2009 Budget Speech

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BUDGET ADDRESS BY H ONOURABLE DR . SITUMBEKO M USOKOTWANE , MP,M INISTER OF F INANCE AND NATIONAL P LANNING

DELIVERED TO THE NATIONAL ASSEMBLY ON F RIDAY , 30 TH J ANUARY , 2009

1. Mr. Speaker, I beg to move that

the House do now resolve into Committeeof Supply on the Estimates of Revenueand Expenditure for the year 1 st January2009 to 31 st December 2009 presented tothe National Assembly in January 2009.

2. Sir, I am the bearer of a messagefrom His Excellency the Presidentrecommending favourable considerationof the motion that I now lay on the Table.

3. Mr. Speaker, as I begin this budgetspeech, I wish to acknowledge themacroeconomic achievements thatZambia attained when the economy wasunder the stewardship of my predecessor,Honourable Ngandu Magande, MP. Iwould also like to pay tribute to the lateHonourable Emmanuel Kasonde, whotwice served as Minister of Finance, andlaid the foundation for the liberalisation of the Zambian economy.

4. Mr. Speaker, I present this budgetat a time of great uncertainty in the worldeconomy. The global economy is undersevere strain, with recession in severaladvanced economies, and significantlyslower growth in emerging countries.Recent developments in the mining sectorhave demonstrated that Zambia is alsovulnerable to this crisis. These eventshave had a significant influence on ourthinking, and therefore the preparation of this years budget.

5. Sir, despite these unprecedentedchallenges, my vision is that of aprosperous Zambia. I see a vibrant anddiversified economy where hard work andthe spirit of entrepreneurship are

rewarded. This economy will be one that

provides ample opportunity for everycitizen to realize their potential and fullyprovide for their families. I see all ourcitizens, in all corners of our country,waking up each morning well nourished,in decent housing, with access to cleanwater and sanitation. I see our citizenshaving paved roads that do not flood eachrainy season, reliable and renewableenergy, and high quality health andeducation services that are within easy

reach.6. Mr. Speaker, this is the vision of Zambia that I have as I present thisbudget.

7. Sir, in order to realise this vision,it is critical that we build on theachievements already registered undervarious economic diversificationprogrammes the Government has pursuedover the years. We cannot afford to slowdown on these programmes as the risks of dependency on the mining sector haveonce again come to the fore during thecurrent global economic crisis. Sir, ourcountry has abundant opportunities fordiversification, and it is time for us toaccelerate our efforts to harness them.

8. Sir, just as we expect citizens towork hard to drive our economy forward,they expect Government to play its role increating a conducive and competitiveenvironment for wealth creation andpoverty reduction in every part of ourcountry.

9. Mr. Speaker, in view of the urgentneed for accelerated diversification and


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enhanced competitiveness, the theme forthis years Budget is Enhancing growththrough competitiveness anddiversification.

10. Mr. Speaker, my address thisafternoon follows a slightly differentpattern from previous years in order tobring together Governments policyobjectives and budgetary allocations for2009. This will enable both HonourableMembers as well as the public at large tobetter appreciate the underlying rationalebehind this Budget.

11. This Budget address therefore

contains five parts. In Part I, I give anoverview of the performance of the globaleconomy during the past year. In Part II, Idiscuss developments in the Zambianeconomy during 2008. In Part III, I detailthe underlying policy measures that willguide the Budget. In part IV, I present the2009 Budget and supporting Policy,Expenditure and Revenue measures.Finally, in Part V, I conclude my address.

PART I

DEVELOPMENTS IN THEGLOBAL ECONOMY

12. Mr. Speaker, preliminary dataindicate that global economic growth in2008 slowed to 2.5 percent from 3.7percent in 2007. This was on account of the onset of recession in advancedeconomies in the last two quarters of theyear, triggered by the turbulence in thefinancial markets of these economies.

13. Sir, emerging economies such asBrazil, Russia, India, and China continuedto drive global growth in 2008. However,growth in these economies was

significantly dampened as a result of theglobal economic crisis.

14. Sir, Sub-Saharan Africas limitedintegration with the global financial

system saw the continent posting morerobust growth compared to advancedeconomies. Growth in the region wasprojected to be 5.4 percent compared withthe 1.3 percent growth recorded inadvanced economies.

