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BLOG – The Case for Cost Reflective Implementation – Is Zambia getting it Right?

Generally, most countries in Africa charge tariffs that are much lower than the actual cost of generating, distributing and retailing electricity. The difference between the tariffs most customers pay and the actual cost of electricity is subsidised by Governments. For this reason, in 2008 Southern African Development Community (SADC) Ministers of Energy were prompted to approve migration of unsustainable electricity tariffs towards cost reflectivity within five years and set a deadline of 31st December 2013. However, by 2015 only Namibia and Tanzania in the 15-country regional bloc had successfully achieved cost-reflectivity, despite an earlier commitment by all member states to meet the objective by 2013.  Consequently, (SADC) energy ministers further extended the deadline to 2019 by which member countries were required to produce road-maps for transitioning their electricity supply industries towards cost-reflective tariffs by 2019 in an effort to improve the sustainability of the sector and create the basis for greater investment in new generation capacity by state utilities and Independent Power Producers (IPPs). Cost-reflective tariff designs send price signals to various stakeholders that lead to better decisions with respect to consumption, production and the expansion of networks.

To this effect, and in accordance with the Electricity Act Chapter 433 of the Laws of Zambia, ZESCO on 22nd March 2019 issued notices to its consumers of its intention to adjust electricity tariffs and connection fees by a weighted average rate of 113 percent and 213 percent respectively. However, on 3rd May 2019, a pronouncement was made that Government deferred ZESCO’s application after consultations with various stakeholders.

The question that begs answers is whether ZESCO’s proposed tariff adjustment over the years is justified?

 

First Cost of Service Study

The first Cost of Service Study (CoSS) was conducted in 2006 with the aim of determining the cost incurred by the country’s vertically integrated electricity utility company called ZESCO in generating, transmitting, distributing and supplying power to various categories of consumers.  The key findings of the study indicated that the electricity tariffs in Zambia were not cost-reflective. The findings further recommended an average increase of tariffs by 45.4 percent in the 2007/2008 financial year. With such a rise the residential customers would have carried the highest increase of the tariff at 147.6 percent, followed by large power customers at 46.3 percent while commercial and services customers increase would have been 2.4 percent and 6.3 percent respectively.  The rationale after reaching cost reflective tariffs has always been that tariffs would be adjusted annually to account for changes in economic fundamentals such as inflation and exchange rate volatiles as the case is with petroleum pricing mechanism in Zambia. In the Petroleum sector, ERB reviews the retail prices of petroleum products every six weeks and each period is supposed to coincide with a new cargo of crude oil procured. As a rule, the ERB only adjusts the price if the cost margins escalate beyond 2.5 percent threshold.  Figure 1 on the right indicates that ZESCO had not made applications to vary its tariffs in some years even when economic fundamentals had arguably significantly changed in the said years. ZESCO has however made several tariff applications since the 2006 Cost of Service Study resulting in the ERB approving average tariff increases of 27 percent, 35 percent, 26 percent,16 percent, 75 percent in 2008, 2009, 2010, 2014, 2017 respectively.  The latest application to increase tariffs was made in March 2019.

 

Second Cost of Service Study

It must be noted that the 2006 study focused primarily on ZESCO which was at that time the producer and supplier of about 96% of the electricity consumed in the country. Significant changes have since taken place in the Electricity Sector in Zambia. There have been new entrants into the sector, such as Independent Power Producers (IPPs), who have invested in power generation with associated higher generation costs. By 2015 the average tariff ZESCO was paying to purchase power from IPPs ranged from USc 7/kWh to USc 13.23/kWh but the average end user tariff charged by ZESCO was USc 6/kWh7. There has also been a growing emphasis on developing the renewable energy resources of the country as stated in the Seventh National Development Plan. However, current electricity prices are well below both economic and financial costs.  To this effect in 2017 ERB embarked the second Cost of Service Study (CoSS) with funding from the African Development Bank (AfDB). One of the key tasks of the study was to determine the appropriate structure and level of tariffs for each consumer category.

A Cost of Service Study was important to ensure that ZESCO’s inefficiencies were not passed on to consumers.  A more reason why the other key deliverable task of Cost of Service Study focused on a detailed review of ZESCO’s cost structure by benchmarking with cost structure of similar efficient utilities with similar technical structure8. The study was going to be the basis on which to determine future tariffs adjustments for categories of consumers. However, the cost of service study was suspended midway by the consultant and by the first quarter of 2019, ERB was still evaluating bids for a new consultant to undertake the Cost of Service study.

Without a CoSS, therefore, it implies that the 2019 proposed tariff hikes by ZESCO with a weighted average of 113 percent may suggest inaccuracies in arriving at the proposed new pricing.   For any successful implementation of tariff hike that is widely acceptable by all stakeholders, the need for an independent Cost of Service study cannot be overemphasized. Availing of all microdata on cost and operations by utilities to all stakeholders reduces resistance to tariff hikes and helps Government to make the right decisions.  Tariff designs should be characterized by transparency, predictability, efficiency, fairness, simplicity, and lack of controversy.

