Thinking beyond the 10pc punitive tax on maize exports… and more.

 

 By Mwiine Lubemba

In his recent budget proposals, that got applause in the house, the Minister of Finance introduced a 10% punitive export tax on maize and I should think this will apply to all processed mealie meal exports. Earlier in the year, the government set the producer price of maize for this marketing season at K85 per 50kg bag or US$170/ton delivered at the FRA depot. On the other hand, the private maize buyers were and are still able to buy the same maize at K115 per 50kg bag or US$ 230/ton from the farmer’s gate and as a result most farmers have opted to sell their maize to the private buyers for the additional US$60/ton.

As the situation stands, the farmer sold or is still able to sell his/her maize at US$60/ ton more by merely selling to the private buyer than to the government FRA depots. There’s a shortage of maize in the region. Importers are willing to pay US$270/ton for white non GMO Zambian maize from Zambian farmers or private maize buyers. This means the private maize buyer who buys his maize at US$230/ton from the Zambian famer can now resale the same maize and pocket the difference between US$270-US$230=US$40/ton. And if on the other hand the FRA decided to export/sell their maize they’ve so far been able to buy from farmers at K85/bag or US$170/ton they would also make a profit of US$100/ton. In other words, since the FRA have advertised to buy an additional 220,000 tons of maize to make up its shortfall on the 500,000 tons required for the strategic stock, they have no choice but to offer the same price of US$230/ton to the farmer who may still have maize or pay US$270/ton which is the export price being offered to private maize buyers who seem to have purchased all the maize on the market already.

The Minister of Finance will now slap a 10% punitive export tax on all maize exports and we assume he’ll use the government set and FRA price of K85/bag or US$170/ton as the benchmark/index price on which the export price and tax has to be determined or calculated, it means a new maize price from the farmer of US$187/ton inclusive of 10% export tax on the FRA price will now form the basis of all export price calculations.

Please keep these prices and numbers in mind: we begun with K85/bag (US$170/ton) as the original government set price to the FRA on which a 10% tax will now be charged thus increasing the maize price from US$170/ton to US$187/ton, we also have the private maize buyer price of K115/bag or US$230/ton and the regional export/import price offer of US$270/ton. In addition, the export of maize is open to everyone as long as they can pay the 10% export tax on the bag. There are also no regulations in place to stop all the farmers/villagers from participating in direct exports of their own maize at any price ranging from K85/bag or US$170/ton up to K135/bag or US$270/ton to neighbours across the borders. Basically, with the introduction of the 10% punitive export tax, the maize pricing structure has been liberalized and we are now going to be dealing with multiple maize price structures and permutations in the country.

The Finance Minister Mr Mutati and major PF supporters, particularly Members of Parliament who applauded the decision, believe this measure will protect the local maize stocks from being depleted to exports. But as we can see, there is ignorance and/or incapacity of being able to think beyond stage one when evaluating public policy. The 10% punitive export tax measures to protect local maize stocks for local consumption pay attention to only the seen effects of public policy, they ignore the unseen. In other words, they look at only the visible beneficiaries of public policy and ignore the invisible victims.

The Finance Minister wants the 10% maize export tax to discourage/restrict exports so that more maize can be made more readily available locally and sold to local millers and the FRA cheaply. It assumes more maize farmers/private buyers will be discouraged to export and thus forced to sell their maize at the FRA price. It assumes more Zambian maize milling companies will have maize to mill and that’ll keep mealie meal prices in check. We can think of those observations as the seen, or stage one, effects of the 10% punitive tax export restrictions.

In another article early this year on this page, I referred to the unseen effects of cheaper steel import restrictions when government sought to restrict the importation of cheaper steel to protect the local steel foundries like Kafue Steel and many other Chinese owned steel foundries in the country that got us to thinking beyond stage one. The real cost of the 10% maize punitive tax export restriction in this case is the harm it’ll do to ordinary Zambian consumers of mealie meal and manufacturers of value added products that use maize as an input. Primary maize related manufacturing which includes, mealie meal, and fresh table maize, clear and opaque beer, maheu, munkoyo, baby porridges and flakes, etc— added more value to the economy than direct raw maize exports. Primary maize growing employment has increased, while manufacturers who use maize in their production employed more people.

Politicians have encouraged Zambians to venture more into agricultural value addition production for exports and criticized multinational grocery stores in shopping malls for the decision to fill their shops with imported stuff that can be made locally– corn flakes, baby cereal foods, canned mealies, starches etc – and increase the forex export base and create the much needed employment. Most potential manufacturers of these agricultural related value addition goods will now be affected by these multiple layer increases in maize prices that will occur as a result of this 10% punitive tax export restriction. In addition, international companies know they can easily escape these government imposed costs by simply moving production across the border in RSA, Kenya, Botswana and other COMESA/SADC trade nations.