15. Mr. Speaker, a significantconsequence of the global financial crisiswas the dramatic collapse of commodityprices in 2008. Oil prices, which reached

record highs of US$ 147 per barrel inJuly, fell significantly to US$ 48 perbarrel at the end of the year. Similarly,copper prices reached a record high of US$ 8,985 per tonne in July, beforeplummeting to US$ 2,902 by the close of the year, representing a 67.7 percent fall.Prices for other key commodities such asfertiliser also followed similar trendsduring the year.

16. Sir, on the inflationary front, fueland food prices were high in the first half of the year, contributing significantly toinflationary pressures around the World.These inflationary pressures were acutelyfelt in developing countries, includingsub-Saharan Africa where inflation rose to11.7 percent from 7.1 percent in 2007.However, by the close of the year,inflationary pressures began to subside,due to the significant shrinkage in globaldemand.

17. Mr. Speaker, these globaldevelopments had some negative effectson the domestic economy, adverselyaffecting growth, inflation, the exchangerate and the terms of trade.


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PART II

DEVELOPMENTS IN THEDOMESTIC ECONOMY IN 2008

M ACROECONOMIC P ERFORMANCE

18. Mr. Speaker, in order to reducepoverty, the Government targeted anaverage annual growth rate of 7 percentover the Fifth National Development Plan(FNDP) period. Over the period 2006-2008, real Gross Domestic Product (GDP)growth averaged 6.1 percent per annum,which while robust, was below the FNDPtarget.

19. Sir, macroeconomic performancein 2008 was weaker due to unprecedentedglobal and domestic events. As a result,growth was lower than projected, whilstinflation and interest rates were higher.Preliminary estimates indicate that theZambian economy grew by 5.8 percent in2008. This performance was mainlydriven by growth in the transport, storageand communication; mining;manufacturing; and trade sectors.However, this was lower than the 6.3percent achieved in 2007. The poorperformance of the agricultural sector, anda slowdown in the construction sectorcontributed to the lower than expectedgrowth.

20. Although the mining sectorregistered positive growth, it was affectedby a sharp fall in world copper prices inthe second half of the year, therebydampening the prospects of higher growthand profitability. The agriculture sector,which employs the largest share of ourworkforce, experienced negative growthon account of heavy rains that resulted inflooding in some areas, thereby destroying

crops. However Mr. Speaker, the countryrecorded a food surplus.

21. Mr. Speaker, Government policywith regard to inflation in 2008 and over

the FNDP period is to achieve and sustainsingle digit inflation. In the last threeyears, this has generally been achievedwith inflation outturns of 8.2 percent and8.9 percent, in 2006 and 2007,respectively. However, the pass-througheffects of high international oil and foodprices resulted in the inflation outturn for2008 being significantly higher at 16.6percent against the target of 7 percent.Food inflation in particular, accelerated to

20.5 percent compared with 5.9 percent in2007.

22. Sir, the exchange rate was alsoaffected by the effects of the globalfinancial crisis. This resulted in the sharpdepreciation and increased volatility of the exchange rate of the Kwacha,particularly in the last quarter of the year.The Kwacha depreciated by 27.3 percentagainst the US dollar to an average rate of K4,882 in December 2008 compared toK3,835 in December 2007. However, theKwacha appreciated by 6.3 percent and11.1 percent against the Pound Sterlingand South African Rand, respectively,reflecting their weakening against the USDollar.

23. Mr. Speaker, an importantmacroeconomic objective over the FNDPperiod has been to maintain a prudentfiscal policy. In spite of a number of challenges, both domestic and external, Iwish to report that the budget deficit for2008 was favourable and stood atK1,394.3 billion or 2.7 percent of GDP,and was below the projected deficit of 3.0percent.


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M ONETARY AND F INANCIALDEVELOPMENTS

24. Mr. Speaker, on the monetaryfront, broad money growth slowed down

to 22.1 percent in December 2008 from25.9 percent in December 2007. This wasa result of a slowing external sectorperformance, and a lower than expectedbuild up of international reserves.However, growth in credit to the privatesector in 2008 remained unchanged at 44percent.

25. Sir, interest rates on Governmentsecurities increased due to the inflationary

environment that prevailed for most of theyear. This was compounded by reduceddemand for Government securities as aresult of withdrawals, especially byforeign portfolio investors. The weightedaverage Treasury-bill interest rateincreased to an average of 17.2 percent inDecember 2008 from 12.9 percent inDecember 2007. Similarly, the interestrates on Government bonds rose, with thecomposite bond rate closing the year at anaverage of 16.7 percent from 15.6 percentin December 2007.

26. Sir, as a result, the averagecommercial bank lending rate increased inline with the increases observed inGovernment securities, rising to 26.9percent, from 24.4 percent in 2007.