 

Challenges in the Implementation of Cost Reflective Tariffs

 

Decreased Economic Activities

The implementation of cost reflective tariffs will affect different consumer categories differently. The increase in tariffs through the implementation of cost reflective tariffs may lead to decrease in electricity use, which may lead to decreased economic activities as electricity use plays a role in one of input factors. It is therefore imperative that the implementation of cost reflective tariffs is phased to minimize the shocks to the economy. The small enterprises are the most affected mainly due to their lack of resilience and limited capacity to invest in alternative energy sources.

Implementation of cost reflective tariffs is also hindered by the competing expectations between low income consumers afford-ability and utility companies’ desire to recover costs. Consumers expect to receive electricity at an affordable price, while utilities’ argument is that “to provide a good reliable electricity, supply tariffs must be matched with costs”. The rational approach, is for Government to implement gradual movement towards cost-reflective tariffs in order to minimize the impact on poor households.

 

Rural Zambian Population still has less than 5 percent Electricity Access

Cost reflective tariffs risk derailing the goal of achieving 100 percent access to especially for the poor mainly in rural areas where access of rural population has only ranged between 2-5 percent since 1990 as indicated in Figure 5 on the next page. National access to electricity averages at 27 percent with 62 percent of the urban and 3 percent of the rural population having access to power as of 201617.  ZESCO on 22nd March 2019 issued notices to its consumers of its intention to adjust electricity connection fees with a weighted average rate of 213%. If this proposal is approved by ERB, access to electricity would be made worse for the rural population. Rural connections are costly compared to connecting a poor household in an urban area. There seems to be an inverse relationship between providing services to all and afford-ability at least in the short term. One way of providing affordable services to the poor rural population could be through the provision of cross-subsidies given the constrained fiscal space.

 

Politics and Public Resistance

In 2015, ZESCO also applied to increase tariffs by an average of 187 percent which was granted by ERB but later on reversed by the Government after public dissatisfaction. The trend has been the same in African countries such as Ghana, Tanzania, and Nigeria with similar energy sectors structures.

 

Key Recommendations

  1. An industry-wide Cost of Service Study which was commissioned in 2017 but has since been suspended after the contract with the consultant was terminated due to poor performance. Without a CoSS, electricity tariff adjustment suspension by the Government is a welcome move and provides an opportunity for all stakeholders to resolve the concerns raised. However, Government through ERB needs to expedite the process of selecting a new consultant to embark on the cost of service as soon as possible.
  2. Government should ensure that capacity is built among the locals in carrying out CoSS so that subsequent Cost of Service studies are done by Zambians. Besides ERB staff, additional personnel from key relevant stakeholders should be recruited in the study technical team to work with the consultant.
  3. ZESCO needs to periodically publish its costs for public and stakeholder scrutiny to enhance appreciation of its cost structure and operations. ZESCO’s increased revenue translates into significant increase in generation, transmission and distribution expansions visible to all stakeholders.
  4. Government should continue exploring measures to restructure the vertically integrated ZESCO’s business model if the utility company is to be sustainable by possibly unbundling it into separate business units namely; generation, transmission and distribution.
  5. There is need to enhance planning, research and development (R&D) units at both Ministry of Energy and ZESCO to continue exploring least cost electricity expansion plans and integrated resource planning for the country.
  6. Government needs to consider that cross-subsidies for connection fees for low-income groups are borne by other customers (industrial or commercial customers) to ensure that access to electricity by the poor is guaranteed to minimize the economic shocks of cost-reflective tariffs. Government should also consider implementation of cost reflective tariffs in a phased manner.
  7. Government must formulate a “renewable energy policy” to provide for strategies and targets that would develop the renewable energy sub sector and implementation of Renewable Energy Feed-in Tariff (REFIT). REFIT refers to schemes designed to provide certainty to renewable electricity generators by providing them with a minimum price for each unit of electricity exported to the grid over a 15-year period.
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PMRC Media Workshop – Lusaka

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BLOG: Commission on the Status of Women 63 Session

The Commission on the Status of Women (CSW or UNCSW) is a functional commission of the United Nations Economic and Social Council (ECOSOC) and one of the main United Nations organs. The Commission on the Status of Women is the United Nations’ organ that promotes gender equality and the empowerment of women. Every year, representatives of Member States gather at United Nations Headquarters in New York to evaluate progress on gender equality, identify challenges, set global standards and formulate concrete policies to promote gender equality and advancement of women worldwide.

This year’s CSW marked the 63rd session under the theme “Social Protection Systems, Access to Public Services and Sustainable Infrastructure for Gender Equality and the Empowerment of Women and Girls”. On the 17th of March 2019, the Commission released a draft of agreed resolutions aimed at addressing the various gender disparities that women face globally. It is pleasing to note that there has been progress towards women’s and girls’ access to social protection, public services and sustainable infrastructure, particularly in the areas of health and education. This is evident from the global increase in social protection coverage, more girls attending school as well as access to affordable and quality essential health-care services.

