10th October 2022
Att: Mr. Elijah I.C. Chilimboyi
The Clerk of the National Assembly
National Assembly Parliament Buildings
P.O. Box 31299
LUSAKA
Dear Sir,
We refer to your letter dated 4th October 2022 Referenced NAS/11/20/2CONF in which you communicated that the Expanded Planning and Budgeting Committee resolved to invite the Zambia Federation of Employers to comment on the 2023 Budget estimates. We wish to comment as follow:
- INTRODUCTION
The Zambia Federation of Employers congratulates the Government for presenting the 2023 national budget to the nation through the Minister of Finance and National Planning DR. Situmbeko Musokotwane under the theme “Stimulating economic growth for improved livelihoods “with expenditure projected at a sum of K 167.3 billion compared to a K 173.6 billion for the year 2022.
It is our understanding that the Minister has gone down from the K 173.6 billion total projected expenditure for this year because of his intention to contain public expenditure within sustainable levels by ensuring strict adherence to priority projects, doing away with wasteful subsidies and improving procurement procedures and this must be supported.
ZFE’s view is that the 2023 national budget is an inspiring and job rich budget which if implemented will yield some positive results in regards to employment creation and in raising the living standards of the Zambian people.
Honourable Members you may wish to know that the ZFE has over the years been advocating and lobbying the previous Governments to create an enabling environment for sustainable enterprises as ZFE strongly believes that a strong industrial base in any country is a back borne for sustained creation of decent jobs in a country.
Our analysis of the 2023 national budget is that the new dawn Government has realised the need to create opportunities for Zambians to find a path to employment opportunities either through entrepreneurship or by getting employed in companies whose sustainability is guaranteed.
It is a budget in our view that have touched on a number of measures that will unlock the potential that this country has in employment creation to a great extent.
We note that the 2023 National Budget aims at improving the livelihoods of the Zambian people through socio – economic transformation by implementing measures to stimulate growth.
The budget has provided the policy framework, resources and incentives to drive growth. It has focused on the implementation of policies, strategies and measures that have aimed at unlocking both local and foreign investment in value addition promotion and trade enhancement and must therefore be supported.
- Macro-Economic Objectives
ZFE welcomes the macroeconomic objectives that have been set to be attained in the year 2023 such as to:
- attain a real GDP growth rate of at least 4.0 percent
- reduce inflation to within the target band of 6-8 percent by the end of the year
- maintain international reserves above 3 months of import cover and the objective to limit domestic borrowing to not more than 3.0 percent of GDP.
We believe that maintaining a single digit inflation rate will be helpful in bring down lending rates and also in bringing down prices of goods and services which effectively should be a mechanism of reducing the cost of living.
- Agriculture sector
In the agriculture sector the budget is progressive as it has proposed certain measures meant to stimulate employment creation such as increasing crop productivity among small scale farmers, through an improvement in the extension service delivery where by the Government will continue with the recruitment of the extension officers and recruit 500 officers in 2023.
The target to reach out to 1.5 million small holder farmers to be provided with extension services through physical visits and extension platforms to be complemented with enhanced irrigation facilities and the intended FISP reforms to include access to finance and support for value addition are very good measures that will promote employment creation in the agriculture sector.
Equally the income tax concessions for 15 years on income to be generated from local sales of corn starch by agro- processing businesses operating in Multi- Facility Economic Zones, Industrial parks or Rural areas are very good measures that will promote value addition in this sector.
We propose that since the concessions will also cover rural based agro- corn processing, some work must be done to raise awareness on the tax concessions to the rural based people in order for them to utilise the tax incentives.
We believe that this measure should attract the Zambian youth and women who may have left the rural areas to the urban areas in search of employment to take advantage of the incentives provided and make use of the available land in their districts of origin and venture into corn starch processing and become self-employed. The CDF funds currently at K 25. 7 million and proposed to be increased to K28. 3 million per constituency can be one of the sources of funding to the youth who should venture into corn starch processing. Training to the youth on both Agro processing skills and on basic business management skills can be provided to the youth so that they can successfully venture into this line of business among other business ideas they may wish to pursue.
Tourism sector
ZFE commends the Minister’s consideration to continue to promote tourism development by providing incentives to attract more investment into the sector such as the proposal to suspend customs duty on imports of selected fixtures, capital equipment, machinery, and safari game viewing vehicles for the period of 3 years up to 31st December 2025.
Equally the proposal to waive visa requirements for tourists from certain countries as outlined in the national budget speech given the devastating effects of the COVID 19 pandemic on this sector which also recorded the highest number of job losses is a very good move. It is only logical that the sector receives the incentives as announced by the Minister so that the sector can be restored to its viability and contribute to employment creation in the country.
- Mining Sector
ZFE notes with pleasure that the mining sector has received particular attention through revised tax framework so as to increase production from the current 8000 tonnes of copper to the projected 3,000,000 tonnes in the next 9 years.
So far there has been some criticisms on the incentives announced for this sector on account that this is a sector which has highly attracted foreign investment and therefore the incentives given have been miss directed.
To the contrary, ZFE urges the critics of the incentives announced for this sector to note that much as it is true that the sector is dominated by foreign investors, it must be understood and realised that the country derives enormous benefits from this sector other than the issues of direct taxes and therefore, it is a critical sector that must be natured and be promoted for extra growth. We must as a country learn from countries like Chile, Peru and our neighbour DRC whose annual copper production is at very high levels and is benefiting both the Government and the people of these countries tremendously. This did not come accidentally but through the Governments directing some incentives to the sector.
