Zambian 2013 Budget Reviewed by Kampamba Shula ~ Kampamba Shula

Zambia Budget Review

On 12 October 2012, the Minister of Finance, Hon. Alexander Bwalya Chikwanda, MP, announced the 2013 National Budget. Budget highlights and taxation and other changes as contained in the Budget speech and the Zambia Revenue Authority (“ZRA”) publication.

The Government plans to spend K32.2 trillion to be financed by:

· K24.7 trillion (77 percent) from domestic revenues;

· K5.9 billion (18 percent) from domestic and foreign borrowings; and

· K1.5 billion (5 percent) grants from cooperating partners.

Macroeconomic targets for 2013 are to:

· Achieve real GDP growth of above 7 percent;

· Attain end-year inflation of no more than 6 percent;

· Achieve domestic revenue of at least 20 percent of GDP;

· Limit overall fiscal deficit to 4.3 percent of GDP, of which domestic borrowing will be 1.3 percent;

· Maintain gross international reserves of at least 4 months of import cover; and

Utilization of US$750 million Eurobond Proceeds

The Minister has proposed to apply:

· US$430 million, 57.3 percent of the Eurobond proceeds, towards road and rail transport projects;

· US$255 million (34 percent) on energy generation and transmission projections; and of

· The balance of US$65m going to fund central hospitals, SMEs and transaction and funding costs.

Tax Incentives and Loopholes in Customs and excise duty

· Remove customs duty on importation of :

(a) Engines of all types;

(b) Cranes of all types;

(d) Machines for cutting, grinding, polishing, drilling and welding;

(e) Vacuum and liquid pumps; and

(f) Sprayers of all types.

· Remove customs duty on importation of the following:

(a) Automatic data processing machines;

(b) Magnetic or optical readers; and

· Remove the 15 percent customs duty on importation of ambulances in a move aimed at increasing access to health care services.

· Remove the 15 percent customs duty on importation of motor cycles. Motor cycles play an important role in supporting access by rural health and agriculture extension workers to areas not accessible by other means of transport.

· Increase customs duty from zero percent to 15 percent on flat rolled products of iron or non-alloy steel excluding those coated with tin and lead used in the manufacture of roofing sheets.

· Remove excise duty on carbonated drinks and packed water in a measure intended to stimulate growth of the beverage sector.

· Remove customs duty on locomotives, carriages and rail traffic control equipment for railways to encourage investment in the railways sector.

· Suspend duty on articles and equipment for sports, games and general physical exercise for a period of 3 years to 31 December 2016.

· Suspend customs duty on the following goods up to 31 December, 2013 effect from midnight on 12 October, 2012:

(a) New motor vehicles for tourism enterprises that offer transport services;

(b) New articles and equipment for furnishing and refurbishment of accommodation and catering

facilities for businesses licensed as tourism enterprises.

· Remove customs duty on new and re-treaded pneumatic tyres intended to reduce the cost of doing business

Sectors

Agriculture

The agriculture sector is expected to contribute one half of the new employment opportunities over the next five years, making it one of the priority sectors. The Country has continued to record bumper harvests in crop production. However, this has mostly been concentrated in maize production, which has been the focus of the Farmer Input Support Programme (FISP). In order to boost and diversify crop production, Government intends to:

· Include other crops in the FISP such as soya, cotton, sunflower and rice;

· Streamline the electronic voucher system from 2013 in order to strengthen the private sector’s role in supplying agriculture inputs;

· Scale up investment in extension services, irrigation, training institutions and research and development in order to improve crop yields.

Key initiatives in 2013 will include:

· Promotion of increased local production of key inputs such as fertilizer and seeds;

· Incentives to encourage local value

· Restriction of the operations of the Food Reserve Agency to management of strategic food reserves only.

· The Government has increased the budget allocation to this sector from K1,698 billion in 2012 to K1,865.4 billion.K1.1 trillion for the core agriculture programmes, including those aimed at promoting the sector’s diversification and cater for livestock, fisheries, crops and irrigation development;

· an amount of K500 billion (2012: K500 billion) for the reformed FISP; and

· K300 billion (2012: K300 billion) for the purchase of strategic food reserves.

Mining

The sector performance has been weaker than expected against a backdrop of a lethargic global economy leading to depressed copper prices and reduced copper export volumes during the year. To improve monitoring and mining systems the Government will aim to:

· Building capacity at the Ministry of Mines, Energy and Water Development to facilitate the monitoring of both quality and quantity of mineral production and exports; and

· Strengthening the regulatory and penal system with regard to false reporting of production and export volumes.

Tourism

The Sector has been identified as key in diversification of the economy. Accordingly, the Government intends to promote and expand tourism products and develop key infrastructure with the planned move to make Choma the provincial capital for Southern Province, it is expected that resources in Livingstone will be devoted to enhancing its status as the tourist capital. A total of K21.1 billion has been allocated

to the Tourism Sector compared to K12.8 billion in 2010 towards marketing activities. In order to leverage the maximum benefit from hosting the 2013 United Nations World Tourism Organisation Conference, Government proposes to suspend duty up to 31 December 2013 on the following goods:

· New motor vehicles for tourism enterprises that offer transport services; and

· New articles and equipment needed to furnish or refurbish accommodation and catering facilities for businesses licensed as tourism enterprises.

