be, is bad enough as it indicates you have no idea what you would have done. I don't even know what is worse - knowing the mistake but having no way around it. It may as well mean, you would have done nothing in the first place. Further, if a mistake is made and people point it out to you, you either give us alternative plans you had of which you chose one, or what you would do to ensure this is not repeated through your plans. That way, we know the issues are being addressed with plans you provide to us as voters.

Overall, we need to take stock of what we have, what we don't have and we choose a leader on the basis on what they will bring in. Expecting of miracles should be left for the pulpit. We need people with details of plans of addressing our plight as a people. What I have heard are unrealistic goals which contradict economics which cannot fall in one action - lower taxes, better infrastructure, no borrowing, introduction of incentives. This is not only impossible - its unrealistically not attainable in any economy on this planet. Better infrastructure is only attainable through higher taxes or borrowing. A reduction of expenditure (for infrastructure development) is contraction fiscal policy which would reduce economic activity, but a reduction of taxation is expansionary - so what will be the net result of these activities? How will you bring about better infrastructure development with the combination of lower taxes and no borrowing for example? I have heard of reduction in "unnecessary expenditure", a definition would be good of what is unnecessary and the amounts saved for infrastructure - these are issues, I look for in the statements. What will be my PAYE over your term in net basis?

The problem is that none of these is provided which lead me to believe we are in the same situation of having the exactly the same methods with different people leading the methods - at their benefits. So should we vote on the basis on having different people benefiting with no clear idea of what they will do or how they will do it?

Each candidate should give us the realistic plan and how it will be achieved. This would be a better place to gauge the outcome of who we pick. A realistic perspective is critical to assessment on my part.

Agriculture

The iron law of development says as the economy develops, people involved in agriculture reduces as they enter the secondary and tertiary sectors. So what is the stance on agriculture as it will spell the position of secondary and/or tertiary sectors.

Africa has been said to have missed the green revolution. What is your stance to ensure Zambia passed it and got the benefits? Are we utilizing the land to the fullest possible gain for output? What is the stand on GMO - in so doing, what is the stand on organic farming we have. Have we taken advantage of this? Do we know the demand for organic agricultural output? Can we gain from exporting and promoting of organic output to the world. Stopping GMO but not fully gaining from such a move is a loss on our part as we can gain from this. What are we doing?

Marijuana has been legalized in some countries and one presidential candidate has clearly indicated out advantage in growing it. So what is your stand? Will you address the issue and aim at legalizing it, or exporting it while it is still banned in the country? Will you just continue with current policy?

These are issues that stand to be addressed in agriculture. They need to be spelled out and explained to the voters so we know what to expect from you and judge you on that basis for the vote.

Industry

What is the stand on industry. Are we aiming at still being an agriculture focused country? Are we aiming at looking at the secondary or tertiary sectors? What will be priority on each of these sectors and where do you see Zambia after your term?

What is your stand on tax incentive and role of ZDA in industrialization. What will be of the State companies through industrial cooperation? Especially that this institution is under the presidency. We need to know what you will do. Should we expect an economy pushed and directed through state companies? What role will state companies if any, would plan in knowledge acquisition and meeting social obligations?

Employment

How will you ensure employment for the youths? What policies do you have which will bring about employment?

Which areas are more related to employing youths in Zambia. How will you help the youths in employment. Is there any promotion of self-employment? Are they tax incentives for companies or individuals who bring about employment? What are the thresholds for these incentives if they are part of your plans? Is there a direct policy of employing youths by government? What of social security system if any?

What is your policy on statistical data for such plans on employment? How will you track the unemployed and employed? What is the policy on street vending and revenue for government considering that shops that pay taxes have to compete with street vendors both for space and customers. In this line, what of cleanness of the cities with street vendors. What plans have been put in place?

Taxation

Much as it has been mentioned above, what is the overall direction of the taxation policy in the country. Local or international taxation. What will be tax incentive and what will motivate that "incentive". What gains should we expect from compliance or the penalties from non-compliance? How will non-profit organisation be treated for tax purposes? What of those organisation that are under non-profit but are merely abusing the system?

What will be my PAYE before, during and after your term. Are you realistically implying a reduction in your promise?

Social

What is your plan on social security, Health, and all issues that relate to social elements? What are your plans on citizen empower programs? How will you ensure you will avoid policy that promotes tribalism, nepotism, etc?

What is your plan for political cadres and violence that is related to it? What will you do on the existence of political party cadres? How can we track your progress on this?

Overall, how will you unit all these policies to ensure there is a linkage and no contraction of policy? How will they work together to achieve your objectives as a political direction of the country.

As you ask for my vote as an employee, you need to prove your worthy to that office and how you will deliver what you have promised. If I feel you fail to achieve some of these or I see your plans failing short of proving you can do it, why should I vote for that particular candidate?

These are issues I expected to hear and read about. Not words which mean nothing on how one will govern. I need to be convinced, not entertained on the basis on what happens on the street today and you change your mind on it tomorrow. Or worse, giving me a list of what this one promised without your list of promises and how you will ensure they are delivered.

My interest is economics - your plan should make economic sense and practically achievable.

African Development Perspective: Need for Development Institutions

2015-11-21T09:07:00.001-08:00

I have found interesting points in the writings of Darron Acemoglu et. al., on "institutions". Something that I think needs to be addressed by African and Caribbean countries/ people.

Every country in problems will always blame its leaders and them lacking "responsible leadership". I have plainly stated that leaders should not be blamed for everything that happens. Even Mandela ruled South Africa under ANC - the same party some are condemning is messing the country. Now, the issue is not a party, and surely not a person all the time (I know in most cases in seem to be). If you take the qualities that fit a person for such a position like being a rational being, making rational decisions for the betterment of all - all which are subjective, and because of that, no one would point them out as being wrong when they fit in their original justification of "rational decision" under the "circumstances". Another word in there that I feel is very subjective -circumstances. Anyway, lets put these things in order so we move to some politically correct way of putting things; positions, regardless of who occupies them, bring with them certain trends which are so common and expected in most African countries (Caribbean omission is intended to be merged in the context of "African" - personal preference). So no matter who you put there, unless they are willing to change what is there, expect no miracles! Even if they stay there and follow their "right" path which may coincide with most people's expectations or wishes, the person that follows can/ may be his own man.

You will, in most cases, know how they intend to change the status quo as they speak about it before they are elected into office - including what they will do! What it is they will do, how they are qualified to be placed there and deploy the change, etc! Remember the seat has inherit problems, so if you are the best qualified person to be in that seat, you are defectively perfect to continue with defective outcomes - meaning a no change for the better but maybe for worse. So the person has to understand the problem and present a solution to the identified problem. Unfortunately in most African countries the politician merely plays to the sound of the masses and just needs to link their masses' misery to some needed comfort and he will win their vote. The problem remains unresolved and pending. Decades may past with no solution.