The Commission however, recognized significant challenges which include gender gaps averaging 32% which remain to be closed according to the 2018 Global Gender Gap Report. The progress that has been achieved over the years is threatened by budget cuts and austerity measures and multiple and intersecting forms of discrimination faced by women and girls. The Commission stressed the importance of addressing these remaining gaps, as well as inequalities, structural barriers and biases that constrain equal access to social protection systems, public services and sustainable infrastructure.

The following were some of the resolutions made during this year’s CSW;

Education

The Commission reaffirmed the right to education and stressed the need for equal access to high quality, affordable, accessible and inclusive education in contributing to the achievement of gender equality and the empowerment of all women and girls. It noted with concern the lack of progress in closing gender gaps in access to, retention in and completion of secondary and tertiary education and emphasized the importance of technical and vocational training and lifelong learning opportunities in achieving sustainable development.

Health

A healthy population is the desire for all nations and it is for this reason that the Commission recognised the need to target and eliminate the root causes of gender inequality, discrimination, stigma and violence in health-care services. The Commission also reiterated the need for Member States to promote universal health coverage that comprises universal and equitable access to quality health services and ensures affordable and quality service delivery through primary health care.

Social Protection

Social protection is one of the key instruments of reducing inequality and poverty. Many countries have adopted various social safety nets aimed at uplifting livelihood of vulnerable and marginalized groups. The Commission was concerned with the social protection coverage gap especially for women in some countries which goes against a person’s right to a standard of living adequate for the health and well-being of themselves and their families, including food, clothing, housing and medical care and necessary social services.

Infrastructure, Water and Sanitation

Poor infrastructure, water and sanitation remains a challenge in many developing countries. The Commission was concerned that women and girls are particularly affected by water scarcity, unsafe water, inadequate sanitation and poor hygiene, and that they shoulder the main burden of collecting household water in many parts of the world, restricting their time for other activities, such as education and leisure, or for earning a livelihood.

Investment

The Commission affirmed that accelerated investments in gender-responsive social protection systems, public services and sustainable infrastructure, along side gender-responsive macroeconomic policies that enhance job creation and livelihoods, are critical in tackling economic, social, environmental, legal and demographic challenges. These are important for the achievement of gender equality and the empowerment of all women and girls and inclusive growth on the path to sustainable development.

PMRC would like to commend Government for its efforts in ensuring gender equality and the empowerment of women and girls throughout the country. PMRC would also like to urge Government to adopt its recommendations on increasing budget allocation towards the health and education sectors which are below international standards of fifteen and twenty percent respectively.

Lastly PMRC would like to urge the private sector to supplement Government’s efforts by promoting gender equality and the empowerment of women and girls through empowerment programs as well as strengthening the mainstreaming of gender responsive planning and budgeting of all programs and projects.

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BLOG – “Zambian Youth: Generation Unlimited,” Re-Energizing Opportunities for the Zambian Youth Through Policy Reform

Zambia recently celebrated Youth Day themed “Zambian Youth: Generation Unlimited,” on the backdrop of International Women’s Day (8th March) with the urgent reminder to harness the demographic dividend in view of the country’s youthful population. Peace, economic development, social justice, tolerance – all this and more, today and tomorrow, depends on tapping into the power of the youth. Many young women and girls in the world today are breaking barriers that previously made them vulnerable in the face of unequal opportunities and conservative society. Things have changed and many young women and girls in the world today are taking the lead in science, leadership in the public and private sectors.

Zambia’s Demographic and Health Survey (ZDHS) data shows that youths (people aged 15-35 years old) make up about 36.7% of the country’s total population representing the largest number of youth as a share of population in the country’s history, according to United Nations Population Fund (UNPF).

Further, the United Nations projects Zambia’s youth population to remain between 34-37% of the population for the next 20-30 years, while the World Bank estimates 56 percent of the local labour force comprising youths and this is projected to continue rising between now and 2035.

The Government has created multiple policy frameworks aimed at addressing youth unemployment and encouraged increased participation of young people in the country’s economic development agenda. This is evident from the number of young women and men who have been given the platform to lead in Government and the private sector. Despite these efforts, challenges remain with youth unemployment in Zambia estimated at about 10.5%, above the national average unemployment of about 7.4%.

The private sector has a role to complement these efforts by introducing homegrown sustainable youth empowerment strategies for Zambia.

Having a youthful population gives us a huge opportunity to create tangible and sustainable development for Zambia by placing strong emphasis on youth empowerment now and for the future. With approximately 75% of Zambia’s population under the age of 30 years the country needs to reconfigure its strategies to harness this youthful generation and create opportunities for the future. To achieve this PMRC recommends;

