Situmbeko Musokotwane has been a disaster for Zambia as Minister of Finance

Situmbeko Musokotwane has been a disaster for Zambia as Minister of Finance

By Dr Mbita Chitala

Many people would disagree with my friend Laura Miti that “Musokototwane is one of the best any country could have in times like these” as reported in some media.

To the contrary, I completely agree with assertions of many patriots that “the loss of revenue as a result of unjustified tax incentives given to the mines and the failure by Hon Situmbeko Musokotwane to recover $2.5 billion owed to Kansashi Mine from FQM makes Musokotwane the most dangerous man to this country”. In fact, Situmbeko Musokotwane is the principal cause why Zambia continues to wallow in poverty, increased inequality, failed public debt restructuring and it is most disappointing that President Hakainde Hichilema still retains him as Minister of Finance and National Planning of our country. The tragic failure of Musokotwane as Minister of Finance can only be explained when one knows his track record in government service where I served with him.

Magande and Mwanawasa progressive tax regime

Musokototwane’s first act against Zambia is when he betrayed President Mwanawasa’s economic programme following Mwanawasa’s demise and his appointment as Minister of Finance by President Banda. President Mwanawasa following the advice of experts from Norway and the IMF and other friends including Musokotwane as economic adviser to President Mwanawasa introduced a progressive taxation policy of the mines. President Mwanawasa in 2008 introduced changes to the fiscal and regulatory regime for the mining sector. The fiscal changes were intended to increase the effective tax from our God-given minerals.

With Ngandu Peter Magande as Minister of Finance, the Mwanawasa MMD administration introduced windfall tax in the charge year 2008/2009 on base metals. Windfall tax was not paid when the monthly average did not exceed $5,512. Even as it was known that the breakeven point of base metal production averaged about $2,000, Mwanawasa provided more than double to reach the first trigger point for windfall taxation. Using special taxing formulae, Zambia was to benefit 25 per cent at the 1st trigger point, 50 per cent at the 2nd trigger point and 75 per cent at the 3rd trigger point.

The MMD further introduced variable tax where assessable income from mining activities exceeded 8% of the total sales. The variable tax however did not apply to mining income that had been subjected to windfall tax. The MMD government of President Mwanawasa also increased mineral royalty tax to 3 per cent from 0.6 per cent.
These tax measures were supported by the IMF and all cooperating partners and were meant to enable Zambia benefit fairly from its base metals. Sadly, this was not to be.

Situmbeko Musokotwane betrays Mwanawasa

President Levy Mwanawasa soon passed away and I regret being one of those who managed the election campaign to install his former Vice President Rupiah Bwezani Banda to be President. President Banda appointed Situmbeko Musokotwane as his Minister of Finance and National Planning. On hindsight, this combination was very bad as these two adopted a new economic policy that conflicted with the progressive policies of President Mwanawasa.
In 2009, Musokotwane, in clear betrayal of Mwanawasa with whom he had worked as economic adviser, immediately introduced a most reactionary macro-economic policy regime. He abolished the windfall tax regime that surprised all cooperating partners including the IMF and the World Bank who had been at the fore of advising Zambia to adopt the policy. Furthermore, Musokotwane reduced mineral royalties from the 3 per cent to 0.6 which was short of abolishing it. He also zero-rated the variable tax that had been imposed on the minerals by Mwanawasa. In other words, he simply introduced a tax regime that allowed the multi-nationals to continue plundering Zambia without Zambia benefiting anything.

Ng’andu Peter Magande in his book “The Depth of my Footprints” agonised that both President Banda and Musokotwane who were party to the windfall taxation regime, simply betrayed their former boss Mwanawasa and Zambia in general and became bona fide lackeys of our exploiters. Musokotwane went further. The $485 million in windfall tax that was collected in the financial year 2008 and deposited in a special account at the Bank of Zambia was closed and most of the money returned to the mine companies. The mine companies must have given a golden handshake to Banda and Musokotwane for this clearly unpatriotic conduct. This is the first tragic story where Musokotwane and Rupiah Banda subverted Levy Mwanawasa’s progressive tax regime which, as Magande (p 417) noted in his autobiography, has continued to “deprive Zambians with large quantities of revenue from the God- given natural mineral resources.”

