Ndola & District Chamber of Commerce and Industry (NDCCI) Immediate Vision to Reignite Zambia’s Economy

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NDCCI REF: NDCCI200117 -01

17th January 2020

The Permanent Secretary
Ministry of Commerce Trade and Industry
New Government Complex
Nasser Road
PO Box 31968
Lusaka

Attn: Hon M. Mulenga

RE: NDCCI IMMEDIATE VISION TO REIGNITE ZAMBIAS ECONOMY

The NDCCI would like to take this opportunity to thank yourself and your Team for being proactive and meeting us in the early progress of the year.

As yourselves, we are aware of the state of the economy and also agree that we as Private Sector together with Government need to implement immediate strategy to reignite business in Zambia.

We also believe that the purest way for Government to measure the position of our economy would be to monitor and identify the tax revenue created from actual business rather than as a total income which is clouded by interest and penalties.

If we as a nation can identify the actual position of our economy taking the above information in context, we as a nation can work together to implement measures and policy that will rectify our current position and as a result improve the country (ZRA) revenue by emphasizing business through the private sector – which in turn allow Government to pay back debt.

In essence, the Zambian economy is closely related and the Private sector should thus be emphasized through Production/manufacturing/Value addition to generate income which will then be taxed and received by Government through ZRA taxation rather than borrowing from banks and financial institutions at high interest rates.

To best illustrate Our Economic Circle of Business, we have sent an illustration which outlines how important the Private Sector is to our economy’s survival and also the implications of if it is Limited:

Current Zambian Economic Circle of Business

Ideal Zambian Economic Circle of Business (Optimum)

It is evident how our Circle of Business needs to operate in order for our economy to deliver effectively and to ensure Governments income is at 0% interest as an emphasized Private sector will ensure increased levels of taxation a 0% interest – which will allow us to pay Service any debt.

It is this evident that the only way to drive the Zambian economy is to re-ignite the Private Sector (which includes Mining – Zambia’s Primary Source of Income):

To further this position, we recommend the immediate implementation of the following – that will initiate funds being recycled into state reserves within 6 months:

1. Rectifying Inflated/Unattainable/High Interest Rates and Monopolistic Business from Banks and Financial Institutions:

From our investigation and research, we have concluded that the interest rates and bank charges that banks are charging into the Private Sector are unaffordable and are a direct result of a underperforming economy.

The High Level of Borrowing by Government directly has crowded out the Private Sector as banks are making superficial profits directly from Government Treasury Bills – which in essence ensures that banks do not need to finance or take risk on the Private Sector as their funds are fully invested at +28% to Government with a Sovereign Guarantee.

This means that as a result, insufficient investment funds or working capital is being offered to developing the Private Sector or funding the operating businesses.

The uncapped interest being charged at +30% to the Private Sector is also then charged as a direct cost limits growth and also makes our products uncompetitive on the local and export markets.

From an accounting perspective and for a company to then be profitable just to pay banking fees the Gross Profit (GP) % thus needs to be in excess of 32% which in turn means that a Company needs to make in excess off 60% just to break even?

Result of Current Policy:

 Insufficient & Expensive Funding for Private Sector
 Collapse of Private Sector
 Loss of Jobs
 Low Levels of Development (if any)
 Low Levels of Income into Government
 High Government Borrowing and Inflation
 High Bank Interest Rates
 Banks closing Branches as no need for Employees when 1 electronic transaction with Government brings a return larger than +10 branches as no need to service Private Sector
 Decrease of exports
 Low Levels of Foreign Income

Solution:

 Fiscal Policy should stipulate that Banks reserves should be in Government lending in a 40%: 60% (for example) ratio whereby banks will need to invest 40% of their loan portfolio into the Private Sector and 60% into Government (for example – Nigeria Banks were fined $1.3Billion for not lending 60% of their loan portfolio into the Private Sector (www.cnbc.com/2019/10/03/reuters-america-update-3-nigeria-finesbanks-1-point-3-bln-for-failing-to-meet-loan-deadline-sources.html)
 To Regulate and Cap cost of finance (including Micro-Loans) until the Government minimizes lending and there is a competitive and free market in Zambia (looking at the Excessive Profitability Levels of the Banks published by the Bank of Zambia- the reduction in % levels can be justified).

