Posted on : 27-11-2015 | Back | Print

General Remarks

I want to thank the Leader of Government Business in the House, Her Honour the Vice-President Mrs Inonge Wina, for the commendable job she did to mobilise the necessary support that resulted in the passage of the two constitution-making bill in Parliament yesterday. I want to thank all MPs who supported our progressive approach towards the realisation of the ever-elusive goal of delivering a durable constitution to our people. This development last evening demonstrate that there comes a time when as nation we must be able to agree on common minimums. There are many things in that constitution and in the nation in general where there is broad consensus and we must be able to agree and move on without unnecessary confrontation. There is no benefit for anyone of us in priding ourselves as nation that disagrees on everything!

General economic outlook
1. The Zambian economy has recently been facing
challenges arising mainly from external and in some cases domestic events. On the external side, a slowdown in economic activities mainly in China and the Eurozone, coupled with the strengthening of the United States Dollar, has led to a drop in commodity prices and a fall in investment inflows. As a result, copper prices have slumped by 26.0 per cent since the beginning of this year leading to a fall in production and scaling back of some mining operations. Further, Non-traditional Export (NTE) earnings declined by 36.6 per cent. On the domestic side, the poor rainfall pattern particularly in the 2014/15 agricultural season has led to a fall in crop production and a severe decline in electricity generation.
2. Developments in the external sector have led to a sharp depreciation of the Kwacha against major currencies especially the US Dollar. This in turn has led to increases in the general price level of goods and services and this has impacted negatively on Government expenditure, particularly on items such as debt service, drugs, agricultural inputs as well as maintenance of the country Foreign Missions. Furthermore, the fall in commodity prices bas led to a slump in revenue collections especially those related to the mining industry.
In the foreign exchange sector, for most part of the year 2015, the exchange rate of the Kwacha against the US Dollar has been marked by a depreciating trend due to a combination of global and domestic factors. These factors include:

lower copper prices due to slowing growth in China, the main buyer of our copper; deteriorating trade and current account balances;
broadly stronger US Dollar in the international markets on long anticipated US Federal Reserve interest rate hike;
uncertainty over the performance of the mining sector (with Glencore scaling down its operations at Mopani);
widening and unanticipated fiscal deficit;
rating downgrade by Moody’s rating agency;
electricity power deficits; and
adverse sentiments about the general performance of the economy.

In 2015, copper prices have averaged around US$5,160 per metric tonne. As at 25th November, 2015, the international price of copper had fallen below US$4,600 per metric tonne. This, coupled with the fall in output, has resulted in lower export earnings and thus lower supply of foreign exchange in the economy.
Over the past two weeks, the Kwacha has regained some of its lost value and has exhibited some relative stability. As at close of business on the 25th November 2015, the Kwacha was trading at K11.5 per US Dollar (in terms of the mid-average rate), representing a month-to-date appreciation of 6.9 per cent. The relative stability of the Kwacha is attributed to a combination of factors including the following:
i. Tightening of monetary policy: The Bank of Zambia tightened monetary policy by increasing the Policy Rate to 15.5 per cent from 12.5 per cent effective 4th November 2015. This is in addition to the Bank’s continuous presence in the money market to withdraw excess domestic Kwacha liquidity through open market operations;

ii. Foreign exchange support to the market: To address extreme volatility in the exchange rate of the Kwacha against major currencies and its likely impact on inflation, the Bank of Zambia provided measured foreign exchange support to the market; and

iii. Monitoring of foreign exchange market and information sharing. To improve market conduct and support orderly operations in the foreign exchange market, the Bank of Zambia heightened monitoring of activities in both the money and foreign exchange markets. To enhance transparency and

iv. information flow in the market, the Bank of Zambia started publishing individual commercial banks interbank and retail rates, and other related information. In the face of the recent inflation and external developments, the Bank of Zambia will maintain the relatively tight monetary policy stance and continue close monitoring of activities in the money and foreign exchange markets. However, for these monetary policy measures to be more effective in containing inflation and contribute to early restoration of macro-economic stability, which is a necessary pre-condition for sustained growth, I have directed immediate

fiscal consolidation measures. I regret to note that inflation is artificially accelerating due to:
Dollarization of prices a practice, which is illegal. I appeal to businesses to stop pricing in dollars with immediate effect. I therefore direct Bank of Zambia to ensure enhanced monitoring in this regard and take punitive measures against non-compliance. There has been appreciable stabilisation in the exchange rate and therefore dollarization is unwarranted. It is not just illegal but immoral too that the unscrupulous businesses who price in dollars maintain the same pricing at a
higher rate even when the Kwacha has appreciated.

