The book with ideas that change everything

The Greater Poverty & Wealth of Nations


Economics - Business - Finance

The Greater Poverty and Wealth of Nations is a deeper look into the operational sturcture of economics and the diverse principles arising from economic thought. It evaluates the cognitive processes by which money and transactions take place to determine how productivity, cost and profit should synergise  to  meet the objectives of business. Link 

ISBN: 978-9982-22-076-7

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Prophecy and the Future of Mankind PART II of IV

Siize Punabantu

How scripture can be used to guide government

In Genesis humanity is taught scripture and introduced to God by the higher beings. The higher beings are humanity’s religious predecessors. They existed before creation and witnessed the creation of earth and mankind. Their civilisations predate that of mankind and from their own hardships and sacrifices they have come to learn the most important principles of existence which they share with humanity in Genesis. They worshipped God before humanity existed.

A common mistake when it comes to theology is the belief that when God created the universe in Genesis what is witnessed is simply creation. It is much more than this. In fact Genesis is not just teaching mankind about humanity’s origins and creation; it is teaching humanity about God’s religion and recommended method of government. The higher beings in Genesis are guided by a fundamental law and constitution that is representative of the will of God or the throne; and the fundamental basis of this law is genuine equality. The fact that the higher beings come from a civilisation that precedes and was able to observe the creation of man and the earth is a clear indication that their civilisation is far more advanced than that of humanity. This alludes to the fact that advancements in knowledge, science and technology of this civilisation, which will be far greater than humanity’s, have not reduced their faith in God and religion. Humanity with an infant civilisation often attempts to use its meagre knowledge to dismiss the existence of God yet here are higher beings introduced to mankind in scripture that worship God, yet are of a civilisation with wisdom and knowledge that by far surpasses that of humanity. Genesis explains that it is on the basis of their faith in God that humanity enjoys a peaceful existence free from the dangers of external interference from some unscrupulous higher beings. 

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Prophecy and the Future of Mankind PART I

Siize Punabantu

Humanity can be said to inhabit two worlds. The scientific world where everything is rational, explained and quantified. There is also the spiritual world where God and faith are quantified through emotions and experiences that cannot be quantified in the scientific world and are therefore considered removed from scientific reality.[1] Prophecy fits into this category.

There appears to be an innate human psychological need to comprehend or understand the extent or finiteness of its own existence – to discern a beginning and an end, an Alpha and Omega. Whether this end is discerned by scientific methods such as the life span of the sun in our solar system, the occasional asteroid scraping past earth’s atmosphere or a meteor that poses a threat to modern civilisation. Recently we heard “an asteroid bigger than an aircraft carrier will dart between the earth and moon on Tuesday — the closest encounter by such a huge rock in 35 years.”[2] Euronews further reported that “Up to 400 people have been injured after a meteor exploded over Chelyabinsk in central Russia.”[3] There have been many headlines in various media concerning predictions about “the end of the world”. Before and after the Millennium many feared dates have come and gone without much ado.[4] Harold Camping (Wiki 2013) predicted that October 21^st, 2011, would see the final destruction of the world. Some people believed the world would end in 2012 according to the Mayan calendar.  These days came and went. Clearly the “Apocalypse” has a mind of its own and it’s easy to see why people can become cynical about inaccurate end time predictions.

Let us see if we can use analysis to put to rest the ambiguity surrounding two religious periods that are important to those who believe in God and are members of the Abrahamic religions; namely the Apocalypse and the Second Coming. To work more effectively let us for a moment suspend disbelief for nay sayers and give credence to the hitherto unexplained ability of some individuals in history to accurately prophecy or see the future.....

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World Without End

"You are Peter, and on this rock I will build my Church, and the gates of hell will not prevail against it" (Matt. 16:18).

A papal conclave is a meeting of the College of Cardinals convened to elect a new Bishop of Rome, also known as the Pope. Called to defend the faith, which is to tend to the poor, marginalised and disadvantaged, guide the human spirit toward God, to bring an end to discrimination and defend humanity to the breath.

A Few Words

Debate Night - USA

A Few Words

 

Righteousness is a fragile thing. Like a flower it is easily broken and easily harmed. Handle it with care, respect it's timidity, accommodate it's little faults and one day it will surprise even you.