Musokototwane starts reckless borrowing

It should be noted that thanks to President Levy Mwanawasa, his regime had continued with efforts to restructure Zambia’s more than $7.1 billion external debt which the MMD administration had inherited from President Kaunda’s UNIP regime. The MMD administration of President Fredrick Chiluba joined the IMF and World Bank supported Highly Indebted Poor Countries (HIPC) Initiative. The HIPC Initiative was supplemented by the Multi-lateral Debt Relief Initiative in 2005 to accelerate progress toward the United Nations’ Sustainable Development Goals. This programme enabled Zambia complete the HIPC Initiative process and receive hundred (100) per cent relief on eligible debts from the multi-lateral, Paris Club and London Club lenders. By 2008 Zambia reached the HIPC Initiative Completion Point in 2008 under President Mwanawasa and had the bulk of her foreign debt written off. Zambia’s foreign debt came down from $7.1 billion to $502 million.

With the appointment of Musokotwane as Minister of Finance and having lost all income from the mines, Musokotwane started reckless borrowing to fund the budget. By the end of 2011, Zambia’s external debt jumped from $502 million to $2.2 billion. The IMF Staff Report for the year 2012 for Article IV Consultation on Debt Sustainability Analysis revealed that external public and publicly guarantee debt was $2.1 billion, about 11.6 per cent of GDP in 2011. Most of his borrowings were for consumption. This was the beginning of the debt overhang which grew in later years and which Zambia is currently facing. It was started by Musokotwane.

Sata and Alexander Bwalya Chikwanda worsen debt overhang

Later on when President Banda was defeated by President Michael Sata of the PF, a new minister in the name of Alexander Bwalya Chikwanda was appointed as Minister of Finance. He too was reckless as he continued borrowing. His borrowing was however for infrastructure and most of it was sustainable. This included loans to construct hydro electric power stations at Kafue, Kariba and others, which were self financing.

Other projects included Levy Mwanawasa Hospital and others, roads and bridges, homes for the defence forces, telecommunications and so on which by 2021, the debt had grown from $ 2.1 billion to $ 11.9 billion. This debt included the badly planned $3 billion which was private debt and which was overpriced and onerous from the beginning. This debt is responsible for the woes that Zambia is facing now as most of it has since been bought by shylocks who refuse to negotiate.

One positive thing President Sata administration did was to raise the mine royalty tax from the paltry 0.6 % that Musokotwane had introduced to 6 per cent. President Sata did not stay long as President as he died and was succeeded by President Edgar Changwa Lungu. To his credit, President Lungu continued with the economic policies of his departed leader Sata and refrained from contracting any more external public debt.

Edgar Chagwa Lingu inherits debt overhang

President Edgar Lungu appointed Margaret Mwanakatwe as Minister of Finance and National Planning. The new PF government inherited an unsustainable external debt that had been contracted by the President Sata administration, and President Lungu recognised this challenge of the need to restructure the external debt and insure that Zambia also got a fair share from its mineral exports.

Finance Minister Margaret Mwanakatwe on behalf of President Lungu’s administration, announced progressive tax measures of Zambia’s base metals and other minerals that were designed to benefit Zambia. The government raised mineral royalties to 10%. Additionally, importation of copper-cobalt concentrates for refining and smelting in Zambia was to attract a 5% import duty while a 15% export duty was introduced for precious metals such as gold and other gemstones. The government also abolished the Value Added Tax (VAT) and replaced it with a non-refundable sales tax. It had been established that the payment of VAT refunds by ZRA had become a major revenue leakage where the mining companies had been defrauding government.

The other Ministers of Finance that President Lungu appointed found themselves in the challenge of trying to manage the debt overhang that had been contracted first by Musokotwane and later by President Sata’s administration. These ministers included Felix Mutati and Dr Bwalya Ng’andu. These patriots attempted to solicit the assistance of the IMF and the Paris Club countries but to no avail as President Edgar Lungu lost the elections to President Hakainde Hichilema of the UPND party. As at September 2021, Zambia’s external debt was reported to be $12.99 billion while guaranteed and non-guaranteed external debt for state owned enterprises was $1.56 billion and $164.52 million, respectively.

Situmbeko Musokotwane returns and worsens economic situation

The new President Hakainde Hichilema of the UPND, to the disappointment of many patriots, appointed the former MMD disastrous Dr Situmbeko Musokotwane as Finance and National Planning Minister. This was the same gentleman that had betrayed Mwanawasa and introduced a most reactionary tax regime that favoured the mining companies. From the onset, many progressive observers feared that a disaster would befall Zambia sooner rather later.

