Ahead of the 2022 Budget announcement by the Minister of Finance on 29 October 2021, Mining For Zambia spoke to celebrated Zambian economist, Professor Oliver Saasa, about what measures we can expect, and how they will enable the country to realise the “new dawn” which Zambians are eagerly awaiting.
It does appear that Zambia’s new Government believes it is necessary to reform mining policy in order to stimulate investment and growth in the sector. In light of this, what measures do you expect to see announced in the upcoming Budget Speech?
The Minister of Mines’ recent statements along these lines have really given me hope, and have informed my expectations with regards to the changes to the mining tax regime that we can hope to see. Finally, it seems that there is political will to start listening to stakeholders in the sector.
Specifically, I hope we’ll see mineral royalties become tax deductible, so it no longer leads to double taxation. There are sufficient economic arguments as to why the new Government must move at that level. The second thing I hope to see is a restructuring of the way that mineral royalties are calculated, to a sliding scale which operates in a similar way to PAYE. I think it’s important that Government recognises the need to incentivise production, rather than applying a higher tax rate to the full amount of revenue generated, which is very punitive when the copper price improves. This is not an argument that’s being made for the sake of mines maximising profits; it’s simply good practice globally and will allow Zambia to compete with other countries. The challenge with trying to attract investment is that you never know exactly how much you’re losing out on until you implement better policies!
How could this Government realise its ambition of dramatically increasing mining production?
The new Government has been talking about expansion in the mining sector, saying that it wants to see Zambia’s copper production reach two million metric tonnes per annum in a couple of years. Right now, we are still well under one million metric tonnes. If this is our intention, we have to immediately re-engineer our policy regime.
If there were one thing I could do, I would take immediate steps to make Zambia a more attractive destination for investment. This applies to sectors beyond mining, too, but mining in particular because the expansion of this sector is dependent on its attractiveness to investors that are still outside the country. The first thing mining houses want to see from the new Government is a competitive and stable mining tax regime. To be clear, that does not mean pushing Government to introduce ultra-low tax rates; it simply means a taxation regime that is consistent with and comparable to other mining jurisdictions.
A hospitable environment that encourages expansion and investment will provide a major boost to the economy as a whole, but the benefits are only going to trickle down to the average Zambian in the medium to long term. I’m very happy to see that the President is aware of this reality. The bottom line is: you cannot harvest returns on investments in a high value, highly complicated and capital intensive sector like mining, unless you invest for tomorrow – and “tomorrow” might be in two, three, or more years’ time.
“The bottom line is: you cannot harvest returns on investments in a high value, highly complicated and capital intensive sector like mining, unless you invest for tomorrow.”
Investing for “tomorrow” isn’t easy to justify to Zambians who are hungry for economic improvements and opportunities today. How can the Government implement policy changes that will set in motion long-term economic benefits when they currently face a host of fiscal problems as well as the immediate needs of their voters?
Indeed, the new Government has inherited an economy in a very poor state, so it will be some time before it can harvest the dividends that will support Zambians in the long term. The new Government must therefore urgently put in place a dependable communications strategy in order to sensitise the citizenry to the need for a long-term approach. Without a proper communications strategy, people won’t be able to understand why it’s taking so long to see results, and they’ll become frustrated. Young voters in particular are an unforgiving demographic that want to see quick wins. Some of them graduated five or even ten years ago, and up until now haven’t had jobs. It will be difficult to tell this group that they need to wait another two or three years until certain investments have been completed.
The President is a transformer, and transformation often means having to say things that are unpalatable to the average ear, but which are necessary in the long term. That’s why it’s vital that he communicates exactly what he has up his sleeve to the youth. He needs to ensure people know that things have changed; the days of Lungu distributing cash in order to curry voters’ favour are over.
The new Government is about empowering people – not just putting people in employment, but empowering them to become employers too. If your economic or leadership model is different from what people are used to, you’d better know how to market it. Now is the time when Government has to look for low hanging fruit to appease people in the short to medium term.
What is an example of “low hanging fruit” that could enable Government to support Zambians in the short to medium term?
Graduates from universities must have access to finance and knowledge that enables them to establish livelihoods. This is easier said than done, of course, but when you listen to what Mr Hichilema has been saying – in his election campaign, and since his inauguration – you get a strong sense that this is the route that he really wants to take.
Access to finance is essential, but it needs to go further than this. The one natural resource which Zambia has in such abundance is land. Land could easily be surveyed, demarcated and allocated to young people that have expressed a serious intention of getting into agriculture. The opportunities extend to poultry farming, piggeries, and aquaculture, to name a few. Government could set up a guarantee scheme via the banking sector, for example. How can Government help to connect these entrepreneurs to market so that they can sell their products within the country, and to neighbours like the DRC?
We need to start thinking outside the box. This is potentially low hanging fruit, and we need to be on the look-out for quick wins.
Should Zambia be prepared on 29 October, then, for Government to announce some decisions that may be difficult to stomach in the short term, but which are being made with a long term view in mind?
Yes, we must be ready for some harsh changes. The IMF, for one, has demanded fiscal prudence. We were in dire straits, we inherited empty coffers; there must be a moratorium on debt. When a situation is very desperate, even the notion of prioritisation becomes a difficult exercise, but it is an exercise that must be done.
The Budget announcement is a few days away, but you do not tell somebody who has cancerous limbs that you’re going to cut all of them off now. They’ll lose the will to live. Now, it is about prioritisation and the sequencing of events to minimise the pain. A good communications strategy to understand the Government’s motives is the metaphorical tranquilliser that we all need now.
In Part 2 of this interview, Prof. Saasa speaks to Mining For Zambia about how improving communication between the public and private sector – and removing emotions from politics – could enable mining to become a flywheel for development, and the economy at large to start growing.
Keep an eye on our website, or send your address to email@example.com to receive an email the minute that Part 2 is published.
See also: The first 100 days