By Scoop Reporter
ZAMBIA was already a case study on how not to run an economy before the Corona Virus Disease (COVID-19) outbreak and the problem is not the virus but President Edgar Lungu, says The Economist in its latest edition.
In its latest edition, The Economist outlines how before the Patriotic Front (PF) took power in 2011, Zambia’s economy was doing well.
It says the current economic doldrums must not be blamed on COVID-19 but President Lungu because the economy was already bleeding before the outbreak.
“Compared to the mid-2000s, today’s creditors are more diverse and interest rates are higher. Of the roughly $12bn (51 percent of GDP) of external debt on Zambia’s books at the end of 2018, about 30 percent was owed to China, 25 percent to bondholders and 19 percent to foreign banks.
“The World Bank, the IMF, and Western Governments hold a relatively small share,” reads the publication in part.
It states that on April 20, 2020, Finance Minister Bwalya Ng’andu, the finance said that Zambia had asked multilateral lenders, including the IMF, for help yet the Fund will lend only to countries it believes are getting their borrowing under control.
It alleges that under President Lungu’s reign, Zambia has become more corrupt by some international yardsticks as evidenced by dodgy procurement deals, from 42 fire engines bought for $1m each to inflated contracts to build roads.
It says that The Financial Intelligence Centre, a watchdog, reckoned the value of money-laundering and shady transactions had leapt to $520m in 2018 from $382m in 2017.
“Mr. Lungu is also becoming more authoritarian. In 2017 Hakainde Hichilema, an opposition politician, was detained for four months on charges of endangering the president after not making way for his motorcade. In March Prime TV, an independent channel, had its license suspended.
“Most worrying is a bill before parliament that would give sweeping powers to the presidency. Muna Ndulo, a Zambian law professor at Cornell University, calls it a recipe for a “constitutional dictatorship”. The president is eyeing re-election in August 2021,” reads the publication in part.
It says that President Lungu may struggle in a fair fight against Mr. Hichilema as previous votes have been marred by allegations of rigging and that his stance on mines is partly to shore up support in the copper belt, a former pf stronghold where it lost a by-election in 2019.
“His reluctance to put a stop to borrowing for pet projects reflects his concern that he may not win his party’s nomination in July.
“Mr. Lungu has been somewhat unlucky. Disease and drought have both hurt the economy. Being a landlocked country at a time of closed borders, is difficult. But it is not the virus that has got Zambia into this mess. It is the President,” reads the publication.
READ THE REST OF THE PUBLICATION BELOW:
Financial management has been calamitous. Often individual departments take out loans and the finance ministry only finds out later, notes Trevor Simumba, a consultant who has written extensively on Zambian debt. This has encouraged, for example, the purchase of a presidential Gulfstream jet and other planes.
Then there are loans that have been authorised but do not yet show up in official figures. These added up to about $10bn in April 2019, according to analysis by the IMF and the World Bank. Most are owed to China for infrastructure. Since these loans may include the underlying asset as collateral, they have led to speculation that any restructuring of Zambian debt to China could involve the handing over of roads, airports or perhaps even mines (Zambia denies this).
A short-sighted search for revenue is one reason why Zambia has taken a hostile approach to its mining sector. Taxes on mining are among the highest in the world, says EY, a consultancy. Miners say they are owed more than $1bn in VAT refunds. In May 2019 the government went to court to, in effect, grab Konkola Copper Mines, which is mostly owned by Vedanta, an Indian company. The case rumbles on.
Zambia has picked a strange time for a spasm of resource nationalism. Mining firms, and thus taxes and royalties, have been hit by the collapse in global demand. The price of copper has fallen by 16 percent this year. Zambia produced more than 800,000 tonnes in 2019; one miner says he would be “astonished” if the country produced more than 700,000 in 2020.
The effects of covid-19 were cited by Glencore when it said on April 7, 2020 that it would stop operations at its Mopani mine. Eight days later the firm’s local boss, Nathan Bullock, was stopped from leaving the country and temporarily detained (he has now left). The Government is in talks with Glencore over reopening the mine.