Presenter: Trevor Simumba, MD Sub-Saharan Consulting Group Zambia Limited

1. 2013 Zambia Alternative Mining Indaba “Our Minerals, Our Future! Putting People First!”17th – 19th July 2013, Fatmols lodge- Ndola Presenter: Trevor Simumba, MD Sub-Saharan Consulting Group Zambia Limited “Utilising Extractive Industry Revenues for sustained economic development” Sub-Saharan Consulting Group Research |Investment |Training | Consulting

2. Table of Contents Trevor Simumba, SSCG Zambia • Who are SSCG? • Sustainable Mining Industry • Diversification is a Challenge • Importance of Revenue management • Stabilisation Fund • Contact us

3. Inspiring Entrepreneurship, Fostering SMEs Development in Africa Trevor Simumba, SSCG Zambia

4. Overview – Who we are? Sub-Saharan Consulting Group (SSCG) • We are a UK based global management consulting firm that focuses at providing research intelligence, corporate services, business management solutions and advisory to organisations in Sub-Saharan Africa. • With extensive expertise in Africa – we provide expert knowledge, networks, advice and support to organisations wishing to engage in business activities in Africa. • Our regional subsidiaries and operation coverage in Nigeria, Zambia, Kenya, Uganda and Malawi allows us to work locally and close to business communities in Africa. • Our aims & objectives are to support SMEs development, foster innovative mind-set and promote the cause for entrepreneurship in Africa. • Leveraging on innovation, entrepreneurship, international experience, local knowledge and market intelligence, we provide advice on barriers, disseminate knowledge on the most pressing issues that affect businesses, investors, public organisations and entrepreneurs today, identify and present investment opportunities to investors to enhance sustainable economic and business growth in the African continent. Trevor Simumba, SSCG Zambia

5. Sustainable Mining Industry • Economic development is for people, that is, for citizens of that country. • With the discovery of new large deposits in Kansanshi, Lumwana, and recently Kalumbila - Zambia will remain a major international player in the mining sector for another 30 to 40 years. • If the benefits of economic growth fail to reach the majority, in the long run there is no development. • The industrial and SME sectors are one of the principal driving forces for economic growth and job creation Trevor Simumba, SSCG Zambia

6. Nations have to make difficult choices between investment and consumption. The policy stance, where the revenues derive from depletable natural resources, like, copper and accrue directly to Government, offer enormous challenges to policy makers, development practitioners and academics. In general, many countries seemingly are unable to manage such revenues in a sustainable manner and succumbing to pressures to embark on over expansionary fiscal programmes. Mining sector revival and high copper prices (though declining now) have contributed to a marked improvement in the trade balance and a steep appreciation of the currency. However, there is minimal impact on poverty reduction with rural poverty bearing the major brunt of the decline in people’s living standards. Depressingly Zambia is still highly dependent on copper exports Diversification is Still a Challenge Trevor Simumba, SSCG Zambia Page 6

7. Natural resources can be used to make the transformation from a low-value economy to one with a substantial labour- intensive manufacturing base. The failure of natural resource wealth to lead to the expected economic growth and development has been attributed to several factors, including: The so-called “Dutch Disease” — the syndrome of rising real exchange rates and wages driving out pre-existing export and import-competing industries; Rent-seeking (corruption) by elites and others that otherwise could put their energies into profit-making activities; Volatility of prices and the “asymmetry of adjustment” (it is easier to ramp up public expenditure than to wind it down again); Inflexibility in labour, product, and asset markets; and Tensions between resource-producing and non-resource producing regions within countries. However, there is minimal impact on poverty reduction with rural poverty bearing the major brunt of the decline in people’s living standards. Depressingly Zambia is still highly dependent on copper exports Diversification is Still a Challenge Trevor Simumba, SSCG Zambia Page 7

8. ‘I call petroleum the devil’s excrement. It brings trouble…waste, corruption, consumption, our public services falling apart, and debt, debt we shall have for years’ – Juan Perez Pablo Alfonso, the Co-Founder of OPEC (The Economist Magazine, May 22, 2003). Resources – A Curse or Blessing? Trevor Simumba, SSCG Zambia Page 8

9. The Government faces a number of challenges in revenue management and expenditure control, namely: Rising commodity prices means increased inflows of foreign exchange and tax revenue Massive exploration and development in new minerals like oil, gas, nickel and uranium where Zambia has little to no industry experience Growing dominance of multinational foreign firms, particularly, from India and China whose work culture is different from the traditional mine investors from Europe, South Africa and North America. National demands for greater domestic economic benefit (indigenous citizens’ economic empowerment) from resource exploitation: meeting aspirations without ‘killing the goose’. Growing Fiscal Decentralization and Revenue Influx at Sub national Level, i.e., at provincial and district level. BUT the capacity of government at this level to manage these resources is worryingly low. Importance of Revenue Management Trevor Simumba, SSCG Zambia Page 9

10. Botswana like Zambia was one of the poorest countries in the world at the time of its independence in 1966. It also relied on foreign grants (initially from Britain) for all its development spending and most of its recurrent budget. Today it’s a middle income economy Trevor Simumba, SSCG Zambia

11. Going Forward Windfall Revenues should be used in the following priority areas: Establish a Revenue Stabilisation Fund that will ensure that we stabilize revenue even when the cycle turns against us in a bust. Zambia should not repeat the mistake of 1973 when we spent at the wrong time instead of saving for a rainy day. This rainy day lasted for over 20 years and we are still paying the price today of our historical mistakes. 1 2 Setting up of a special National Equity Fund that will lend to citizens as defined in the CEEC Act at lower discounted interest rates. This should be targeted at the manufacturing, tourism, rural development, skills development and the commercial agricultural sectors. 3 Establishment of a Development Fund that would finance big infrastructure projects on a public-private partnership basis that would also receive money from donors. Establishment of a public service debt fund to reduce Government’s indebtedness to local suppliers of goods and services. This would free up a lot of money into the economy. 4 Trevor Simumba, SSCG Zambia

12. Thank you – You May Contact Us Where you can reach us Oxford Business Park, Oxford, OX4 2JZ, UK Po Box 33203, Lusaka, Zambia Tel: + 44 (0) 1865 589022 Mobile: +260 966754902 Email: tsimumba@gmail.com or info@s-scg.com Web: www.s-scg.com Nigeria: Nigeria@s-scg.com Zambia: Zambia@s-scg.com Malawi: Malawi@s-scg.com Uganda: Uganda@s-s-cg.com Trevor Simumba, SSCG Zambia Page 12

13. Key Recommendations, cont’d. 5 Rehabilitation and refinancing of all the public universities and upgrading of our technical vocational colleges to offer much needed training in skill areas where Zambia is lacking, particularly, in technical and scientific skills. Ensure adherence to investment licensing conditions by local and foreign investors. 6 7 Encourage the rehabilitation and expansion of energy, road, transport, and communications infrastructure to support investment in new areas of the country. Regional and local equity initiatives (e.g. regional funds) should be encouraged across the provinces. Such equity programmes should be created in parallel to the development and support of regional and local business angel networks as well as business incubators and industrial clusters 8 Trevor Simumba, SSCG Zambia