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An Analysis of key proposals of the 2020 national budget policy proposals October 2019
Under the Zambian Constitution, it is a legal requirement that an annual National Budget be prepared by Treasury and be enacted into an appropriation ACT by Parliament. On the 27th September, 2019, Zambia’s Finance Minister Dr. Bwalya K. E Ngándu (MP) delivered to parliament the 2020 National budget proposals for consideration by the committee of supply on the estimates of revenue and expenditure for the financial year January to December 2020. Based on this presentation, WWF Zambia has studied the key content in all four parts of the budget speech (Part 1: Global and domestic developments; Part 2: Macro-economic policies, objectives & strategies; Part 3: The proposed 2020 Budget and Part 4: the conclusion).
In undertaking this analysis, WWF is of the understanding that the National budget is a financial expression of government policies and priorities. Its design, formulation, enactment, execution and oversight is of key importance to attaining our national Sustainable Development Goals ( SDG) as espoused in the 7NDP, in the medium term expenditure framework as well as the vision 2030. Finance and our natural resources on top of our labor, are the main inputs to achieve our SDG targets. Effective management of these resources as our “capital” will determine whether or not we can achieve the 7NDP and 2030 goals as a country. Given the reality of the fiscal constraints government faces, the way in which this budget will monetize and maximize the return on investment from natural assets beyond copper such as wildlife, water, land and forest, might put the country on a path of debt sustainability and economic recovery.
WWF provides in this brief, some reflections for consideration by the Expanded committee on Budget estimates for the fiscal year 2020 to support debates on the proposed budget on the floor of parliament at the enactment stage of the budget cycle. This analysis can also be applied to improve budget execution by technocrats in government ministries to ensure that selected activities are helping to address the sources and effects of climate change and also are bringing maximum momentum for economic recovery for the country. The paper is organized and structured in FOUR main parts as follows:
1) Introductory session
2) The Economic Context
3) WWF observations: implications of the 2020 National Budget
3.1 Macro Economic issues
3.2 Addressing the impacts of Climate change on energy and food security
3.3 Analysis of 2020 budget allocations proposed to the environment sector
3.4 Analysis of climate change impacts on key environmental sectors driving the economy - water, tourism and wildlife
2.0 THE ECONOMIC CONTEXT
Whilst there has been an over-dependence on mineral resources to drive our economy over the years, WWF is of the opinion that the country’s overall natural capital role in supporting key economic activities has not been fully optimized to support our sustainable developed agenda since independence. For the country to be able to fully leverage its entire basket of resources its endowed with to respond to the aspirations of its people, the economic, social and environmental value and markets for our forests, water, land and other natural resources need to be better understood and developed. We need a shift of mindset in government to one that that computes and acknowledges the full value of these resources and relates it our annual national budget. The natural capital assessment work undertaken by the Ministry of National planning, is a step in the right direction. Natural capital valuations will ensure that we as a country can take steps that can generate the meaningful and sustainable incomes for the Zambian people and the country at large from its natural resources. The country should then develop measures to address threats faced by this resources and guidelines for sustainable use and management of these resources to meet the needs of current and future generations to prosper.
3.0 WWF OBSERVATIONS AND IMPLICATIONS OF THE 2020 BUDGET PRESENTATION
3.1 MACRO- ECONOMIC ISSUES: GROWTH AND EXTERNAL DEVELOPMENTS
With Zambia expected to record a below target growth rate of 2% in fiscal year 2019, WWF acknowledges that this is due amongst several factors to the challenging global and national economic context the country faces. Despite these challenges, its important for the country’s 2020 proposed macro-economic policies focus to go beyond dismantling domestic debt but steer and open more channels to enhance productivity and achieve higher levels of growth especially in sectors such as tourism, food processing and manufacturing performing below potential.
This is in the view of the need to create opportunities for the Zambia people to exit poverty conditions and also for the government to create a strong revenue base to fulfill its collossal debt obligations. WWF is of the view that that despite the projected slower growth in FY 19, the FY 20 target of 4% growth rate or more should be what the country should aim for. However, WWF’s concern is that the finance minister didn’t elaborate on the targeted strategic sectors the growth will be derived from to help reach the 4% goal. Given the fall in copper prices by about 9.4% compared to the same period in 2018, the budget speech missed a big opportunity to be directional in elaborating on economic sectors where efforts to drive growth and diversify the economy would be deepened.