Acemoglu et al, have put together a clear demonstration of the effect of institutions which led to the 'reverse of fortunes'. Regions/ places which were rich in 1500 are no longer the rich ones, the fortunes have gone to regions/ places which were poor. Effectively, the fortunes have reversed. Can you imagine Australia is richer than India or Egypt - yet in 1500, it did not even have a sizable number of people! As observed, good institutions where created in "settler" colonies (New Zealand, Australia, USA, etc) while bad institutions where in extract colonies (African, Caribbean, etc). With simple intentions:

settler colonies - to ensure the institutions protect the settlers and ensure their will prosper. Provide all possible ways that the settlers can own property and be protected in that ownership; while

Extraction colonies - extract resources (minerals, rents, people - slaves, etc)

So this whole colonialism had two outcomes - winners (colonialist countries and their settler colonies) and losers (colonized regions). A simple understanding there is that people who came out losers should actually free themselves and get independently and then create institutions that would make them benefit from their resources. The problem I'm now bringing to the fore is that we got right with the first condition, but have never even attempted at the second!

Independence came for Africa and now all countries can be said to be "independent". No one bothers to add "Political Independence"! It is assumed all forms of independence falls within that circle. Independent it maybe. However, the institutions that were created for extractive nature of colonialism and purposes have not changed. So regardless of the person you put in the driving seat, unless you change the train tracks, the train will be moving in the same direction. The driver can slow down and speed up. The whole situation will remain the same! These are the things people called "neocolonialism" and a call for economic independence for Africa.

What is interesting about this fight for independence is the way it is being fought. No one in the old days stood up to call for political independence, they just got together and started doing something about it. From that experience, you expect people to do the same for the new need for independence, but people now are calling for "something"? No one would give up what they enjoy or benefit from. So the only way out is to get up and work your way to eradicate the nonsense.

"economic institutions in various colonies were shaped by Europeans to benefit themselves.... Europeans consciously created different economic institutions, which persisted and continue to shape economic performance" (Acemoglu et al: 2005)

We need to build institutions that will benefit this continent and clean up the residual mess from colonialism that makes the "extractive regions" remain in the extractive position. Can you imagine a country which has been politically independent can not even create a circuit board from copper that is mined in its own country? It can not even sell copper to the factory down the road of the mine. The copper has to be priced as if it came from London having left a few weeks ago?

These are the structures which are building blocks of bad institutions which are residual from colonialism. There should be deliberate policies to eliminate and work on improving the institutions that will make Africa and other extractive colonies regions which are not only worth their raw materials. China did not grow that fast by doing better what the west left in it. It had to eliminate the residuals and build its own comparative advantage and use its greatest resource (people) to become an export of manufactured goods. You may think of them as fake - but the whole world works on these products. Even when hope is low for Africa, imagine if all precious mineral companies and sells are done by African companies around the world? Every gold, diamond, oil, copper, emerald, etc will be sold by an Africa company for African profit and revenue. What can beat that? We can even reach more than China as every marriage with a gold, silver or diamond ring "will be made in Africa" or from "Africa product", every currency's value will dependent on how well rooted it will be to the gold bullion source in Africa (or the currency that Africa country uses). Every electronic component will have to be sourced cheaply from Africa.

The possibilities are endless! But all these can only be attained by the African reality of being a free region from any form of extractive nature or colonialism. It starts with a mindset followed by action. Not the everyday hunt for "responsible leaders", they will never be found as the institution you give them is defective from the start. Lets build the right Africa for us to get the right way!

References

(just in case you want to follow up on some of the issues and my thinking)

Acemoglu, D., Johnson, S., Robinson, J.A., 2005. Chapter 6 Institutions as a Fundamental Cause of Long-Run Growth, in: Durlauf, P.A. and S.N. (Ed.), Handbook of Economic Growth. Elsevier, pp. 385–472.

Acemoglu, D. and Robinson, J. (2012). Why Nations Fail: The Origins of Power, Prosperity and Poverty.

Kwacha depreciation???

2015-11-21T08:27:00.002-08:00

The kwacha has seen a fairly good beating against major currencies in the past months. Reasons of this beating unfortunately are hard to get a hold of. Therefore it is an interesting field to get in and see what had made this beating.

A look at the trend of related currencies tell a story that need great attention. We see the dollar rising faster than had ever done in the last 40 years. This therefore will obviously mean that the kwacha is expected to perform badly against the dollar. We see the Chinese economy slowing down, China being a major importer of copper will again result in an interesting beating on the Kwacha. But will all these stories add up to produce one of the worst falls of the kwacha in over 8 years?

That is a story worth looking at it. Unfortunately I have not been writing on this blog for sometime now due to a lot of personal issues that have literally killed my blog time. So I would want to look into all the issues that has brought in an interesting kwacha economy and issues that we need to be looking at in future to strengthen our kwacha. So I will let this be and prepare a full analysis in the time that I have.

Further, to ensure I devote the little time that I have on a single blog, I have decided to merge my Africa perspective into kwacha economics to ensure the material does not make me stay on one blog and lose focus on the other. So you will see topics of African and specifically Zambia development perspective show up here. As usual, the political aspect is a lot more in development perspective than the kwacha economics. To ensure I stick to my direction, only general polity related issues will be embarked on. I hope people would stick to that too!

Lets see how this will work out!

Zambia - The Windfall Tax Story

2014-12-08T00:47:00.000-08:00

The issue of windfall tax in Zambia has always been a hot one. Many political ideas have revolved on windfall taxes from the government to the opposition. It is strange that this simple perspective of taxing has been such a hot topic in this country. More so, having implemented it for some time.

So Why the Fights?

Windfall tax is expected to generate a lot of financial rewards for the country in the light of higher copper prices that were witnessed. It is expected to bring in a lot of money to drive the economy. On the other hand, the politicians in the control say it is not possible to introduce a windfall tax.

The fight got so heated up that some headlines would summarize it. For example it is quoted that those who were calling for windfall tax are lunatics. Check here and here.

Windfall Tax

So what is a windfall tax? The few definitions I came across will sum up as:

"A tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits."

"A windfall profits tax is a higher tax rate on profits that ensue from a sudden windfall gain to a particular company or industry."

My favourite for simplistic issues is the last one from Wikipedia because it sums up all elements of the windfall tax and will have all you need for parameters of this discussion.

Zambia and Windfall Tax

The mining sector in Zambia has an interesting tale. It is booming when the prices are high. However, most if not all mines are in loss making position. So the Corporate Income Tax (CIT) is never paid. On the other hand, mineral royalty (which is deductible) is paid and claimed back.