(iv) The measures undertaken by BOZ in consultation with the Ministry of Finance have so far yielded positive results in stabilising the Exchange Rate. All things being equal the future outlook is a stabilised rate inclined towards further appreciation.

2. These external and domestic developments that I have alluded to, have increased the stress on the economy resulting in the economic growth projection for 2015 and 2016 to be substantially lower than previously thought. While this will result in lower revenue collections, the Treasury will have to provide for higher than budgeted expenditures mainly for the importation of power and fuel. Overall, this has aggravated an already over stretched fiscal position, thereby necessitating recourse to additional debt financing, which in the medium term is not sustainable.

4. To address these challenges, I have taken bold decisions that will restore fiscal and macroeconomic stability. The following are some of the measures:
Petroleum Pricing
5. Failure to adhere to cost-reflective pricing in petroleum procurement has had a negative impact on the budget. By the end of this year, Government will have spent in excess of US$300 million (aboutK3.6 billion) in subsidising fuel pump prices. An additional US$ 200 million (approximately K2.4 billion) is in arrears and will have to be paid next year. This is clearly not sustainable.

Electricity Tariffs

6. In the wake of reduced power generation, the Government has had to import emergency power in 2015 sustain the country’s economic activities. Between September, 2015 and the end of the year, Government will have spent over US$40 million for emergency electricity
imports. Again, this is unaffordable. To reduce the pressure on the Treasury, I direct the Ministry of Energy and Water Development, Energy Regulation Board and Zesco to:
i. Implement the new electricity tariff schedule and progressively move to full cost-reflective tariffs thereafter; and
ii. Ensure that back-to-back contracts are put in place between the providers of the emergency power to Zesco and the mining companies that consume the bulk of the power.

7. Additionally, I direct the Industrial Development Corporation (IDC) and ZESCO to facilitate the speedy development of alternative sources of energy with the view to have some of them come on stream next year. I wish to announce also that in our resolve to
improve the power supply situation, I will this Saturday, November 28, 2015, be launching the 750 mega-watt Lower Kafue Gorge Hydropower station. This is the first major investment Zambia is making in 40 years! This investment will make Zambia fully energy-secure in three years. Let me emphasise here that we are on course to significantly reduce on Zesco power cuts in the short-term as we take short and medium term measures. Apart from increased power imports already under negotiation, I can announce here that we are on course to inaugurate the Itezhi Tezhi hydropower station next month, December 2015. This power station will bring on steam an additional 100 mega-watts of power immediately. I am directing the Minister of Energy to immediately re-engage owners of Maamba coal-fired plant to expedite on the
delivery of the 300 mega-watts planned to come on stream anytime in the 1st Quarter of 2016.

Agriculture subsidies
8. In order to deal with some structural issues in the agricultural sector that have been causing pressure to the fiscal position, I am directing as follows:

(i) The Minister of Commerce must expedite active participation of the cooperative movement in crop marketing and farmer input activities so that the Food Reserve Agency limits its role to maintain the strategic reserves.
(ii) The Minster of Agriculture must ensure the successful implementation of the e-voucher system in order to scale back on auxiliary costs associated with Farmer Input Support Programme and support agriculture diversification.

Infrastructure financing
9. In light of the recent economic challenges, the financing of the ambitious infrastructural development programme has to be re-aligned to ensure budgetary sustainability. To this effect I am directing that:
i. All Government Ministries, Provinces and Spending Agencies should cease the procurement of, or the entering into contracts for, new works including in the road sector.
ii. Therefore, focus should be on the completion of on-going projects;
iii. All Government Ministries, Provinces and Spending Agencies to engage the Attorney-General to review committed projects signed but not yet commenced with a view to defer where appropriate; and

iv. Regarding on-going road projects, in particular, the Minister of Works and Supply shall embark on a phased approach in the implementation of road projects over a longer period and employ other options other just continuous use of bitumen.

10. Further, no Government department will procure works or enter into contracts for goods or services for which there is insufficient or no budgetary allocations, as approved by Parliament. This implicitly means that all Government departments will have to work out their respective programmes.
Public Procurement
11. Public procurement has become an avenue through which Government has been losing huge sums of funds via cartels, unrealistic pricing of goods and services and other unethical practices that are aimed at manipulating the system for personal gain. I am, therefore, directing the Zambia Public Procurement Authority, to expedite the
publication of benchmark prices, particularly in areas of high spending, so as to ensure value for money in public procurement.
12. I am also directing the various units of Government charged with the responsibility of investigation and prevention of unethical practices such as corruption and bribery, to be on high alert and quell any potential frauds in the public procurement system. This Government will not protect any individual or business entity that will be found wanting in this area.
Cost of running Government
13. In order to reduce the cost of running Government, the following measures will be undertaken:
i. Defer the establishment of the National Airline until such a time that the economy is able to afford the high establishment costs.
ii. Foreign travel by various by Ministers, Government and Quasi-Government officials shall be limited to essential meetings only, with the size of delegations restricted to the barest minimum. In this regard, I am directing all Government Ministries, Provinces and Spending Agencies to start utilizing the skills and resources available in our missions abroad. Further, local travel by ministers and other public servants must be significantly minimized.
iii. The Secretary to the Cabinet shall urgently facilitate commercial bank-funded loan schemes for personal-to-holder vehicles and household furniture which more akin to personal benefits rather than to the delivery of public services. Further, the Secretary to Cabinet should expedite the review of the conditions of service for constitutional holders to make them less onerous.