Siize Gabriel Punabantu (SGP)

The sun does not rise in the east and set in the west. Note, t'is the earth that circles the sun and not the sun which circles the earth.

The Three Jewels

Remember, without the humble there can be no mighty, Without the foundations there can be no higher place. Kings call themselves the lonely ones, by this humility they actually become the highest.

The Tao Te Ching

To be successful is to be on the path to defeat,

To be like jade   is very rare and thus important,

Whereas to be like everyone else is to be like sand - common.

The Tao Te Ching

Whilst people think that you are a failure "let yourself fail still". Whilst they think that you have nothing "let them think that you have nothing still" They know not what it is to fail and they know not what it is to have nothing. Whilst they think you are "this or that" let them think still , for the destinies of those who strive are not governed by thought.

SGP

Only by two edges striving to unite does a blade become sharp. If you cling to one you love and she to you there is nothing you both cannot cut down.

SGP

Remember systems have no place and no time.

They are not upheld by what people will think or what people will say - they simply exist. You exist by that which purifies your heart and opens your eyes to what you must perceive.

Should your system, that keeps your feet on the road by which you may achieve self reconciliation, cease to exist, you will have lost your way.

SGP

"Imagination is more important than knowledge"

Einstein

"Imagination governs the world"

Disraeli

" Imagination makes man the master of animals"

Shakespeare

Positive creativity is superior to imagination.

SGP

A person who has had to pick himself or herself up from the disappointments and difficulties of life has learned a valuable lesson. Nothing deters him or her. Nothing frustrates. Nothing upsets. He or she has travelled that course before and knows the answer and is persistent.."What does not kill us makes us only stronger"

SGP

Persistence produces power and the ability to observe, analyse and reanalyse a position or opposition until the problem gives way. In fact persistence will make a problem crumble even when no actual solution was found.

SGP

The mind can be motivated by any object simply by the guidance of one's philosophy. Even a plain brick can become a source of motivation, because even a brick desires to become something of worth. In an architects hand a brick can become what it desires moulded by it's philosophy - architecture. In order to become successful you must move from a lazy to a systematic person. When it is time to get up no matter how tired you are you must get up. When it is time to walk no matter how exhausted you are you must walk. People do not make systems. Systems make people. This is the only way you can become what you want to be.

SGP

  

Those who achieve by a burning desire to achieve are fortunate. A burning desire is burning something up and eventually that something will run out. And when it runs out you will no loner have any motivation. You will have no motivation but be left exhausted with only the will to go on. This is a higher stage, for from here onward you will learn to run on simply will power alone.

SGP

The path in life one takes will not always yield that which you desire. There are hills to level, crooked roads to make straight before your objective can become visible in the distance. Every moment, every second is a precious thing waiting to be shaped and moulded by what you make of it. What you do with a second determines what you make of a minute. What you make of a minute determines what you make of an hour. What you forge of the hour determines what you seize of the day.

SGP

Better to die trying,

Than to try dying,

And to die - without having tried.

SGP

Sometimes you must come down in order to climb up. Sometimes you must walk away in order to come round. Whichever direction you are pushed in never cease to keep your head facing where you want to go and as soon as circumstance blinks - charge for your goal.

SGP

"Great minds have purposes, others have wishes. Little minds attain and yet are subdued by misfortunes, but great minds rise above them"

Washington Irving

Strange what some men dedicate seven

days a week of their life to.

SGP

Inspiration requires expiration. As long as

you breathe, you're still alive.

SGP

Learn to run on will power. Will power is the driving force of all great things. Whilst all else will crumble your will power will survive and like a vessel carry you to peace and to safety.

SGP

Knowledge is fire. It burns during recognition. To breathe is to burn. There cannot be life without breath.

SGP

Physical structures such as the body’s emotional metabolism can do two things, either attract or repulse. When forces are parallel it attracts, when forces are unaligned it repulses. Which object moves depends on which object is tethered, the source of emotion or the object of emotion. When both are tethered the attraction remains strong, the proximity however remains the same. Often it is like this for things we desire or love but cannot have.