  1. Strengthening Labour Regulations and Skills Development Programmes by focusing on policies to improve the quality of labour supply and achieve better market matches between available stock of labour force and the demands of industry. This should include but not limited to skills training, education, expansion of education access with quality, especially for low income households. Zambia’s Industry use of foreign skilled workers demonstrates further evidence of the shortage of well-trained nationals in some fields and provides an opportunity re-double efforts to increase education coverage and quality. There is also a need to shift university programmes towards producing professionals who can meet the needs of industry.
  2. Improve quality and Technical and Vocational Education  and Training Programmes by focusing on generating on young entrepreneurs that are relevant to the times and industry needs. This should be focused on support to upskilling and skill training to support economic diversification into agribusiness, tourism and construction which provide opportunities for large numbers of young people to engage in non-farm work in both rural and urban areas.
  3. Design labour regulation to support growth of formal and informal jobs by easing the cost of compliance and encouraging the expansion of small businesses run by the youth. The youth are also encouraged to show responsibility by utilizing funding resources based on their business plans to yield better outcomes for repayment and subsequent benefit for other youths because these loan facilities are designed to work as revolving funds. Non-payment of loans by youths presents a challenge for growing the base of young entrepreneurs and Government must align its strategies to increase incubation support to businesses to create a generation of innovative entrepreneurs with unlimited potential to grow.

Given the tenacity, brilliance and innovation demonstrated by many Zambian youths, a “Generation Unlimited” is apt and befitting and clearly demonstrated by the abilities and milestones that have been scored by our youth in the Agriculture and Economic Sectors, Sport, Media, Mining, Robotics Innovation, Leadership, Film and Music Industry and many others too numerous to mention. And this has been made possible by Government efforts to deliberately create a conducive environment for the youth to thrive and giving leadership opportunities to young people that are serving as members of parliament and senior Government officials and those leading in the private sector.

In line with the Government’s National Youth Policy and National Action Plan themed “Towards Skilled, Enlightened, Economically Empowered and Patriotic Youth Impacting Positively on National Development” there is need to break more barriers through closer collaboration between the Ministry of Youth and Sport and relevant Government agencies and stakeholders to report on progress and resolve challenges affecting the youth in the country.

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BLOG – Zambia Scores with “First Scaling Solar Project in Africa”

The President of the Republic of Zambia, His Excellency Edgar Chagwa Lungu on 11th March 2019 commissioned Zambia’s and Africa’s First Scaling Solar Project supported by the World Bank to be run by the Bangweulu Power Company Limited. The  facility boasts of a 54 MW first large-scale solar power plant in Africa that  will cover 30,000 households and the lowest tariff in sub-Saharan  Africa at 6¢ (US Cents). In July 2015, Zambia’s Industrial Development Corporation (IDC) signed an agreement with the International Finance Corporation to explore development of two large-scale solar projects through Scaling Solar.  The competitive auction organized through the program attracted
48 solar power developers, seven of whom submitted final proposals, and the bids yielded the lowest solar power tariffs in Africa to date.


PMRC reiterates the importance of having a coherent, transparent process that the investor and investing public, the private sector, are able to work towards as well as the public institutions  on the Government side — that is, the IDC as investment  vehicle and the state utility as off-taker, to achieve predictability and a clearly defined process that lays the foundation towards the attainment of this 600-megawatt target which has been set for renewable energy in Zambia. PMRC’s research and policy contributions on Power Sector Reform and Renewable Energy in Zambia have laid the framework for success and provided key policy recommendations relevant to the discourse.

Given the challenges of Rising Demand, Below Cost Tariffs, Over Dependence of Hydropower and  Climate  Vulnerability and  Low  Rates of  Access  in Rural   Areas,  the private sector remains a key investment partner to adequately improving power supply in line with fiscal consolidation. Following PMRC’s recommendations, Government has made reforms to increase tariffs to make them cost-reflective thereby improving the country’s power sector investment climate.

To build on this progress Government has demonstrated its willingness and commitment to secure investment in the power sector without compromising fiscal consolidation objectives through the launch of the Scaling Solar Project. Government must therefore continue to make institutional changes to its planning and procurement capacity to secure productive, cost-effective and diversified power sector investment portfolio.

PMRC therefore recommends that the Government:

  1. Establishes a planning function to develop a strategic vision for Zambia’s energy portfolio and guide procurement;
  2. Establishes a  procurement  function that  sits alongside the planning function to implement the strategy for Zambia’s Power Sector and secure investment at better value for money, through improved commercial capacity, more competitive tenders and a streamlined procurement process;
  3. Speeds up reforms based on diagnostic study on ZESCO Limited to improve the credit-worthiness of ZESCO as off-taker to improve investor confidence through increased financial transparency and more secure guarantees; and
  4. Makes governance reforms to the Energy Regulation Board (ERB) to improve its independence and its effectiveness so that it better serves both investors’ and consumers’ interests.

Renewable energy is growing rapidly on a global scale, with record numbers of new renewable energy solutions ranging from wind and   solar  installations  coming online every year. Zambia can readily continue this  expansion  of renewable energy by utilizing existing technologies, investing in improvements to our electricity system, and making smart policy decisions that move the country towards a clean energy future and harnessing its vast potential for renewable energy.

Improving operational efficiency in the power sector in Zambia will be a key driver for the country’s prospects of substantial progress in the attainment of Sustainable Development Goals, Vision 2030, and the programmes envisioned in the Seventh National Development Plan.