Result of Implementation of the New Solution Policy

 Immediate Ignition of the Private Sector
 Country Confidence from External Lenders
 Parallel Lending Opportunity
 Support and Immediate development of projects
 Increased Employment
 Increased GDP
 Increased Exports
 Increased Foreign Income
 Increased Investment from both local and foreign investors
 Higher Tax Revenue into Government

(Please find our Comprehensive Letters Attached)

2. Over Regulation/ High Cost of Doing Business in Zambia

The private sector has been exposed to more and more licenses and regulation entering and affecting our business on a day to day basis.

The above issue becomes uncontrolled and subjective from council to council which means the costs vary from town to town and it is impossible for a business to budget correctly as the costings are changing frequently.’

If a Company has shops in 15 towns/cities in Zambia at the moment – we are being exposed to 15 different interpretations of the law and regulation and costs that differ 15 times?

From our interaction with the Business Regulatory review Agency (BRRA) and the BRRA Act 3 of 2014 – it is evident that Councils are not in line with the law and are implementing and increasing fees before a Business Regulatory Impact Assessment has been made and based on the results of the audit – the fees will be approved or not.
Solution

 Centralize and make the licensing Costs and requirements Uniform and Consistent
 The local authorities should have a implementation, audit and collection function
 Increase Council Awareness to BRRA Act 3 of 2014
 Any New Fee Implementation should only be done after consultation with Private Sector
 Correct Consultation Procedure before Implementation
 Nationwide awareness at least 30 days prior to Implementation of any New Costs or Cost Structures to Private Sector

Result of Implementation of the New Solution Policy

 Increased Confidence in Costs and Payments from Private Sector
 Increased Compliance
 Increased Consistency
 Objective Implementation
 Improved Business Development into New Markets
 Increased Tax Revenue and income into Government
 Lower Cost for Collections for Government

(Please find our Comprehensive Letter Attached)

3. Energy Sector and ZESCO Rate Tariff Increase

It is apparent that the Energy Sector needs a complete overhaul to ensure comprehensive service delivery and investment into the Sector.

The direct effect of no electricity:

Load-shedding for 18 hours a day = 25% Capacity for Production/Manufacturing and the entire Private Sector.

With the above in context – how does the Private Sector afford to pay full salaries, full licencing, bank facilities and reach targets when we are only able to produce 20-40% of their unattainable budgeted volumes. It is not possible.

At a time that the Private Sector need incentives, and each companies direct real cost has increased dramatically due to the non-availability – that ZESCO is allowed through the Energy Regulation Board to increase the cost of electricity to Zambians before a “Cost of Services Audit” is still yet to be finalized?

Please find a part our letter dated 8th April 2019 to ERB:

“Prior to any increment we are of the opinion that ZESCO be compelled to provide the” Cost of Service Study” to the public as this will provide consumers with insight into the actual cost of running ZESCO and will ensure that consumers are not being unfairly penalized for inefficiencies within the entity.

The other issue that has affected our supply of Power is the Government interference with the Private Sectors ability to deliver and implement the construction of Power Generating Units.

We need to remove the Red Tape of existing Projects and emphasize Private sector Investment into the Energy Sector through incentives.
Solution

 Conclude the “Cost of Service” Study and use this study to justify any incremental adjustments in price
 Reinstate, Support and Emphasize the Private Sectors ability to deliver on their power projects
 Provide & Support Incentives for investment into Power generation projects
 Operate ZESCO as an Independent and Commercial Asset to ensure Efficiencies and Cost Effective Company Policy whereby the Company needs to make Profits
 Make management responsible for the huge losses and theft
 Make management account for Unnecessary workers
 Increase the Efficiencies on our Electricity Transmission Infrastructure
 Implement Existing Projects
 Identify New Projects
 Rectify Non-Payments from ZESCO to Power Generating Companies
 Implement a diverse Power generating portfolio to service the Country at an optimum level eg Hydro (largest power generator) + Solar + Fuel Generated Power