Further, for the country to increase its capacity to meet its foreign obligations denominated in foreign currency, the 2020 budget should have launch the country on an economic path of strengthening its capacity to earn foreign exchange, away from copper dependence. Key investments in sectors such as tourism, manufacturing and enhanced efforts for value addition to copper and other minerals if targeted would provide other revenue streams for the country and thus broaden the fiscal base for the country. WWF believes that while service sectors offer great potential to improve the capacity of revenue generation, the 2020 National Budget speech does not clearly indicate the performance of the tourism sector in the first half of 2019 and therefore makes it difficult to determine how its forex generating potential will be leverage and how its performance in year 2020 will be measured against growth or revenue targets.
3.2 ADDRESSING THE IMPACTS OF CLIMATE CHANGE ON ENERGY AND FOOD SECURITY
According to the USDA report, the 2019 drought in the southern part of Zambia was the driest rainy season Zambia has experienced since 1981 with implications for food and energy security. The 2018/2019 rain volume was insufficient to recharge the Kariba reservoir and its current water levels are the lowest since July 1996, directly negatively impacting power generation. In addition, evidence of crop failure and hunger exists in the main food production regions of the country. In view of the serious impacts of drought on food production and hydro power generation, the budget speech missed an opportunity to elaborate bold measures and investments the GRZ will put in place promote alternative sources of energy for the country for the medium and long term.
● Government needs to shift its overdependence on hydropower and charcoal for energy to a more sustainable mix of renewable technologies, primarily solar and wind. One of the key Government’s role in this regard should be to offer incentives for technologies and investments into alternative power generation initiatives that support the shift to ensure that climate change contributing factors are mitigated.
● A recent study by WWF provides evidence of the plummeting price of solar installations globally, and how the reduced investment risks and increasing bankability levels for solar installations are now a strong contender.
● Solar projects are also better positioned to attract funding compared to large hydro infrastructure projects, which often have to be accompanied by large government subsidies, translating into a public tax burden, in order for them to be viable at all. Government can expand electricity generation to ensure access for all, while drastically reducing greenhouse gas emissions and protecting ecosystems, especially healthy protected water resources.
● While the support going to farmers affected by drought will help, it’s not adequate, the budget speech missed the opportunity to address and reform the organization of the food system in line with the realities of climate change.
It is also the view of WWF, that the country needs to develop well -tailored, home grown solutions that will respond to the above economic context and build the necessary resilience to stimulate sustainable growth of our nature based economy.
WWF is of the opinion that the country’s biodiversity offers a good bedrock for supporting key economic activities and adapting to climate change. As such, WWF sees clear opportunities in the 2020 National budget to streamline spending to key areas that will unlock these potential areas.
3.3 ANALYSIS OF ALLOCATIONS PROPOSED TO THE ENVIRONMENTAL PROTECTION IN THE 2020 BUDGET
The 2020 National Budget proposes to allocate 0.6% of the budget to environmental protection. Given the fact that Government recognizes the significant challenges that climate change presents, WWF is of the considered view that:
1. Funding levels: The current allocation of 0.6% of the proposed budget is inadequate and will not deliver clear targets on environmental protection given threats to its core assets such a water, wildlife and forests. WWF further notes that there is a reduction in actual allocation from 1% in 2019 to 0.6% in 2020 on the environment sector. The reduction is not justified given the severe impacts of climate change being experienced. This reduction is not in good faith because despite nationally recognizing the negative impacts of environmental and climate change related degradation. This trend is misaligned to the current presidential directive to urgently address environmental degradation, the 2020 national budget has reduced its overall allocation to the sector amidst the our natural resources sector experiencing a number of challenges. WWF is concerned that much of the financing to the environment sector in Zambia is from official development assistance from bilateral partners and accounts for over 70%. This picture presents significant risks should donors pull out of financing major environmental projects.
2. Zambia’s continues to face a number of environmental related problems such as repeated cholera outbreaks in identified hotspots around the country, poor sanitation, accelerated illegal logging for high value timber species, high deforestation rates, high wildlife crime incidence and poor harvest in some parts of the country.