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AFRICA-CHINA THINK TANK FORUM – 23 to 24 May 2019

THEME: Rebranding Africa as a Premier Destination

The objectives of the Forum are to promote Africa’s Global Economic Cooperation through sharing knowledge and research objectives on infrastructure, economic development and trade facilitation and initiating the process to establish global think tanks network committed to building great cooperation with China and the rest of the world. “Rebranding Africa as a Premier Destination” will be the theme of the Forum for the invited countries.

PROPOSED TOPICS

  1. Rebranding Africa in the New Global World Order.
  2. Is Africa on the rise or falling? What economic opportunities and challenges exist and how to overcome?
  3. Opportunities and challenges of bilateral and multilateral relations between Africa and other countries: a case of Africa-china relations.
  4. The role of African think tanks spearheading the African development agenda.
  5. Impact of the BRI on African manufacturing and industrialization (Opportunities for CFTA)
  6. China-Africa debt diplomacy; myth or reality (debt restructuring and cancellation)
  7. Impact of China-US trade war on Africa’s development agenda.

REGISTER ONLINE
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For more information, contact the Policy Monitoring and Research Centre Zambia:

Policy Monitoring and Research Centre
36C Sable Road
Kabulonga
Lusaka, Zambia
PMRC Main: +260 211 269717 | +260 979 015 660 | +260977716387

Email: info@pmrczambia.net
Web: pmrczambia.com

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Blog – Towards the Implementation of a Sustainable, Inclusive and Effective E-voucher Farmer Input Support Program (FISP) in 2019 and beyond

The Electronic Voucher Farmer Input Support Programme (e-Voucher) was fully implemented during the 2017/2018 farming season after a successful pilot of two farming seasons before. There have been notable implementation successes such as; reduced Government expenditure associated with procurement, transport and storage of inputs. The other successes relate to increased private sector participation in input distribution, beneficiary farmers have wide options of agriculture, livestock and fisheries inputs to choose from and an improvement in beneficiary targeting among others successes.

However, e-Voucher FISP implementation also faced challenges notably; delays in Government funding; complications in deposit capture due to lack of physical presence by some contracted banks in some districts, poor internet connectivity and poor flow of beneficiary information among other challenges. Consequently, Government was prompted to vary FISP implementation in the current 2018/2019 farming season with fifty-four districts reverted to the old Traditional Direct Supply of inputs while sixty-one districts, have been maintained on the new e-voucher FISP.

Status of FISP implementation in 2018/2019 farming season

PMRC has noted remarkable improvements with the Zambia Integrated Agricultural Management Information System (ZIAMIS) platform performance which previously was characterized with systems crashes, stakeholders’ competence limitations in the use of the code system and slow processing time. ZIAMIS system improvements and other interventions by he the Ministry of Agriculture has led to enhanced beneficiary targeting with over 900,000 farmers making the K400 contributions by December 2018 after being given Authority To Deposit (ATD).

We have however, noted a couple of challenges that need urgent attention in as much as over 850,000 farmers had redeemed inputs by the end of 2018 through the direct supply of inputs and e-Voucher FISP. The following are the challenges;

  1. Late payments to suppliers under the ‘Direct Supply of Inputs FISP mode’ who in some instances opted to withhold input stocks.
  2. Late payment and backlog of pending payments to some agro dealers which has affected their cash flow and consequently affected operations with some being forced to suspend operations.

These challenges need to be adequately addressed to ensure smooth implementation of E voucher and also attain the programmes broader objectives

As PMRC we earnestly propose to the Government to re-strategize the funding modalities of the FISP and consider Upfront complete funding of the entire programme as opposed to the phased funding to assure programme reliability and prompt agro-dealer payment starting with the current farming season. This would ensure sustainability.

To further develop agricultural produce marketing capacity in remote areas and increase the volumes of agricultural produce traded and facilitate fair prices leading to better profits and income to smallholder farmers, Government needs to focus attention on the state of feeder roads in addition to high-ways that have received considerable attention. To ensure effective linkage between the small-holder farmers and markets, Government through the Road Development Agency (RDA) should conduct routine grading of feeder roads.

The effective implementation of FISP given the favorable rainfall forecast for this season should be anchored on reliable and timely funding and resolving other perennial challenges in the sector. This will not only guarantee a bumper harvest to ensure food security but also guarantee peoples’ livelihoods.  Effectively, Food Reserve Agency (FRA) will be in a position to meet 500,000 metric tonnes of maize crop strategic reserves. The country will also have enough crops to export and do away with the costly export bans and administrative export restrictions that deprived the country of the much-needed foreign exchange.

