Situmbeko Musokotwane Has Been a Disaster for Zambia as Minister of Finance.
By. Dr. Mbita Chitala
Many people would disagree with my friend Laura Miti that “Musokototwane is one of the best any country could have in times like these” as reported in some media. To the contrary, I completely agree with assertions of many patriots that “the loss of revenue as a results of unjustified tax incentives given to the mines and the failure by Hon. Situmbeko Musokotwane to recover $2.5billion owed to Kansashi Mine from FQM makes Musokotwane the most dangerous man to this country”. In fact, Situmbeko Musokotwane is the principal cause why Zambia continues to wallow in poverty, inceased inequality, failed public debt restrucuring and it is most disappointing that President Hakainde Hichilema still retains him as Minister of Finance and National Planning of our country. The tragic failure of Musokotwane as Minister of Finance can only be explained when one knows his track record in government service where I served with him.
MAGANDE AND MWANAWASA PROGRESSIVE TAX REGIME
Musokototwane’s first act against Zambia is when he betrayed President Mwanawasa’s economic program following Mwanawasa’s demise and his appointment as Minister of Finance by President Banda.
President Mwanawasa following the advice of experts from Norway and the IMF and other friends including Musokototwane as Economic Adviser to President Mwanawasa introduced a progressive taxation policy of the mines. President Mwanawasa in 2008 introduced changes to the fiscal and regulatory regime for the mining sector. The fiscal changes were intended to increase the effective tax from our God-Given minerals.
With Ngandu Peter Magande as Minister of Finance, the Mwanawasa MMD administration introduced windfall tax in the charge year 2008/2009 on base metals. Windfall tax was not paid when the monthly average did not exceed US$5,512. Even as it was known that the breakeven point of base metal production averaged about US$2,000, Mwanawasa provided more than double to reach the first trigger point for windfall taxation. Using special taxing formulae, Zambia was to benefit 25% at the 1st Trigger point, 50% at the 2nd Trigger point and 75% at the 3rd Trigger point.
The MMD further introduced variable tax where assessable income from mining activities exceeded 8%of the total sales. The variable tax however did not apply to mining income that had been subjected to windfall tax.
The MMD government of President Mwanawasa also increased mineral royalty tax to 3 percent from 0.6 per cent.
These tax measures were supported by the IMF, IMF and all cooperating partners and were meant to enable Zambia benefit fairly from its base metals. Sadly, this was not to be.
SITUMBEKO MUSOKOTWANE BETRAYS MWANAWASA
President Levy Mwanawasa soon passed away and I regret being one of those who managed the election campaign to install his former Vice President Rupiah Bwezani Banda to be President. President Banda appointed Situmbeko Musokotwane as his Minister of Finance and National Planning. On hindsight, this combination was very bad as these two adopted a new economic policy that conflicted with the progressive policies of President Mwanawasa.
In 2009, Musokotwane in clear betrayal of Mwanawasa with whom he had worked as Economic Adviser, immediately introduced a most reactionary macro-economic policy regime. He abolished the windfall tax regime that surprised all cooperating partners including the IMF and the World Bank who had been at the fore of advising Zambia to adopt the policy. Furthermore, Musokotwane reduced mineral royalties from the 3 percent to 0.6 which was short of abolishing it. He also zero-rated the variable tax that had been imposed on the minerals by Mwanawasa. In other words, he simply introduced a tax regime that allowed the multi-nationals to continue plundering Zambia without Zambia benefiting anything.
Ngande Peter Magande in his book “The Depth of my Footprints” agonized that both President Banda and Musokotwane who were party to the windfall taxation regime, simply betrayed their former boss Mwanawasa and Zambia in general and became bona fide lackeys of our exploiters. Musokotwane went further. The US$485 million in windfall tax that was collected in the financial year 2008 and deposited in a special account at the Bank of Zambia was closed and most of the money returned to the mine companies. The mine companies must have given a golden handshake to Banda and Musokotwane for this clearly unpatriotic conduct.