SGP

When faced with important decisions emotions such as guilt, fear, jealousy, malice hatred or envy sap your strength and hinder your ability to see objects of sense clearly and as they should be- in their correct proportions. The self as a decision making organism must not be hindered by such sentiments. Regardless of ones disposition they will weigh themselves upon your mind or body. The degree to which they are felt is determined entirely by the situation when not distorted by your emotions.

SGP

Moral judgement is determined by reactions not actions. You are taught to turn the other cheek, for a person by his or her action must react first by judging the worth of that action. Justice and impunity are of no worth to the oppressed unless rebuked by the oppressor. Pushed into a corner, at the very last, you will be willing to redeem your position. Therefore no matter your difficulty hold your ground.

SGP

How to end a You go first Recession

In this cartoon we see three silhouettes that consist of a lady, a little boy and a gentleman. The lady represents aggregate demand in a national economy and the gentleman represents money supply, the child's identity at this stage is made ambiguous by remaining silent and staying out of the conversation. There is a clearly an argument between the lady and the gentleman over who should go first. 

The argument represents the relationship between the expectations of the suppliers of goods and services in an economy, including banks. Loans can be regarded as a product, just like any other on the shelf such as shoes, a phone, electricity, rice or a bag of mealie-meal. Suppliers want assurances that if they produce and keep goods and services on shelves consumers will have the money to buy them. This is a fundamental psychological need of a supplier of any good or service that relies on profitability. A central bank (CB) on the other hand wants guarantees that if it increases money supply, this supply will be backed by goods and services thereby restraining inflation. This is a psychological need of monetary policy. The best stimulant a central bank can use to solve this psychological crisis is the financing of consumer-labour as an asset or economic policy instrument. Financing consumer-labour gives everyone in the economy, including banks, the confidence that loans issued will be repaid since credit is just a product, therefore, it relies on effective demand. Financing consumer labour is appropriate in that it allows the creation of money without the artificial creation of nonredeemable debt. For instance a consumer may be unable to afford a house as a lump sum payment, but if banks know consumers have a steady and guaranteed source of monthly income backed by the CB they will be willing to provide mortgages. Consumer labour can be an asset and an important central bank tool or instrument for managing confidence; if nonredeemable debt where surgically removed from the the recession of 2008 which was triggered by sub-prime mortgages and loss of confidence in the sustainability of effective demand, there would have been no recession to speak of.

The argument in the cartoon between the lady and the gentleman represents the real financial constraints and stagnation created by uncertainty in the national economy. This uncertainty is created by the fears inherent in aggregate suppliers seeking profitability and CBs seeking financial system stability. This uncertainty can make suppliers under-produce and under-employ while it causes paralysis or inaction in the CB as it becomes too inherently fearful to use strong, sustained and consistent quantitative easing (QE) to get the economy out of the crisis. This creates the kind of unemployment and economic stagnation seen in regions such as the European Union (EU) when traditional monetary policy tools are insufficient to move an economy out of stagnation. It is the kind of paralysis the US Federal Reserve recently shook off when it introduced a bolder, more defined and sustained QE3. Since we know the capacity to supply is no longer a technological problem in today's world then inflation created by QE is temporary and healthy. This kind of inflation increases investment and productivity due to the fact that businesses see it as an opportunity to jump back into the market to gain some of those profits from competitors. A good example of this might be Japan Airlines (JAL). As more companies jump in to take advantage of higher prices supply increases which in the long run reduces inflation, at this point the economy has grown and is on track to recovery.  The real problem today is the frail post-industrial revolution psychology of suppliers, which makes them unnecessarily jittery. This persistent uneasiness in the psychology of suppliers makes them their own worst enemy as it causes underproduction which in turn shrinks the size of aggregate demand. Stock markets are no exception. The stock markets are also represented by the arguments made by lady in the cartoon, stocks, like loans, are just like any another product on the shelf people either want to buy or sell. As long as stock markets remain fearful they are eroding the value of shares. If for instance stock markets in the US don't respond positively to QE3 which is now a sustained monthly strategy, then poorly performing stock markets in the US are an indication that institutions managing shares may not be creating the value for their clients that they should be. Fear or uncertainty can no longer be used as an excuse as the US Federal Reserve has guaranteed there will be money in the economy and the job of stock brokers is to profit from it, if not they may not be fairly representing the clients whose shares they are trading as they are not transferring this current  and future or expected wealth and its gains to their individual and institutional client portfolios. This indicates an inherent problem in how stocks are currently being managed and traded. The business of stock markets is to create wealth, and if they fail to create wealth when its thrown at them as observed with QE3, then there is management crisis in the stock market itself, somebody somewhere in the stock market is not doing their job or playing their role appropriately and the entities who will suffer for it and pay the price are the clients they represent. The fear of long run inflation caused by QE is an old fashioned post-industrial revolution psychology as supply is no longer a technological bottleneck. The fear of debt created by easier access to loans due to the increased availability of money is not out of the CBs range of control and can be mitigated against when it is realised that money supply can also buy debt. This policy stance simply entails that the CB will not allow the structural economy to fail and this should increase confidence in long term stability.