Recommendations

  1. Government should prioritize disbursement of funds with upfront payment to FISP program.
  2. The Government needs to formulate exit strategy for the farmers currently on the FISP programme given the improved beneficiaries’ information storage and processing through the Zambia Integrated Agriculture Management Information System (ZIAMIS) database. This will enable Government to cater for as many eligible farmers as possible in the future.
  3. Government should also prioritize the maintenance of feeder roads to link farmers to the markets to further develop agricultural produce marketing capacity.
  4. We encourage Government to continue with the review of districts reverted to the direct input supply especially those that have enhanced agro-dealer capacity so that they are taken back to e-voucher FISP.
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BLOG – Domestic Resource Mobilisation and Zambia’s ‘Forest Gold Resources’: The Case of Mukula Trees

Zambia has just been commemorating Farmer’s Day, which is of great importance to the agriculture sector and economy at large. We take stock of the gains made in promoting diversification of the economy. Agriculture has clearly emerged as the Government’s torch bearer and sector of choice to push Zambia’s economic diversification programme for obvious reasons and the 2018 Budget bears proof of this. It links well with the 7NDP whose aspirations are centred on a diversified and export-oriented agriculture sector. 

In the 2017 Budget Address, Government made strong commitments to promote diversification and wealth creation in many sectors of the economy. This included the promotion of value addition in the forestry sector with a proposal to introduce specific rates on the export of unprocessed and semi-processed timber products at the rate of K10 per kg and K5 per kg respectively. Other measures included support to economic diversification and promoting capital investment by increasing the capital allowance for plant, equipment and machinery used in farming and agro-processing to 100 percent from 50 percent.

Zambia’s aspirations to diversify its economy away from the mining industry to other sectors such as agriculture and forestry are fully supported by the Seventh National Development Plan, which states that; the forestry industry, if properly nurtured, can significantly contribute to employment and wealth creation. Zambia Forestry and Forest Industries Corporation (ZAFFICO) currently employs a good number of people under the tree planting exercise, financed by the Government. Estimates made by ZAFFICO management indicate that , land clearing, preparation and planting of 40,000 hectares of land would provide direct employment opportunities to 40,000 seasonal employees. If this exercise was to be undertaken in designated sites in all the provinces at an expanded rate, the impact on job creation and incomes would be significant. This will contribute to eliminating social exclusion faced by the majority of the people who are unskilled and have had no employment opportunities for decades. In addition to this, strategic interventions set out to achieve this include the acquisition of 50,000 hectares of land in each province for forest plantations to be established by ZAFFICO, support for value addition to wood and non-wood forest products, promotion of investments through public-private partnerships in environment, forestry and other natural resources and the promotion of applied research on forests, forest products and the environment.

Given Zambia’s Demographic Dividend Study findings which assessed the economic and human development potential of the country in the short, medium and long-term using a comprehensive approach, the country can harness a “demographic dividend,” resulting from declining mortality and fertility rates, strong institutional capacities, healthy and skilled human capital, improved decent job prospects and an inclusive governance system. To take advantage of this prospect an enabling environment needs to be created that ensures citizens claim their rights to education, health, development, and live free from violence and discrimination. The demographic dividend report for Zambia requires timely, strategic, targeted and simultaneous investments in various sectors of the economy in an integrated manner, and enables the translation of policies into equitable, cost-effective interventions that leave “no one” behind.

Diversifying the economy and reducing over-dependence on the extractive industry by modernising the agriculture sector and prioritising value addition requires well thought out policy interventions for monitoring and evaluation and constant planning processes.

Zambia’s forests are endowed with some of the most valuable timber resources that include the Mukula tree, scientifically called “Pterocarpus erinaceus” which takes about 80 to 90 years to fully mature. Dubbed as Zambia’s Forest Gold Resource, the Mukula tree has the potential to increase Zambia’s Resource Mobilisation efforts and contribute to the country’s earnings through export of finished timber products and increased investments in the sector.

A Centre for International Forestry Research (CIFOR) study titled ‘Informality, global capital, rural development and the environment: Mukula (Rosewood) trade between China and Zambia.’ published in March 2018 examined the political economy of the international Mukula trade and the role of global capital, in particular that of Chinese origin in Zambia, and its impacts on rural livelihoods, the environment and resource governance.

The study showed that rural villagers increasingly forged direct links with foreign investors and produced innovative business models that accelerate the rate of small-scale production and extraction of resources under limited Government supervision. In 2017 the Government banned the harvesting, transportation, trading and exportation of the Mukula tree in accordance with Statutory Instrument (SI) number 94 of 2015 and also mandated the Zambia Forestry and Forest Industries Corporation Limited (ZAFFICO) to auction confiscated Mukula.

PMRC therefore recommends that the Government of the Republic of Zambia protect the Zambian forests against depletion and take stock of the resource availability for better planning. The recommended stock assessment of the timber resources must be conducted on a regular basis to ensure the country has accurate stock information. Given the challenges that threaten the existence of Zambia’s forests and tree species such as the Mukula there is need to improve the capacity of local forestry departments which are poorly staffed, leaving vast areas of forest in different parts of the country open to illegal activities such as deforestation. There is urgent need to shift local mindsets and attitudes towards the environment by encouraging the protection of tree species such as the Mukula by  members of local communities.

The National Forestry Policy and the Forests Act, which contain provisions for Community Forest Management (CFM), Joint Forest Management (JFM) and Private Forest Management (PFM) to supplement the forestry department’s lack of capacity to manage Zambia’s protected forest estate must be implemented for Zambia to realise its full potential and promote sustainable forest management practices. This can be achieved through participation of communities, traditional authorities and NGOs in the management of forests to bolster capacity to manage, monitor and enforce the principles of sustainable forest management.