This is the first tragic story where Musokotwane and Rupiah Banda subverted Levy Mwanawasa’s progressive tax regime which, as Magande (p 417) noted in his autobiography has continued to “ deprive Zambians with large quantities of revenue from the God- given natural mineral resources.”
MUSOKOTOTWANE STARTS RECKLESS BORROWING
It should be noted that thanks to President Levy Mwanawasa, his regime had continued with efforts to restructure Zambia’s more than US7.1 billion external debt which the MMD administration had inherited from President Kaunda’s UNIP regime. The MMD administration of President Fredrick Chiluba joined the IMF and World Bank supported Highly Indebted Poor Countries (HIPC) Initiative. The HIPC Initiative was supplemented by the Multi-lateral Debt Relief Initiative in 2005 to accelerate progress toward the United Nations’ Sustainable Development Goals. This program enabled Zambia complete the HIPC Initiative process and receive hundred (100) percent relief on eligible debts from the multi-lateral, Paris Club and London Club lenders. By 2008 Zambia reached the HIPC Initiative Completion Point in 2008 under President Mwanawasa and had the bulk of her foreign debt written off. Zambia’s foreign debt came down from $7.1 billion to $502 million.
With the appointment of Musokotwane as Minister of Finance and having lost all income from the mines, Musokotwane started reckless borrowing to fund the budget. By the end of 2011, Zambia’s external debt jumped from $502million to $2.2 billion. The IMF Staff Report for the year 2012 for Article IV Consultation on Debt Sustainability Analysis, revealed that external public and publicly guarantee debt was $2.1billion, about 11.6 percent of GDP in 2011. Most of his borrowings were for consumption. This was the beginning of the debt overhang which grew in later years and which Zambia is currently facing. It was started by Musokotwane.
SATA AND ALEXANDER BWALYA CHIKWANDA WORSENS DEBT OVERHANG
Later on when President Banda was defeated by President Michael Sata of the PF, a new minister in the name of Alexander Bwalya Chilufya was appointed as Minister of Finance. He too was reckless as he continued borrowing. His borrowing was however for infrastructure and most of it was sustainable. This included loans to construct Hydro Electric Power stations at Kafue, Kariba and others, which were self financing. Other projects included Levy Mwanawasa Hospital and others, roads and bridges, homes for the Defence Forces, Telecommunications and so on which by 2021, the debt had grown from US$ 2.1 billion to US$ 11.9 billion. This debt included the badly planned US$3 billion which was private debt and which was over priced and onerous from the beginning. This debt is responsible for the woes that Zambia is facing now as most of it has since been bought by shylocks who refuse to negotiate.
One positive thing President Sata administration did was to raise the mine royalty tax from the paltry 0.6 % that Musokotwane had introduced to 6 percent.
President Sata did not stay long as President as he died and was succeeded by President Edgah Changwa Lungu. To his credit, President Lungu continued with the economic policies of his departed leader Sata and refrained from contracting any more external public debt.
EDGAR CHAGWA LINGU INHERITS DEBT OVERHANG
President Edgar Lungu appointed Margarete Mwanakatwe as Minister of Finance and National Planning. The new PF government inherited an unsustainable external debt that had been contracted by the President Sata administration and President Lungu recognized this challenge of the need to restructure the external debt and insure that Zambia also got a fair share from its mineral exports.
Finance Minister Margaret Mwanakatwe on behalf of President Lungu’s administration, announced progressive tax measures of Zambia’s base metals and other minerals that were designed to benefit Zambia. The government raised mineral royalties to 10%. Additionally, importation of copper-cobalt concentrates for refining and smelting in Zambia, was to attract a 5% import duty while a 15% export duty was introduced for precious metals such as gold and other gemstones.
The government also abolished the Value Added Tax (VAT) and replaced it with a non-refundable sales tax. It had been established that the payment of VAT refunds by ZRA had become a major revenue leakage where the mining companies had been defrauding government.
The other Ministers of Finance that President Lungu appointed found themselves in the challenge of trying to manage the debt overhang that had been contracted first by Musokotwane and later by President Sata’s administration. These ministers included Felix Mutati and Dr. Bwalya Ngandu. These patriots attempted to solicit the assistance of the IMF and the Paris Club countries but to no avail as President Edigah Lungu lost the elections to President Hakainde Hichilema of the UPND party.
