So, on a day that was declared a public holiday by the Head of State, I decided to do what a typical entrepreneur ought to do in their spare time: Network. By chance, I had heard of the arrival of 50 business delegates from Japan from various industries such as agriculture and construction who would be in the country to tour different industries as well as have a seminar held in their honour. Without a doubt, this was the hottest ticket in town and after a pulling a few strings from a friend at Zambia Development Agency, the founder of Financial Insight Zambia had a front row seat with the business Samurai’s of japan.
The ZDA, under the stewardship of Perry Mapani (an ex ZCCM IH executive), as part of their mandate, hosted the “Trade and Investment Promotion Seminar” for the delegates from Japan. The purpose of the seminar was to sensitize our visitors on some of the key aspects of investing in Zambia.
Part of the roster of presentations included a business environment overview of Zambia. This was followed by a presentation by Clement Sasa, the Director of the office promoting private power investment (OPPPI). In addition, it included a presentation from Engineer Charles Mushota who is the Permanent Secretary responsible for Housing and Infrastructure Development. The presentation would not have been complete without a brief from the taxman on the do’s and don’ts regarding investor tax obligations. Lastly, and my personal favorite, was on the anatomy of Public Private Partnerships in Zambia which was presented by the Director that heads it at the Ministry of Finance, Keeta Shisholeka.
During the business environment presentation by the ZDA maestro, we learned that for the year 2017, Zambia exported goods worth USD33 million to Japan while imports the other direction were worth USD128 million. This deficit of USD 95 million shows the imbalance of trade between the two countries as on the one hand, Zambia sends Copper, Lead, Iron, Steel, Raw hides, skins and leather products (unfinished products) to Japan, while on the other hand Japan sends us finished products in Cars, spare parts and accessories, machinery just to mention a few. However, Perry was very clear on which sectors he sought investment in from the Japanese. These included Agriculture, Infrastructure, Energy and Manufacturing (consistent with his counterpart CEO Mateyo at IDC).
When the OPPPI representative took the stand, he articulated what his agency was responsible for. He gave an overview of Zambia’s energy profile. This is something many investors are keen on knowing because energy is the driving force behind industrialization. He disclosed that Zambia had an installed Generation Capacity of 2,878.5 megawatts from 15 Power stations that included Hydro and Thermal plants. Furthermore, he exposed some of the opportunities that existed around the different generation technologies around Hydro, Coal, Solar, Wind, Geo-thermal, BIOMASS, Waste to Energy, HFO and shockingly Nuclear as well! Sadly though, Clement Sasa did admit that some of the challenges in the sector included low tariffs and limited number of off takers as all producers depended on the state owned utility in a single buyer model.
A key highlight under the presentation by the Ministry of Infrastructure was the fact that Zambia has a deficit of about 1.3 million housing units (according to Central Statistics Office as 2010). Although the statistic is dated, CSO believe that this deficit will experience an upward trend and could rise to 3 million housing units by 2030 if no new major housing projects come on board. That is why the ministry has an ambitious plan of constructing 120,000 housing units annually over an unspecified period of time. This can be viewed as an opportunity for both local and foreign investors who would want to break into the infrastructure market especially under Private Public Partnership programmes (PPP).
The PPP presentation by the unit responsible for it was the most interesting one. If one follows the history of it, one soon realises that part of the challenge of its implementation has been the musical chairs style administration of the entity on who gets to manage it. Throwback December of 2008, Government approved the implementation of PPP arrangements in Zambia. This included specifying the strategic objectives that they sought to facilitate as well as indicating what social services needed to be delivered. Leap to August 2009, the PPP Act No. 14 was enacted by parliament. Under this enactment, the PPP unit would be a department under the Ministry of Finance. However, during the opening of parliament on 21st September 2012, President Michael Sata directed the transfer of the PPP functions from the Finance Ministry to Commerce, Trade and Industry under the auspices of the ZDA. Cabinet then effected the directive in its 29th Meeting of Cabinet on 25th November 2013 by approving the transfer of the functions of the PPP United to Commerce. Sadly though, the transfer never materialised as the law was never amended. Eventually, on 31st October 2017, the Unit was moved back to the Ministry of Finance where it is currently domicile.
During the Question and Answer session on PPP, it was clear that the Japanese were very keen on this type of framework for pursing projects. PPPs have the inherent ability of ring fencing deals from risk albeit not completely. It was disclosed that the typical PPP process included a) Concept and feasibility, b) Validation and Planning, c) Implementation, Design, Build, Operate and Transfer. In addition, there exists a council that is responsible for policy formulation, project approval, award of agreements, oversight of the PPP procurement, ensuring competitiveness and fairness in awards, and resolution of issues related to the project approval process. The council oversees the procurement of Solicited and Unsolicited proposals with guidelines specified for both cases.
One of the successful PPP projects is the construction and operation of the East Park Mall. This agreement was signed in 2010 and the contracting authority was University of Zambia. The combined investment was USD 90 million on a DFBOT basis which is short for Design, Fund, Build, Operate and Transfer. The concession period for this deal is 25 years.
Other PPP deals in implementation phase include the housing development for ZAF mixed use real estate development and the Kasomeno to Mwenda road which stretches 85Kms and has a one stop boarder post, 4 schools (part of Corporate Social Responsibly) and 4 Clinics.
Key takeaways from the event were two questions that were raised about investment in Zambia. The first was on Value Added Tax refunds for exports and the second was the financial health of Zambia and whether or not it would be pursuing a credit rating.
Commerce Minister Christopher Yaluma confirmed that tax refunds were a concern for government. He attributed it to a certain policy (VAT rule number 18 which compelled mining companies to avail certificates of sale from the countries of destination) being passed that was supposed to monitor tax fixing and finding out destinations where copper was going which were likely to be signals of price fixing and tax evasion. The policy’s intentions were to recover tax revenue. Sadly, he noted that government got entangled with the accumulation of claims and the backlog grew. They therefore suspend it and refunds began being processed. He further advised that the Ministry of finance would be brought in to advise the visiting delegates on the process and procedure of the refunds.
On the issue of Zambia’s credit rating, the Minister responded that measures were being put in place however seeing as he as not finance minister he could not over emphasis enough the government’s desire improve the credit rating of the country. Ratings are important to access funding. Sadly, while the delegates dinned and conversed in Zambia, Moody’s ratings agency had other ideas. On 27th July, Moody’s Investors Service downgraded the Government of Zambia’s long term issuer ratings to Caa1 from B3 and maintained a stable outlook. According to Moody’s the downgrade reflects ongoing fiscal consolidation challenges, pointing to an increasing government debt burden.