Thinking beyond Dununa Reverse (Part II)

By Mwiine Lubemba


Mr President, don’t worry, it’s only the Lord that Gives and Takes…

 Now, you’ll remember, we broke off at that point when we came up with a ball park figure there would be US$724 million per annum savings from petroleum subsidies ( US$3.62 billion) over the next five years of your last term. However, since Part I, I’ve come to realize that I overweighed the contributions and importance of the alternative use of petroleum subsidy savings on the economy-to my surprise, I did not sufficiently appreciate both useful and useless contributions from our business community especially the group that dragged you to an early morning Chrismar Hotel breakfast meeting.

To other readers of this page – if you haven’t been paying attention, since our Part I there has already been an impromptu breakfast meeting called by the business community at Chrismar Hotel at which the same old tired demands of- give us this concession or our businesses fail—give us that tax break or we won’t be able to create employment—we waiting for Jesus Christ to come back before can be able to compete in the export market and so on and so forth. These demands may have been put forward by the business community and were made a priority including the senseless- useless formation of a weird businessmen’s ‘task force’, (notwithstanding there has already been many such tried tired ‘Task Forces’ in place since 1970), and this one will no doubt come up with yet more demands for even more incentives to these so called businessmen.

Hearing these seemingly intelligent kwacha billionaire businessmen speak on TV, was like being amongst rowdy kindergarten kids or a group of rowdy taxi owners demanding taxi fare hikes at a RATSA meeting or petrol attendants on strike and demanding for higher wages from their employers or the funny case of second hand clothes ‘salaula’ salesmen demanding for import restrictions on new apparels’ from China because they can’t compete on price with the new Chinese stuff.

I have an example for these Zambian business colleagues that I borrowed from Carmen Dorbat, assistant professor in International Business at Coventry University which he shared on the Misses Institute page when he talked about the various massive investments in sports by world governments and the results therefrom at the just ended Rio Olympics.

Carmen Dorbat says the medal standings at the Rio Olympics tell an interesting story about the results of government investment programs. The Chinese have heavily invested in sportsmen and women since the 2008 Beijing Olympics with the largest mass recruitment program of about 400,000 children in special Olympic schools.  But this translated into the Chinese coming in third place in medal standings. The UK has also subsidised Olympic sports after London 2012 but although its medals standing improved at Rio, studies show a decrease in sports participation. By comparison the USA lead the medals table although its Olympic program is one almost entirely privately funded- with the USA being one of the few countries in the world without a standalone Department of Sport or Ministry of Sports as such.

Why pick on this example? Sports excellence Mr President is a matter of both natural and acquired aptitudes, which benefits from well-directed capital investment in training people with a comparative advantage in the field of sport. There are some useful parallels to be drawn between the Olympic programs and the recent Chrismar Hotel demands by Zambian businessmen. By this we mean to say that likewise any Zambian business should be based on comparative advantage which is discovered and developed in the market by entrepreneurs directing their capital investment in the most productive activities.  There should be no need to wake you up Mr President in the early hours to be paraded at a breakfast meeting at Chrismar Hotel by a select group of elite businessmen or indeed by Taxi drivers at Soweto Market Bus Stop, or fish mongers at Mpulungu or Kashikishi harbour or to cause you bring Margret Mwanakatwe out with her Department of Trade officers, Chambers of Commerce, Export-Import Banks, complicated trade partnerships or world organizations just to encourage or manage trade and commerce in Zambia.

In fact whether we are talking about sports or commerce and trade, government schemes are powerless in gauging where comparative advantage lies at any particular point in time. This is a question for entrepreneurs concerning how to employ and direct their resources.

And Dorbat goes further to emphasize that being future oriented and thus speculative, as well as requiring time to be brought to fruition, specialization is a process permeated with uncertainty, tributary to human error, and subject to frequent modifications. Therefore, Mr President, the concrete pattern of specialization, whether it be in the Zambian or international export trade for our made in Zambia goods or Olympic events, cannot be ascertained outside the market nexus: it is through the profit and loss system that consumers can sanction the relevance of specialization decisions which are contingent on the incessant change of their preferences. So we see Mr President that with your interventions coming from outside the market nexus, and as government policymakers you’re not entrepreneurs, therefore your trade (or sports) policies aiming to interfere with this pattern of comparative advantage are doomed to fail.

Similarly the Member of Parliament for Ikelenge Mr Elijah Muchima to say the voting pattern was not tribal but a revolt for the slow development in the area since Mwanawasa’s government (Daily Nation Friday August 26 page 6) is erroneous because even if occasionally, and for a short while, government programs can accidentally stumble upon ‘correct’ decisions, both trade and sports can counterfactually perform much better if left to their own devices. The best thing the government can do is not only not to actively interfere, but also to abstain from taxing performers. And also Mr Guy Phiri and his close business colleagues that gathered at this Chrismar Hotel breakfast meeting deserve the freedom to pursue their vocation and reap the full fruits of their efforts as much as every lesser known Pine Apple farmer in Mwinelunga, fish monger on Freedom way, taxi operator, and salaula seller on Katondo street, but equally hard working entrepreneur.

That’s why this government driven industrialization program in its present suggested format comprising of industrial clusters and economic processing zones will not succeed without a robust local entrepreneur presence –interlinked localised raw materials source plus a well-developed primary steel and chemicals industry. You can build all these industrial clusters and economic zones and all the shopping malls and all the petrol stations you want, the Zambian economy will forever remain subdued.

