If you haven’t been to Lusaka for a while, prepare for a shock. The last time I was there in 1999, the Cairo Road was grubby and rundown; there were cars on the road that should have been pensioned off in the 1970s and everywhere there were the signs and scent of pungent decay.
The Lusaka of 2012 couldn’t be more different. Shining new shopping malls are springing up on once barren land; gleaming new office parks are everywhere. Investment and trade are brisk and the roads packed with brand new cars. Indian and Chinese investors have helped breathe life back into the once moribund copper industry and it is tipped to achieve record production this year. Resurgent agriculture means Zambia is enjoying surpluses and exporting everything from maize to yoghurt.
Zambia, free from exchange controls, is reaping the rewards of more than 20 years of working towards becoming one of the most liberal economies on the continent. The country has set up the Zambia Development Agency to find ways to ease business. This year, it looked at 517 of the plethora of licences business needs to operate in Zambia and abolished 170 of them. Many of these licences can take months to acquire and have seen off many a frustrated investor.
All appears lovely in the garden, but there are clouds overhead. Uncertainty is a word used often these days by bankers and business types in Lusaka these days. The new government, formed by the ruling Patriotic Front (PF), led by President Michael Sata, is under pressure to ease the suffering of the poor. More than half the country lives below the poverty line. One of the bitter lessons of the Arab Spring was that governments cannot risk allowing the young to be restless and unemployed for too long. Zambia, with a population of 13.6 million, has 10.2 million people under the age of 35, with a mere five million jobs to go round.
Economists, government officials and bankers alike accept that Zambia’s growing economy, which has sustained a healthy 6 to 7% GDP growth for 10 years, has hardly made a dent in the country’s poverty. This cold fact is forcing the government to budget and regulate in the cause of the poor, which is creating disquiet among those in business.
One of the most recent and talked about regulations is the increase of the minimum wage, from around $75-a-month to around $110. This has caused consternation among cost conscious employers, who warn there could be job losses and a reluctance to hire.
This was one of the many issues at the “Growing Zambia” debate, held in a Lusaka hotel, as part of business channel CNBC Africa’s launch of its live TV crossings from the country.
“Let me ask you how many of you in this room can live on a $100-a-month?… You have to give an individual a reasonable wage to live on,” says Zambia’s pugnacious minister of commerce, trade and industry, Robert Sichinga, to the well-heeled audience at the televised debate.
The panel also debated the other new regulation causing waves, the so called SI 33. This statutory instrument bans the quotation of prices of goods and services in foreign currency.
Sichinga says the measure was to revive the kwacha, follow a plunge in its value. At the time of the world financial crisis in 2008, the kwacha was 3,300 to the US dollar, according to Sichinga, and has not recovered, standing at around 5,500 to the dollar.
“If you deal in foreign currency you are increasing demand for the dollar, which is decreasing the value of your currency,” he says.
David Kombe, the CEO of D&C Saatchi & Saatchi, said otherwise it was like building a house with kwacha and being allowed to rent it out in dollars.
“Today sales are made and tomorrow the revenue is sent out of the country,” he says.
Economist Trevor Simumba disagreed with the policy to defend the currency saying that it was akin to some of the protectionist policies of the 1970s and could hurt investment.
“My prayer is for the government not to regulate the private sector too much. If you squeeze it, you squeeze the life out of it,” says Simumba.
Despite these concerns, Sichinga believes Zambia can beat last year’s foreign investment of $5.4 billion. He says he travelled to Australia, Dubai, Doha, Turkey, India and the United States this year in search of more, but warned these trips could take a year to five years to bear fruit.
“We will use policy to entice business,” says Sichinga. Simumba countered that government policy should concentrate on growth as well as redistribution of wealth.