So the mineral royalty does actually hit the collection point for the nation, but it merely comes as a deposit and is later taken away when one address the issues of their tax position.

Therefore a windfall tax in this position has one element which many have missed - if you are not profitable, you can't pay it! Even when you are profitable, you need to be facing 'windfall profits' or higher than normal profits for the windfall tax to apply! So for a country with a sector that is 90% in loss making position, how then will you apply a windfall tax?

Any economist with the information on the profitability of the mines will find it interesting to call for a windfall tax. Why? How do you get "abnormal profit tax" when the mines have no "profit" in the first place.

The people needed to be told the truth about this. The assumption that everyone talking about windfall tax knew what they were talking about is wrong. people merely voice out what they want regardless of what the situation is on the ground. You need critical issues on the ground for any windfall tax to be implemented. Those parameters are what is missing.

Where is the Profit?

If the mines had the so called profit position, they would pay taxes. If they made abnormal profits, they would then be a reason to introduce the windfall tax. The lack if profits makes it impossible to have a windfall tax.

Whey mines have no profit is a bigger issue to address and one that will make a good reading and analysis for the future of this country. Many have declared that mines cheat and use tax avoidance schemes to dodge any form of taxation. This has created a bad relationship with government leading to lack of trust between the two. This has led to push and pull issues being done in a way to be better than the other.

If it is true that a lot of cheating has been happening, then the mines will be responsible for this sour relationship and the misery that many people have been exposed to due to lack of resources. On the other hand, we need to ask ourselves as to why mines would go on for decades in a loss-making position. What did we do wrong in the sector? Was the privatization the greatest mistake we made? Can it be corrected?

Where are the profits for a sector that is doing so well in terms of the prices? Calling for a windfall tax without addressing any of this issues is doing the same thing we have been doing all these years and expecting a different result. Albert Einstein once quoted: ” The definition of insanity is repetitively doing the same thing over and over and expecting different results”. (I have no idea where he was quoted, but that may link well with the lunatic link above). So instead of doing the same thing over and over, we need to do things differently.

One way of doing this differently is to over-look the issue of us sharing in the profits that will never come from the mines. Instead, lets charge them rent on our minerals. What they do with them is not our problem, but pay us for the minerals anyway. This rent is the simplest thing one can use. When you get into a house and rent, the landlord does not care when and how much you are paid, you just pay for the house at the end of the month or at the beginning of the month. If you earn no income in that month, it is not the landlord's fault. This is what is attempted in the 2015 Budget where a royalty will be charged but no CIT.

The method avoids the chasing of profits on the mines, the transfer pricing issues, etc. It merely requires you to make a payment when the minerals are extracted from the ground. You dig, you pay principle.

Of the two methods, the issue is that both parties (govt andd mines) want to benefit. One method can benefit both, but the lack of trust makes that impossible to carry on. So all these are no alternatives to the issue of sharing the benefits.

Sadly, windfall tax has no effect in the Zambian context at this current situation when there is no profit. So extra or abnormal profits cannot be applied.

Zambia 50 Year Anniversary Note

2014-11-10T21:51:00.000-08:00

Zambia turned 50 years of independence from the British rule. The occasion was marked with great celebration in Lusaka and many different locations across the country.

The Bank of Zambia released a Fifty Kwacha (K50.00) anniversary for the occasion. At Kwacha Economics, we loved it and would have loved to share it sooner. However, the passing of our President Mr. Micheal Chilufya Sata presented some logistical problems.

All the same, this is being shared now. The many feature is the faces of our presidents from independence to now.

The former presidents of Zambia: (Clock-wise) Dr. Kenneth D. Kaunda,

Mr. Levy P. Mwanawasa, Mr. Michael C. Sata, Mr. Rupiah Banda and

Dr. Frederick T. J. Chiluba

The five former presidents are:

1. Dr. Kenneth David Kaunda (24-October, 1964 to 2-November, 1991),

2. Dr. Frederick Jacob Titus Chiluba (2-November, 1991 to 2-January, 2002),

3. Mr. Levy Patrick Mwanawasa (2-January, 2002 to 19-August, 2008),

4. Mr. Rupiah Bwezani Banda (2-November, 2008 to 23-September, 2011), and

5. Mr. Michael Chilufya Sata (23-September, 2011 to 28-October, 2014).

May their soul rest in peace.

We hope for the peace, joy and unity in this great nation as our national anthem proudly declares. A new president will be elected within 90 days of the death of Mr. Michael Chilufya Sata. Dr. Guy Scott, the Vice President will be interim president during this period.

Special mention from Kwacha Economics.

May the soul of Elizabeth (Lizzy) Munjunga who died on 13th September, 2014 rest in peace. We miss you dearly.

As Zambia - We are Better Than That!

2014-10-29T10:40:00.002-07:00

Zambia's president, Michael Chilufya Sata has died. He is the second Zambian president to die in office.

The vice president of the country is Guy Scott. He has since taken over to act as President for 90 days within which an election will be held.

That is the simplest way an ordinary Zambian will look at the issue. However, barely 5 hours of the news of his death, the second paragraph in Africa would be filled with hatred and racism and would read as follows: -

The vice president of the country is Guy Scott, a white man in the southern African country. He has since taken over to act as President for 90 days within which an election will be held as the country reverts to white rule!

Seriously, Zambians are far better than that. While others see a white man, we see a Zambian. That Zambian can assume his call for the nation when called upon. African countries would rise up and fight each other when they have a constitution that spells out what they can and cannot do. This is the backwardness that has forced Africa into poverty and violence.

Some headlines are so shocking for a Zambian. I wonder if these same "credible" news providers had headlines such as "America under black rule". Or is it that it is racist if it relates to America but not Zambia. I am so shocked and disappointed that this is coming from fellow Africans.

Zambia is better than that. We are more civilized that most countries and race to us has little obstacles. Not even some European countries can handle such a mature transition. We are a beacon for many, sadly out brothers in Africa are way behind.

We shall rise above these problems and show the world how love for fellow human beings regardless of their skin colour and the following of the rule of law can transform a nation. Not the double standards that the world has on issues. Racism is big and wide - not even the FIFA carrying of campigns against racism has helped. Media houses are promoting it to unbelievable levels. Zambia is better than that!

