Saturday, 29 March 2014

BAD GOVERNMENT, BAD FOR BUSINESS AND ECONOMIC GROWTH

We Have A National Catastrophe On Our Hands Under The Patriotic Front Government Compounded By Finance Minister Alexander Chikwanda's Patchwork Economics
PATCHWORK ECONOMICS: Zambian Finance Minister Alexander Chikwanda
By Nyalubinge Ngwende
IF ZAMBIA does not hold together the spirit of good governance practices and moderation about government intrusiveness in private enterprise, it is going to cause rogue business practices and reverse the prospects of prosperity built over the period from 2001 to 2010.

Also huge spending in all fronts might appear admirable to the ignorant masses who think development is about three-storey universities in Muchinga and Chongwe, and roads that lead into the bush not too support production but to make the people who drink from sun rise to sun set have an opportunity to see what a tarmac road is so that at the end of the day they go and vote for those in government again.

But when a government is spending more money than the revenues it can raise, deficits sneak in quickly, interest rates are likely to go up (as already announced yesterday by the Bank of Zambia to increase its benchmark interest rate by 175 basis points to 12 percent on Friday following an all time low free fall in the strength of the Kwacha against the US Dollar) and low growth in the economy.

The 6.4 economic growth Zambia enjoys today is not riding on the policies of PF, this is a long rising curve as a result of what the previous fiscally disciplined people like Ng'andu Magande and his successor Situmbeko Musokotwane did to Zambia 10 years before the 2011 elections that ushered the Patriotic Front, Sata and Chikwanda into office.

The increase in interest rates might help strengthen the Kwacha in the interim, but that is not sustainable when the obvious and far reaching effects of increased interest rates is a drop in business activity that affects the production in the economy. Already the prices of commodities are up and businesses may access financing at a huge cost, further worsening the cost of living for the consumer.


The effects of overspending has already weighed down our Kwacha and the measures that are being taken like the offloading of US$178 million on to the market and the cancellation of intrusive Statutory Instruments 33 and 55 may have come too late and represent very little of the bigger damage that the PF has done to the economy in the last two and half years in office.
 
The SI No. 33 of 2012 is one intrusive act by government that stopped transactions in foreign currency within the country while the SI No. 55 of 2013, gave Bank of Zambia (BOZ) to monitor cash in and out flows and forced multinational companies to keep their revenues for 15 days within the country before sending their monies to their mother companies abroad. This meant that the multinationals could not make efficient decisions about what to do with their money and everything else was delayed by a fortnight.  

World Bank Group Country Director for Zambia, Malawi and Zimbabwe acknowledges Zambia's economic misadventure saying: "Zambia's economy had recently gotten into a difficult situation with a large budget overrun in 2013 and increasing uncertainty about economic policies and direction, partly reflected in the rapid depreciation of the Kwacha and accompanying sense of panic in the markets".


We have a national catastrophe on our hands as far as the Patriotic Front government is concerned and we may need a bold decision in 2016 to change this misfortune.
NN