Growth is the name of the game on the streets of the new Lusaka. Where once was wasteland, now loom giant shopping malls, doing brisk business, with packed car parks. The familiar South African franchise names are all there, but inside there are Zambian produced goods from jewelry to food. Even the state has jumped on to the bandwagon. A spanking new shopping mall, in the heart of the city, opened in November. It cost $200 million and was named the Levy Shopping Centre, after the late Zambian President Levy Mwanawasa. The government’s pension scheme partnered with Liberty Properties in putting up the money.
In many ways, Mark O’Donnell is the father of the shopping mall in Zambia. He is a born-and-bred Zambian, the son of an entrepreneur, who emigrated from Britain in 1948, in search of a new life. More than half a century later, O’Donnell is chairman of Union Gold, a family company that owns three brands in Zambia: Protea Hotels; Spar and MICA Tools.
O’Donnell has also had a hand in marshaling millions of dollars in investment in the building of three shopping malls. The new SI 33 regulation, calling for all domestic transactions to be carried out in kwacha, concerns him.
“The resources are not available in the country. If I want to build a new hotel it is going to cost $10 to $20 million and that kind of investment is not available in kwacha… I think there is a lot of emotion around wanting to support the currency,” he says.
“I think there is a bit of inconsistency and different views from different ministers. What we in business are saying is: could there be no capital controls and no exchange controls in an economy where foreign investors can repatriate their profits?… I think the economy faces, many, many challenges.”
The next morning it was the wide blue sky of a winter’s morning in the capital as warm as a welcoming kitchen. Why can’t all winters be like this? I breezed into the Finance Ministry past friendly waves. One of Zambia’s most valuable national assets is its relaxed informality—I swear, I have felt less welcome in the reception of a tin pot South African company, than in making my way to the office of the top decision maker in Zambian economic policy, Alexander Chikwanda, the finance minister of Zambia.
Chikwanda was born in Kasama, in northern Zambia, the son of an ex-soldier, turned district magistrate. He was a young turk in the United National Independence Party around independence in 1964 and left the country for Sweden, where he qualified as an economist in 1968. To say he is a veteran politician is almost an understatement. Chikwanda has climbed the political ladder from the job of district governor to junior minister and into high office in the cabinet. In the 27-year rule of Kenneth Kaunda, Chikwanda was minister for everything from agriculture and health to local government, finance and planning.
Nine months ago, Chikwanda took over the job of finance minister, when Michael Sata’s PF party won the elections, steering economic policy and batting away criticism from uneasy business types.
Chikwanda’s first budget was hailed by the masses for being pro-poor, putting a bit of money back into the lean pockets of struggling Zambians. At the same time economists, like Simumba, worried that the budget didn’t address growth. The next budget will be in October.
“The PF policy of pro-poor budgets will continue,” he says.
Chikwanda believes business and government should join hands to grow the Zambian economy. He dismisses concern over the new SI 33 regulations, which he drew up.
“Every country has its legal tender. How can you spend anything but rand in South Africa? How can you pay other than in dollars in the United States? This is not a new policy, it is something that is carried on all over the world… Funds are available in kwacha for investment, in fact a lot of money is on offer… Those guys who talk about this are not right at all, they are protecting narrow interests,” he says.
Chikwanda accepted one of the criticisms by business of Zambia’s plodding bureaucracy.
“The bureaucracy has a history and leaves much to be desired. It moves at a snail’s pace and not as fast as we would like,” he says.
Another criticism is that Zambians are not seeing enough value for their tax dollar.
Chikwanda hopes to address this, in his fiscal legacy, by restructuring the country’s budget in favor of spending more on education, Zambia’s pounded roads and parlous rails. He says that 70% of the country’s 27.5 trillion kwacha budget (around $5.6 billion) is allocated to recurrent expenditure, while a mere 30% is earmarked for capital expenditure; Chikwanda hopes to change this to a 50-50 split by the end of his time at the helm of the country’s economy.
“It will not be done overnight,” he says.
Few could argue with the need
for change and the time it is likely to take.