Can Zambians tolerate such pure racist headlines! Please refer

- nyasatimes.com (Malawi): Zambia Returns to White Rule: Guy Scot Acting-President (http://www.nyasatimes.com/2014/10/29/zambia-returns-to-white-rule-guy-scot-acting-president/)

- The Maravi Post (Malawi): Whiteman Guy Scott ascends to the Zambian Presidency after the death of Sata (http://www.maravipost.com/201410297419/Politics/whiteman-guy-scott-ascends-to-the-zambian-presidency-after-the-death-of-sata.html)

- BBC (Britain): Zambian President Sata death: White interim leader appointed (http://www.bbc.com/news/world-africa-29818212?ns_mchannel=social&ns_campaign=bbc_breaking&ns_source=twitter&ns_linkname=news_central)

- Telegraph (UK): How Guy Scott became Africa's only white president (http://www.telegraph.co.uk/news/worldnews/africaandindianocean/zambia/11196185/How-Guy-Scott-became-Africas-only-white-president.html)

- Business Recorder (Pakistan): Zambia 'King Cobra' dies; White Vice President Takes Reins (http://www.brecorder.com/general-news/172/1237532/)

To Zambians, this is not an issue and people have gone to social media to even comment "on a light note" as follows:

@decolanga "Fare thee well Michael Sata. Africa may now have a white head of state"

@martobono "Once the VP takes over as #ZambianPresident then equation will be balanced. Black president in America and white president in #Zambia,"

That's the Zambia spirit, embracing each Zambian with love. As CNN reporter summed it up, race in Zambia is not an issue.

Zambia VAT Rule 18 Amendment "On Hold"

2014-09-22T04:44:00.001-07:00

An amendment which I was firmly against - for obvious reasons has been halted! That is the best news in the month of September that I have received. Check here.

Kwacha Economics ran a blog on the amendment and from it. A few people have indicated the desire to have it in place the way it is. So imagine the shock when the amendment was published in the papers. Luckily for us, that idea died quicker than it came. Seriously I was of the view that even more measures need to be added instead of the proposed amendment to remove some requirements.

For example, why not add even a waybill to the requirements - ok let us not get excited as the amendment may come back.

2015 - 2017 MTEF (Green Paper)

2014-08-30T00:01:00.000-07:00

Medium Term Expenditure Framework (MTEF) for the period 2015 - 2017 has been released. This is the famous Green Paper that is always talked about.

So maybe we should make sure we know what we are talking about. MTEF is government's strategic policy and expenditure framework. Ideally the MTEF balances what is affordable against policy priorities of the government within the available resources or resource envelop.

This is done with a top-down resource envelop and a bottom-up estimation of current & medium-term (in Zambia we use a 3 year period as the medium-term). All the expenditures or costs are matched with available resources for the period. It is important to note that in Zambia we use a three (3) year rolling MTEF. Simply put there is a 2014 - 2016 MTEF period which is accompanied by the 2014 budget and the next one is the 2015 - 2017 MTEF to be accompanied with the 2015 Budget. The fact that is it rolling, reviews are carried on while the other one is in motion.

The Game Plan

The "Green Paper" has the government's plans for the period through the budget. So it is important to have a look at this before you even have the 2015 Budget. This is the game plan that would be used in the period 2015 - 2017.

Government's strategic priorities are set forth in the Green Paper and you can easily deduce what the issues for the period will be. Resource allocation and the areas considered priority will determine what kind of business the government's business will be. All policy prioritization, alignment of policies and objectives under available resources. Resource mobilization will also be dependent on the type of expenditure the government will be embarking on. As some people say, you can literally arrive at what taxes will go down and what will go up. I'm yet to find that because, the resource envelope though embedded, might depend on other factors and not really the issues of priority. In the same vein though, you can see what will be taxed less if it will lead to efficiently meeting the overall objectives of the policy priorities. This is because revenue estimates (mainly taxes, non-tax, borrowing, grants, etc.) are done in line with the macroeconomic framework.

Sector Focus

Sector strategies are formulated to link budget allocations with expected policy achievements at each sectoral level. Sector focus ensures that the resources are allocated in line with the overall strategy.

For example, if education will be the main focus, you expect a huge allocation of resources to education in the budget and over the medium-term. In some cases, there's a plan for both conservative and optimistic scenarios. This will ensure the overall plan has scenarios that suit the expected worst scenario and the best possible. I am not sure which one is given to the public in Zambia.

Baselines are also put forward to indicate whether or not policies are sustainable and are in line with the budget in medium-term.

Lastly of course the dreaded sector and Ministry, Province or Spending Agency (MPSA) ceilings. The cap to how much will be available for a particular MPSA in terms of resources within which their budgeting will have to be made. This ceiling is because of the resource constraint and a need to prioritize and only budget for strategic areas in full. You may need to note that ceilings are fixed for the medium term and each of the year in the medium term.

Zambia's 2015-2017 Medium Term Expenditure Framework

The Green Paper addresses the focus as:

The 2015 – 2017 MTEF will build upon the favourable macroeconomic performance recorded over the last five years which was evidenced by high economic growth rates, attainment of single digit inflation and positive trade balances. The specific broad economic policy intentions include; promoting high growth in the labour intensive sectors of agriculture, tourism, manufacturing, and construction; sustaining economic growth rates of not less than 7 percent; keeping inflation low and stable; continuing to promote Zambia as an investor friendly destination and implementing structural reforms aimed at reducing the cost of doing business.

The 2015 – 2017 Medium Term Expenditure Framework (MTEF) has been formulated with the overall objective of enhancing the benefits to citizens from the positive economic growth that has been achieved over the past few years. This is in line with the spirit of the Revised Sixth National Development Plan (R-SNDP) which is “people-centerel economic growth and development”. Government will focus on ensuring that growth is inclusive and propoor so that the benefits of a stable macroeconomic environment, positive economic growth and single digit inflation bring about improved standards of living for the Zambian people. This will be done by stepping up both human effort and financial resources in areas that have a direct impact on

the improvement of individuals’ quality of life, such as education and skills development, health care, agricultural support, citizen empowerment, employment creation, provision of public infrastructure and social amenities. With these interventions the Government is confident that inroads will be made in creating jobs, raising incomes and reducing poverty.

You can download the 2015 - 2017 MTEF (Green Paper) here.

Zambia VAT Rule 18 - Proof of Exports

2014-08-28T03:19:00.000-07:00

I have heard a lot of talk on the issue and it has become political (like everything else in Zambia)!

VAT is a consumption tax. It is charged on goods and services that are consumed in a country. The simplest aspect of VAT is that only the last consumer is supposed to pay for the VAT. Or, as wikipedia may add (not sure this is any simple)

"From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs."

So from this point, when goods and services are exported, they wont be consumed in that country but be consumed in the destination. This is sometimes called the destination principle of VAT. So when companies export, they get a refund of VAT so that the VAT on that good be charged in the destination country.

What is this Rule 18?

Rule 18 therefore exists to prove or provide a means to which we have proof that the goods were exported and therefore the company that exported should be refunded. However, this comes up in most cases due to the crookedness of some companies which use this for benefiting from this measure. Check here.