Instead, the Finance Minister Mr Felix Mutati should merely have sent this massage to exporters and importers of Zambian non-GMO white maize: if you use our maize locally to manufacture and export processed mealie meal, corn flakes and baby cereal foods etc from Zambia, you’ll enjoy an additional 10% export tax-free rebate on your final dividend. In fact Mutati should merely have suggested an increased tax free rebate on dividends to 60% and matched the export price of maize in appreciation for  foreign manufacturers, local maize exporters and foreign importers of our maize transferring so much needed wealth from China, RSA, Kenya, Zimbabwe, Malawi to Zambia and increasing our agricultural value addition manufacturing export base. It’ll help keep our upcoming value addition- agro-manufacturing sector regionally and globally competitive.

And a recent related example is the Daily Mail story on Friday 25/11/2016 on page 4 headlined: “State, manufacturer’s asses’ tax on edible oils.” There is no way the Ministry of Finance acting alone would have thought of introducing a punitive 15% tax on crude vegetable oils imports in the 2017 budget. It’s obvious some local farmers and local manufacturers of edible oils want to restrict crude oil imports so that they can sell more vegetable oil seeds to local vegetable oils manufacturers and charge them higher prices. That means guaranteed greater profits for those farmers growing local vegetable oils seeds and more profits for local vegetable oil manufacturers using these local oil seeds. We can think of those observations as the seen, or stage-one, effects of the 15% punitive import tax restriction on crude vegetable oils.

The Ministry of Finance, the Farmers and manufactures of vegetable oils from local seeds are wrong on crude vegetable oils punitive import tax restrictions for reasons that again get us beyond stage one. Because the real cost of import restrictions is the harm they do to manufacturers of value added products and service industries that use vegetable oils as an input. Primary vegetable oil users in the services industry—which includes tourism industry hotels, restaurants, fast food and take away shops, potato chips processing industries, vitumbuwa (flitters), local households including the bathing and washing soap industry etc—and according to CIA Fact book/Index Mundi– added more value to the economy in 2015 estimated at 60% of GDP against agriculture at 8.6% and industry at 31.3%.

An old mining industry example of failing to think beyond stage one that keeps cropping up is with the restriction given to copper concentrates exports in the mining industry. Let’s cut this to a technologically simple and short version. For ±80 years since the mines have been in operation, some excess or technologically difficult to smelt copper concentrates have been sent to contract smelters in South Africa and other world contract smelters for smelting. This has kept concentrator jobs on the mines with excess floatation and concentrator capacity intact. It’s true some concentrates do contain exploitable amounts of precious metals such as gold and silver, but recovery of these metals require additional electro refinery and smelting capacity investment like the mothballed Ndola Precious Metals refinery. But by moving these excess concentrates to South African contract smelters, Mine operations become more competitive because it saves them a lot of money—millions of dollars– in finished copper and precious metals recovery and production costs—and this has kept most floatation and concentrator jobs at these Mines intact.

The question that should be put to those calling for restrictions in copper concentrates exports is: In an effort to account for all the forex export receipts from the mines and also save jobs in one industry, do you care about or even know of its cost and disastrous effects in other industries? When the Government enacts a miracle for one group of Zambians, e.g., our politicians who want to account for every cent in foreign exchange from all copper concentrates processed in Zambia, it creates a non-miracle for another group, such as the lost jobs to the miners who are supposed  to produce the same copper concentrates and the shop keepers, marketeers, bar owners who sell their merchandise to these copper concentrate producers in the various townships. Should the government then create a miracle for those interested in accounting for all the foreign exchange from copper concentrates to offset the effects of its miracle created in jobs lost by concentrate producers, such as giving them hand-outs through the Presidential Initiative Fund because part of the floatation and concentrator sections now face closure due to higher operating costs because the mines lacks smelting capacity and can’t locally smelt and refine all its copper from all its various  concentrate grades? I’m betting that it wouldn’t work. Lawmakers would run into the same problem described in Marcus Cook Connelly’s 1930 Pulitzer Prize Winning play “The Green Pastures,” which presents episodes from the Old Testament through the imagination of a young African American girl in the Depression-era American South—in which GOD explained to the angel Gabriel, Every time Ah passes a miracle, Ah has to pass fo’ or five mo’ to ketch up wid it.” Our advice to Mr Felix Mutati, as our Finance Minister is that—he should keep in mind God’s further lament—that “even bein’ God ain’t no bed of roses”—and get out of the miracle business.

Just a thought,

Sincerely,

 

 

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