3. Without national protection and better management of our water and forest resources in the long term, our energy and food security as a country remains at risk. It is important to understand that long term impacts may be very challenging to achieve given the fact that most donor investments responding to these challenges are short term in nature which provide short to medium term gains. As such a clear annual investment framework to the environment sector should be considered around which a government and private sector long term financing mechanism can be underpinned to achieve sustainability
4. Although government has proposed an increase on carbon tax by 20%, these funds are not ring fenced to support environmental protection programmes but are largely deposited into the government mainstream account (control 99). This means that all funds collected under this tax type do not necessarily contribute towards environmental protection.
5. The removal of duty on gas stoves is commendable, however it should be noted that this measure as a single strategy may not create the anticipated impact. The measure must be co-implemented with public awareness strategies and establishing a gas dealership mechanism to ensure that gas stoves are accessible and affordable to the most vulnerable of communities in far flung areas. It should be noted that forests currently, that meets the energy needs the rural and most urban households and at the same time provides a livelihood option to many. As such it is the view of WWF that a clear focus be given to address the unsustainable charcoal production ensuring effective regulation of the charcoal sub sector in the country which is a key driver for climate change.
6. Currently there are challenges in governance of the Community Resource Boards. WWF is concerned about the non-remittance of revenue to the 39 CRBs for over one year. This undermines the role of communities as frontline stewards of our precious natural resources. With the 0.6% allocation to the environment sector it is unlikely that these unremitted funds will be paid to the CRB associations.
3.4 ANALYSIS OF N THE PROPOSED 2020 ALLOCATIONS FOR THE WATER RESOURCES DEVELOPMENT AND TOURISM SECTORS
3.4.1 Water Resources Development & Management
Government has given a clear policy direction on water resources development and management as contain in the WRPA of 2011 and the 2019 Presidential state of the nation address. However, focus in the 2020 budget was around rehabilitation of dams across the country to ensure the availability of water. In the 2020 fiscal year, Government’s policy direction will be towards intensifying programmes aimed at preventing environmental degradation. In terms of energy, Government will focus on accelerating reforms that will ensure that the energy sector attains cost reflective tariffs to attract investment in various sources of power generation in addition to hydro-power. The diversification of the energy mix is in response to the challenge of climate change.
3.4.2 WWF response to policy direction for Water Resources Development and Energy: ● Water is at the center of both energy and food security of the country. It is also at the centre of climate change impacts and adaptation. Its important that as a first focus government moves to protect the resources of the remaining free flowing rivers as directed by the president in line with the WRPA act of 2011. Thus, we are pleased that the government intends to empower rural communities on better use and management of resources and adoption of climate resilient practices in several provinces. WWF recommends capacity building of structures such as Water User Associations, Sub-catchment and Catchment Councils in accordance with the Water Resources Management Act of 2011 and as planned in the 7NDP.
● Government should also work with financial institutions, the private sector, civil society, and scientists to catalyze rapid delivery of bankable, sustainable and inclusive approach to secure water supply and energy. These structures can also work with government to develop Water Development Funds aimed to support communities in progressing water related projects and initiatives, and in attracting bankable private sector investments towards viable and sustainable local catchment economies.
● Traditionally, freshwater resources have been valued primarily as water sources for cities, irrigation and hydropower but rivers provide a broader set of services, which deliver immense benefits to economies and people. To reinforce assurance of the availability of water, protecting key freshwater areas is key to preventing environmental degradation and assuring the continued provision of ecosystem goods and services such as water purification, groundwater recharge and fish productivity to provide essential nutrition for communities.
● Thus, Water Resource Protection Areas under the Water Resources Management Act of 2011 and the 7NDP is a great leverage point to help secure investments that develop our natural freshwater capital without compromising a sustainable development trajectory. With the aim of supporting government’s plans of protecting key water assets, several areas in Zambia have recently been identified by WARMA with the support of WWF and other stakeholders, as potential Water Resources Protection Areas under the Water Resources Management Act of 2011.
● While, the allocated budget may not be adequate to ensure that all the identified areas are protected to prevent environmental degradation, Government should prioritize the most important areas. In this regard, WWF makes the recommendation that the following areas be prioritized.
a) The Kabombo catchment and Barotse floodplain.
