“You’ve lost your hair,” says John Kasanga, respected Lusaka businessman and economic consultant.
“And you’ve put on weight,” I retort.
We greet each other warmly. It’s been 40 years since we last saw each other, when we were still students at the University of Zambia (UNZA) in the 1970s and played together on the basketball team. Kasanga fills me in on his career since he graduated in 1978 with a double major in Development Economics and Psychology.
He worked for eight years in the mining industry on the Copperbelt – first for the Copper Industries Service Bureau (today the Chamber of Mines) as a researcher, and then for Zambia Consolidated Copper Mines (ZCCM) in manpower planning and projects. After that, he joined professional service firm Coopers & Lybrand (now operating in Zambia as Grant Thornton) as a consultant, and in seven quick years rose to the position of Director and Associate Partner. In 1993, Kasanga started his own consultancy, Independent Management Consultancy Services (IMCS), and has been involved in high-level consultancy projects for clients ranging from the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC) to the Zambian Revenue Autority (ZRA) and the Bank of Zambia. He also runs his own water-bottling company, Lunzua Beverages.
We sit down to chat about the recent budget unveiled in Parliament a week earlier by the new Finance Minister, Felix Mutati. What did Kasanga think of it?
“The tone was right,” he says. “What’s important is that Minister Mutati came right out and said that we cannot spend money we don’t have, and that the country has been borrowing beyond its capacity to repay. He was also more realistic about future growth prospects. Last year, they said it would be 5% growth; this year, it’s down to 3%.”
Kasanga evokes Mutati’s famous “triad of deficits” – the fiscal deficit, the trade deficit and the energy deficit. “I think he should have added a fourth one – the discipline deficit.”
“The real cost of government in Zambia is colossal and needs to come down”
That’s all about government being disciplined about how it utilises resources, he explains.
“My slight concern is whether there is full support from Cabinet and the structures of government. These are difficult measures to sell. Already there are various MPs pushing for the reintroduction of Deputy Ministers, which was a big cost-saving initiative – there used to be more than forty! This suggests that they don’t really understand the issues – and the critical need to reduce the cost of government.”
This is a pet subject for Kasanga, and one that he had already raised – to sustained applause from the audience – at a packed post-budget briefing by Minister Mutati and his team on Monday 14th November, just three days after the budget presentation to Parliament.
“The real cost of government in Zambia is colossal and needs to come down,” says Kasanga. “When you look at all these costs, you realise there’s no real contribution to the economy. It’s all political appeasement. We have a Ministry of Religion and National Guidance! Does a country like Zambia need this? We’ve already had four new Ministries created since the election.”
With uncanny timing, as if to illustrate the importance of costs, one of Kasanaga’s employees walks in to the office with a cheque that needs signing. A long discussion ensues about the amount owing, the completion of the work and why the cheque has to be paid now. Kasanga signs with a sigh. The interview continues.
Minister Mutati’s budget was clearly bold and ambitious – perhaps even politically risky. To what does Kasanage attribute this leap into the unknown?
“I think government is enjoying a degree of political capital after winning the elections,” he says. “It’s a bit of a honeymoon. They felt they’d be able to take some tough measures.” But Kasanga is also under no illusions about the other key factor dictating the direction of events – the fact that Zambia is out of money and has no more room for manoeuvre.
“We are broke. We will need the financial support of the IMF [International Monetary Fund]. And the IMF has high levels of expectations when it comes to fiscal measures.”
As an example, Kasanga cites Mutati’s tough line on loss-making State-Owned Enterprises (SOEs): either they prove they have a business case and start making money, or they’ll be “hived off” – which suggests they could be sold to the private sector.
“Government just doesn’t have the funds to recapitalise these businesses,” says Kasanga. “Zambia needs to be seen – by the IMF and others – to be cutting out waste and inefficiency. Take government’s decision to get out of fuel procurement, for example – that sends a very powerful and positive message about future direction.”
What about the mining industry? Did it get it what it was seeking in the budget, particularly on the question of taxation?
“Worldwide, Mineral Royalty Tax is about 3%. So, at a maximum of 6%, ours is still on the high side. However, Zambian mines now have a tax regime they can work with. If it remains stable, they can at least plan.”
In any event, Kasanga adds, the immediate challenge facing the mining industry isn’t taxation, but energy.
“The Bulk Supply Agreements, which dictate what the mines pay for electricity, are going to be renegotiated soon. And ZESCO urgently needs to raise revenue. The mines might well end up paying at least double what they’re paying now. This could potentially price them out of the market in terms of competitiveness.”
While cautiously optimistic about the broad direction of the budget, Kasanga does have reservations about some of the numbers. One is the threefold increase in the subsidy for the Farmer Input Support Programme (FISP); at nearly K2.9 billion, it’s the largest expenditure item in the entire budget of the Ministry of Agriculture.
“It’s positive in one way, but it’s being managed inefficiently. It wastes money and encourages rent-seeking behaviour.” It is also doubtful that the full migration to the use of the E-Voucher can be achieved in 2017, which would at least reduce administration costs of the FISP and expand direct participation of agro-dealers in the input supply chains.
The increased road infrastructure budget, at K8.6 billion, is another figure of concern. “It’s a lot of money for an austerity budget, as it presupposes that more than 800 km of roads will be built in one year. Infrastructure development is not a sprint, but a medium to long-distance run, requiring rigorous and careful preparations.”
Nevertheless, Kasanga reckons Mutati has the big picture right. “There are a lot of good things in the budget which, if sustained, should give the country a good foundation for future economic growth.”
My final questions is a blue-sky one. “Can Zambia become another China?”
“Absolutely,” he says. We both recall how poor China was back in the 1970s when we were still at UNZA – with the country suffering bouts of famine and not even being able to feed itself. “But we’ll only get there with the right policies. And that means policies which build the economic base for sustained growth, and more equitable distribution of wealth, targeting the ordinary people rather than advancing the ambitions of politicians.”