In the final cartoon strip the child speaks for the first time. The child represents the health of the economy. It represents everyone, what makes what people do worthwhile or have some kind of purpose. When uncertainty between aggregate supply and money supply creates paralysis in a national economy the economic stagnation that results hurts people. People are at the core of everything an economy does, whether its shareholders, workers, households, the employed and unemployed. Though people can be difficult to read (as seen by the bubbles in the cartoon), in the sense that what people are thinking is not always obvious there comes a time when  aggregate suppliers, be they banks, stock markets, manufacturers, mining companies, shoe stores or supermarkets need to shake off the lack of confidence in order to capitalise on the power of certainty. In the cartoon the child wants to go home. This represents certainty and entails taking new loans, being more optimistic, expanding, giving workers or staff better and new perks, employing more people and improving sales so that everyone can go home, home being that place where there is comfort, confidence and everyone can feel at ease. 

In the last segment of the final cartoon strip, when the child speaks, we see that aggregate supply represented by the lady and money supply represented by the gentleman are actually husband and wife. This means that the economy is inherently more than a team, its more than just a relationship, its a commitment. Fundamentally economies are built on commitment, this is what makes them thrive and become prosperous. Everyone has to be in it and in it to win it together. Both aggregate suppliers and money supply cannot act in exclusivity, they need to commit to one another; if one moves the other needs to move in support. It is this syncopation that guarantees economic growth and stability as well the confidence required to sustain it. 

Positioning Governments for Success

Siize Punabantu

Watching athletes compete in the London Olympics puts on display breath-taking feats of human excellence and what can be achieved with adequate planning, training commitment and determination. The organisers of the Olympics and the athletes in London this year deserve kudos. They have come together to create what can be described as nothing less than one of the greatest shows on earth.

The way to a Great Republic or Banana Republic

Organisation is in itself a form of development and lessons can be learned from the Olympics that are applicable to politics. African governments can perform wonders and compete with any government in the world in terms of competence, efficiency, honesty and commitment to the people. A government has to make a choice, a choice it seems is the prerogative of Heads of State, about what kind of administration they will carry before them as the “Olympic torch” of politics lighting up the path they will take ahead. On the one hand is the treacherous but very real path taken by a pseudo Banana Republic where there is no structural distinction between political oversight and an independent professionally constituted civil service, where the state and its economy may slowly sink into an oblivion it is barely able to resist descent into, where very little works, white elephants are commissioned, electricity blackouts are the order of the day, works are shoddy, corruption is misunderstood, where political patronage is rewarded above performance and vague promises of a better plan for tomorrow which clearly can never be achieved are given to the public in the midst of a dysfunctional system. 

On the other hand there is the path of excellence of an Olympic or  Great Republic where there is a clear distinction between political oversight and an independent professionally constituted civil service effectively delivering on a future of promise, where politics is a diligent backstop, where service delivery is a well oiled machine, reward is based on delivery,  promotion is performance based, innovation a given and long words promising a better life need not be spoken as they are a reality in the organizational structure of government, an organisational structure designed to rarely fail, but perpetually succeed. It cannot be had both ways, a choice has to be made which path will be taken; the true path to governmental strength or the loose path where leaders continue to grapple with illusive development as a result of the organizational structure applied in government and the civil service remaining ambiguous. Even observations of these structures in developed countries show they may still be using archaic models impeding their capacity to evolve out of a post World War II model of government that presently may be stifling social and economic development in advanced countries. Unfortunately developing countries may tend to copy these models of government sometimes without due diligence that determines their effectiveness in modern day politics.