● Securing inflows into dams such as Kariba Dam, should be considered as part of the urgent water and energy security measures for the country by protecting the Kabompo catchment that feeds into `Kariba dam. ● WWF is committed to ensuring the Barotse plans are protected to secure water availability to support agriculture and fisheries livelihoods in western province, the flood is also an important stem that carries the rest of the Zambezi river including the Kafue flats, but has been affected drastically by climate change and other factors b) The Luangwa River and selected areas in the Luangwa catchment
● WWF has mapped highly sensitive to degradation areas in the country and Luangwa catchment is at high risk hence should be targeted for protection. The river plays a big role in supporting the countries multiple million wildlife tourism industry for the country
● The catchment is an essential source of water for adjacent populations (~1.8 million people reside in the Luangwa sub-basin), providing water for irrigated agriculture, household use and wildlife. ● WWF is committed to supporting GRZ ensure protection of Luangwa catchment to secure the benefits it provides to tourism and food security for the local area.
3.4.3 Policy Direction for the Tourism Sector in the 2020 Budget proposal
Government in 2020 intends to diversify the tourism sector and contribute to job creation. As such, a key focus will be around the northern circuit and facilitating the actualization of pledges in the sector made during the provincial investment expositions. A key strategy will be rehabilitation of roads to and within the tourist sites. Priority areas include: Lumangwe, Kalambo, and Kabwelume waterfalls as well as revamping tourism activities around the Samfya beach.
3.4.4 WWF response to the policy direction for tourism for 2020
General financing to the tourism sector is lower than the targets in the 7NDP for key programmes. Generally funding to the sector has remained low. In order to improve tourism, Government should increase public investments in: -
● Securing wildlife populations in terms of population sizes and diversity.
● Ensuring that national parks and GMAs have sufficient tourism facilities that are in good state such as all weather roads, serviceable airstrips, law enforcement and business communication infrastructure
● Facilitating growth of nature based domestic tourism, particularly among Zambians
● There have been challenges to increasing public investments for tourism. In particular, the Wildlife development fund is a critical mechanism for ensuring that the sector is supported to grow as provided in the Wildlife ACT of 2015. However this fund has remained un-operationalized by government, creating gaps in the plough back support that the sector needs to thrive. This is a low hanging fruit that parliament can support the executive to implement
● WWF is therefore of the considered view that the Minister of Tourism and the Minister of Finance coordinate to ensure that an SI is quickly developed and operationalized.
It is our view that government channels it allocations for the sector towards the following areas:
1. The recruitment of more wildlife police officers. Currently the country has about 1747 officers against a minimum requirement of about 4850 Wildlife police officers. With the reduction in funding toward environmental protection in the 2020 national budget, it is unlikely that government will recruit additional 1000 WPOs in 2020 as postulated in the 7NDP Implementation plan. In 2019, the government managed to recruit an additional 300 WPOs, but had to depend on cooperating partners to provide resources for training of the recruits.. This poses a risk to sustaining gains on staff gaps within the wildlife sub-sector of tourism.
2. Support to infrastructure improvement – currently most roads and bridges leading to and within the protected areas and tourism sites are in a deplorable state leading to most of the lodges and other tourism facilities being seasonal. Accessibility is a challenge especially during the rainy season
3. Funds should be channeled to the procurement of patrol equipment and communication facilities for Law enforcement and business in key national parks such as Kafue, Lochnivar, Blue lagoon, Sioma Ngwezi, South Luangwa, Lavushi Manda and Kasanka in order to make the scouts more effective in securing wildlife populations that are threatened by poaching for illegal game meat and trafficking of wildlife trophies.