So what is the famous Rule 18? This is what the rule says (amendments) in GAZETTE NOTICE No. 27 OF 2013:

RULE 18 – PROOF OF EXPORT

(1) Unless the Commissioner-General shall otherwise allow, a taxable supplier

claiming that a supply is zero-rated under the Second Schedule to the Act on the grounds that the supply is an exportation of goods, shall produce to an authorized officer-

(a) copies of export documents for the goods, bearing a certificate of shipment

provided by the Authority;

(b) copies of import documents for the goods, bearing a certificate of importation

into the country of destination provided by the customs authority of that

country;

(d) proof of payment, made by the customer, for the goods;

(e) documentary evidence, proving that payment for the goods has been made

by the customer into the exporters bank account in Zambia; and

(f) such other documentary evidence as the authorized officer may reasonably

require.

The amendment requires taxable suppliers dealing in exports to provide documentary proof to prove that payment from the importer has been received for the exports in a bank account in Zambia for the purposes of zero-rating.

In conclusion, we need to ask why this has brought so much talk and drama in Zambia. If at all other countries deal with the same measure, do they have the same items and issues as we do? Should be amend it? Or do we need the companies to just go away and get a refund.

As a comparison, lets look at the UK proof of Export with explanations found here:

6.Proof of export

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6.1 What does this section cover?

This section explains the evidence that is required for a supply of goods exported outside the EC to be zero-rated for VAT.

For VAT zero-rating purposes you must produce either official evidence as described in paragraph 6.2 or commercial evidence as described in paragraph 6.3. Equal weight is put on official and commercial transport evidence but both must be supported by supplementary evidence to show that a transaction has taken place, and that the transaction relates to the goods physically exported. If the evidence of export provided is found to be unsatisfactory, VAT zero-rating will not be allowed and the supplier of the goods will be liable to account for the VAT due (see paragraph 11.2).

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6.2 Official evidence

Official evidence is produced by Customs systems, for example Goods Departed Messages (GDM) generated by NES. See section 5 for more detail on how official evidence of export is produced.

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6.3 Commercial transport evidence

This describes the physical movement of the goods, for example:

Authenticated sea-waybills.
Authenticated air-waybills.
PIM/PIEX International consignment notes.
Master air-waybills or bills of lading.
Certificates of shipment containing the full details of the consignment and how it left the EC, or
International Consignment Note/Lettre de Voiture International (CMR) fully completed by the consignor, the haulier and the receiving consignee, or Freight Transport Association (FTA) own account transport documents fully completed and signed by the receiving customer.

Further details on the purpose of these documents can be found in Notice 275 Customs: export procedures.

Photocopy certificates of shipment are not normally acceptable as evidence of export, nor are photocopy bills of lading, sea-waybills or air-waybills (unless authenticated by the shipping or air line).

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6.4 What supplementary evidence is available?

You are likely to hold, within your accounting system some or all of the following:

customer’s order
sales contract
inter-company correspondence
copy of export sales invoice
advice note
consignment note
packing list
insurance and freight charges documentation
evidence of payment, and/or
evidence of the receipt of the goods abroad.

You must hold sufficient evidence to prove that a transaction has taken place, though it will probably not be necessary for you to hold all of the items listed.

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6.5 What must be shown on export evidence?

The text in this box has the force of law
The evidence you obtain as proof of export, whether official or commercial, or supporting must clearly identify: the supplier the consignor (where different from the supplier) the customer the goods an accurate value the export destination, and the mode of transport and route of the export movement.

Vague descriptions of goods, quantities or values are not acceptable. For instance, 'various electrical goods' must not be used when the correct description is '2000 mobile phones (Make ABC and Model Number XYZ2000)'. An accurate value, for example, £50,000 must be shown and not excluded or replaced by a lower or higher amount.

If the evidence is found to be unsatisfactory you as the supplier will become liable for the VAT due.

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6.6 What evidence will I need to obtain to substantiate VAT zero-rating when I do not arrange shipment of the goods?

Typically this occurs when goods are supplied ex-works. If your overseas customer arranges for the goods to be collected from your premises and exported to a place outside the EC Member States it can be difficult for you, as the supplier, to obtain adequate proof of export as the carrier is contracted to your overseas customer. For this type of transaction the standard of evidence required to substantiate VAT zero-rating is high.

Before zero-rating the supply and releasing the goods to your customer, you must confirm what evidence of export is to be provided.

If the evidence of export:

does not show that the goods have left the EC within the appropriate time limits, or
is found, upon examination, to be unsatisfactory

you, the supplier, will become liable for payment of the VAT.

For these reasons you should consider whether to:

include the requirement for the buyer to provide export evidence as part of the sales contract between you and your customer, and/or
secure against the possibility that your buyer will fail to provide the proper export evidence by, for example, taking a deposit from your customer equal to the amount of VAT you will be liable to pay if the evidence is not sent to you.

The deposit can be refunded when you obtain evidence that proves the goods were exported.

Evidence must show the goods you supplied have left the EC. Copies of transport documents alone will not be sufficient. Information held must identify the date and route of the movement and the mode of transport involved. It should include the following:

a written order from your customer which shows their name and address, and the address where the goods are to be delivered
copy sales invoice showing the invoice number, customer’s name and a description of the goods
delivery address for the goods
date of departure of goods from your premises and from the EC
name and address of the haulier collecting the goods; registration number of the vehicle collecting the goods and the name and signature of the driver
where the goods are to be taken out of the EC by an alternative haulier or vehicle, the name and address of that haulier, the registration number of the vehicle and a signature for the goods
route, for example, Channel Tunnel, port of exit
copy of travel tickets, and
name of ferry or shipping company and date of sailing or airway number and airport.

The information held should also include (if applicable):

the trailer number
full container number, and
the name and address for consolidation, groupage or processing.

At the time when the goods leave the EC the above information could be obtained from your customer, the haulier, the freight forwarder or the documents listed in paragraph 6.4.

See paragraph 7.3 for goods that your customer intends to export in his baggage or his private motor vehicle.

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6.7 How long must I retain export documentation?

To substantiate zero-rating a transaction you must make sure that the proof of export is:

kept for six years, and
made readily available to any visiting VAT Officer to substantiate the zero-rating of your exports.

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6.8 What happens if I do not hold the correct export evidence?

If you do not hold the correct export evidence, within the appropriate time limits, then the goods supplied become subject to VAT at the appropriate UK rate. See paragraph 11.2 for details of procedures to follow in these circumstances.

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6.9 If I am an overseas customer arranging my own export what do I need to do to make sure that I get the benefit of zero-rating?

Once you have collected the goods or arranged for the goods to be taken to the port or airport, for export, you should provide the supplier of the goods with all of the documentary evidence you hold to prove that the goods have been physically exported. You should make sure that the supplier is in possession of this evidence to allow them to meet the time limits for export.