The world has changed and administrative structure of government needs to evolve with it to face the ever greater challenges in politics. In my humble understanding the Chief Executive Officer (CEO) of a Ministry or State Department is the Permanent Secretary/Director General and so on.  According to Wikipedia;

“The Permanent Secretary, in most departments officially titled the Permanent Under-secretary of State or PUS (although the full title is rarely used), is the most senior civil servant of a British Government ministry charged with running the department on a day-to-day basis. Permanent Secretaries (known by other names in some departments) are the non-political civil service heads (and "accounting officers") or chief executives of government departments, who generally hold their position for a number of years (thus "permanent") at a ministry as distinct from the changing political Secretaries of State [Minister of State] to whom they report and provide advice.”[1]

The Permanent Secretary/Director General as a CEO of a Ministry in this modern age cannot be expected to simply remain an “accounting officer.” This is post II World War ideology which is inadequate to handle modern day requirements of government. The CEO of a Ministry today by title and necessity needs to take responsibility for the executive management of Ministries/Government Departments. Wikipedia describes the role of the CEO as follows; 

“Typically, the CEO/MD has responsibilities as a communicator, decision maker, leader, manager and executor. The communicator role can involve the press and the rest of the outside world, as well as the organization's management and employees; the decision-making role involves high-level decisions about policy and strategy. As a leader, the CEO/MD advises the board of directors, motivates employees, and drives change within the organization. As a manager, the CEO/MD presides over the organization's day-to-day, month-to-month, and year-to-year operations.”[2]

The Permanent Secretary/Director General as a CEO of a Ministry/Government Department is entitled to be ultimately responsible for the professional, technocratic, strategic and operational efficiencies that determine the success or failure of a Ministry in the same way a CEO is responsible for the same in a private company. The position of CEO or MD[3] in an institution exists for a purpose. The CEO is expected to have the competences that drive the growth and effectiveness of an institution and is ultimately responsible for the qualitative and quantitative results responsible for discerning whether an institution is functional or dysfunctional. The CEO is the face of the organization, its voice, direction, driver and ultimately its presence in the community. Underplaying the role of a CEO may cause an organisation to slide into oblivion. The public, clients and consumers receive many of the fruits of a CEO’s labour, be it best practise, state of the art techniques and technologies, intuitive customer service and the enjoyment of products at a level where they could compete with any other respectable city or country in the world by management remaining abreast of the most recent trends. A CEO is not expected to shy away from the limelight or cower unseen in the dark shadows of an office or institution, he or she is expected to be at the front of an administration or administrative super-pack’ He or she  consistently examines those strengths, weaknesses opportunities and threats that are immediate, in the mid term and that may occur in the distant future and plan for them. The CEO represents everything the institution stands for and by being seen to be the primary driver and decision maker putting his or her career, ability, network and prowess on the line, in open daylight for the world to see is ready to accept the success or failure of the strategy he or she, as the trusted CEO, has tirelessly researched and chosen to commission, implement and champion through operations. His or her contract will either be renewed or discontinued on the basis of whether or not milestones are achieved. No country can make genuine progress without CEOs of Ministries/State Departments who are in their office to make a difference and leave a legacy of accomplishments meaningful to the public or their clients, their institution and to their profession.

