By Mwiine Lubemba
Seriously; why should the fate of the Zambian economy depend on the guesswork of the Minister of Finance—and the guesswork of the Bank of Zambia about what the Minister of Finance will guess?
I don’t know…I kind of like the idea of having all the facts in front of me and determining all by myself what I think is important and what it all means.
You see; I came back home specifically to cast my vote on August 11, but home is addictive and since the cost of living is dollar cheap—I love it here.
I can live comfortably on a few of my retirement dollars. I mean when I came in July, a litre of petrol was selling for less than a dollar. It was perhaps the cheapest petrol on the planet.
Ok, with the latest subsidy removal, the price per litre is US$1.39 or US$5.3 per gallon and this is starting to look scarily compared to Michigan-USA where petrol prices have plummeted to under ±US$1.0/gallon (K2.65/litre–source: petrol price verifier Gas Buddy). But Zambian motorists aren’t alone paying high petrol and diesel prices; the average petrol price in the UK is £1.02 (K12.76) and £1.06 (K13.26) for diesel/litre.
In fact, removal of subsidies on fuels and electricity in Zambia is offset by lower prices on local food, goods and services. Zambians pay K80 or US$8 for a 25kg bag of breakfast meal compared to US$60 in Canada or US$85 in Venezuela if you can find it. A kilogram of choice T-bone steak costs K100 or US$10 per kg compared to £14.68/kg (K183.69/kg) in the UK. Steak on Bone is half the price of T-Bone. You pay K27 (US$2.7) for 30 eggs compared to £4.0 (K51.0) in the UK and K38 (US$3.8) for a whole chicken? So, buying GROWN or MADE IN ZAMBIA and having a small garden of your own will certainly cushion price increases.
I’ve been able to meet relatives and acquaintances while in Zambia which is great but unfortunately very few childhood friends are left. Each time you ask a friends name from college or old school days, you hear answers like. He died. Or he followed his wife a Nurse in England and others have given up on town life and relocated to their village or settled in traditional chief’s land somewhere. So I’ve very few friends left. And it’s been lonely.
I also like the team of young Cabinet Ministers that President Lungu has assembled that he can now threaten easily— “I’ll fire you!” Look at Kapyongo, Dora Siliya, Vincent Mwale, Victoria Kalima and everyone’s favourite Government spokesman Chishimba Kambwili (love him or hate him the young man works hard).
Remember three Sundays ago, I wrote; President Lungu is planning to appoint me Minister for Presidential Affairs. I thought the president would use someone my age with several years’ multinational business experience and with scientific research and development exposure which unfortunately is not obtained from classrooms but only comes with age and trial and error experience. Now I know why he couldn’t. I’m too old. Obviously Lungu knows if he threatened me with dismissal, I’d resign to preserve my honour.
But I seriously didn’t want to be Presidential Affairs Minister, I was provoking him to appoint experienced technocrats because I heard from the grapevine that the old system of “whom you know” in the political hierarchy is rife. You’ve to be connected to the “SYSTEM” to be appointed to a government position.
It doesn’t matter one’s experience or capacity to contribute to national wellbeing. I pray it doesn’t degenerate to the level of corruption President Lungu alluded to when swearing in my ‘rival’ Minister for Presidential Affairs or Michela Wrong’s old book I finished reading; “IT’S OUR TIME TO EAT.”
I recommend the book especially we’ve a suspicious wind blowing in the economy. In process engineering we’re trained to spot trouble before it occurs, any good engineer can spot economic trouble from a far too. But it would appear my young brother Mutati, his Central Bank Governor and other economic advisors to President Lungu haven’t been paying attention.
They’ve merely been using guess work to repair the economy. They’ve failed to connect past to present historical economic mistakes that look familiar to what’s happening in Zambia right now.
Reading Ancient Greeks history is instructive. They’re responsible for some of humanity’s most important and transformative innovations. From philosophy to mathematics to the concept of democracy itself, advanced human civilization as we know it simply would not have the foundation it does were it not for the brilliance of the Greeks of the age of antiquity.
However, along with some of the modern world’s most basic pillars, the Greeks` inadvertently also gave us some of the most dangerous. One in particular pertaining to economics is a problem they first invented, and one we’re still struggling with today.
In the 5th century B.C. Greece was facing an economic crisis that today we might find eerily familiar to Zambia’s brought on by indulgences. Too many wars and too many altruistic but utterly fruitless social programs had put the Ancient Greek economy into a state of peril.
Figure: Ancient Greek Coinage taken from wikipedia.org
Backed by gold and silver, as almost all great economies had been even millennia before the Greeks, the overabundance of liabilities and a shortage of precious metals had put the city-state of Athens on a path to ruin. That is until economists came up with a brilliant idea to increase wealth without actually mining more precious metals.
The idea was simple: take all the gold and silver coins in circulation, melt them down, and recast them back into alloy coins consisting of 50% gold or silver and 50% copper or other lesser-valued metals. Without too much effort, the Ancient Greek money supply could be doubled, allowing for more trade, more social programs, more wars, and more of everything else that made the Greek society function.
For a while it worked, but then the Greeks ran into a problem.
You see, basically the IMF team were politely saying Zambians can’t have wealth from nothing.
Similarly, while the ancient world respected gold and silver universally, the elaborate new alloy Greek coins used to trade had no intrinsic value. They were worth their actual weight of the gold and silver contained in them, and nothing else.