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6.10 What if I have lost or mislaid export evidence?

If you have lost or mislaid the official or commercial evidence of export supplied by the ship owner or carrier, duplicate evidence of export may be obtained. The replacement evidence of export must be clearly marked 'DUPLICATE EVIDENCE OF EXPORT' and be authenticated and dated by an official of the issuing company.

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7.Proof of export for zero-rating in specific circumstances

This section covers the specific evidence of export that you must obtain according to the method of export used. In all cases the official or commercial transport evidence you obtain must be supported by the supplementary information set out in paragraph 6.4 to show that the transaction has taken place.

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7.1 Air and sea freight

If you are using commercial transport documents as proof of export for goods exported outside the EC by:

Air - you must obtain and keep an authenticated master or house air-waybill endorsed with the flight prefix and number, and the date and place of departure.
Sea – you must keep one of the copies of the shipped bill of lading or sea-waybill (certifying actual shipment) or, where a shipping company does not issue these, a certificate of shipment given by a responsible official of that company.

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7.2 Road freight

The International Consignment Note (CMR) provides evidence of the identity of the contracting parties when goods are transferred by road. It is in three parts and is completed and signed by the sender of the goods, the carrier and the person receiving the goods. Where the overseas customer arranges for the goods to be collected ex-works the CMR alone is not conclusive evidence that the goods in question have left the EC but, where the CMR is used as part of the evidence, it is important that the information is complete and all the details legible.

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7.3 Merchandise in Baggage (MIB)

Commercial or business goods exported in accompanied baggage are known as MIB. Commercial evidence of export is normally only available where goods are shipped as manifested freight, as individual consignments or as part of groupage consignments. Currently MIB is outside the scope of the National Export System and you will need to complete a non-electronic paper Single Administrative Document (SAD) Form C88 and follow the procedures below.

Provided the goods and correctly completed SAD copies 2 and 3 are presented to the MIB officer, official certification of copy 3 of the SAD can be obtained for the following:

Merchandise in Baggage.
Re-export of temporarily imported goods
Transfers of own goods (see paragraph 2.15).
Purchases by overseas persons.
Exports where commercial documents are not available (for example where an ATA carnet has been lost).

In all these cases the certified copy 3 of the SAD (Form C88) is your evidence of export.

(a) Where you export the goods

If you export goods in baggage or in a private motor vehicle, you must:

Include 'MIB' in box 44 of the export SAD (C88).
Arrive well before your scheduled departure time and present copy 2 and copy 3 (marked 'for VAT purposes only') of the SAD, with the goods, to the MIB officer at the UK place of export from the EC for the reverse of copy 3 to be certified that goods have been shipped.

Copy 3 will be handed back to you as evidence of export for retention in your records.

(b) Where your customer exports the goods

Where your overseas customer collects the goods from your premises and arranges transportation in baggage or in a private motor vehicle you must:

Give your customer a completed SAD with your name and VAT number shown in box 2. (This will make sure that your overseas customer does not include your supplies on a single SAD covering goods purchased from a number of UK suppliers. If they did this, they would be unable to provide you with an original officially certified copy 3 for your records).

Your overseas customer must:

Arrive well before their scheduled departure time and present copy 2 and copy 3 (marked 'for VAT purposes only') of the SAD (Form C88) with the goods, to the MIB officer at the UK place of export from the EC. The MIB officer will certify the reverse of copy 3 to show that goods have been shipped and hand it back to your overseas customer.
Send you copy 3 as evidence of export for retention in your records.

(c) Leaving the EC via another Member State

If you or your customer depart the EC via another Member State copy 3 of the SAD (Form C88) will be certified by Customs at the place you leave the EC.

Full details of the MIB procedures are given in Notice 6 Merchandise in Baggage.

Unstable Power Supply Effects On The Economy

2014-08-27T07:59:00.001-07:00

Unstable power supply has a lot of effects on the economy. The effects are great with the stability levels.

Zambia has been facing a lot of challenges regarding electricity. The effects are however never addressed on the effects on the economy. I believe the issue should be addressed with full knowledge of the effects on lifestyle, economy, education, health, etc

Lack of Guaranteed and Stable Electricity

Without guaranteed and stable electricity, the economic stability of any country will be threatened. Is it no secret that Zambia has a shortage of power supply, resulting in continuous "load-shedding". Load-shedding is the cutting of electricity supply to some households in order to stabilise supply in other areas or sectors. The load-shedding has no specific time, bears no regard to what needs to be done and bluntly it is just applied. The worst part is that different areas experience different "load-shedding" levels and intensities and some never even experience it. You have to realize that when power supply is cut, all work, machinery or activities that depend on electricity will not be possible. The activities come to a stand still.

For those with economic dependence on electricity will not perform their economic activities at the time of load-shedding. All possible economic activities in a particular area that depend on electricity die. That is the bottom line. You can actually witness the demand through the buying of generators, solar panels, etc. The sectors affected however, would not result in all of them depending on solar panels and generators. If this was the case, ZESCO would have been replaced by now. Few barbershops, entertainment places actually use these alternative sources even though they can easily provide for them.

Zambia's fight to increase entrepreneurship for the young people has severely been affected by lack of stable electricity. Few would venture into it without regarding power. It is assumed the load-shedding is only applied to residential areas, but how many businesses start up in residential areas? Even big multinational companies started in one's garage. It should be appreciated that some economic activity depend on electricity and it would help if we had stable electricity supply for our economic benefit.

Therefore, lack of stable electricity in Zambia has produced a lot of negative effects on the economy. The effects are far reaching and need to be addressed. The cost of this unstable supply of electricity should be regarded as the cost of downtime during an outage which would include but not limited to the opportunity cost of economic activities that would otherwise be carried out. Further social, medical, psychological costs in terms of injuries, deaths resulting from lack of power, failure in advancement in education due to failure to study. Any other costs from the lack of power should be included in the cost of unstable power in order to assess the full impact of unstable power supply.

Cost Reflective Pricing

I have always loved the terminology used by ZESCO/ ERB, etc in justifying an increase in prices or fees. So what is the cost reflective-ness that is always being talked about? Do we really have different costs for companies and residential clients?

We have to take on board the feeling that people have of the big companies not paying their fair share of the costs of electricity. This has to be confirmed to each and every stakeholder. We feel we pay our share and even subsidize the big companies. Bluntly speaking, the cost reflective-ness for the two (residential clients and companies) cannot be the same in actual terms, I believe one should be greater than the other.

In this light then, cost reflective-ness though welcome, needs to be explained to us. We always feel we pay a lion's share of the cost.

