Wednesday, 5 June 2013

Subsidies withdraw, a better view from the past


Recently the government of President Sata in Zambia removed subsidies on fuel, maize and rolled back similar incentives on farm inputs. A look back at the negative effects similar measures undertaken in the 1990s produced gives little hope that the outcome will be different this time around

 By Nyalubinge Ngwende
To have a better view of something you need to step back and look at it from a distance. Therefore to get a better view of how a country’s economic policies will affect the present and future just as well require the prudence of stepping back. In this case taking a back step means looking at things from recent history. 

It is from a look into history that we can also draw some vital lessons to make predictable outcomes of the decision by President Michael Sata’s Patriotic Front government to remove subsidies on maize, fuel and roll back the incentives on farming inputs.

Zambia is not removing subsidies for the first time and there effects, apart from the political backlash that follows, are well documented in several reports.

In 1991, after wrestling power from UNIP’s Kenneth Kaunda, MMD President (late) Frederick Chiluba went for absolute removal of subsidies on all essential commodities, including farming inputs.

Chiluba was a proponent of a free market economy and wanted all sectors of the economy, including agriculture, to play to the vagaries of the market. Those austere measures were not as kind.

While subsidies were over used or misused under the UNIP regime, taking away funds necessary for development from other vital sectors, the haste removal of these economic incentives in the first three years of the MMD wrought unspeakable misery among the people and held back the country’s Human Development values.

According to the United Nations Development Programme (UNDP) after 1990, when Chiluba took office and effected widespread economic changes including removal of subsidies, Zambia fell from 0.423 value position in 1985 to 0.345 in 2000 on the Human Development Index (HDI) when he left office. The country lumbered behind in all social service delivery and continued to face high maternal and infant mortality rates which were all above a 150 per 1000, while enrolment and completion rates were poor.

In addition, the country’s infrastructure development remained stagnant, while the privatisation of State Owned Enterprises left most of the employable population jobless. Chiluba chose to dish out cash to churches and friends in millions while he asked the masses to sacrifice. Corruption also increased.

Like Chiluba, Sata wants to use the money saved from subsidies to build the country’s roads, schools and health facilities. He has even gone to tell the country that subsidies do not benefit the poor people, with various statements coming from the government spokesperson, Ministry of Information and Broadcasting Service minister Kennedy, that subsidies only made the rich richer while the poor were becoming poorer.

The subsidies being removed were introduced by Mwanawasa who succeeded Chiluba in 2001. The
Mwanawasa reintroduced farm subsidies in 2003
subsidies continued under Rupiah Banda who had taken over presidency in a mid-term election in 2008 following the death of Mwanawasa.

According to the Zambia Human Development Index Report for 2011, the country climbed through the development index from 0.0345 in 2000 to 0.395 in 2010, a score slightly above the average of 0.389 for the sub-Saharan Africa. 

Among major successes that the report attributes these economic development gains includes a growth in the agriculture sector.

At the same time the country also recorded an increase in the access to education, with the primary school enrolment and completion rates, which were at 75% and 63%, respectively, in 1999 rising to 130 and 91, respectively, in 2007. Access to health facilities also recorded tremendous improvement, with the country’s hope to score on some of the MDGs (Millennium Development Goals) looking brighter.

“The 2011 report documents a decade of noteworthy improvements in health and basic education services in Zambia. Infrastructure has produced development in these sectors has produced more schools, hospitals and health clinics across the country,” says the ZHDR titled ‘Service Delivery for Sustainable Human Development’.

“Essential drugs for immunisation, HIV, malaria and tuberculosis are more readily available, including for those previously not able to afford them,” says UNDP resident representative Kani Wignaraja in her foreword for the report. 

UNDP Country representative Wigranja
She further says that desks and learning materials have been made available, including importantly to community schools which is seen as an important catchment of school-goers.

“As a result of measures like this, some health and education outcome measures have improved: maternal and child mortality are on the decline, albeit slowly; school enrolment has reached universal coverage while school completion rates are on the rise.” 

The report also fingers the agriculture as another economic sector that recorded positive growth, attributed to good government policies coupled with natural conditions that saw an increase in yields of maize and other non-traditional crops. 

At the same the United Nations Development Programme (UNDP) says in 2010 Zambia was considered the sixth best country in Africa for doing business, with the country receiving an annual average of US$211 million from 1995 to 2005, while the figure rose to US$960 million between 2006 to 2009.

It is on this positive growth, though with some gaps that needed to be addressed the Patriotic Front took over government from the MMD on September 23, 2011.

These gains over the past ten years shared between Mwanawasa and Banda of the MMD took place under what UNDP calls good government policies.

The two experiences under the MMD, gives a comparative look at the negative effects that the removal of subsidies produced in the country under Chiluba and the benefits the introduction of subsidies produced in thelast ten years that Mwanawasa shared with Banda.

The experience in the removal of subsidies under Chiluba can be associated with the outcome of the similar economic measures the current Patriotic Front government has embarked upon.

The similarity is glaring in that the affected subsidies include those on agriculture inputs, which in the past seven years gave back the country the pride it had earlier lost to feed its own people and overtime stabilised prices for essential commodities and wages for public workers.

Unless Sata uses negative effects produced by the removal of subsidies under Chiluba as a lesson of a bad experience and find a better way to handle his case, his measures to removal subsidies may just mess up the gains of the last 10 years.

Under Chiluba the unsuccessful proper use of the money taken from subsidies included financing developmental projects which were hurriedly launched and hastily implemented, resulting in shoddy works due to poor supervision.

It is doubted if the savings from subsidy removal in Zambia by Sata today will be properly used when we are seeing the weakening of institutions of governance with the President running the country by decree. 

Already, the government high levels of immorality in misusing the public tax money include induced by-elections, using deputy ministers’ positions to buy opposition MPs and a bloated public service of non-essential employees following the creation of new districts which were not budgeted for. 

Sata could not even wait to undertake changes in the Foreign Service, pulling out almost all envoys and replaced them with his family in some posts without properly budgeting for the exercise.

It is also not known how government is compensating people the President has appointed to the civil service as permanent secretaries and only fire them the next day before they even perform a single duty. These jobs go with a five year contract and termination may imply giving the disappointed appointee full benefits.

Further Sata’s government has failed to tell the country how much money he has spent so far for these unplanned actions, but it has taken to blame the huge budgetary consumption on fuel and maize subsidies which has been the only practical way the national cake was equitably distributed.

There is also an emerging trend of donating to churches, with the country being told that President Sata provided the money. It is not known if this is coming from his pocket money or public coffers. It is subtle corruption, but it is difficult to classify it as such.
NN