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Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Options for AfricaZambia’s Case
Presentation to the High-Level Round Table Discussion at the African Development Bank
Annual Meetings
Dr. Situmbeko Musokotwane, M.P.Minister of Finance and National Planning
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Outline
Impact of the crisis on Zambia
Our response to the crisis
Lessons learned and the road ahead
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Impact of the crisis on Zambia
Zambian economy depends significantly on the mining sector Copper accounts for about 70 percent of exports Mining industry employs about 50,000 workers (9
percent of total formal employment)
Global copper prices have been the main transmission mechanism of the crisis and its effects in Zambia: Prices have tumbled from a peak of US$ 8985 per metric
tonne in August 2008 to US$ 2902 at the close of 2008
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Transmission Mechanism of the Crisis to the Local
Economy
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Impact of the crisis on Zambia
Effects of the commodity price shock: Significant fall in foreign exchange earnings, affecting
reserve position and balance of payments Heightened volatility and sharp depreciation (about 40
percent) of the Zambian Kwacha against major currencies, as a result of weaker investor sentiments leading to large portfolio withdrawals by investors
Cash flows of mining companies severely affected, particularly in high-cost operations
About 13,000 workers laid off, one third of the workforce due to closure or streamlining of mining operations
First and second order fiscal effects: direct losses on corporate taxes and variable profit taxes; indirect losses through reduced Pay-as-you-earn income taxes from mining sector
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Impact of the crisis on Zambia contd.
Mining sector in 2009: Mining sector expected to slow down,
resulting in lower tax revenues. 2009 projected revenues from mining sector
is around US$ 73.7 million. In 2008, revenues stood at US$ 138.6 million.
1st quarter estimates indicate that these projections are still on-track, despite better than expected production data from mines
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Impact of the crisis on Zambia contd.
The rest of the economy in 2009: Tourism expected to slow down as a result of weak global
demand for travel; initial indications are that there has been a sharp drop in bookings at Livingstone (Victoria Falls)
Construction, transport and communication to be affected as a result of weaker domestic conditions and displaced workers
For now, financial sector is stable but remains vulnerable to second-round domestic effects such as defaults, bankruptcies, etc.
Investments may dry up as global credit conditions aggravate the business environment
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
External Sector Vulnerability
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Responses to the crisis
Immediate responses: Exchange rate allowed to adjust in line with changing
market sentiments, unlike in 70s and 80s where rates were not allowed to adjust. Depreciation of around 40 percent since crisis began; Central Bank market intervention restricted to smoothening volatility only.
Bank of Zambia actively monitoring financial sector developments, enhancing supervision and oversight activities so as to maintain investor confidence.
Through 2009 Budget, Government took steps to intensify its diversification drive in line with broad medium and long-term strategy
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Responses to the crisis contd.
Immediate responses contd.: Revenue side:
New mining fiscal regime with reduced taxes on fuel imports, a more streamlined profit tax system, and incentives for additional investment in the sector (through 100 percent capital allowance)
Duty and tax incentives for agricultural equipment imports Customs, excise and VAT incentives to manufacturers to set
up economic zones and industrial parks Social sectors:
Significant real increases in education and health outlays in the Budget
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Response to the crisis contd.
Medium/Long term responses: Two-pronged strategy to mitigate current crisis, and
use the opportunity to safeguard against future crises – à la Keynes
Immediate realignment of expenditures to focus on large public works and infrastructure, helping to create additional domestic demand
These expenditures target key projects in Tourism and Agriculture so as to diversify the economy away from mining.
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Showcase: Nansanga Farm Block
A model for Agricultural Development in Zambia
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Showcase – Nansanga Farm Block Contd.
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Showcase – Nansanga Farm Block
155,000 hectares of fertile land about 400 km North of Lusaka
Government will provide roads, bridges, dams, and water supply facilities
Both large and small scale farmers to accommodate cross-section of economic activity; hub-and-spoke system, with smaller farmers supplying to larger ones
Tar roads leading to national highways; easy access to a number of markets (Lusaka, Copperbelt, Luapula and Northern Provinces)
Works have already commenced, will be completed later this year
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Showcase – Nansanga Farm Block contd.