4. More investments are required to promote and build a strong wildlife based economy which is anchored on community based natural resource management (CBNRM) models to ensure local communities actively participate in planning (including benefit sharing) for the sustainable use of natural resources in a given area. Government should with immediate effect make budgetary provisions for the disbursement of over K5.8 million owed to CRBS in unremitted trophy fees since 2016 and the 20% concession fees which has not been remitted to CRB since the transformation from ZAWA to DNPW in 2017
5. Increasing funding to DNPW to support operations to ensure that key areas around programme implementation can be fully rolled out in 2020. Funding to the department has been on a downward trend as seen from the 2018 to 2019 allocations (ZMW 46 million in 2018 and ZMW 25 million in 2019). The estimated amount needed for full DNPW operations stands at around K100 million per year. We are at pains to understand how Government expects to grow the sector when investment to the sector is declining with time
6. Consider fully developing a tourism growth model for the sector. It is estimated that in 2018 the DNPW generated about ZMW 50, 000,000 with constrained funding of less than 50% of its annual requirement to operate at full capacity. This is an indicator that with more investments the wildlife sector is likely to generate more revenues along-side other benefits such as employment creation, value chains etc. Zambia as a country boasts of huge untapped potential to generate even more from tourism sector with an increase in investment. Rwanda with only the Volcanoes National Park was able to generate USD19.2m only from Gorilla tourism alone in 2018.
7. Focus on restocking programmes as planned in the 7NDP, as a number of national parks have suboptimal populations of wildlife to secure tourism visitor satisfaction and sustainability of wildlife tourism. WWF expects Government to provide budget support for the restocking of Sioma Ngwezi, Lochinvar and Blue lagoon national parks where cooperating partners have led the way in investing in restocking. In addition, WWF would like to Government to restock at least 3 community game ranches/ conservancies in 2020.
8. Whilst we recognize that tourism is an economic driver, WWF is of the view that Government needs to invest in the necessary tourism products and infrastructure to meet client satisfaction and maximize each tourist that enters the country
3.4.5 WWF broad recommendations on the 2020 budget proposal
4.0 THE ECONOMY AND THE BUDGET
1. The thrust of the country’s macroeconomic policy framework should be to spur productivity in sectors such as agriculture and tourism which have higher impacts on poverty reduction efforts. A Key sector for investment should be tourism under the wildlife subsector. A key strategy in the 2020 national budget be channeling
funding to promote a wildlife based economy. In particular, the budget should support the establishment of community based wildlife small and medium enterprises. Government can “save” resources by implementing austerity measures in full. However, this will require fiscal discipline.
2. Government must enact the planning and budgeting ACT to support inclusiveness in national budgeting and ensure key priorities such as natural resource are fully represented during the planning process. Of specific interest would be to see community participating in conservation being given recognized spaces to participate in the national planning of the annual budget.
3. Government must address existing challenges around the revenue sharing ratios and non- remittance of funds to CRBs in hunting blocks.
WATER AS AN ECONOMIC PUBLIC GOOD
4. Government should urgently focus on investing in water resource protection areas particularly protection of headwaters to address the critical water and energy crisis that the country is facing. WWF recommends strongly that investments be made to protect the Kabompo catchment which is the headwaters for the Zambezi. 5. Water is not just a social good but an economic good and the promotion of this concept could unlock channels for revenue generation particularly from the private sector through more effective PPPs particularly for bigger industry players in agriculture, mining and manufacturing sectors. WWF is implementing a water stewardship programme in the Kafue which can provide a clear model of how government can implement such partnerships.
6. Governments should clearly develop incentives that promote large scale development and adoption of alternative energy solutions and consider the promotion of solar options to reduce dependency. Food system 7. Government should reform the food system in light of climate change invest more in conservation agriculture and climate smart agricultural strategies which should be clearly funded in the 2020 national budget. Government should support sustainable food production methods that also address food wastage and postharvest losses
WWF acknowledges the current economic challenges that the country is facing. Addressing these challenges requires a number of interventions that include steering
towards productivity in key sectors such as agriculture, tourism amongst others. A clear shift of mindset to full economic valuation of our natural resources will help the country maximize its gains and manage the shocks such as climate to build the resilience lacking for the economy and the population.. Fully addressing the water and energy crisis will be key in unlocking productivity in 2020 in order to attain the level of growth required. Protection of water resources and development of alternatives to charcoal should be on top of the government agenda. Reduced allocation to the environment sector for protection from 1% to 0.6% is misaligned with government priorities expressed in the state of the nation address, which budget enactment and implementation must endeavor to correct. It is therefore important that key recommendations expressed in this paper be considered by the committee.