As at September 2021, Zambia’s external debt was reported to be US $12.99 billion while guaranteed and non-guaranteed external debt for State Owned Enterprises was US $1.56 billion and US $164.52 million, respectively.
SITUMBEKO MUSOKOTWANE RETURNS AND WORSENS ECONOMIC SITUATION
The new President Hakainde Hichilema of the UPND, to the disappointment of many patriots, appointed the former MMD disastrous Dr. Situmbeko Musokotwane as Finance Minister and National Planning. This was the same gentleman that had betrayed Mwanawasa and introduced a most reactionary tax regime that favoured the mining companies. From the onset, many progressive observers feared that a disaster would befall Zambia sooner rather later.
On 29 October 2021, Musokotwane presented his 2022 Budget to the National Assembly. He not only reduced the mineral royalty tax from 10% to 3.1% but also announced that mineral royalty will be deductible for corporate income tax purposes. In other words, it would be considered as a cost in the accounts of mining companies. This of course was a departure from best practice as a royalty is simply a right to use land and should never be part of costs. This measure effectively reduced royalty payments on base metals in Zambia as the mining companies were able to report reduced sales particularly as they also enjoyed rights to carry on losses according to their development agreements. Many people criticized this move with the Governor of the Bank of Zambia Dr. Denny Kalyalya commenting that “our economy has shrunk and stagnated.” The Zambia Revenue Authority also continued to fail to reach the 22% of GDP collection demanded of them by the Minister and in fact regressed to 17% of GDP. This made its Chairman Dr. Caleb Fundanga who is a close friend of mine very concerned as he is not used to failing.
Musokototwane further continued on the borrowing path as he did earlier under President Banda to the extent that Zambia’s external debt in 2022 was reported to stand at $18.6 billion. This external debt included debt-service arrears of which the Eurobond arrears were reported to be $821million as at December 2020. The Total Local debt also rose from K198 billion as at December 2021 to K236 billion as at September 2023 with the adverse effect of the government borrowing overcrowding private sector borrowing.
Musokotwane also entered into another strange deal. He announced that ZCCM-IH, that held 20% shareholding in Kansanshi Copper and Gold Mine had agreed to convert its dividend rights in Kansanshi Mine into a life of mineral royalty payment. He announced that the first payment that FQM would pay ZCCM-IH would be sourced from the outstanding Value-Added Tax refunds from Zambia Revenue Authority due as at 30 June 20222. The aggregated amount of the VAT refund was US$ 442 million and ZMW 433 million. This measure would not only adversely affect the rights and power of ZCCM-IH as shareholders and its Directors would be removed from Kansahshi Board of Directors. It would also adversely affect the country’s right to use its forex income to support the Kwacha.
Further, in some very surprising move, Government directed that the Director of Public Prosecutions (DPP) drop criminal charges against Kansanshi Copper Mine Directors, as part of the conditions precedent for FQM to declare a dividend in the sum of the amount that the government had been claiming from the mining giant majority-owned by First Quantum Minerals (FQM) – to a 3.1% revenue royalty. In this case an audit had revealed that FQM Directors had illegally repatriated $2.5billion from Kansasnhi Copper Mines to develop Cobre Panamá Mine, a new and large-scale open-pit copper mine in Panama without ZCCM-IH consent. This was simply theft. No details was disclosed how the Zambian Government would recover these colossal sums. In fact, ZCCM-IH had in fact won the case in the London Court and awarded US$1.4 billion in damages. However, Musokotwane and his new dawn government let go this money following their so called methodical approach to governance.
MOPANI AND KCM TRAGEDY
Musokotwane as Minister of Finance has sold MOPANI to shylocks. The government of Edgah Lungu refused to place the mine on care and maintenance by GLENCORE and bought the mine for US$1. They also entered into some objectionable conditions of selling copper to a subsidiary of Glencore which could have been renegotiated. The idea was for Zambia to have controlling interest in MOPANI. Musokototwane as corporate sole has reversed this progressive intention and sold MOPANI to some shylocks in Dubai. It is gratifying that many citizens have objected to this reactionary deed including our Prof. Clive Chirwa who has offered to manage the company on behalf of Zambia.