27. Mr. Speaker, the performance of the equity market was also affected by theglobal financial crisis. The Lusaka Stock Exchange All Share Index declined by29.2 percent during the year. Despite thisdownturn, market capitalisation increasedby 13.9 percent to K20,468 billion,mainly on account of the initial publicoffering of Zanaco and Celtel shares. Sir,the listing of local companies on capital

markets is in line with Governmentspolicy of empowering Zambians to ownshares.

E XTERNAL SECTOR P ERFORMANCE

28. Mr. Speaker, the countrys balanceof payments position in 2008 wasadversely affected by the global economiccrisis. Growth in export receipts sloweddown significantly in the last quarter of the year. Total exports grew by 7.2percent, reaching US$ 4,818.3 million,compared to growth of 13 percent in2007. Imports increased significantly,growing by 29.7 percent to US$ 5,202.1

million. As a result, the current accountdeficit including capital grants widened toUS$ 1,379 million or 9.1 percent of GDPfrom a deficit of US$ 494.2 million or 2.4percent of GDP recorded in 2007.

29. Sir, metal export receipts wereUS$ 3,885.1 million in 2008, representinga growth of 5.9 percent from 2007. Non-traditional exports registered furthergrowth in 2008, growing by 12.9 percentto US$ 933.2 million. The share of non-traditional exports in total export receiptsgrew to 19.4 percent from 18.4 percent in2007.

30. Mr. Speaker, the Governmentcontinued with its commitment to prudentmanagement of its foreign debt. As aresult, the contracting of additionalforeign debt was contained withinsustainable levels. Preliminary estimatesindicate that the total stock of Government foreign debt as at end 2008was US$ 1,093.5 million, a marginalincrease of 3.7 percent from US$ 1,054.5million recorded at the end of 2007. Atotal of US$ 132 million in new loanswere contracted during 2008, withdisbursement commencing this year.


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BUDGET P ERFORMANCE IN 2008

31. Mr. Speaker, the overall objectiveof the Government in 2008 was to

continue consolidating fiscal discipline bymaintaining lower levels of borrowingand improving budget execution. Despitea number of challenges faced in budgetexecution during the year, overall budgetperformance was satisfactory.

32. Sir, the Government was facedwith a number of unexpected events suchas the larger than planned civil servicewage award, the need to hold the

Presidential elections, the need toaugment resources to the FertiliserSupport Programme in the face of recordhigh fertiliser prices, and the need tofinance the ZESCO power rehabilitationproject. These events exerted significantexpenditure pressures, requiring areallocation of resources to meet thesenew demands, while remaining within theplanned budget deficit.

33. Mr. Speaker, for the year 2008,total expenditures amounted to K13,402.6billion against the target of K13,761.4billion. On the other hand, total domesticrevenue collections and foreign grantreceipts, excluding revenues from the newmining tax regime, were K12,008.2billion, and were marginally below thetarget of K12,106.4 billion. The deficit of K1,394.3 billion was financed throughdomestic borrowing of K811.6 billion andforeign financing of K582.7 billion.

34. Mr. Speaker, domestic revenuecollections in 2008 amounted to K9,918.1billion. This was above the target of K9,828.5 billion and represented 18.5percent of GDP. Of this amount, taxrevenues amounted to K9,350.9 billion,

and were 2.4 percent above target. Non-tax revenues totalled K567.3 billion, andwere 18.4 percent below the target of K694.9 billion.

35. Sir, from the new mining taxregime, the Government expected tocollect K917.3 billion by end-December2008. Collections however were muchlower at K319.5 billion, representing a 65percent under-collection. This was mainlyon account of administrative challenges inimplementing the regime during the year.

36. Mr. Speaker, grant receipts fromour cooperating partners totalled K2,090.1

billion against the projected amount of K2,277.9 billion, representing a shortfallof 8.2 percent.

37. Mr. Speaker, total expenditures in2008, excluding foreign financed projects,amounted to K11,518.0 billion.Categorised by function, General PublicServices accounted for the highest share at33.8 percent, while Education and Healthcombined followed at 27.9 percent.Economic Affairs accounted for 15.0percent, while the balance of 23.3 percentwent to Housing and CommunityAmenities; Defence; Public Order andSafety; Social Protection and others.