Let’s get back on our track, from Part I. We know we can make most of the steel we require-entrepreneurs will find a need for specialized steels and will definitely manufacture them based on demand. So, let’s now embark on making all the chemical raw materials we require for our bottom-up industrial growth.

I know, perhaps I’m ignorant and there’s already in place an exciting chemicals industrialization program because, agreed, I don’t see how any industrialization program can succeed without a robust chemical industry. But there’s no harm provoking discussion to just one of the many ideas that have always been close to me that government together with private sector can participate and deliberately fund with that US$724 million we identified in Part I that is currently wasted on petroleum subsidies annually.

I know some business interest groups may think I’m a joke or too ambitious- maybe. But let’s provoke and encourage discussion by taking a simple example of the Nitrogen Chemicals of Zambia and hope all the land meant for the NCZ expansion hasn’t been sold. This plant was commissioned in 1973, to produce nitrogenous fertilizers from local coal gasification. Already, that equipment and technology (43 years ago) is obsolete, we can in its place have a highly sophisticated Research and Development based production model. We can also send the elderly workers who can’t be retrained to work in a sophisticated R&D based production plant on early retirement.

Like in the old plant, the new NCZ will use a lot of coal, so there will be need to rehabilitate the Drag Line at Maamba or build a Railway line from Maamba to join the Choma- Kafue line. As mentioned earlier there will be need to scrap the current old inefficient coal gasification plant for a new modern hi-tech-efficient clean coal gasification process to run in line with an Integrated Gasification Combined Cycle electrical generating power plant (IGCC).

We also know the plant’s cost has been a concern for the global acceptance of IGCC as it has been significantly more expensive than conventional coal-fired Thermal power plants such as the newly commissioned Thermal plant at Maamba. We also know IGCC cost estimates are considerably influenced by the type of fuel burned. The capital cost of a 600 MW- IGCC plant without CO2 capture is estimated to be ±30% higher than conventional coal-based Thermal power plants even though IGCC plants can be ±5% more efficient than conventional coal-based Thermal power plants.

Assuming most existing infrastructure at NCZ is reusable this will present an opportunity to cut costs down such as civil and structural costs. So, we may find that to construct say a 600MW -IGCC plant may now cost ±US$650 million instead of the industry average cost estimate of ±US$2.0 billion. This plant can be constructed from our US$724 million petroleum subsidy savings but apart from giving the new NCZ-R&D production plant all the electrical power it needs and surplus energy for export into the national grid, it’ll also supply all the chemical starting raw materials the plant and other start-up industries all over the country will require for the numerous other manufacturing and finished chemical products the various start-up industries all over the country will require –just from this single coal gasification process.

(Please note: these cost estimates are broad in scope. A more in-depth cost assessment would require a more detailed level of engineering and design work, tailored to the specific situation at NCZ today).

I’m aware these potential possibilities may look like science fiction but coal gasification is old proven technology. The electrical power generation will not only lower plant energy costs and electricity sold for profit into the national grid but will have the added capability to produce hydrogen and chemical feedstock’s of various combinations while eliminating nearly all air pollutants and potentially greenhouse gas emissions which will make coal gasification at NCZ-R&D production plant one of the most promising technologies for Zambia’s energy and chemicals needs of the future.

In full production and in combination with a functional sophisticated standalone R&D division, the plant will produce all the nitrogenous fertilizers, all the compound fertilizers currently imported in addition to thousands other chemical starting raw materials and finished chemicals to be identified by the NCZ-R&D division for the transport industry hydrogen cell manufacture, the paints, adhesives, soaps and detergents industry as well as all the pharmaceutical and cosmetics starting raw materials, vegetable oils and biofuels manufacture starting chemical raw materials, industrial and mining chemicals and acids starting raw materials, insecticides and herbicides and several other chemical starting raw materials too numerous to list. And of course when crude oil prices have recovered and, after installing a Gas to Liquids (GTL) plant, the plant will have the capability to produce and supplement the supply of sizeable quantities of liquefied petroleum products using the syngas derived via the same clean coal gasification technology.

The new NCZ- R&D division can also set up a standalone primary phosphate raw material processing plant in Eastern Province to process phosphate ores into the various starting chemical raw materials including those for use together in the compound fertilizer section at the NCZ plant. When complete, this should create the ultimate nucleus for a robust chemical industry in Zambia.

Since NCZ infrastructure is already in place, most of this can be accomplished within the first 3½-4 years and when fully operational it has potential to directly create numerous high quality technical jobs and absorb most idle engineering professionals including, analytical and nuclear chemists and physicists, technologists, tradesmen and women, pharmacists, economists, and even sociologists and the best brains when identified can join select teams research experts in the various R&D departments for speciality chemicals research and manufacture.

I’m awake to the fact that many experts in this field may immediately cast doubt on the use of this technology due to the real costs involved in using coal gasification technology Vs, natural gas for methanol and fertilizer production. At face value this is correct. But I come from a background when similar doubt was cast by world renowned metallurgists and chemical engineers when against all odds, while at (NCCM/RST), we embarked to become the largest commercial copper solvent extraction operator in the world in the early 70s only to be let down when socialist Nationalization policies in the Mining Industry took effect.

So far Mr President, we’ve provoked discussion on the money saved from petroleum subsidies but another example of failing to think beyond stage one lies in the money spent on FISP subsidies that sends the national budget in tailspin.

We’ll attempt to provoke further discussion on a win-win use of FISP funds in Part III.

 Just a thought,