A similar fate has befallen KCM where ZCCM-IH placed the company under liquidation on grounds of insolvency and the President Lungu’s administration saw an opportunity to restructure the company and ensure that Zambia had controlling interest and benefited to its base metals. Musokotwane as corporate sole has again decided to surrender it to the former Indian owners who initially drove the company down.
For this and many other transgressions, many of us are of the view that Musokotwane has not been our best Minister of Finance. He has worked to benefit the Multi National companies and against the interest of Zambia. He has successfully reversed all the progressive policies that President Lungu’s administration commenced. This effectively means that Zambia shall be condemned during his reign as Finance Minister to continued enslavement and dependency on multi-nationals as a neo-colony per excellence as the ‘beautiful ones are not yet born’ to free us from neo-colonial bondage. Certainly, not the likes of Dr. Musokotwane and his collaborators!
Mbita chitala has resurrected?
Excellent article. Balanced and hard hitting analysis.
I now wait for economists to analyse and comment
How did Musokotwane surrender back KCM to Vendata when Vendata has always been the legal Owner of KCM from the time MMD sold it to Vendata? And Chitala talks about Clive Chirwa running Mopani? What happened to Chirwa’s Zambia Railways and his grandiose Plan of Underground Trains in Lusaka? And also his new Invention of Mini Bus Vehicle, are these on the Roads these days? Track Record is critical in life. Castles in the air are easy to erect.
Very good points. The man failed to run a rail line business which is far less complicated than a mining business despite getting an abnormal salary. What can he do in the mine if he failed to run a simpler business? The problem with Zambians is that we easily fall for people who have no practical knowledge of things but experts in theory only like prof. Chirwa.
You have cracked my ribs with the bit about experts in theory!!
Clive Chirwa has not explained to us how the monies Zambia Railways obtained under the Eurobond was spent. You want to bring back a man of dubious character back? Mbita should explain how he and his collegues ran down SIDO? He was the man who ran the concept and it was a failed idea.
We have too man PhDs who have failed in their area or obtain their PhD siukeni and want to become saviours with the concepts. How many journal papers have these people written to show their competence? Situmbeko went to BOZ after UNZA drew the best brains that later BOZ trained with PhDs only to return to head the various departments at BOZ. Under MMD who worked with Jubilee to get the debt write off? Magande only came in later to cut the cake. So lets not give some credit when someone else did the donkey work.
What mbhita negelects to demonestrate is how PF ran down the treasury when they took over a health balance sheet. To appease him was not Board Chair at Zesco while cadres were being paid without working? Was he not at the helm when cars were being diverted to PF? This man actual belongs in Prison as he was an accomplice to the rot that was going on at a Public institution.
Sometimes I fail to under how some of these so called doctors get their PhDs. The writings of this man has so hollow for someone who calls themselves a doctor. He has failed to put things in context but just rushed to a misguided conclusion. To begin with, it seems the man doesn’t understand what windfall tax is and whether it was applicable at the time he has mentioned. Windfall tax was only applicable upon the mines making “abnormal” (windfall) profit but in 2008/2009 the copper price fell to around $2,800 due to global financial crisis at the time but the cost of production was around $3,800 meaning mines where actually making losses that time so the policy was just on paper since the mines where not making any profit.
Therefore, I don’t know how Dr. Musokotwane betrayed the late president Levy Mwanawasa regarding the windfall tax issue when in effect the policy was not applicable at the time.
I hope you have read the entire article.. Dr Mbita has mentioned that the windfall tax could only be applicable when the price of copper was above 5,000 $. Now you are mentioning that it was around 2800 when RB took power. So , automatically, the windfall tax couldn’t apply.
