IF MR. SEAN TEMBO WAS PRESIDENT
By Alexander Nkosi
Mr. Sean Tembo shared an article highlighting challenges and opportunities inherited by the New Dawn administration and what he would have done to take advantage of the opportunities. I appreciate this type of debate from our leaders. Whether his arguments are valid or not, we would be better as a country if we spend more time discussing alternative solutions than wasting time on tribal and divisive talk. However I have reservations with most of his arguments on the basis that some of them contradict his earlier pronouncements while others are simply a misrepresentation of facts.
1. SPECIAL DRAWING RIGHTS
MR. TEMBO: Mr. Tembo argued that the New Dawn Government benefited from a Special Drawing Rights (SDR) allocation from the International Monetary Fund (IMF) and should have taken advantage of this.
MY RESPONSE: The New Dawn Government does acknowledge the USD1.3 billion special drawing rights, and part of it is being used to finance the 2022 budget as indicated by Dr. Musokotwane in paragraph 143 of his budget speech: “In 2022, we shall only manage to finance other activities because of grants or
gifts we shall receive and borrowing. In particular, I wish to thank the Management and Board of the IMF who granted Zambia a
condition-free Special Drawing Rights gift equivalent to US $1.33 billion in August
2021. Part of the Special Drawing Rights will be used to support the 2022 Budget.”
2. INCREASE TAX RATES
MR. TEMBO: The last known study in the mining sector established that Zambian open pit mines were able to make a net profit when copper prices were above USD2,500 per metric tonne, and underground mines when the price was above USD2,950 per metric tonne. A Sean Tembo administration would have fully taxed the mines. We could easily raise as much as USD4 billion more per annum in tax revenue from the mines. This money can fund our national budget without the need for an IMF loan.
MY RESPONSE: While I want us to maximise benefits from our natural resources, I also acknowledge the politics that surround mining tax regimes in copper producing countries like Zambia, Chile, Peru and Congo DR. The overdependence on copper for revenue/forex makes these countries have less bargaining power. Any prolonged disputes would lead to a serious economic crisis. Norway has succeeded because its approach with investers is that they either take it or leave it and this is because government controls a large share of the oil and gas industry and it has a diversified resource base. In this context it is less vulnerable to being arm-twisted by foreign investers. This is not the case with these other countries I have listed and this is why the Zambian government under the PF regime had to make quick policy reversals on tax on copper concentrates. If it was as easy as Mr. Tembo puts it, PF would have financed all its development projects using tax from the mines as prices were way above the USD2500 and USD2950 profitability threshold he has listed. Depsite this opportunity, PF led government left USD12.9 billion external debt, K189.7 billion domestic debt and K46.9 billion domestic arrears. The copper prices weren’t as high as they are today but they were still way higher than the thresholds Mr. Tembo provided.
The other thing is that Mr. Tembo is not being consistent on the issue of tax rates. In his 2022 alternative budget, he argued that he planned to increase domestic revenue from the current K98.9 billion to K162 billion by reducing tax rates so as to increase compliance. He produced his alternative budget when copper prices where already high, close to USD10,000 per tonne. In his alternative budget, he only proposed a USD300 million increase in mineral royalty tax. He also proposed an increase of USD750 million in Company Income Tax (not just for the mines). Today he is arguing that in his 2022, budget he could have earned USD4 billion more than government is currently earning. He is clearly not being consistent. Copper prices have not doubled since the time his alternative budget was produced so he cannot even base his USD4 billion projection on current exchange rate.
3. GOODWILL TO ATTRACT FOREIGN INVESTERS
MR. TEMBO: Mr Tembo argues that the goodwill that existed at the time the New Dawn assumed office has diminished. He argues that President Hakainde Hichilema lost the goodwill when he gave that interview to CNN, a day after he was sworn into office, where he said that the previous administration had not provided accurate debt figures. He further argues that President Hakainde Hichilema unnecessarily alarmed the international business community, much to the detriment of our country.
MY RESPONSE: The New Dawn Government has been accused of focusing more on foreign investers and not not local solutions. When FQM committed to invest USD1.35 billion in expanding copper production and the nickel project, critics argued that we need to focus on local investers, I’m happy that Mr. Tembo has now acknowledged the importance of international business community to Zambia’s economic recovery. Has the goodwill been lost? I don’t agree with him, it is the exactly opposite and most critics are concerned with the increased goodwill.
4. USING SDR TO PAY DEBT
MR. TEMBO: Mr. Tembo argues that the the New Dawn administration shouod have used part of SDR to settle debt. He further argues that on 22nd September 2022, the country will be required to pay the $750 million Eurobond, as it will mature. The ideal situation would have been to refinance about half of this amount and pay off the other half.
MY RESPONSE: The problem with Mr. Tembo is that he is so inconsistent. In the same article he is presenting how he could have raised an additional USD4 billion per year from the mines, but he is now suggesting we use part of SDR to pay debt and also consider refinancing part of the Eurobond. Why should we do this when according to him we can have an additional USD4 billion from tax? My assessment of the debt situation is that the New Dawn has this far managed it well as follows:
(i) As part of our debt management and negotiation, in October 2021, government signed the Debt Service Suspension Initiative (DSSI) with a number of lenders who included: members of the Paris Club, Kuwait Fund, Saudi Fund, DBSA and many others.
(ii) China and Western creditors have agreed to sit and discuss debt restructuring with China and France co-chairing.
(iii) The Minister of Finance has on several occasions explained that part of the budget financed through borrowing is meant for refinancing of the eurobond.
5. CONCLUSION
While I don’t agree with Mr. Tembo on a number of issues, I really find articles like the one he just shared beneficial as they stimulate constructive debate. I don’t agree with his exaggerated mining tax revenue targets, but I do admit we need increased dialogue on this topic. We know the incentives we have provided to the mining firms but what we need is to state the estimated revenue collection expected from these measures per year for the next 10 years. We further need clarity on how we hope to grow local participation in the sector in the short, medium and long term.
Thank you.