Change Our Business Timings
We should remember that cutting of electricity supply comes with risks. In particular, health related institutions like hospitals and mining entities.

Therefore, we are left to cut power supply in areas with minimal side effects. Households pose a good group of people who should be cut from supply. But I tend to think they are also the group which uses it less compared to those that are using it in manufacturing.

To this effect, we should ensure that the big electricity consuming companies also do their fair share of the "load shedding" by working at times that households do not use. That will be a fair way of sharing the limited resource.

All in all, unstable power supply has a lot of effects on the economy and should be looked at with the seriousness that it deserves. We as a country need to appreciate that we can only do so much when we have enough power. Self employment opportunities should be addressed in full. There is no need to look elsewhere when we can provide these opportunities. The cost on the economy are not measurable.

Has The Kwacha Stabilized?

2014-08-01T08:15:00.000-07:00

I would like to apologize as I have been out and about to blog on a few things that have been happening. Sadly, the kwacha was the main issue that has been happening and a blog with that name should surely have been providing the needed updates. Nonetheless, I will try and make up for the lost time.

There are many stories that surround the dive that the Kwacha took and many of these are close to the truth. Kwacha economics has a perspective which I feel is closer and need attention to all that are concerned.

To begin with, there are many factors that can lead to a currency to fail that quick in such a short time. Many of these can be explained not necessarily immediately but after careful analysis of the happenings.

Monetary Policy and Only with Fiscal Policy

I am a firm believer that monetary policy and fiscal policy should work together to affect certain desirable positions in the economy. The Kwacha's fall once again proved that better than any text book would do. We all remember the amounts of dollars that were off-loaded on the Zambia markets, the effect they had on the falling is as good a guess as any. Check this [here], [here] and [here] Maybe a series of analyses can look into a it but we need to examine how things changed when the fiscal policy was called to the war.

So why was the offloading of dollars so ineffective?

The simplest form of understanding exchange rate market (that some senior made me to believe way back), is that you have a basket of dollars (or any other foreign currency) and another one with Kwacha (or any local currency), and you are comparing the values. If there is less dollar than the local currency, the value of that foreign currency will appreciate as there will be more local currency than the itself at any value. So for every dollar that exist in that basket, more and more of the local currency will be needed to equalize the status quo.

So from the above, a depreciated currency will entail there is a lot more of that currency that the foreign currency. So the two things that can happen is to flood the economy with the foreign currency - which the Bank of Zambia did, or suck out the local currency! I believe the two are better handled using the different policies of monetary and fiscal. Monetary policy can flood the economy with foreign currency effectively and efficiently while the fiscal policy can suck out the local currency very efficiently.

Our handling of the fall in the first few weeks was a 'flooding of economy with foreign currency' strategy which did little too late. The use of both flooding and sucking out worked!! Monetary policy and fiscal policy produced wonders!

Why this should be have been expected!

It is interesting that this was not expected! But having little history of this, maybe we should not expect people to realize what was happening. So lets look at the signs on the ground.

Zambia has not been in a position where they have invested so much in infrastructure development in long time. Lets just look at roads for the time being. I don't remember a time that so much money has been put in road construction. Specifically "Link Zambia 8000" or even Lusaka's "L400". Before these projects started, the only other "major" road construction was the election linked "Formula 1".

The two projects of "Link Zambia 8000" and "L400" have had a major cash injection for materials, equipment, employees, etc. The materials and construction equipment are imported. So no matter how much Kwacha is dished out, the contractors will need the Dollar to import the materials and equipment to be able to undertake the construction. So there is a leakage of Dollars and this is not in small amounts, but huge cash outflows from the Zambian economy. Such outflows will put a strain on the local currency and will serious lead to its depreciation. Its a simple demand and supply phenomenon.

Taking into account all such flows of money, the Kwacha was bound to be severely hit.

So the counter measures to this scenario was to ration the disbursement of road construction funds or plan the release in such a way that the Fiscal and Monetary policy worked on that issue together. Of course we have to remember that such happenings are new to everyone around and in institutions that are handling these policies. So a future happening can be handled much better.

If All Else Falls, Get Your Money Back!

The last kick in the system is when all else fails, the fiscal gets its money spread around in commercial banks back to the Central bank and let the invisible hand be helped with a loaded dice. It always works. No one can have more money that the fiscal machinery unless there is a sick economy arrangement or there is need to spend.

Sweeping of fiscal related accounts produces good results for the entire economy when there is need to control the exchange rate depreciation, but works against expansionary fiscal happenings. Banks will have no money to create more money with, and the fiscal can be assured of a greater demand for the local currency in a short time period that other methods. The opposite stands true when an appreciation is needed to be controlled.

The current arrest of a free falling Kwacha sums up the rules of the game - Monetary policy and Fiscal policy are different sides of the same coin. It just depends on which side you picked to start the tossing of the coin!

So now has the Kwacha stabilized for good?

Kwacha Depreciation

2014-03-20T23:17:00.001-07:00

I have always looked at the way we handle the depreciation of the Kwacha and the panic that is associated with it in wonder. There is nothing wrong with an floating exchange rate to float! That is why it's called floating.

Let the Kwacha Depreciate

If it needs to, let it depreciate. However, just ensure that there is stability on this depreciation path. It's safe economics.

The worst thing that can follow such a move (which mostly has happened in the past in this country) is to come up with funny policy changes and falling into the trap of the people you had been trying to catch. There are a lot of theories on what can happen and why it is happening. The safest is to look at the decisions that need to be done and then work your way in ensuring that those do not negatively affect the economy.

I love it when there is so much work on the background by people affected by one measure and how they convince the world that is we do this, things would change. The interesting part is that, that same thing has absolutely nothing to do with the other. You feel like you are watching leverage season "Zambia".

Why is it Falling?

Why is the Kwacha falling? That is easier to find than MH370! We surely don't even need the satellite. There is tones and tones of statistics that can be used to gauge this. We even have SI 55 as a tool to use for extra input into our analysis. We just need people seating on it and working through. If there is nothing major but supported by the expected economics that we are bringing less and less of the dollar into the economy, we simply go out there and work our way into correcting that. That is how it works. If we see a policy not related to this and no major economic explanation, we may have used politics over economics - the worst possible way out of this.

Kwacha Economics will watch this unfold and will surely love to write on the outcome of this issue.

The Kwacha Dives!!!

2014-03-07T00:19:00.000-08:00

This has been a sad week for this blog. The Kwacha has been given a serious beating. I have been running some analysis on how bad this has been. As usual, my analysis includes looking at data that has been provided around the environment of the Kwacha. To ensure I present only facts, I have to take my time and look at the details surrounding the issue. As usual it is not a good thing to be doing when you want quick answers. It still needs to be done properly.