So when trade was done with other nations and these Greek coins were inevitably melted back into their basic precious metals, people quickly realized that the Greek coins were not worth their gold/silver value. The precious metal was diluted, and gradually, news of the devaluation of the Greek drachmas spread, Greeks found themselves being asked to pay more drachmas for goods and services they bought from foreign lands.
Over time, that devaluation, or inflation, as we now call it, spread to Greek interior and began to affect the internal economic policies of the Athenian city-state itself. Before you lose us, let’s pause and explain– the price of petrol today after subsidy removal is US$1.39 per litre.
Imagine with more export production, the kwacha appreciated back to 2011/12 levels and started trading at K5. 6/dollar today, the petrol price should not have increased to K13.99, it should have reduced from K9.87 to ±K7, 784 per litre (K5.6xUS$1, 39=K7.784).
Similarly in Ancient Greek, no matter how many times the mints tried to compensate, there was simply nothing they could do to bolster the economy. And with their debts piling up and their expensive wars and failed social programs not returning on investment the way they were expected, the society collapsed.
It’s simple…it’s brutal… and it’s uncompromising.
But it wasn’t only the ancient Greeks; when the Ancient Roman Empire rose to prominence in the last century BC, it was able to conquer just about every rival…until it ran into the very same problem. When the silver content in the Roman coinage dropped by a factor of 10 in an effort to pay for its costly campaigns and programs, that empire too went into decline and eventually, having lost its economic power over the Western world, collapsed as well.
So, you’d think the lesson would have been learned, but, as history shows, wisdom is rarely gained from past examples. We’d like to think that we grow wiser and learn from the mistakes of others, but, thanks to the hubris and short sightedness of present world rulers, we tend to just repeat past mistakes—usually on a progressively grander scale.
And that’s exactly what’s happening now— right here in Zambia.
We no longer trade gold and silver coins of course. Today, the Zambian economy isn’t tethered to the gold standard. The world’s universally respected and accepted currency for the last ±seven decades has been the United States dollar.
Over the course of the past 52 years, however, the Zambian governments, operating through the Ministry of Finance and the Bank of Zambia which controls our money supply, has been busy guessing and doing exactly the same things that brought the Greeks and the Romans and every other major power to its knees over the course of the last 2,500 years: It’s been increasing the money supply – and the kwacha/US dollar exchange rate gradually depreciated from K1.0 in 1968 to ±K10, 000 (K10 rebased) today.
Fast forward>>> from 2008-2013 with increased demand for copper, prices increased and Zambians got more dollars for it and printing more kwacha worked just fine.
We financed more infrastructure projects and many social programs, increased public service wages and taxable incomes to K3, 000, we made billions of kwacha promises and funded more projects including unaccounted US$120 million Zambia railways refurbishment program using money that was rapidly increasing in volume but not in intrinsic value.
Reports say national debt went from US$3.0 billion in 2010 to ±US$9.75 billion today—if true, there’s need to worry- that’s an increase greater than the total debt incurred by all Zambian governments in the preceding 52 years.
And since there is always a lag time between the increase in money supply and the inevitable devaluation, it means none of us took much notice.
Everyone thought everything was great, that we were in the midst of an economic boom-especially we were rated amongst the best top 10 performing economies in the world. Now, it would seem, it was more of calm before the storm than anything else.
There’s no money for nothing. So these loans, from whatever source—are fake money – useless paper IOUs entering the Zambian economy every single day, month and year-and the value of every individual kwacha not backed by copper or maize production in your pocket and your bank account slowly fades. These loans despite their warm and fuzzy implied meaning are just another word for inflation—on an unprecedented scale. For every dollar, euro, yuan IOU brought into the system from nothing, more kwacha is printed and added into the system. The more we get, the more kwacha printing takes place. And our politicians are encouraged to make more and bigger promises and the bigger our liabilities become.
We end up with more entitlements (social programs); more taxes (on the biggest producers -the miners and factory owners- to the benefit of the non-producers); more government spending on all things (which sounds good on the campaign trails but ultimately returns nothing on the investments).
There’s nothing wrong with this US$9.75billion (K97.5 billion) debt, except President Lungu together with his new team of Ministers and Civil Servants has to put in place measures that will help grow the economy to pay off the incurred debt or they’ll have to tax every man; woman and child in the country no less than K6, 500 which I suspect Mutati is already trying to do except, and unfortunately so for Mutati, he probably doesn’t realise this amount is several times more wealth than actually exists in the country– with ±70% of us unproductive and living below poverty.
I’m not an economist; but it looks like the campaign promises made by President Lungu to solidify the PF legacy by moving ±70% Zambians out of poverty will have to be funded by even more artificially created kwacha—just like the Greek drachma and the Roman denarius?
So, Mutati thinks taxing people-not increased production- will get the economy back on track-I think this assumption is profoundly wrong in a world without free lunches- and these huge mansions being built by civil servants and large bank deposits from nothing by ministers that President Lungu alluded to– are all stolen lunches and market capitalization will turn every one of these stolen lunches into ones “the masses” must pay for in Mutati’s taxes, whether they are worth the price or not; this reality, backed by a 100% historical failure rate of any society that allows too many altruistic but utterly fruitless social programs- will guarantee what happens next. That’s why we must keep this between us—’else President Lungu will fire somebody for sure.
Just a thought,