On 29 October 2021, Musokotwane presented his 2022 budget to the National Assembly. He not only reduced the mineral royalty tax from 10% to 3.1% but also announced that mineral royalty will be deductible for corporate income tax purposes. In other words, it would be considered as a cost in the accounts of mining companies. This of course was a departure from best practice as a royalty is simply a right to use land and should never be part of costs. This measure effectively reduced royalty payments on base metals in Zambia as the mining companies were able to report reduced sales particularly as they also enjoyed rights to carry on losses according to their development agreements.

Many people criticised this move, with the Governor of the Bank of Zambia Dr Denny Kalyalya commenting that “our economy has shrunk and stagnated.” The Zambia Revenue Authority also continued to fail to reach the 22% of GDP collection demanded of them by the minister and in fact regressed to 17% of GDP. This made its Chairman Dr Caleb Fundanga who is a close friend of mine veryconcerned as he is not used to failing.

Musokototwane further continued on the borrowing path as he did earlier under President Banda to the extent that Zambia’s external debt in 2022 was reported to stand at $18.6 billion. This external debt included debt-service arrears of which the Eurobond arrears were reported to be $821million as at December 2020. The total local debt also rose from K198 billion as at December 2021 to K236 billion as at September 2023 with the adverse effect of the government borrowing overcrowding private sector borrowing.

Musokotwane also entered into another strange deal. He announced that ZCCM-IH, that held 20% shareholding in Kansanshi Copper and Gold Mine had agreed to convert its dividend rights in Kansanshi Mine into a life of mineral royalty payment. He announced that the first payment that FQM would pay ZCCM-IH would be sourced from the outstanding Value-Added Tax refunds from Zambia Revenue Authority due as at 30 June 2022. The aggregated amount of the VAT refund was $442 million and ZMW433 million. This measure would not only adversely affect the rights and power of ZCCM-IH as shareholders and its directors would be removed from Kansanshi board of directors. It would also adversely affect the country’s right to use its forex income to support the Kwacha.

Further, in some very surprising move, government directed that the Director of Public Prosecutions (DPP) drop criminal charges against Kansanshi Copper Mine directors, as part of the conditions precedent for FQM to declare a dividend in the sum of the amount that the government had been claiming from the mining giant majority-owned by First Quantum Minerals (FQM) – to a 3.1% revenue royalty. In this case an audit had revealed that FQM directors had illegally repatriated $2.5 billion from Kansasnhi Copper Mines to develop Cobre Panamá Mine, a new and large-scale open-pit copper mine in Panama without ZCCM-IH consent. This was simply theft. No detail was disclosed how the Zambian government would recover these colossal sums. In fact, ZCCM-IH had won the case in the London Court and awarded $1.4 billion in damages. However, Musokotwane and his new dawn government let go this money following their so called methodical approach to governance.

Mopani and KCM tragedy

Musokotwane as Minister of Finance has sold MOPANI to shylocks. The government of Edgar Lungu refused to place the mine on care and maintenance by GLENCORE and bought the mine for $1 [billion]. They also entered into some objectionable conditions of selling copper to a subsidiary of Glencore which could have been renegotiated. The idea was for Zambia to have controlling interest in MOPANI. Musokotwane as corporate sole has reversed this progressive intention and sold MOPANI to some shylocks in Dubai. It is gratifying that many citizens have objected to this reactionary deed including our Professor Clive Chirwa who has offered to manage the company on behalf of Zambia.

A similar fate has befallen KCM where ZCCM-IH placed the company under liquidation on grounds of insolvency and President Lungu’s administration saw an opportunity to restructure the company and ensure that Zambia had controlling interest and benefited to its base metals. Musokotwane as corporate sole has again decided to surrender it to the former Indian owners who initially drove the company down.
For this and many other transgressions, many of us are of the view that Musokotwane has not been our best Minister of Finance. He has worked to benefit the multinational companies and against the interest of Zambia. He has successfully reversed all the progressive policies that President Lungu’s administration commenced. This effectively means that Zambia shall be condemned during his reign as Finance Minister to continued enslavement and dependency on multi-nationals as a neo-colony par excellence as the ‘beautiful ones are not yet born’ to free us from neo-colonial bondage. Certainly, not the likes of Dr Musokotwane and his collaborators!

The author is a Pan Africanist who served as deputy finance minister in the first MMD administration. He has also served in various other government portfolios, including as Zesco board chairperson. His PhD thesis is based on public debt management. Reach him at: +260-0976030398

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