In my view, this article needs a reply from experts , not the type of your reaction
I have read the whole article I have seen carefully crafted words and figures just mislead those who many not know better so that the man can support his ill conceived agenda of vilifying Dr. Musokotwane. Yes Dr. is not perfect but most of the things Dr. Chitala has written are not completely the full story of the events. I will just touch a few of them because his article has touched on too many issues. For a start, the says Dr. Musokotwane left a debt of $2.2bn when actually the debt stood at $1.3bn by the time MMD left office. Dr. Chitala further says the debt acquired by Dr. Musokotwane which was only $600mn was not sustainable but the over $10bn debt acquired by Mr. Chikwanda was sustainable, does that make sense really? Let me put this in context, Zambia’s GDP at the time of MMD leaving was over $28bn and a debt of $1.3bn while during Mr. Chikwanda, Zambia’s GDP had shrunk to less than $23bn and a debt of over $11bn, surely of two economic performance, which one is better? He further said the money borrowed by dr. Musokotwane was meant for consumption which is very far from the truth as it was mainly meant for productive infrastructure like the Kariba north bank which was later discontinued by the PF when they took over.
Further, economic growth during the MMD government (Dr. Musokotwane) was above 7% while under PF (Mr. Chikwanda) came down to below 3%. So just looking at these figures, who was doing a better job between the two? Furthermore, copper output for Zambia was over 850k tons by the time MMD lost power and was expected to reach 1mn tons by 2015 had MMD continued but by contrast, copper output came down from 850k tons to less than 750k tons by 2015. Furthermore, mines started closing down or going in to care and maintenance by 2015 and some of which were Mopani mine and KCM’s Nampundwe mine because of bad taxation policies. He further praises former president ECL has having put in place good mining policies, like really?? If anything, mess we have in the mines right is a result of bad policies which almost brought killed the sector with the copper output of less than 650k by the time ECL left office. How was that good for the country if the revenue the was getting from the sector was was going down? Dr. Chitala has tried to twist the facts just to suit his narrative without putting things in to context by deliberately not considering factors which led to certain decisions. And it’s not like Dr. Chitala himself did a good job at Zesco when he was board chairman when in fact the company’s was really very poor during his time at Zesco. Let’s learn to tell the truth if we really want to be taken seriously.
Well said Straight forward. Literary took the words out of my mouth.
Mbita chitala is a loopen who was deputy Minister of Finance under Chiluba what achievement did make there or does he have a bone to chew with Musokotwane because he was removed when he was found to be incompetent?
Musokotwane is a shameless egocentric looter. Jail awaits him after 2026 like Charity Katanga
Ba Musonda stop being malicious. Cite what crime Musokotwane has committed? You guys waffle about HH having stolen during Privatization, do you even understand what role certain individuals or institutions played in the “PROCESS OF PRIVATIZATION?”
Katanga is a criminal. We have seen/read how she failed explain her wealth that was found in her possession. As for Chief Nkana (sorry to degress, that money is easy to charge the man with. Chiefs hold land “IN TRUST” of the people or subjects). However, government under PF was issuing mining licences “willy nelly.” Prosecute the man so we can see how the law on abuse of office has limitation. You will uncover how PF civil servants were the real criminals and they sgould also head to the gallows. This is the very point the Swedish envoy was talking about. You cant say you are fight corruption when the “arm of the law” is not fully extended.
Stop try to suggest Musokotwane is a “two bit” thief like Mbita Chitala, who sat around as Board Chair of Zesco while it was being looted.
Mbita Chitala’s knowledge of company law and the law of property is extremely superficial. Vedanta was always the majority owner of KCM despite Edgar Lungu’s ill-fated so-called liquidation of the company. Under company law, shareholders still retain ownership of shares in a company in liquidation and that’s why they retain the right to sue a liquidator who does something wrong during the liquidation process. So KCM was never handed back to Vedanta by Musokotwane. Chitala has a point on the dropping of criminal charges against FQM directors by the DPP on the assumption of power by the UPND but how does Musokotwane become answerable for that? I also agree with Chitala on the UPND government’s failure through ZCCM-IH to get damages that were hard won in the London High Court against FQM. This issue is going to haunt the UPND government unless they provide a full and satisfactory explanation.
