Lusaka: Zambia should balance collection of correct tax revenues from the mining sector without stifling the industry which is the country's economic lifeblood, says Swedish finance minister Anders Borg. And Borg says Zambia needs to build a strong and stable political environment to anchor long-term investors and not only rely on short-term investors seeking "cowboy" returns on their investments.
Meanwhile, Borg said the current problem facing the euro zone over its debt crisis was reminiscent of economic crises most African countries went through in the 1980s. Borg who visited Zambia last week said the country should maintain a robust mining sector with strong diversification into agriculture.
He said Zambia needed to start growing a strong manufacturing sector through economic zones to start adding value to the vast copper currently being produced. "You need to tax it mining sector so that you get revenues but you have to make a balance so that the mining sector is still remaining a strong industry," Borg said.
"You need to produce products here in Zambia and get them exported to other countries and obviously the key feature to reduce your poverty is to let agriculture grow. That is the main issue for any country. If productivity growth is strong in agriculture, the farmers will get some money and they will be able to invest it back and then you will have a broad-base for the market economy."
Borg, who said Swedish companies that were predominantly in South Africa had started looking inwards for investment opportunities as Zambia and sub-sahara continued to grow strongly, said there was need for the government to provide strong incentives in economic zones to allow foreign companies to start producing light manufacturing locally.
Sweden is renowned for strong manufacturing with some global brands like Ericsson, Scania, Volvo as well as mining input focused firms like Atlas Corpco and Sandvik as some of the most visible brands.
And Borg said the biggest challenge facing Africa was to continue with reforms to make their economies more open and at the same time improve governance systems to attract long-term investors.
"The more stability you have in the politics sector, the more reliability you have and the better the investors you will get," he said. "If you do a 15 per cent return on investment, you will double your money in five years but that will be the cowboy investors; the ones you want are those who will say they will invest four or five per cent on my money but I will be here for 50 years. It is not only about attracting short-term capital, but it is also to get the long-term reliability and then the political side of things."
Meanwhile, Borg said Africa needed to continue with reforms of improving public finance management to ensure it avoids the debt trap that had besieged mostly southern europe. "The crisis in Southern Europe is a major issue but let's remember that it is not a short-term crisis. Italy, Spain, Greece have over-regulated economies and productivity has been falling over the last 15 years," said Borg.
"This is what some African countries experienced in the 80s - slow growth, overregulated, overcontrolled, overtaxed and too little openness to markets. Europe needs to fix its house, we need to be competitive otherwise we will be an old museum for people going on vacation."
Borg said the economic growth prospects for Zambia and Africa remained positive premised on growing consumption incomes, growing populations and liberalisation processes."