iv. The establishment of new missions abroad is critical in enhancing visibility and the country’s economic interests. However, given the current budgetary pressures, it has become imperative that Government re-aligns expenditure in this area.

v. In this regard, I am suspending the creation of new missions abroad. I am further directing the Minister of Foreign Affairs to review and rationalise the size and number of the missions.

vi. The Ministry of Foreign Affairs must quickly implement the Cabinet decision to apply for mortgages as opposed to renting properties in foreign missions. This will significantly reduce the cost of running our missions.

Revenue administration
14. It is undisputable that we are able to generate adequate resources internally to meet our ambitious development agenda.

However, this has been compromised by low tax compliance level and leakages resulting from selfish schemes among some of our officers in revenue collection. I wish to send a timely warning that anyone not paying their fair share of taxes will be vigorously pursued while officers engaged in collusion with taxpayers to defraud the Treasury will be discharged and prosecuted.
15. I therefore, direct the Commissioner-General of the Zambia Revenue Authority to strengthen tax compliance and ensure integrity and professionalism among the Authority’s staff.
Further, I am directing the Minister of Finance to expedite the formation of a multi-disciplinary task force that will include the security wings to curb tax related malpractices.

Economic situation on the Copperbelt
16. We have tried as government, we have tried our utmost best to keep to a bare minimum, the number of jobs to be lost on the Copperbelt during the on-going turbulence in the global mining industry. But we could not prevent these job losses. We could not prevent mining companies from rationalizing their labour force as part of the survival strategy to forestall possible closure all together. The loss of jobs at Mopani Copper Mines (MCM) and some contract employees at Konkola Copper Mines (KCM) is obviously regrettable. These job losses do not only affect individual employees, their families and trade unions butgovernment as well because as custodians of the welfare of every citizen, we are burdened with various attendant problems arising from unemployment.

17. Countrymen and women, job cuts therefore can only be allowed as the very last option when all other reasonable interventions have failed. I want to report in this regard that the projected job losses at Mopani alone at the start of the commodity price slump a few monthswas more than 7000 but we have worked with mineowners to reduce the number to 3051 miners. MCM has informed me that they will this month start investing $950 million to developnew mine infrastructure that will result in the expansion of the mine by between 25 – 30 years. I am informed too that when the price copper rebounds, some of the retrenched workers may be rehired.

18. Whilst the causes of our current problems are mainly external factors, the responsibility to solve these problems is mine!
It is our responsibility; it is the responsibility of this government and the buck stops at me! It does not matter that I am only 10 months in office as President dealing with historical problems going back to the period of privatization in 2000. I have perused some agreements and other processes on the privatisation of our mines and I regret to state that some of the decisions made at the time leaves much to be desired. All that is now history and my responsibility is to confront the challenges our people are facing on the Copperbelt; to lead a credible response to the challenge before us. I know, and countrymen and women, you know too, that copper is a wasting asset.

19. I have therefore taken practical steps to walk-the-talk of diversifying the Zambian economy away from its over-dependence on Copper. If this necessity has merely been talk when times are hard, let me assure the Nation that, we are moving decisively to transform Zambia into an agro-based economy. The Zambia National Service (ZNS) will be directed to move rapidly to clear identified land and help build start-up infrastructure to help our retrenched workers start a new life under a government supported cooperative arrangement. We shall provide other incentives to ensure that our ex-miners start a new life immediately.

20. The Nation must not be cheated that we know nothing about agriculture because we have set a remarkable record of delivering fertilizer and seed way ahead of the 2015/16 rainy season. It is this administration, the PF government that has ensured that farmers have their inputs on time. We have yet another record of ensuring that all farmers that sold maize to FRA have been paid promptly and we have reduced grain wastage to negligible levels. All things being equal, we are likely to have a good harvest in the 2015/16 farming season.