PART III

ECONOMIC POLICIES IN 2009

M ACROECONOMIC P OLICIES

38. Mr. Speaker, as a result of weakening global demand, the globaleconomy will, beyond doubt, negativelyimpact our economy and constrain ourefforts to reduce poverty. Our growth and


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the Governments cognisance of the needto borrow prudently in order to preservemacroeconomic stability.

F OREIGN DEBT P OLICY

47. Mr. Speaker, the Government willcontinue to borrow from bilateral andmultilateral institutions in the form of highly concessional budget support andproject loans. These loans will financekey expenditures in priority areas such aswater and sanitation, energy, and roadinfrastructure. Although theGovernments preference is to contractconcessional loans, non-concessional

borrowing will also be considered forcommercially viable projects in prioritysectors such as energy.

STRUCTURAL R EFORMS

C OMPETITIVENESS

48. Mr. Speaker, one of the key pre-requisites for improving the externalcompetitiveness of the economy isreducing the cost of doing business.Currently, the cost of doing business inZambia is relatively high, and is due to anumber of factors, such as a cumbersomelicensing and regulatory framework, poorinfrastructure, and high transport andcommunication costs. The policy andcommitment of this Government is toreduce these costs. The Government willtherefore step up the regulatory reformprocess this year so as to achieve asimpler and easier business-licensingregime.

I NFRASTRUCTURAL D EVELOPMENT THROUGH P UBLIC -P RIVATE

P ARTNERSHIPS

49. Mr. Speaker, a significant

constraint to growth in the economy hasbeen the slow pace of development inlarge infrastructure projects. This is partlydue to constrained public finances andlimited participation by the private sector.In order to accelerate the development of infrastructure in the country, theGovernment launched the Public PrivatePartnership Policy in 2008.

50. Sir, a Bill will be introduced in

Parliament this year to provide thenecessary legal framework to support theimplementation of this policy. Throughyou Mr. Speaker, I implore HonourableMembers to support this important billwhen it is introduced in this House.

D ECENTRALISATION

51. Mr. Speaker, the Government iscommitted to extending the benefits of

growth and development across the wholenation. The Government intends toachieve this through the devolution of appropriate service delivery functions tolocal authorities. As emphasised by HisExcellency the President in his address tothis august House, the Government willwork towards adopting theDecentralisation Implementation Plan andcraft a new partnership with the localauthorities.

52. Sir, in this regard, a localgovernment capacity building programmewill be developed this year, equippinglocal councils with the human, technicaland financial capacity to effectivelydeliver quality and responsive services.This is critical in ensuring that the


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benefits of growth are shared. Further,work will be initiated to restructure thefinancial flows between CentralGovernment and local authorities, so thatthe implementation of the National

Decentralisation Policy can be expedited.

PART IV

THE 2009 BUDGET

53. Mr. Speaker, I now present theoverall budget for 2009. First I outlineexpenditures by function. I then discusssector policies and supporting

expenditures. Finally, I discuss revenuemeasures.

54. Sir, although we are in the middleof a global financial and economic crisis,there are still large numbers of investors,both local and foreign, that continue tolook for potential investmentopportunities. It is therefore important thatwe sustain the higher levels of investment,particularly Foreign Direct Investmentthat Zambia has seen over the last fewyears. It is with this in mind that thisbudget will focus on improvinginfrastructure and creating a moreconducive environment for investors,while reducing wasteful expenditures thatdo not carry an appreciable social oreconomic return.

55. Mr. Speaker, in 2009 theGovernment intends to spend K15,279.0billion or 25.4 percent of GDP. Of this,K10,645.9 billion or 69.7 percent will be

financed from domestic revenues whileK2,768.7 billion or 18.1 percent will befinanced by grants from co-operatingpartners. The balance of K1,864.5 billionor 12.2 percent of total expenditure willbe financed through domestic borrowingof K1,069.0 billion or 1.8 percent of GDPand external borrowing of K795.5 billionor 1.3 percent of GDP.

E XPENDITURE BY F UNCTIONAL

C LASSIFICATION

56. Mr. Speaker, the General PublicServices function accounts for the highestproportion of total expenditure at 31.8percent, compared to 32.8 percent in2008. This is followed by the EconomicAffairs function at 19.8 percent, comparedto 16.7 percent in 2008. The Educationand Health functions account forsignificant shares of the budget at 17.2and 11.9 percent, compared to 15.4 and11.5 percent in 2008, respectively.