Government needs to constantly assess and implement measures included in the Forests Act of 2015, including community, joint and private forest management to achieve diversification, wealth creation and attract investment in the forest/timber processing sectors.

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BLOG – The FOCAC Summit – What are the opportunities for Zambia?

The 3rd edition of the Forum for Africa – China Cooperation (FOCAC) came to an end on 4th September 2018.  We now reflect on what has been deliberated and more so what Zambia has benefited. The FOCAC summit is a meeting between China and Africa and is largely premised on ways to increase diplomatic, economic and bilateral ties. This year’s edition theme was “China and Africa: Towards an Even Stronger Community with a Shared Future through Win-Win Cooperation.” Established 18 years ago, FOCAC has led in spearheading international cooperation with Africa and has become a significant marker of South-to-South cooperation. One of the major deliverables of the summit was to link the Belt and Road Initiative with the United Nations (UN) 2030 Agenda for Sustainable Development, the African Union’s Agenda 2063 and individual countries’ development plans to explore new territory for Africa’s revival. This therefore means that African countries positioned to negotiate the most beneficial trade and economic deals in alignment with their individual development paths and plans. The 2018 summit also unveiled two key outcome documents, namely; The Beijing declaration and Beijing Action Plan that outline the new nature of China-Africa relations.

Major Initiatives announced from the FOCAC summit:

During the FOCAC summit, 8 new initiatives were announced backed by a new US$60 billion support to Africa for the next 3 years. These are:

  1. Industrial Promotion Initiative; This will result in the opening of a China-Africa economic and trade expo in China. It will also lead to establishment economic and trade cooperation zones in Africa.
  2. Infrastructure Connectivity Initiative; This will result in the formulation of a China-Africa infrastructure cooperation plan with the African Union. This stands to complement the AU’s agenda of the Continental Free Trade Area and the continued quest to promote integration.
  3. China will launch a Trade Facilitation Initiative, which will see a deliberate move to increase imports, particularly non-resource products, from Africa. This will also culminate into the China International Import Expo with the least developed African countries participating to be exempted from paying exhibition stand fees.
  4. China will launch a Green Development Initiative; to undertake 50 projects for green development and ecological and environmental protection in Africa to expand exchanges and cooperation with Africa on climate change, ocean, desertification prevention and control, and wildlife protection. A China-Africa environmental cooperation center will be set up, and more policy dialogue and joint research on environmental issues will be conducted.
  5. Capacity Building Initiative; China will share more of its development practices with Africa and support cooperation with Africa on economic and social development planning. Ten Luban Workshops will be set up in Africa to provide vocational training for young Africans.
  6. Health Care Initiative; China has decided to upgrade 50 medical and health aid programs for Africa, particularly flagship projects such as the headquarters of the African Center for Disease Control and Prevention and China-Africa Friendship Hospitals.
  7. People-to-People Exchange Initiative; China decided to establish an institute of African studies to enhance exchanges with Africa on civilization. The China-Africa Joint Research and Exchange Plan will be upgraded.
  8. Peace and Security Initiative; China decided to set up a China-Africa peace and security fund to boost cooperation on peace, security, peacekeeping, and law and order.

To ensure that these eight initiatives are implemented on the ground, China will extend US$60 billion of financing to Africa in the form of Government assistance as well as investment and financing by financial institutions and companies. This will include:

  • US$15 billion of grants, interest-free loans and concessional loans,
  • US$20 billion of credit lines,
  • The setting up of a US$10 billion special fund for development financing and
  • US$5 billion special fund for financing imports from Africa.
  • Chinese companies have been encouraged make at least US$10 billion of investment in Africa in the next three years.

We also observe that in addition, for those of Africa’s least developed countries, heavily indebted and poor countries, landlocked developing countries and small island developing countries that have diplomatic relations with China, the debt they have incurred in the form of interest-free Chinese government loans due to mature by the end of 2018 will be exempted.

What are the Opportunities for Zambia? What has the country managed to secure?

During the FOCAC summit, the Republican President Edgar Lungu and Team of ministers have been negotiating trade and economic deals for the country aimed at complementing the development efforts as enshrined in the Seventh National Development Plan. Some of the major agreements and MOUS’s that have been signed include the following:

  • The Chinese Government has given Zambia a grant of thirty million dollars ($30 million) for the Lusaka East Multi-facility Economic Zone and another $30 million interest free loan for economic cooperation to facilitate the reconstruction of Mulungushi Conference Centre in readiness for the African Union heads of state summit in 2022.
  • Republican President Edgar Lungu and his Chinese counterpart President Xi facilitated the signing of three memoranda of understanding (MOUs). The MOUs are on economic and technical cooperation, Belt and Road Initiative and the protocol for the export of Zambian honey to China.
  • There have also been Business Agreements among them the assessments and preparation of the bankable feasibility studies and implementation of Lusaka Mass Transit Railway Corridor project, which will see the construction of a transit railway link to reduce congestion on the roads of Lusaka.
  • The Government of the Republic of Zambia signed two Memorundums of Understanding with Huawei aimed at building a better-modernized Zambia. The aim is to promote connectivity and modernization to the telecommunications sector.  The two MOU’s are:
  1. National Broadband Access Project and
  2. Smart Zambia Phase three project.