We need your kind to debate here. Very focused and balanced.
It’s Criminality and betrayal of the worst kind to give away National Resources without consent from the citizens!
It explains why they are struggling to stabilize the Kwacha! It has nothing to do with IMF Deals. If failure to maximize revenue from the Mines!
I have always argued that these Geriatric leaders we have are not good for the country!
National leadership should be aligned to the set retirement age.
Let’s have young leaders who will live to see the consequences of their actions! We should not risk having ancient leaders who don’t care to do the right thing because they know they won’t be there to face the consequences of their decisions while in office!
Look at Bukina Faso and see what the youngest leader is doing for the country!
So if minimum retirement age is 55, let’s not have leaders beyond that age! Let’s have young leaders from the age of 40 to 50 years only!
And we should restrict the term of office to 5 years only!
This will take care of those who want to selfishly cling on to second and third terms!
Above all, Presidential candidates must be compelled by Law to disclose the source of their campaign funding to avoid state capture situations! The current scenario with our mines clearly indicates who the main sponsors were. They have gotten what they wanted from their puppets!
What a shame!
We should also expect our currency to continue performing poorly!
Mining does not develop a country but value addition industries do. Look at every country which has developed around the world, it’s not because of mining but because of manufacturing and service sectors. Remember the price of minerals is not determined by the producer but by the buyers which still puts mining dependant countries at a disadvantage even if they control the whole mining sector. So instead of us crying about mining all the time, we should instead focus our attention to building a robust manufacturing sector and will be guaranteed a robust economy not dependent on fluctuating behavior of mining commodities. Besides, minerals are exhaustible/non renewable resources, what happens when they run out? It would mean we would have to start all over again with other sectors. Let’s start thinking outside the box at think about we can take advantage of 4IR with the coming of AI, IoT, EV, etc. so that we can compete and have a better chance of doing well as a country. We should start thinking of manufacturing batteries, cables, sensors and other components used in EV. The EV sector is expected to reach over $1tn by 2030, so why not take advantage of this and start earning revenue from it?
Word…Straight Forward…
Professor Clive Chirwa and Mbita chitala are birds of the same feather. They will go to extremes to twist facts to suit their agendas. The only difference is that Chirwa is looking for a repeat/ open cheque of what he did at ZRL whilst Chitala is laying the ground work for favours from UKWA. Sorry meant to say UKA. Gunner in Zambia has made a proper dissection, laid bare the twisted facts and inconsistencies in the article.
Just from the face you tell, the man is full bitterness, I wonder if he ever smiles. The man was at ZESCO Board and was a disaster himself. What can he tell us now, the mines have been there even during their time and failed to do what he is talking about now.
Straight forward has stripped chitala’s which showers twisted praise on reckless Lungu in order to see seeks pecuniary advantage from his UKWA. Shame, shame, shame. PhDs are now for hire to spin a narrative for crooks and conmen. Sebana wikute!!!
My thoughts ba Gunner. KCM never belonged to us (Zambians) legally inspite of the PF posturing.
Dr. Chitala is very soft on Mr. Lungu for whatever reason. Almost absolving him of any responsibility for our crashing debt seemingly blaming Mr. Sata. The man ruled barely for 3 years and Mr. Lungu was in charge for 7 years!
I have never really understood the logic behind our forfeiting the 20% shareholding in FQM. The directors of FQM behaved in a criminal manner by syphoning US$2.5billion to finance their copper venture in Panama which has since gone sour. Failing to hold them accountable is criminal in itself. It is economic sabotage.
The purchase of Mopani from Glencore was purely a political decision and the conditions of purchase very unfavourable for us. Glencore clearly understood that Mr. Lungu’s government was under pressure and took full advantage to extract extremely favourable conditions for themselves.
Otherwise, Dr. Mbita has raised some interesting issues which demand a response from the relevant authorities, like the wind fall tax.
Derrick chikala on that statement where you say situmbeko has failed you are 100% right. He has run out of ideas now we need fresh blood in that ministry.