Production growth in the Mining sector will come with so many direct and indirect jobs for the Zambian people and therefore, the investment that the Minister has pronounced through incentives for this sector must be supported because the Minister is setting a base for extra growth of this sector which has a multiplier effect on growth of other sectors and is critical to foreign earnings for the country.
ZFE welcomes the Minister’s pronouncement to promote artisanal and small – scale mining and Government’s plans to implement measures to formalise their operations and the proposed support with the necessary equipment and training to enhance production.
The proposal for Government to licence buyers of gold and other precious minerals in order to formalise this trade is a well thought idea which must be expedited in the first quarter of the year 2023 to speed up on the creation of jobs that will come with this initiative.
- Debt sustainability
We commend the Government for the steps so far taken in moving towards debt restructuring as we recall that the previous administration had engaged a consultant to help on this issues which did not yield results.
We can only wish the Government success on this issue given that with the IMF support programme in place, there is now an engagement with the creditors to conclude the debt restructuring in the hope that the debt stock can be brought down to an affordable level.
Our great concern as business which we believe is a concern of every well-meaning Zambian is that debt repayment should not leave the country in a distressed position to be unable to have adequate resources to fund essential services and infrastructure development.
It is commendable therefore that the government has been able to secure the extended credit facility and we hope that our creditors will move with us to conclude the debt restructuring.
- Improving business environment
the proposal by the minister to revise the basis on which environmental impact assessment fees are charged from the value of the investment to a graduated pollution- based classification charge will lower the cost of doing business and it is a welcome move to the private sector as it also comes with a job package as more projects get to start.
- Public Financial Management
We note that the Minister has steadily identified the loopholes that have existed for some time in public spending and has therefore decided to develop a Public Finance Management Strategy for the period 2023- 2026 to enhance internal controls in the payroll system, improve functionality IFMIS and improve the coverage and timeliness of financial reporting. Through this measure we think that the issue of ghost workers on the Government payroll will be a thing of the past.
In addition, he has decided that payments for public services will be made through electronic channels to mitigate revenue linkages. It is such innovations that should bring to an end issues of pilferage of financial resources from the public sector.
We welcome the suggestion by the Minister to have all local Authorities currently on activity based budgeting to migrate to output based budgeting system in 2023 as it is a result oriented approach to budgeting.
The idea for the decentralisation of the management of the payroll to respective controlling officers intended to address incidences of ghost workers and other payroll anomalies which according to the Minister result in loss of funds by the Government is a good measure meant to bring sanity in the Payroll management so must be supported.
- Energy Sector
We note that in order to enhance efficiency in the fuel supply chain, the Minister announced that the Government has withdrawn from the importation and supply of petroleum products and that this business will now be undertaken by the private sector. The Government will instead play a regulatory role and will also ensure cost reflective pricing and maintenance of strategic reserves. This sounds a good idea but it may come with some risks such as stock run outs and high prices of fuel.
The plan to convert Tazama Pipeline from a petroleum feedstock carrier to a carrier of finished products particularly diesel needs further analysis as it will translate to transfer of jobs created through the value addition processes from Zambia to the countries that will be adding value to crude oil.
- Social Protection
We commend the Government for projecting to increase the number of beneficiary households under the programme of Social protection for the poor to 1, 374, 500 people in 2023 from 973, 323 in July 2022 and on its plans to continue the provision of education grants for girls in social cash transfer beneficiaries households under keeping girls in school initiative. Such measures including the proposed reduction in the waiting period of pensioners under the Local Authority Superannuation Fund (LASF) are measures that will promote dignity in the households of the citizens to be involved.
ZFE is grateful that in line with the high cost of living in the country the Minister has proposed a reduction in the tax exempt threshold from the current K 4,500.00 to K 4,800.00 in the year 2023 with a reduction in the minimum tax band from 25% to 20%. This effectively will increase the disposable income for workers to cushion
- Tax amnesty on penalties and interest
As industry we welcome the tax amnesty offered on penalties and interest which has been stated to cover penalties and interests accumulated up to 30th September 2022 as it will provide cash flow relief to industry. We however wish that the period to be covered could be extended to 31st December 2022 given the fact that the negative effects of the COVID 19 Pandemic which has necessitated this amnesty are still being felt. We ask the Minister to consider this request.
- Fiscal policy
We look forward to Government’s achievement of its intention to improve the fiscal position by reducing the overall deficit to 7.7 % percent of DGP from the projected 9.8 percent in 2022 and containment of public expenditures within sustainable levels as this is critical in achieving the overall budget objectives.
- Conclusion
We wish to conclude by stating the fact that the 2023 National Budget sets a path to economic recovery from a depressed economy and that the Government must be supported by all well-meaning stakeholders. Private sector and SMEs must exploit the business incentives and opportunities that have been announced in the budget. We urge Parliament to approve this budget and the Government must actualise it so that we can make significant steps towards lifting the living standards of the Zambian people. The Government must seriously address itself to reducing the cost of living which is current high.
Yours Faithfully
ZAMBIA FEDERATION OF EMPLOYERS
HARRINGTON CHIBANDA
EXECUTIVE Director