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New Zambian leader will have to make copper glisten for all

Whoever wins the election will have to reinvigorate the economy, which is under serious strain following the collapse of the copper price, writes Claude Kabemba.

Zambians go to the polls to elect a new president on August 11. The country is celebrated as a beacon of democracy on the continent, yet the election campaign is being marred by political intimidation and sporadic violence.

There is great expectation that the poll will be free and fair and the results will be accepted by all parties.

I have no doubt Zambians will rise to the challenge. But the big question everybody has avoided is how the party that wins can reinvigorate the economy, which is under serious strain following the collapse of the copper price.

Both main parties, President Edgar Lungu’s Patriotic Front (PF) and the opposition United Party for National Development (UPND) led by Hakainde Hichilema, have not clearly articulated how they plan to deal with this challenge.

Whoever wins will have the daunting task of stabilising the economy and giving hope to the people of Zambia who are facing poverty, unemployment and increasing inequality. As the continent’s second-largest copper producer, Zambia is heavily dependent on the copper price.

The recent commodity boom gave Lusaka false hopes and diverted its attention from finding alternative economic sources. The collapse of the copper price was immediately followed by a rapid decline in growth.

Zambia is also facing a serious energy shortage which has contributed to the economy slowing down. In the short and medium term, there is no silver bullet. The only strategic intervention available is to introduce reforms in the mining sector that have the potential to translate abundant copper resources into wealth for all.

The current mining policies have not been beneficial to Zambians. The country still has policies that encourage the pillaging of the country’s mineral wealth.

Zambia’s current trade and investment strategies, which encourage foreign direct investment in the mining sector, are overgenerous and misaligned with the revenue generation.

Zambia’s tax regime gives higher tax exemptions and the country is losing more than a billion a year in foregone tax revenue. It loses 10 percent of its GDP annually from corporate tax avoidance practices.

The country’s tax regime doesn’t allow an excess profit tax, which resulted in Lusaka not benefiting optimally from the last resources boom. When the government attempted to introduce a windfall tax in 2008, mining companies threatened to disinvest.

What Zambians have failed to understand is that even at the peak of the copper price increase the country did not collect enough revenue simply because many mining companies pay almost zero tax due to excessive exemptions.

It is hence understandable that even though the country experienced an economic growth rate of between 5 and 7 percent for many years, it did not translate into social and human development for Zambians.

The country has extreme income inequalities. With a Gini coefficient estimated at more than 0.75, 68 percent of the population live below the poverty line with 45 percent classified as extremely poor.

In terms of income per capita distribution, less than 20 percent of the national income is shared by 70 percent of the population. These negative economic indicators are on the rise as economic growth shrinks.

It’s expected that economic growth will slow to 3 percent by the end of the year. It’s clear Zambia’s political stability and the consolidation of the electoral democracy have not translated into better lives for Zambians.

The two major parties are scared to touch the mining issue in their election campaign. The challenges that Zambia faces in its mining sector are compounded by the weak state capacity to manage the sector. Beside the weak capacity to tax the sector, Lusaka is not able to monitor mining companies to detect bad behaviour and sanction them.

The concerns of communities affected by environmental damage, displacement, water and land pollution and other harmful practices are matters of public interest, but companies are never punished. The government has been powerless and docile in the presence of multiple human rights abuses by mining groups. Companies know how to silence the government by threatening to close the mines.

Whoever wins the elections will have to introduce fundamental changes to the way the economy is managed, especially the mining sector.

 

Source – Sunday Independent