21. I wish to announce that also announce that this month-end, we shall receive more than 100 solar-powered milling plants to be installed in all parts of Zambia. This will help to significantly drop the price of mealie-meal.

Further, let me assure the nation that starting next week, FRA will begin to offload cheaper maize on special arrangements with willing millers to ensure that the price of mealie-meal drops to around K65.

22. New Ndola International Airport (US$ 397 Million):This is a complete Greenfield project to be constructed in Chichele Forest, surrounded by four (4) towns namely, Ndola, Kitwe, Mufulira and Luanshya. The construction contract has already been signed by Ministry of Works and Supply and we are only waiting for the finalisation of the Loan Agreement by Ministry of Finance.This project is estimated to create 3,000 jobs. This ultra-modern facility will include hotels, shopping malls and other world-class modern facilities befitting a modern international airport.

23. Construction of 400kilometres -C-400- Copperbelt township roads (US $492 million):This project will include construction and rehabilitation of township roads in the Copperbelt. This contract has already been signed by Ministry of Works and Supply and is now at loan stage, to be finalised by the Ministry of Finance.The project will create 4,000 jobs.

24. Construction of water reticulation system for Kafubu Water and Sewerage Company for Ndola, Luanshya &Masaiti )US$400 million): This project will involve the construction of the main dam on the Kafulafuta River and main water supply systems. The project will improve both quality and quantity of water to the towns of Ndola, Luanshya and Masaiti. The project will create 3,000 direct jobs.

25. The three projects have a total value of US$ 1.3 billion or K16 billion over aperiod of three years (2016-2018.)

26. I am now therefore directing the Permanent Secretary- Ministry of Works and Supply to ensure that the construction of the Ndola International Airport and the construction and rehabilitation of 400kmof township roads on the Copperbeltcommences in the first quarter of 2016 without fail.

27. I also direct The Permanent Secretary for the Ministry of Local Government to ensure that the Kafubu Water Project commences within the first quarter of 2016 without fail.

28. I further direct the respective implementing agencies to ensure that 20% of the above
works worth US$260 million (ZMW 3.2 billion) are given to local contractors and suppliers based on the Copperbelt in order to mitigate the impact of the recent job losses on the mines that has been caused by the reduced mine activity due to the fall in copper prices.
The implementation of these measures will create around 10,000 jobs from these three major contracts for a period of three years. During this period there will be skills transfer and capacity building in infrastructure construction projects other than those related to mining. This will result in the creation of versatile contractors. This is in line with Governments intention to diversify the economy.I am directing the Copperbelt Provincial Administration to ensure that priority in the recruitment is given to the Copperbelt-based residents.
Investor confidence

29. Zambia has faced some serious challenges of investor confidence regarding perceptions that investors could lose their property to the State. This mainly followed the takeover of the Kasumbalesa Border facility. Our economy is largely based on private, local and foreign investment and we must always avoid perceptions that Zambia is a risky country to do business where private assets are not protected. I am happy to learn that some regional and international financial institutions that avoided investing in the country are assured following the amicable settlement of this matter. Following the successful negotiations over this matter, the Development Bank of Southern Africa (DBSA) will now release a US$70 million facility to continue supporting the road programme. An additional US$200 million will be extended to Zesco by DBSA. Zambia shall therefore regain access to the most needed international foreign currency.
30. Some of these interventions are Copperbelt Province focussed but others are general in nature. I will continue to lead a series of interventions to ensure that we mitigate the effects of the economic slowdown due to low copper prices; energy shortage, and the unprecedented rise of the American dollar against other currencies including the Kwacha. Again I say that whilst these problems are due to external pressures, I am happy with the measured interventions the Reserve Bank and the Treasury teams have undertaken to stabilise the foreign exchange market.

31. The measures I have highlighted above are meant to restore fiscal sustainability and macroeconomic stability. I am confident that the fiscal measures that I announced today, will complement monetary policy measures in stabilizing the exchange rate and curb inflationary pressures going forward.

32. As citizens will note, the price of copper has continued to fall, reaching US$ 4,500 per metric tonne this week. Therefore, challenges in the mining sector are bound to continue and affect many families. Again, this issue is a priority to us in Government and as I have said in the past, we will do all that we can to ensure that as many jobs are spared.
33. Country men and women, the challenges we face are of a national character and require all of us to unite behind all these measures that will restore prosperity to our country. Price increases and job losses do not select on the basis of political party affiliation or tribal belonging, hence the need for us to unite and ensure that Zambia succeeds through these challenges.

34. In taking these measures, I note that it will not be easy for many of our citizens, however, these are necessary actions required to bring us back to a path of economic stability. I thank all citizens for their understanding this far and for the support I know we will get as we go forward.

God Bless Zambia
I thank you all

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