Result of Implementation of the New Solution Policy

 Completing the Cost of Service study will give consumers confidence in the price hike based on facts
 Government will not be facilitating inefficiencies
 ZESCO should be making profits and contributions to the Treasury
 Increase in Power Generation
 Will be able to increase the amount of power available and through the concept of economies of scale – ZESCO will be able to charge less for energy per Kw/Hr.
 Increased Export Power and Generation of huge foreign income
 Improved Protection of Zambian Business
 High Levels of New Investment
 New Business Markets and Diverse Business Creation
 Increased Job Creation
 Increased Tax Revenue

(Please find our Comprehensive Letter Attached)

4. Reigniting Mining Sector and Related Industry in Zambia

The Mining Sector is the driving source of exports, foreign income, job creation, tax revenue, investment etc and yet through incorrect policy has instead of embracing and emphasizing International Mining Giants and Mining Companies from all of the World to further add value on to our raw materials and natural resources.

In contradiction of the above, we have actually challenged these companies and pressed them to a point whereby they have held back billions of US $ and then through further issues with excessive and limiting taxation models eg 5% Import Duty on concentrates from DRC – we have pushed them away and as a result all these countries will build their own facilities and Zambia will be left short of product and income?

This has a ripple effect on to all the mine suppliers and every single supplier who is in contact with people involved at the mines.

We also need to understand that inflation and the basic increase of direct costs into the mines has also effected their ability to record profits – so overtaxing and non-support is just leading to mines closing and no further investment.

Solution

 Make Mining Number 1 Again
 Prioritize Policy to emphasize the Mining Operations and Further Investment
 Incentivize Zambian Content and Participation
 Incentivize Investment in the Zambian Mining sector
 Make the Vision Long Term
 Identify deposits and make them available
 Implement a tax friendly mining solution (eg: incentives for Mining Companies to keep their US $ fund in Zambia)
 Incentivize any equipment/ vehicles/ capital investment directly linked to Mining Sector
 Include them in Energy Creation
 Associate the Mining Companies with a strong interaction of engagement to agree on progressive strategy
 Make at least 20% of Copper produced in Zambia available on the Zambian Market at an incentive Price less LME – which is possible as LME Price which will attract investors to further Value Add Products for the Zambian and Export Markets
Result of Implementation of the New Solution Policy

 Local Content will be emphasized
 Our GDP will increase significantly
 Increased development of Mining and Associated infrastructure
 Utilization of our mineral wealth
 Increased Job Creation
 Increased Income Generation for local Contractors
 Increased Education Levels of Local Contractors

 Increased Tax Revenue
 Increased demand for Zambian Products
 Increased demand for Zambian Metals
 Opportunity for Value addition by Zambians in Zambia
 A productive economy
 Political Security
 Increased Local Value Addition
(Please find our Comprehensive Letter Attached)

5. Introduction of 16% VAT on Trans-Shipments

With the implementation of this policy, no foreign owned enterprise can claim Vat so in essence the Zambian owned logistic company has to include this 16% as a direct cost which makes them uncompetitive which thus emphasizes foreign owned Companies to invoice the same service.

This further results in down-sizing and closing of these logistic company operations in
Zambia, which creates unemployment and low levels of foreign reserves being paid into Zambia

Solution

 Retract this SI and let the Logistics Companies operate as before
 Emphasize the Volumes to Flow through Zambia

Result of Implementation of the New Solution Policy

 Continuity and Job Creation
 Higher $ reserves and Income for Zambia
 Investment into the Sector

(Please find our Comprehensive Letter Attached)

6. Review of the VAT ACT 90 – 2019

The VAT Order 90 2019 that was implemented in December 2019 has set out changes for zero rate VAT applicable to capital equipment and machinery for the mining sector and copper cathodes.

The VAT Amendment has also removed the refund claims on consumable and spare parts unless they are stock in trade.

