In this third article with renowned economist Professor Oliver Saasa, we ask for his views on the impact of Government’s COVID-19 relief measures* to date, seek his advice on possible further action, and ask for his reaction to the Minister of Mines’ recent press announcement on Mopani Copper Mines.
The Minister of Finance, Dr. Bwalya Ng’andu, on 27 March, announced relief measures to mitigate negative impacts due to COVID-19. Broadly, what is your view of the substance of the announcement?
I think the public health measures being announced will help towards mitigating the spread of the coronavirus, which is positive. We must invest in that, and action from Government is important. But I think where the measures announced were not nearly far-reaching enough — and, therefore, where we should look at them as a “first step”, as the Finance Minister called it — is for the relief of the private sector.
Almost two weeks have passed since these “initial steps” were announced, but the Finance Minister has remained silent. Meanwhile, Zambia has fallen further and further behind the curve in terms of the relief measures announced by its peers. What are your thoughts on this?
Unfortunately, the Minister of Finance has spent the last 10-14 days in self-quarantine because he had been travelling. That might explain why there has been no action, but I can only speculate, and there could be other reasons.
The Central Bank governor has issued fresh statements on relief measures. That might also speak to what the Minister of Finance said about there being more things to come. At the moment, I think the private sector is expecting much more in terms of fiscal stimulus, though — more like what is being done in Kenya and South Africa.
Based on the measures announced by Government on 27 March, what will be the material relief provided to the private sector?
If you ask me, the relief measures that were given for the private sector are very small, and sector-specific. Take for example the mines, and the removal of tax on concentrates. This was an argument that had already been put across by the private sector for some time, and Government had already decided it would go — virus or no virus. Secondly, there has been pressure regarding the export duty on precious stones. Removing these duties was [essentially] a case of Government giving in [to longstanding calls for their removal] — it’s not something new.
Kenya took decisive action on 18 March, five days after the country confirmed its first case of COVID-19, and announced that it will a) clear the payment of all outstanding VAT refunds, b) drop tax rates, and c) lift penalties on non-compliance with tax deadlines. The measures announced are consistent with OECD guidance. Is this a workable solution for Zambia?
These are the sort of measures we must see, and soon. Really, events are moving very quickly, and we are well behind other African countries in taking action to protect our economy.
You mentioned last week that Government is “fiscally stressed”, and has limited resources to mitigate the social and economic fall-out from the coronavirus. To what extent does Zambia’s ability to cope with the social and economic challenges caused by COVID-19 depend on it getting outside assistance?
I think it’s vital that we move very swiftly towards applying for what the IMF, the World Bank, and the African Development Bank are offering. You don’t want a situation where, by the time you really need the money, the horse has already bolted. Speed is of the essence. There are many African countries that need that money, so we must urge our leadership to move swiftly. We have to present a bankable document which, I hear, Zambia has not yet submitted.
What steps in particular does Government need to take to secure financial assistance, and how will the amount of money needed be determined?
Firstly, we need Government, through dialogue with the private sector, to establish the full quantum of resources that are needed. Government might [otherwise] approach these multilaterals and — through guesswork — say: “We want two million, or two billion dollars.” We must be realistic in our requirements; providing “more-or-less” figures are not good enough. Secondly, we must show we can allocate and manage those resources prudently. You need to give peace of mind to the multilateral bodies that are providing the resources: to show that the money is going to be put to good use, and that it has an effect on [sustaining] productivity.
“There are many African countries that need money from the IMF and World Bank, so we must urge our leadership to move swiftly.”
Might this help the private sector to stay afloat?
As I said previously, we must follow the OECD recommendations, as other countries have done. Allowing the deferral of tax payments, lifting penalties on late filing and payment, are all means of providing short term relief. And of course, Government must — through recourse to some of these funds coming from the likes of the World Bank — settle all VAT refunds that are owed. That would be the biggest way they could ease companies’ cash flow right now. Let’s not forget, the country’s ability to recover post-crisis depends on the private sector’s resilience, first and foremost.