Government aims to facilitate creation of 300,000 jobs in the tourism sector over the next 5 years.

Manufacturing

The Government’s primary strategic objective is to enhance the competitiveness of locally manufactured products, in both the local and export market by:

· Promoting value addition to locally available raw materials; and

· Implementing targeted investment incentives for entrepreneurs involved in value addition ventures.

The Government proposes to eliminate the following duties:

· Customs duty on engines and cranes of all types, conveyor belts, machines for cutting, grinding, polishing, drilling and welding, vacuum and liquid pumps and sprayers of all types;

· Excise duty on carbonated drinks and packed water; and

· Customs duty on locomotives, carriages and rail traffic control equipment to reduce transportation costs for bulky products.

The Government has made a specific K255 billion budgetary allocation for the rehabilitation of the Nitrogen Chemicals of Zambia. The Government anticipates that some 90,000 jobs will be generated over the next five years as a result of these interventions.

Energy

The sector faces a number of challenges including frequent disruptions of power supply.

In collaboration with the private sector, the Government intends to:

· Increase installed generation capacity;

· Improve the transmission and distribution infrastructure; and

· Expand rural access to electricity.

To this end, the Government is working with the private sector with regard to the:

· Development of the Itezhi – Tezhi and Kafue Gorge lower power stations; and

· Completion of the extension of the Kariba North Bank Power Station, amongst others. The petroleum sub-sector continues to be of key focus with the Government pledging to:

· Continue with the construction of fuel depots across the country; coupled with the

· Promotion of the use of renewable energy and alternative sources of energy such as solar, bio-mass, geo-thermal and wind.

In support of the above initiatives as the Government proposes to allocate:

· K984.3 billion for electricity generation, transmission and distribution infrastructure; and

· K336.3 billion for the rural electrification programme.

The Government expects approximately 90,000 jobs to be created on account of these interventions.

Transport and Communication

The Government has reaffirmed its commitment to reduce the cost of doing business through, among others, transport infrastructure improvement. Government’s objective is to ensure that all provincial capitals and rural areas have accessibility to markets.

The following key initiatives have been undertaken by the Government:

· Link Zambia 8,000 project to result in over 8,000km of a road network over a five year period K billion has been allocated over three phases

· 2,000 km of township roads to be paved using labour- initiative and environmental friendly technology

· Termination of concession agreement of the Railway Systems of Zambia and Government proposes to allocate K642.6 billion to revamp the sector.

· US$430 million of the Eurobond proceeds have been allocated to road and rail transport

Monetary and Financial

Despite unfavorable global economic conditions Government believes performance of the domestic economy has been satisfactory. Government monetary policy targets to stay this course and:

· Achieve real GDP growth of above 7 percent;

· Achieve year end inflation of no more than 6 percent;

· Achieve domestic revenue of at least 20 percent of GDP;

· Limit the overall fiscal deficit to 4.3 percent of GDP, of which domestic borrowing will be 1.5 percent;

· Maintain gross international reserves of at least four months of import cover; and

· Maintain a flexible foreign exchange climate that espouses limited Bank of Zambia interventions to curb volatility. Other notable decisions undertaken in 2012 to facilitate Government macroeconomic policy implementation in 2013 are as follows:

· Rebase the Zambian Kwacha from January 2013 for the purpose of simplifying financial transactions;

· Increase commercial bank’s minimum aggregate capital from the current ZK12 billion to ZK104 billion for locally owned banks and to ZK520 billion for foreign owned banks. This is intended to enhance commercial banks’ capacity and promote the financial services sector;

· Introduction of a policy rate to signal the Bank of Zambia’s monetary policy stance and to provide financial markets with a credible and stable anchor for setting of interest rates;

· Removal of tax on interest earned by individuals from savings and deposit accounts;

· Removal of medical levy currently charged on interest earned on savings and deposit accounts, treasury bills, government bonds and other similar financial instruments;

· Statutory requirement for all local transactions to be effected in Zambian Kwacha; and

· Statutory guidelines to address large disparities between buying and selling foreign exchange rates levied by authorized foreign exchange dealers.

Health

A total of K3.6 trillion representing 11.3% of the total budget has been allocated towards the health sector. This is 40.% over the 2012 allocation. The focus in the health sector has been highlighted as follows:

· Improving service delivery especially in rural areas;

· Scaling up of the provision of essential drugs and medical equipment and other supplies; and

· Upgrading all hospitals commencing with the three referral hospitals.

Empowerment Funds

K103.9 billion has been allocated for the purpose of empowerment of entrepreneurs, with women and the youth the primary focus. This compares with K40 billion allocated in 2012

Kampamba Shula

Pages

Thursday, October 25, 2012