Ministers and Deputy Ministers may have a similar attitude towards ensuring the Ministry accomplishes its milestones, but they are not the CEO of a Ministry/State Department. They occupy a more senior position. They are in a role similar to a member of a supervisory Board of Directors referred to in totality as Cabinet.  They were elected by the shareholders who in politics are the voters, who in turn represent the population, even those who were unable for some reason to cast a ballot. The presence of a Minister in a Ministry should never ever be confused with the executive administration of a Ministry that is the role of a Permanent Secretary/Director General and so on, basically the designated professional in a Ministry who is its titled CEO or Managing Director (MD). When this happens the tactical team is not properly constituted. Even the psychology that drives work in these positions will be misapplied as the Minister will be compelled to think and act as though he or she is the CEO and try to work as an implementer or as though part of operations while the CEO will shirk behind the Minister trying not to steal the limelight from him or her, yet know if anything goes wrong its fine because it’s the Minister who will take the heat; the Minister will be the one appearing on TV or other media to woefully defend some mistake, with an ashen face apologies for some faux pas or with stern face challenge everyone who refuses to implement a policy that went sour with the public, while the CEO of a Ministry who may have orchestrated the whole debacle breathes a sigh of relief for not being in the hot seat, meanwhile oversight will be fundamentally non-existent. This loose organizational structure may cause a country to slowly descend into chaos and dysfunction; yet it may be the commonplace method by which modern governments are organised.

The main cause of this problem is one concerning psychology. When a political party is voted into office it will often have done so based on policies it proposed and feel a strong sense of urgency to bring about and to be seen to bring about change in a country. In an effort to take action it will try to assume operational control of the civil service and parastatals in order to implement policy, assert political loyalty and most importantly to be seen by the electorate to be in charge. This is the first mistake any President and his or her government can make as in doing so it fails to distinguish between the role of politics and the civil service in government and development. It takes a certain level of awareness and control to resist the urgency to bring forth change and instead skill the purpose of politics into achieving meaningful results in government delivered by the civil service. Blurring the lines between these two distinct roles has dire consequences to the future development of nation.

  

Read on....

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[1] http://en.wikipedia.org/wiki/Permanent_Secretary

[2] http://en.wikipedia.org/wiki/Chief_executive_officer

[3] British English

[4] An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another's benefit. (http://legal-dictionary.thefreedictionary.com/fiduciary)

Currency Flow & FDI Reforms – A Quick Fix for Global Recession?

Siize Punabantu

Natural resources are useful to an economy, however, the strength of an economy today is determined by how effectively it applies its finance to compliment investments in productivity. For natural resources to fully benefit a country the financial policy and system in place that finances the exploitation of natural resources has to be strategic. All productivity, endeavour and natural resource wealth gains meaning only in terms of how it is interpreted and backed by finance and money flows.  Domestic currencies operate in a currency system that renders them meaningless unless they are defined or quantified by hard currencies. Developing countries like Zambia must begin to strategically prioritise how foreign exchange flows back to the domestic economy and how domestic and international money markets finance local investment. At present foreign exchange flows from Zambian exports have to be the main focus of policy reform as a means of turning the economy around and moving it toward full employment.

The majority of mining countries are revising their mining codes to increase revenues through increased royalties. Ghana, for example,  revised its royalty rate from 3% to 5% in 2010. Governments, like that of Ghana, may generally be focusing on royalties and other levies on extractive industries as a means of improving their economies and the lives of their people. However, a time must come when governments, most notably in Africa, realise they are not focusing on the primary driver of economic development due to them from FDI, namely the foreign exchange earnings from total revenue held abroad that do not circulate back to the original domestic economy from where they were spawned. By remaining too focused on royalties and other third party gains policy makers in developing countries may continue to remain oblivious to the more important contractual obligation they need to secure from FDI which will be elaborated on here.