The Minister of Mines, Hon. Richard Musukwa, issued a statement on 7 April, in which he responded to Mopani Copper Mines’ decision to put the company’s Kitwe and Mufulira mines on care and maintenance for three months, on the grounds of force majeure. The Minister rejected the decision in no uncertain terms, and accused Mopani of dishonest intentions. What do you make of the Minister’s statement?
I do not believe that the honourable Minister of Mines would have used the language and posture that he did, if this had been referred to Cabinet. Now, it’s like the battle lines have been drawn. This is not the way to go under the circumstances — especially against the backdrop of the impasse with Konkola Copper Mines [and its unresolved dispute with Government]. Strong, accusatory language that will incense is not a precursor to engagement.
Two weeks ago, the mines made a presentation to the Vice President on the impact of COVID-19 on the mining sector, and what the government ought to do regarding a necessary economic stimulus. Many of the concerns raised are similar to what Mopani has now said. The Minister of Mines himself attended. Yet, since the presentation was made, nobody has come back to them.
What sort of actions do you see businesses taking here, and around the world?
Scaling down is not even an option, it’s an imperative. One of the things that the private sector will have to scale down, unfortunately, is labour. Even if they wanted to, companies won’t be able to pay salaries, so there will be significant layoffs.
There will definitely be scaling down on levels of productivity, too. In terms of the mines, they are unlikely to meet targets that they set themselves in 2020, mainly because labour will not be readily available — either because they can’t afford to employ people, or because people won’t be allowed to work due to a lockdown. Mines around the world, in South Africa for example, are being forced to halt production – to go on care and maintenance – due to government-imposed restrictions.
“I do not believe that the honourable Minister of Mines would have used the language and posture that he did, if this had been referred to Cabinet. Now, it’s like the battle lines have been drawn. ”
If this problem is protracted, there is a limit to which an employer can continue to pay salaries to workers who are not working and not producing anything. But then you have to change the legislation because, right now, the legislation says that as long as you call someone your employee, they must be paid.
There is an upcoming amendment — I don’t know if it’s already been passed as a statutory instrument or not — where the private sector will be allowed to send their workers on unpaid leave with the guarantee that, when everything is back to normal, those employees can return to work. This is vital, because the only other option will be to lay-off workers, which no-one wants to do.
In his press statement of 7 April, the Minister of Mines suggested that — because Zambia has fewer than 40 cases of COVID-19, and has not yet seen economic devastation within its borders — the pandemic does not pose a real threat to the country.
Firstly, one has to understand that Zambia’s businesses – especially the mining sector – are very much intertwined in global markets. The movement of both copper and supplies across borders are stifled because the borders are closed, which presents unique operational challenges. At the other end, markets are stifled because of weak demand from China, and now the West.
A Minister of Mines should know that the environment has changed beyond just the copper price. We are in a completely different situation now, as is obvious to anyone with an understanding of the industry.
I am aware from my interactions with him that the Minister is alive to the challenges facing the mining sector, a sector for which he is politically responsible. What is needed most now is to take into account the known challenges in the mining sector, including the disabling mining fiscal regime, and to seek the best way to avert a care and maintenance scenario. Most importantly, we need to aim for positive engagement through structured dialogue around issues where Government and the private sector have to reach consensus. I know that most companies wish to remain operational in Zambia, and any differences ought to be handled with this in mind.
Take Mopani, for example. For years now, the Company’s parent company, Glencore, has invested substantially in Zambian mining and smelting. There is no reason for them to find an excuse to move out of Zambia! The government must engage them, not threaten them. And certainly not now! The same applies to the KCM saga that is proving to be problematic. More direct engagement with Vedanta outside the court system now seems to be the most rational thing for Government to do.
Everybody expects a more reconciliatory tone towards business — and more so the mining sector, which is so strategic at this time. We cannot have so many fires breaking out.
*The tax relief measures announced on 27 March 2020 had not yet been enacted into law at the time of publishing this article. These relief measures are therefore not yet in effect.
See also: How are Zambia’s neighbours responding to COVID-19’s economic impact?