The Republican President further met a total of 15 companies and investors expressing interest in a wide range of investment destinations ranging from biotechnology, railway construction, hydropower, road construction, housing – infrastructure in general and other priority areas where Zambia wants to invest and develop. PMRC backs the President’s call for a win- win approach to any form of investment and business explorations in Zambia.

PMRC Analysis 

PMRC has been actively pursuing a win package for Zambia, having been involved in several exchanges with “special FOCAC technical committees” during the pre FOCAC deliberations. Our main submissions have been bordering around a positive scenario for Zambia’s growth anchored on Mining, Agriculture, Energy, Manufacturing and Commerce. We have also been submitting on the need for technology transfer and capacity building initiatives to equip the young people with practical industrial expertise. We have further been submitting on the need for industries to be set up in Zambia to support our quest of being a manufacturing hub in the region. Observing the resolutions from the FOCAC, PMRC remains hopeful that Zambia has been able to negotiate some agreements that will compliment our development path as anchored in the Seventh National Development Plan.

As the 2018 FOCAC dawned to a close, the challenge remains on the African countries, not to lose sight of their shared development path and quest for integration, amidst development initiatives and financial pledges from China. The AU Continental Free Trade agenda remains one of Africa’s landmark undertakings that would promote integration and trade among others. The challenge for Zambia is to continue negotiating for the best deals especially those aimed at promoting development of manufacturing industries and industrial parks to promote value addition especially in agriculture and mining. Furthermore, Chinese high-tech companies should be encouraged to set up numerous development bases in Africa to promote technology transfer. This should extend to agriculture demonstration centers and other advanced methods that would promote crop diversification and larger yields.  Zambia’s prospects for diversification away from mining are within the agricultural sector given our rich natural resource endowment. Initiatives such as the recently signed protocol at the FOCAC for the export of Zambian honey to China are welcome but this should be extended to other products to lessen the country’s dependence on copper exports, as the main source of foreign exchange. Copper exports have proved to be unsustainable due to international price volatility.

Considering the limited role that domestic investment plays in financing Zambia’s diversification, foreign capital especially under the platform of Public Private Investment may be essential for financing infrastructure and large-scale modernizations required for a successful diversification strategy in Zambia. Foreign Direct Investment into Zambia has the potential to increase both physical and human capital accumulation. Physical capital would accumulate if Chinese firms invest in buildings, machines, and tools that would increase production of domestic goods. Human capital would accumulate when professional know-how and skills are transferred to Zambia, through employee training, efficient organization and manufacturing structure.

In recent years, China-Africa people-to-people exchanges have grown, but still lag behind economic and trade cooperation. China-Africa people-to-people exchanges should pay special attention to the needs of young Zambians since they account for a large percentage of the population and face challenges such as unemployment. FOCAC presented a platform to discuss the plight of the youth unemployment and with initiative number five (5) on capacity building, we submit that more innovation hubs and entrepreneur centres should be established to promote skills development in the country. Long-term, sustainable China-Africa development depends on providing socio-economic opportunities for the young people from both sides and this initiative must be pursued strongly by the Ministry of Youth and Sports in collaboration with the Ministry of Labor.

Conclusion 

In conclusion, Africa should not lose sight of its own development path with initiatives such as the Continental Free Trade Area (CFTA) agenda and open skies initiative; in view of the Chinese Belt and Road Initiative. Africa should be more united and pursue a joint strategy on how to engage China better. It is a matter of fact that China remains Africa’s number 1 trading partner but the question remains; how much more are African countries also looking to strengthen trade within themselves, in view of this massive injection of funds from China?  PMRC submits that Africa should still pursue its own home grown development path funded by domestic resources and promotion of trade and integration within the continent.   With the eight (8) initiatives stamped at the FOCAC shaping the new path of China Africa relations, Zambia should strategically align programmes to benefit from the broader development commitments. The country should however not lose sight of its quest of focusing on homegrown development initiatives amidst these opportunities from the FOCAC.  On the MOU’s and business agreements signed, PMRC welcomes the new market for Zambia’s honey as this will further promote the sector and generate revenue for the country. We further call on government to extend this to more products so as to support the growth of the Agriculture value chain. It is also gratifying to note that China is joining in the quest to decongest the capital Lusaka. We are aware that India is also supporting this project with the proposed construction of fly over bridges and the speed trains will promote mobility within the city. We however advise that Zambians should be priority to partner on these projects for employment and technology transfer. The success of these deliberations and agreements depend on how vigorously the country will pursue follow up implementation sessions and also constantly engaging with the economic and trade partners. PMRC further advises Government to continue pursuing policies that promote the livelihoods of the citizens and also create employment opportunities for the youth.

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