The meaning of a free market for foreign exchange

When a country has in place a liberal foreign exchange system, as is the case with Zambia, it entails that businesses, foreign nationals and citizens are free to exchange local currency with any useful foreign currency at will through a bank or bureau de change. The fact that the Central Bank requires businesses and people in general to, as a rule, trade and quote their goods and services in local currency does not infringe on their right to hold forex businesses and individuals may have in a liberal foreign exchange system. It is erroneous to assume limiting local pricing and transactions to the use of kwacha goes against a free market environment where forex is concerned, this would only be true if the Ministry of Finance and Bank of Zambia placed restrictions on currency exchange or conversion and imposed a fixed exchange rate; any other interpretation may only be misconstrued. As long as the exchange rate is driven by market forces (demand and supply), businesses and people are at liberty to convert local currency into any other useful currency and to remit their forex earnings within the regulatory system through legitimate banking and financial system channels whether they are a foreign or local company; the forex market is liberal. What “kwacharisation” of the domestic economy avoids is undermining the kwacha by voiding it in preference for alternative currencies even where transactions are taking place in a jurisdiction where the Zambian kwacha is the official currency. Furthermore, exports and goods in general are quoted in kwacha so as to make them appear cheaper to people importing goods from Zambia in order to increase demand and generate better forex inflows which was the purpose of IMF restructuring in he 1990s that led to the devaluation of the kwacha. Without these policies there would be an artificial reduction in demand for kwacha encouraging depreciation; furthermore without the Ministry of Finance having a policy in place the economy may be compromised as it will essentially promote a parallel or black market for foreign exchange which may be exchanged outside conventional statutory institutions such as banks and bureau de change or worse still it may be smuggled out of the country to take advantage of lucrative black market exchange rates abroad. This creates artificial forex leakages from the economy as well as inflation as there will be more kwacha chasing fewer dollars. It may be advantageous for businesses to want the freedom to use forex in parallel markets, however, it may be injurious to the formal economy and formal market. This may not make economic sense, unless the definition of a liberal, forex exchange system driven by a free market has been changed to include or legitimise the trade of foreign exchange in parallel markets that facilitate the access to more lucrative exchange rates on an illegal forex black market. This would be like saying the cooking oil market in Zambia is free and liberal therefore the Ministry of Health should not interfere with people illegally selling transformer oil as edible cooking oil to the public. Even liberal free market mechanisms have basic rules and regulations that enhance the purpose and objectives of free systems.

The Alternative to Windfall Taxes on Mines:

Stale money may be a major contributor to global recession

Governments in developing and developed countries may need to be savvier about how the unwritten rules in global financial systems work. The windfall tax debate has been going on in Zambia for some time; these taxes appear unfeasible at present as they may injure the profitability of a capital intensive mining sector the economy is heavily dependent on. If the mines suffer so does the economy. Developing economies as host countries of FDI need to comprehend the fact that foreign exchange held by an FDI company abroad may be owned by the company but as long as it remains outside Zambia it does not improve the domestic financial sector of the host country which is injurious to its economic health. Developed countries which tend to be the parent countries of companies engaged in FDI also need to comprehend that when these companies do not channel the total revenue earned from exports back through the domestic financial system of the countries they invest in it has the opposite of a multiplier effect in that it contracts growth in these countries which contributes to a fall in demand for capital and consumer goods produced in developed countries effectively causing a global economic slow down. The paradox is that this very serious dilemma will occur despite the fact that global FDI is performing well, generating billions in dollar revenues reflected in healthy balance sheets of mining companies, manufacturers, tourism and other service industries in the export sector. The mines in Zambia generate as much as US$8 billion or more in hard currency revenues per annum yet the country still struggles to develop due to the fact that the Zambian economy has yet to recognise there is a very serious loss of development when these funds do circulate through the domestic banking and financial services sector – later in this paper the analogy of a vehicle will be used to illustrate this problem.  There are more strategic approaches the mines and governments can use to remedy this problem that can be mutually beneficial for countries like Zambia..

The trend for a long time now has been to call for value addition to enhance raw materials mined in Zambia. However, value addition does not just apply to the production of goods in an economy; it can also apply to how money is used. When minerals or other non-traditional goods and services such as tourism are exported from a developing country and the payments for these exports are not even registered in the local financial system and economy by passing through it this money becomes “stale” as there is no financial value addition to its use. It’s like buying a fancy, shiny brand new vehicle being sold by a dealership with the contractual obligation the buyer can never park it at or drive it to his or her home – clearly the value of the car drops psychologically, materially and financially as it lacks complete usefulness to both supplier and buyer regardless of how attractive it seems – how many people will benefit from buying this car and if they did what would the resale value be with this caveat? Stop and think as an executive how useful would your vehicle for personal use be to you, whether you own it or if it’s a company vehicle, if you were not allowed to drive the vehicle to your home or park it there? It’s the same concept with the earnings from exports from mining, tourism and so on that never actually flow into the Zambian economy; this problem is difficult to see due to the fact that it has nothing to do with Zambia owning those earnings which remain the property of the mining companies but it has everything to do with those earnings simply being able to “park in” and “pass or flow through” the domestic economy that created them. Zambia’s earnings from high quality minerals, its scenic beauty, wildlife, creatively produced goods for export are this exceptional and shiny vehicle. However, what use are all these attributes if the vehicle’s use has the severe limitation described above and what use are the gifts that Zambia has if it cannot fully benefit from them through inward total revenue currency flows? In this condition not only do revenues from exports lack productive usefulness for the host or exporting country, it also represents poorly leveraged revenues for the mining company and the parent country from which the foreign direct investment (FDI) originates. It is for this reason that many developing countries are blessed with natural resources but remain impoverished. This money, earned from minerals, for example, has limited usefulness to Zambia - the country exporting copper, and may lack usefulness to Canada and First Quantum due to the fact that it is earnings externalised without first driving domestic productivity. Consequently the mines though appearing profitable are hurting themselves as much as they are hurting the domestic economy they operate in and the global economy, but are unable to see this.