All economic talk in Zambia has been on the exchange rate (Just to be on the same page - An exchange rate is the current market price for which one currency can be exchanged for another). The Kwacha has depreciated beyond all manner of psychological barriers. Currently selling at K6.0443 to a US Dollar and K10.1214 to a GB Pound (zanaco.co.zm - 7th March, 2014. Checked: 10.00hrs CAT).

What are the causes is the biggest topic in this dive. The answers are still being looked at, but the politics associated with that "answer" are disturbing to say the least. Online media has done their "online analysis" and it has gone as far as looking at the appointments at the Central Bank. I like many friends of mine are hoping that Monday proves the online media houses wrong and the appointed Deputy Governor is no way close to what they have been publishing. I don't think there will be anything to talk about if the seriousness that is required in the appointing of people charged with looking after the Kwacha and related to that, goes to levels of mere patronage. You can read some articles here and here. Many other online media houses have touched on this subject, but I have not linked some articles which I feel are not respecting the profession of giving information as it is and choose to take the political stand instead. Feel free look them up on google.

What really causes our currency to dive like this I still ask. I have written on this issue (in serious foras which I cannot quote), and I still believe the argument I have had still stands - we don't produce demand for our Kwacha. With a few in the lines of Maheu and Sweets exports, little value is sent to the world for them to demand our Kwacha. The mines would have been the best option, but the Swiss connection seems to take us out of the equation.

Over the past years, according to Trading Economics, the Kwacha against the dollar has been on a rather bad trend. One which should make us re-think our development agenda and encourage us to build what will make our Kwacha stable.

The trend has not been good against the dollar over the years. On average, the Kwacha is depreciating at an alarming rate.

Source: Trading Economics

That's a jump from around K4.7 to K6 in a period of less than four (4) years. The depreciation has been worse since 2012 on average.

I am alarmed to see that the dive in the past week is shockingly higher than any other time in the past three (3) years. I will monitor this and get information on the possible causes in the next few days for an update.

Mining and Employment

2014-02-16T23:23:00.000-08:00

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?

2014 Budget and Tax Measures

2014-01-01T22:36:00.000-08:00

2014 starts on an interesting footing. So I thought I remind you of the tax measures expected to start today. Most of these where in the 2014 Budget speech.

Airtime

Excise duty on airtime has been increased by 5%. So it is now 15%. Expected result is the reduction of the minutes you spent per Kwacha! Assuming you took note of the minutes you used to spend, it will surely drop in the new year. Moreover, you bundles are also expected to be hit by that change! Less MBs per Kwacha.

The increase was justified as raising money for variious developmental programs that the government will be implementing. If it has anything to do with projects like roads and any other infrastructure development, I have no problem with my drop in "units"!

Clear Beer

Beer has had an excise duty of 60% for a long time. However, this was suspended by a statutory instrument to 40%. So beer has been working with 40% excise duty. As of 1st January, 2014, the effective duty of 60% will kick in and everyone will have to pay that 20% they have not been paying.

Clearly, beer has long been known not to be affected by changes in prices - not that much anyway. So we should expect the same quantity of consumption and drunken behavior but now at a higher price. The money is also intended to be pumped into developmental projects.

Tourism Packages Standard for VAT

Tourism packages that are sold from 1st January, 2014 will now be standard rated. The 16% VAT will apply and tourists will pay when they procure a package. I am a firm believer in standard rating of all goods and reduction to the barest minimal of the exemptions and zero-rating of goods and services for VAT purposes. I think this is a good measure and one which should be used to improve our VAT performance.

I wish many more goods and services would be moved to standard rate. Eliminate the zero-rating and exemptions to the barest minimal. VAT would be boosted.

However, I believe we need to also look at the VAT chain and see where the tax leakage is. This will ensure all VAT paid or should be paid, is paid and to the right institution for it to be used in the right way. This is important and critical for Zambia.

Property Transfer

Property transfer rate has moved from 5% to 10%. This means all those selling property like houses or mining right, will pay an extra 5%. So those who plan to sell property in 2014 have to take into account this change as you may find yourself paying a little extra for property transfer tax.

Withholding Tax on Rentals

Withholding tax on rentals has dropped from 15% to 10% and has been made a final tax. Because it is now a final tax, it would not be used for deductions in one's final tax liability.

It is expected that this would bring in a "net increase" in collections under this tax even though it has been reduced. This is because there will be no more deductions claimed against it. So those in lose making positions will have to deal with this tax separately as it is a "stand alone tax". (I hope my attempt at simplification has not introduced a different meaning :) )

Public Benefit Organisations (PBOs)

These are charitable organisations approved by the Minister of Finance for various rebates, refunds or remissions when they import or buy goods for charitable works.

As a result of general rationalizing of tax incentives, various items which were previously available for refunds or remissions, will no longer receive such treatment. In particular, no motor vehicles will be "exempt" from paying taxes when imported by the PBO. All motor vehicles imported by these organisations will need to be paid for in full.

It seems like a harse decision to take, but when you hear stories of some churches which imported Hummers, X5, etc for their "pastor" in "helping" the need in society, who would look at this measure as "harsh" seriously, there is need to make people pay the due taxes in full and the right amount.

Though this measure was legislated in November, most PBOs will feel the effect in 2014. Being a 2014 budget measure, it suits to be discussed here.

Access to Banking Information

Zambia Revenue Authority (ZRA) will have access to information, notwithstanding obligations and secrecy imposed under the Banking and Financial Services Act, the Evidence Bankers Book Act, Legal Practitioners Act and the Accountants Act, required for tax purposes.

Any person or organisation that had preveneted the ZRA from accessing information on "secrecy" or any such reason, will have an interesting find in 2014.

Grant Aided Institutions

Grant aided institutions that will now be required to deposit their revenues in the general revenues has been increased with the addition of Zambia Environmental Management Agency (ZEMA), Patents and Company Registration Agency (PACRA), Competition and Consumer Protection Commission (CCPC) and Weights and Measures Agency. This is in line with annoucements in 2013 Budget which say the first statutory bodies' (ERB and ZICTA) revenues being brought into the general pool.

I hope this will truly bring about prudent management of revenues by the institutions in questions and ensure that government will have enough resources to provide for public services efficiently.

These are a few issues that will be brought on board by the year 2014 on the tax and budget front. We hope to see positive outcomes at the end of the year that we can talk about.

Happy 2014

Happy New Year - 2014

2014-01-01T21:35:00.000-08:00

Happy New Year to Kwacha Economics readers and followers. May you find this year as you hope and may the blessings shower on you and enable you to achieve all your dreams.

Kwacha Economics has only one resolution for 2014 - move to a Zambian domain and have frequent posts.

Good bless and we hope to be together and closer in 2014.