UPND’s First Budget Delivers On Election Promises But Still Leaves Investors Out In The Cold

On Friday, Finance Minister Situmbeko Musokotwane unveiled the first budget of the new UPND government, following President Hakainde Hichilema’s landslide election victory in August. Delivered against the looming backdrop of Zambia’s $14.7 billion external debt burden, the budget was successful in fleshing out some of Hichilema’s manifesto promises for economic reform and putting food on the table for ordinary Zambians. However, the speech left much to be desired in terms of revitalising businesses in Zambia as well as a concrete plan for driving growth. 

The pledge to drive down soaring inflation rates into single digits by next year, as well as increase funding for anti-corruption agencies is admirable and may go some way to realising Situmbeko’s twin aims of job creation and poverty reduction. As prices for food and other necessities fall with inflation, more Zambians will rise above the poverty line. Meanwhile, a decrease in overall corruption will see more money freed up for business development. However, Situmbeko was unclear about how his government would actually create more jobs, let alone drive the 3.5% economic growth which he promised for 2022.

More impressive is the government’s programme for debt reform; promising not to take on any more non-concessional loans except for the purpose of refinancing. By breaking the previous administration’s addiction to borrowing, the UPND government hopes to restore credibility with foreign lenders and secure a deal with the IMF by the end of November. 

This would be no mean feat and Musokotwane has already indicated his seriousness about getting Zambia back into the black, announcing a cut to the deficit from 10.4% of GDP to 6.7% by the end of next year. An IMF deal will be vital to freeing Zambia from it rapacious Chinese creditors and setting the country back on the path to financial prosperity. As Musokotwane said on Friday, “There is no option to this, otherwise the debts we owe will choke this nation to a standstill.” 

Musokotwane’s budget made some overtures to foreign investors in Zambia, promising a tax break for mining companies by making their royalties deductible from income taxes. He also indicated his government’s commitment to creating a stable investment environment by not raising the rate of mining royalties and promising to conclude debt restructuring talks by the second quarter of 2022.

However, notably absent from the minister’s speech was any mention of restarting negotiations with the mining companies themselves following the effective nationalisation of KCM and Mopani mines under the previous Patriotic Front administration. Despite the promise of $1.5 billion in investment from KCM’s private owners Vedanta, Musokotwane did nothing to assure Zambians that his government would be making the most of the country’s national assets. 

The President of the Chamber of Mines, Godwin Beene, spoke to the importance of this last week when he said that “renewed interest from investors today could lead to new mines in production over the next five to ten years, and with the right supportive policies in place, that could completely change our nation’s development trajectory”.

A tax break and more consistent regulation is a decent step towards attracting this renewed interest, but investors are highly unlikely to be drawn to Zambia’s mining sector if they continue to see the mess being made at KCM over the company’s liquidation. Musokotwane should have used Friday’s budget to pledge closer cooperation with companies like Vedanta, who already invest heavily in Zambia’s economy, in order to attract further interest from other companies in the future. 

Overall, President Hichilema’s inaugural budget is right in its priorities but weak in execution. The plan aims to lift Zambians out of poverty, restore the country’s financial credibility and drive investment. But without a solid plan for growing businesses and with the albatross of KCM still around the government’s neck, more will be needed for Bally to fix it.