To turn this problem around the Ministry of Finance in partnership with the banking sector and the entire export sector needs to work towards every dollar for anything exported from Zambia for which a payment is made abroad in hard currency to ideally be deposited, replaced into or “repatriated” into the Zambian economy through the official domestic banking and financial services system before it is finally remitted to the parent company abroad. The hard currency earned from Zambian natural resources and non-traditional resources that are exported must first come to Zambia to maintain the domestic financial circulatory system by being deposited in the financial institutions of the domestic economy, once it has entered this pipeline the owner of this hard currency, be it the mines or a tour package operator are free to keep the hard currency in Zambia or remit 100% of their dividends to their headquarters abroad – after all its their money so they can do with it what they want, but, like the vehicle described earlier, it needs to first be able to circulate back into the Zambian domestic economy that generated it before it may once again return to financial markets abroad.

This sounds very simple but it is profoundly significant for four basic reasons; firstly the repatriation of hard currency from exports forces the hard currency to equate itself, so to speak, to the local currency not just in the domestic economy but in the international economy thereby creating equity for the kwacha simply by the direction in which it flows. This alignment between the kwacha and dollar is gained by the direction in which the forex flows, which is toward the kwacha (domestic market) before it flows back toward the dollar (international market).  Secondly the temporary money flows of hard currency back to the country of origin where exports where made reinforces or backs the strength of the domestic currency by virtue of the increased stock of hard currency to local currency in circulation at any given time. Thirdly, the domestic banking and financial services sector that receives this forex and, where requested, repatriates it to the exporter’s parent company are able to earn commissions for moving this money around and improve their earning potential by providing financial instruments and products to be invested in. This increases participation of local banks and other financial institutions in the Zambian economy bolstering their earnings. Fourthly, exporters like First Quantum may realise that if they are able to eventually delay the repatriation of their earnings for anywhere between a month to one year or longer to build the first pipeline cycle [for the sake of example] depending on capacity, the returns or interest they can earn on “queuing” or holding this money temporarily in Zambia offsets any minor losses they may incur as a result of the cost of forex earnings from exports returning to register as deposits in the Zambian economy through its domestic banking system. If this does not occur the financial system in Zambia, its capacity to stimulate growth and the function of treasury operations are not enhanced.

Another analogy that can be used is that forex from exports held abroad are like a highway; commuters are not interested in owning the highway they just want the permission and flexibility to drive on it. In other words the Zambian people and government are not interested in taking away any more than is due from the proceeds from export industries, they just want the benefits of it circulating domestically. Forex in this case is likened to blood flowing through a limb, if it does not flow back to Zambia , even temporarily so a pipeline or multiple piplines (streams) can be created, when copper is sold on the LME or tourism is exported but is perpetually maintained in accounts abroad and the Zambian economy dies slowly due to lack of forex and investment capital in its financial circulatory system, which lowers financial value addition creating a low utility value for its natural resources wealth. This in the long run leads to low employment of its human and capital resources, a major issue in Zambia today; the country may experience growth without job creation or no growth at all, have extensive mineral wealth yet remain impoverished as a consequence. A problem often referred to as the curse of natural resources. 

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