7 July 2017

Zambia: The Impact of a State of Emergency On the Economy


Our economy has gone through a lot of stress in the recent past. The cost of doing business has risen sharply in the last few years. This can be attributed to the removal of electricity and fuel subsidies. It can also be attributed to circumstances that are beyond the control of our government such as the fall in copper prices and the increase of fuel prices on the international market.

This has increased the cost of production/service provision for many entrepreneurs and business houses. The Austerity measures that were put in place have also had a role to play in this. The changes in our tax regime i.e. changes in the PAYE bands, the introduction of the 15% excise duty on talk time, introduction of bands to our turnover tax system and many other changes have contributed to this problem.

The cost of borrowing has also significantly increased in the last 5 years from about 16% in 2011 to the current range of about 30% to 35%. Business people factor in all of these costs into their cost of production and provision of various services. Ultimately, it's the consumer that is adversely affected. Everybody, regardless of their political affiliation is affected.

With the stress that our economy has gone through in the recent past, the possibility of a State of Emergency being declared will further compound this problem. I do not want to get in the debate of whether there's tension in the country or not. His Excellency, President Edgar Lungu has clarified that we are not in a State of Emergency. The best legal minds have labored to explain the situation we are in. But what I'm certain about is that if a State of Emergency is eventually declared, it will certainly create a perception that our political environment is very unstable. Political instability can have a significant impact on overseas investment decisions.

At a time when the country is struggling to resolve huge current account deficits we have seen over the years, we cannot afford to lose the earnings in form of corporate taxes that comes with Foreign Direct Investment. In his "State of the economy address to parliament", the finance Minister Felix Mutati disclosed that the country's current account deficit stood at US$257m in the first quarter of 2017. On revenue collection in the first five months of 2017, Mr Mutati said revenues under-performed by 10% compared to the budget. If a State of Emergency is declared it will become practically impossible for the government to achieve their goal of increasing domestic Resource mobilization and attaining fiscal Consolidation in 2017.

Foreign Direct investment (FDI) also contributes to the creation of employment. Unemployment is one of the major challenges that Zambia has been experiencing and successive governments have tried to resolve this issue. Recipients of FDI often gain employee training in the course of operating the new businesses, which contributes to human capital development in the host country. How will the State of emergency impact on government's goal of creating 200 thousand decent jobs annually?

A State of Emergency might come with restrictions on the freedom of movement after certain hours e.g from 19:00hrs to 06:00hrs. This means that traders that make the bulk of their sales after 17:00hrs will be adversely affected by this move. The traffic of customers in supermarkets, shopping malls and other trading places increases after 18:00hrs. This is also a time when Mini bus and taxi drivers compensate for the slow business during the day to make their "Cash-in" for the day.

Restrictions on telecommunications companies might be imposed for security reasons. This will not only reduce the profits for the telecommunications.

Communication is a very vital component of every business. Small traders that cannot afford to rent office space heavily rely on their phones to communicate and clinch business deals. Social media such as Facebook, whatsap and twitter has become a vital part of our lives not just for entertainment but for cheaper advertising, communication and marketing of products and services. Most students rely on the internet to conduct their research and collect study materials.

The internet has also made it possible for people to know what is happening both locally and globally at a click of a button. Gone are the days when people would surround a radio or wait for the main news at 19:00hrs to know what is happening in the country.

I believe that we all have a role to play to avoid a State of Emergency from being declared and ensure that there's peace and stability in Zambia. Our leaders should explore peaceful avenues of resolving the current situation. Our leaders regardless of their political affiliation must realize that no Zambian deserves to suffer in any way because of their political ambitions.

No Zambian should lose their life because of the political ambitions of a few individuals. Young people should refuse to be used as tools of violence.

BLESSINGS KAFWANKA is a Business & Financial Analyst


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