Nansanga farm block: Once completed, investors can move in
quickly and commence operations with low gestation periods
Model for agricultural development in Zambia
Aim is to develop at least one each year across the country
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Response to the crisis… contd.
Other key medium/long-term projects: “Livestock can be the next copper”
Development of livestock disease-free zones to foster meat exports Improving livestock extension service
“Zambia can be the energy provider of Southern Africa” Commencement of energy projects which will transform Zambia’s
vast energy potential in the medium-term Enhancing competitiveness
Reducing the cost of doing business through business licensing reforms
Increased spending on road infrastructure
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Way Forward
“Good crises like these don’t come easily”: Need to take advantage, seize the moment
and engage in rapid and aggressive economic diversification, while ensuring that the vulnerable are protected
Otherwise, we will be back in the same place when the next crisis strikes
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Way forward
Need to take a deeper look at what other countries have done: East Asia, India opening up to FDI, embracing modern
technology and processes (particularly in agriculture) UNIDO Study (2007 data):
Irrigation as a percentage of arable land is only around 5 percent in Africa; 38 percent average in basket of 9 countries (Bangladesh, Brazil, China, India, Pakistan, Philippines, South Korea, Thailand, Vietnam)
Average tractors: 28/1000 ha in Africa against 241/1000 ha in the 9 countries
Fertilizer use: 13kg/ha in Africa ; 208kg/ha in the 9 countries
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Way Forward
Role of donors: More effective channelling of aid:
Money isn’t going to areas where it is most needed Easier to build a school than a road Often, donors discuss directly with sector ministries,
posing difficulties at a later stage when resources must be realigned
Focus must be on providing resources (grant, credit, semi-concessional debt) that provide a way out of donor dependency: Africa does not want to be dependent on aid forever!
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning Source: Annual Reports and Statistical Compendiums
Total Lending Approvals1960s – 2007
(US$ bn.)
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Total Lending Approvals1960s – 2007
(% allocation of total portfolio)
Source: Annual Reports and Statistical Compendiums
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Infrastructure Lending1960s to 2007
(US$ bn.)
Source: Annual Reports and Statistical Compendiums
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Infrastructure Lending1960s – 2007
(% allocation within infrastructure portfolio)
Source: Annual Reports and Statistical Compendiums
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Way Forward
There has never been a better time for Africa to get serious on regional integration Cross-continental infrastructure such as roads,
power lines Reducing the cost of doing cross-country business
Dismantling trade barriers: border crossing times, checkpoints
Promoting open skies Actively sharing information to prevent money-
laundering
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Showcase: North-South Corridor
Connecting Eastern and Southern Africa
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Showcase: North-South Corridor
North-South Corridor: Initiative of COMESA, EAC, and SADC Aimed at enhancing regional trade through the improvement
of infrastructure (road corridors) and reducing transaction costs for cross-border transactions
High-level conference held in Lusaka last March reaffirmed commitment to this important project Strong financial and technical commitments US$ 1.2 billion in commitments from development partners to
upgrade rail, road and port facilities Pledged to improve integration of national and regional planning
processes Pledge to harmonize policies and regulations such as tariff
regimes, customs and immigration procedures, etc.
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Conclusion
While it is true that: This crisis was not of our making and originated
beyond our borders We have remained steadfast to development
agenda, principles of good governance and prudent macroeconomic management
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Conclusion
We must still face the hard fact that the crisis is here to stay for some time.
And so, we must all do our part: Governments must seize this as an opportunity to push
through harder reforms that will safeguard against future crises
More regional integration and cooperation to ensure that we are doing everything we can as a continent
Donors must scale up assistance and ensure strong alignment to national priorities and honour and make operational commitments that have been declared to deal with the crisis.
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Finally, as you will agree, Ministers of Finance must do everything they can to mitigate the impact of the crisis on their countries.
I would be failing in my job if I did not show you what awaits you on your next holiday:
Conclusion
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Investors:[email protected]
m
Presentation to the 3rd High-Level Round TableMinistry of Finance and National Planning
Thank you!