This new VAT Act will make the manufacturing Industries and transporters uncompetitive in international markets by immediately implementing an extra +_16% cost on the direct costs of Sales.
The above is obviously targeted at the Mining sector – but when implemented as it has been, it has a negative impact on all other supporting industry and services which already have thin margins.

The inability to claim these items will simply lead to closing down of these services and creating opportunity for foreign companies to supply directly at lower costs.

Solution

 Reverse this Vat Act and allow the businesses to continue and claim as before
 Rather emphasize the business and collect higher taxes from higher income than implement restrictive taxing that will limit business and thus limit tax income as a result

Result of Implementation of the New Solution Policy

 Emphasizing Business and Operations to have Zambian Content
 Increasing Tax Revenue paid from increased revenue created by Private Sector

7. Creation of a Multi Facility Economic Zone in Ndola

We envisage that transforming Ndola’s industrial area into an MFEZ will attract much needed local and foreign investment into the district and will aid in creating jobs and increasing the potential of the existing infrastructure in Ndola Industrial Area.

The incentives given should be given to both local and foreign investors at the same levels and should be focused on Value Add products and new sector investments eg Copper Smelting, Copper Pipes or Cabling. The 20 Incentive priced Copper prices for Zambian Companies will further encourage this value addition.

We also believe that existing manufacturing facilities should be emphasized, as the value add investment has already been made by Zambian Companies and should be supported by policy eg Maize Milling – why would Zambia export Maize when we have +150 millers in Zambia who are running plants at 30-40% capacity? Mealie Meal should be exported at preferential rates.

Result of Implementation of the New Solution Policy

 High Level of Investment
 Job Creation
 Inflow of Forex
 Increased GDP
 Utilization and returns of Capital Invested by Zambia
 High Tax Revenue

(Please find our Comprehensive Letter Attached)

8. Zambia Development Agency (ZDA)

It is with concern that we believe that ZDA has become more prone to favouring foreign entities wishing to invest in Zambia and allowing them incentives.

The above mentioned is wrongly configured as it thus gives a foreign entity a competitive advantage over Zambian owned and existing businesses which have been operating and paying taxes in Zambia for decades.

Zambian business needs to be prioritized and allowed incentives based on performance.

Foreign investment should be focused on “New Target” sectors and value addition which do not have direct impact on our current economy and existing Zambian Businesses.

Solution

 Realign Policy to Grow Zambian Business
 Make Zambian Investors First
 Ensure the effectiveness of the ZDA
 Focus their efforts on delivering and performing not casually reporting on our economy
 Pursue incentives on Industry eg Mining & Agriculture to best improve Zambia’s GDP and create jobs

Result of Implementation of the New Solution Policy

 Protection of Zambian Business
 High Levels of New Investment
 New Business Markets and Diverse Business Creation
 Job Creation
 Increased foreign income from Exports
 Increased Tax Revenue

(Please find our Comprehensive Letter Attached)

9. The Impact of Competition Consumer Protection Commission (CCPC)

We are of the view that Competition Consumer Protection Commission needs new Leadership and should pronounce its relevance and be seen to perform its mandate for the people of Zambia.

The concern is that it is not performing effectively as a regulatory body and we need this very important Regulator to protect our Zambian Private Sector & Consumers by being dominated by larger external companies focused on crushing local business.

Solution

 To have more effective and accountable Management
 That management needs to be target driven
 That CCPC should put Zambian Business first
 New Policy should simplify the fundamentals that need to be achieved

Result of Implementation of the New Solution Policy

 Protection of Zambian Products and Businesses
 Consumer Confidence & Protection
 Long-term Capital Investment by Local Zambian Companies
 Job creation and safety
 Consistent and Increased Tax Revenue
10. The Impact of Citizens Economic Empowerment Commission (CEEC)

It is concern that we have received reports whereby the Citizens Economic Empowerment Commission (CEEC) has failed the Zambian people by not being effectively involved in enforcing legislation or deliberate policies on the 20% contracts and allocation to locals.

