IN THE BAG

Zambia 2015 | FINANCE | INTERVIEW

TBY talks to The Hon. Alexander B. Chikwanda, MP and Minister of Finance, on the national Vision 2030, formalizing the economy, and ensuring foreign investment benefits everyone.

Hon. Alexander B. Chikwanda
BIOGRAPHY
The Hon. Alexander B. Chikwanda was born in December 1938, and is a Zambian politician serving as Minister of Finance since October 2011. He studied economics at Lund University in Sweden. He was first elected to Parliament in 1973 as MP for the Kalulushi Constituency. In 1978, he was nominated by Dr. Kenneth Kaunda as MP. HE Michael Chilufya Sata nominated him as MP in 2011. He is a member of the Standing Orders/Reforms and Modernization Sessional Committee of Parliament.

What are the key priorities that you keep in mind to successfully achieve Vision 2030?

When you are a developing country, almost everything is a priority, as everything needs to be properly integrated. You have to stimulate and grow the economy by promoting sectors such as agriculture and the power sector. It is impossible to fully develop the economy in the absence of infrastructure so you have to give almost equal weight to all areas of this development to make sure there is progress. You have to give weight to education, as the only way that nations can increase their productive capacity through their people. You also have to give equal attention to health as the productivity of the population affects the overall growth of the economy. The issue of priority has got to be put in the proper context as you have to give weight to all these departments and imperatives of development to move the economy forward.

The informal economy is still significant in Zambia. What incentives are provided for entrepreneurs to move into the formal economy?

The government engages with various institutions that support this and that can extend lending to these enterprises. Taxation within the informal sector can be a problematic issue because the cost of collecting taxes from this sector may exceed the net contribution. Every system must have internal logic and any tax measure must bring in more revenue than it costs to administer. The informal sector taxation should not choke the enterprise sector. We need to find ways to provide extended logistical support to these enterprising people and that way everyone will make a contribution to taxes. If they do not pay taxes directly through making taxable income then they buy products and services and pay VAT, so in one way or another contribution will collectively be made. Further, transport costs will return indirectly to the economy as taxes will be levied on fuel. It does not always make sense to chase the entrepreneurs to make taxable contributions until the balance tips in favor of this taxation being profitable for the economy at the end of the day.

What are your expectations for the year ahead in terms of GDP and inflation?

Inflation for the past ten years has been kept in single figures and we expect this to continue. In general, Zambia is quite a high-cost country and the interest rate levels in the banking system are high, so it is our intention that these will come down. That is the reason why our external borrowing is increasing. We are avoiding borrowing locally as this would only push interest rates up. As a short- to medium-term measure, the government will reduce the budget deficit as part of the plan to moderate interest rates. When we presented the budget for this year, our expectation for the economy was GDP growth of 7%. However, there have been adverse movements in the global economy, such as the downward trend in commodity prices. This has inclined us to revise the GDP growth for this year to 5.8%. I am not sure we will be able to meet this expectation given the energy challenges we are experiencing following the revision. We thus expect GDP growth this year to slow down to around 5.5%, a rate that is still above the average economic growth in Sub Saharan Africa, which is around 4%. We need to encourage business in the industrial sector, and improve sectors like agriculture and agro processing. We also need to deal with the power challenge through diversification initiatives into areas such as solar power. This is an exciting prospect for the economy. We need to grow the economy in these areas, maintain sustainably high levels of growth, and rise above the current difficulties of depressed primary commodities and weather-induced energy shortages. In terms of commodities, products such as soya beans and coffee remain at quite high prices, and we need to continue encouraging growth in those areas as they will stabilize our foreign exchange earnings.