This is a fully funded and equipped regulator – we can’t understand why implementation is being overlooked and not enforced as the result is that Zambian business is steered outside of Zambia at no tax revenue for the economy.

This is the more reason the Local Content Bill should not be left to be overseen by CEEC alone but also by reputable stake holders such as the Chamber and other relevant bodies.

Solution

 To have more effective and accountable Management
 That management needs to be target driven
 That CEEC should put Zambian Business First
 New Policy should simplify the fundamentals that need to be achieved

Result of Implementation of the New Solution Policy

 Increased Local Content will be emphasized
 Increased Job Creation
 Increased Income Generation for Local Contractors
 Improved Education levels of Local Contractors
 Increased Tax Revenue
 Increased Business Levels and Entrepreneurship encouragement from Local Content

11. The Affiliation and impact of Zambia Bureau of Standards (ZABS) / Zambia Compulsory Standards Agency (ZCSA)

From our Understanding the mandate of the Zambia Bureau of Standards (ZABS) is to ensure a product or services sticks to the standards it was intended for.

ZABS has been seen to lose it mandate as it now charges exorbitant fees to perform its duties it has become a profit-making regulator whilst stifling the organizations instead of encouraging quality control and production of quality goods and services.

To further the above mentioned, the Zambia Compulsory Standards Agency was also implemented and intended to create enforce standards.

There seems to a significant duplication and over-lapping of duties and hence creating overregulations on the private sector which thus limits business and production.

Solution

 That these 2 authorities should be combined and made into 1 regulator
 That the Costs are decreased to Private Sector
Result of Implementation of the New Solution Policy

 Decrease Cost to Government
 Increased standards of Zambian Products
 Improvement of the Standard of Zambian Made products
 Increased Value on Zambian Exported Products
 Increase in Exports and Foreign Income
 Increase in Tax Revenue

12. Access to Export Markets

ZABS needs to become more aggressive in regulating imported products in order to allow our Companies to be more competitive internationally.

For example we allow SABS approved Products into Zambia – yet when Zambian Products are exported to South Africa – SABS has to further approve Quality Standards.

We need ZABS to harmonize equal standards through-out the region whereby Zambians receive the same recognition as externally eg South African Products.

13. Reconstructing the Weaving – Textile Industry in Zambia

The Zambian Garment and Textile Industry that had previously been protected from Competition found their markets taken away overnight and replaced with imports of cheap second hand clothing (eg. Salaula) and cheap ready-made clothes from China/South Africa.

The result of the above mentioned is that the formally radiant pillar of the economy has totally collapsed and the small garment industry that is barely surviving.

Solution

 Implement an import duty on material and finished garments
 Provide tax incentives to get the complete value chain supporting the complete textile industry
 Ensure investor confidence in guaranteeing a long term policy

Result of Implementation of the New Solution Policy

 Increase the agricultural sector
 Increase Investment
 +25,000 Job Creation
 Export Revenue
 Increase in Tax revenue

(Please find our Comprehensive Letter Attached)

In Summary:

 We need Fiscal Policy to Emphasize Business and Reignite the Economy
 We need Taxation Revenue to be Generated from Volume and Value Addition
 Increased Private Sector Revenue = 0% Interest Income to Government
 Decrease Government Borrowing at +28% from Banks and Financial Institutions
 Implement Strong Communication between Private Sector and Government
 Implement Policy after Private Sector Input
 Focus and Incentivize the Mining Sector and “New Business Markets” and at the same time protect Zambian Business

We believe that if this letter and the supporting documents are taken into immediate action, Zambia will again become first and our complete economy and position as a nation will become once again the heartbeat of the region.

If there is any Information still required please let us know and we will send it immediately.

We are committed to Your Office and will support as much as we can to make Zambia First Again.

We thank you in anticipation and look forward to your reply on the same.

Yours faithfully

J.Samaras
NDCCI President

CC: The President – ZACCI
The Chief Executive Officer – ZACCI
The Permanent Secretary – The Ministry of Finance
The Minister – The Ministry of Finance
The Minister – The Ministry of Commerce