57. Mr. Speaker, the detailedexpenditures for 2009, categorised byfunction, are as follows:


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2009 Total Budget Allocation by Function and Sub function:

FUNCTION AND SUB FUNCTIONAllocation(K' Billion)

% of TotalBudget

General Public Services 4,865.5 31.8Executive 438.7Legislation 453.8

o/w National Constitution Conference 50.0General Government Services 3,638.9

o/w Dismantling of Arrears 248.5Domestic Debt Interest 978.8External Debt 372.0Compensation and Awards 173.1

Centralised Administrative Services 334.1o/w Public Service Retrenchment Programme 43.0

Defence 1,068.0 7.0Public Order and Safety 610.7 4.0Economic Affairs 3,021.2 19.8

General Economic, Commercial, and Labour 169.1Agriculture, Forestry and Fishing 1,096.3

o/w Fertiliser Support Programme 435.0Strategic Food Reserve 100.0Livestock Development 70.7Irrigation Development 56.5

Fuel and Energy 120.1Mining 29.8Transport 1,507.7

o/w Roads 1,356.9Communication 20.8Tourism 77.6

Environmental Protection 117.3 0.8Housing and Community Amenities 587.3 3.8

o/w Water Supply and Sanitation 214.4

Health 1,823.4 11.9Public Health Services 1,365.7

o/w Control and Management of Malaria 94.9HIV/AIDS 170.7Infrastructure Development 168.1

Recreation, Culture and Religion 183.2 1.2Education 2,628.0 17.2Social Protection 374.2 2.5

TOTAL 15,279.0 100.0


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SECTOR POLICIES ANDSUPPORTING EXPENDITURES

AGRICULTURE AND F OOD S ECURITY

58. Mr. Speaker, as HonourableMembers of this august House alreadyknow, the development of the agriculturesector is one of the main pillars of ourpoverty reduction programme, especiallyin rural areas. However, this sectorspotential has not been fully exploited overthe years, making the attainment of theFNDP targets challenging. During 2006-2008, the agricultural sector performedpoorly, contracting by an average of 1.2

percent per annum. In 2008, cropproduction declined by 7.0 percent,contributing to a contraction of theagricultural sector by 4.0 percent. Thisfollowed a 2.7 percent decline in 2007.Sir, this poor performance is of graveconcern, and is largely attributed to thefollowing constraints:

(a) high cost of inputs;

(b) limited access to credit, inputsand extension services;

(c) inadequate infrastructure;

(d) poor livestock management;

(e) weaknesses in the FertiliserSupport Programme; and

(f) failure to attract adequate privateinvestment in the sector.

59. Mr. Speaker, I propose a 37.0percent increase in the allocation to theagricultural sector this year, providingK1,096.3 billion from K800.5 billion in2008. This augmentation will work towards addressing these constraints,allowing us to embark on the developmentof this vital sector.

60. Mr. Speaker, the Governmentconsiders the Fertiliser SupportProgramme as an important tool inempowering small-scale farmers andensuring national food security. In this

regard, I am allocating K435.0 billion tothe Programme in 2009. With lowerfertiliser prices, it is expected that a largernumber of small-scale farmers will benefitfrom this scheme in the next crop season.The Government is however concernedthat the Programme has had a limitedimpact on increasing agriculturalproductivity. The Government hastherefore initiated a comprehensivereview of the Programme in order to

improve its efficiency and effectiveness,especially with regard to distribution atdistrict and constituency level.

61. Sir, increasing productivity anddiversification in the sector goes beyond

just providing fertilizer but also requiresthe enhancement of extension services. Tothis end, a total of 1,700 extensionworkers were recruited in 2008. This year,I have allocated K25.4 billion for theprocurement of motorbikes and bicycles,and K12.3 billion towards theconstruction and rehabilitation of camphouses for extension workers. This willincrease the mobility of extensionworkers, allowing them to serve a largerpart of our rural areas.

62. Sir, diversification entails morethan just moving away from the coppermonoculture. We also have to diversifyour production in agriculture. Some of ourneighbours have successfully developed avibrant livestock industry, and haveconsequently penetrated the exportmarket. Zambia can also achieve similarresults, especially since the countryalready has favourable natural conditions.To this end an allocation of K70.7 billion


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has been provided for livestock development this year, including thecreation of at least one disease-freelivestock zone. This represents asignificant increase over the K29.2 billion

allocated in 2008.63. Mr. Speaker, with regard toinfrastructure, the Government will ensurethat infrastructural development at theNansanga Farm Block in Serenje Districtis completed this year. The developmentof this 155,000-hectare farm block isexpected to be a model of agriculturaldevelopment in Zambia. A sum of K42.4billion will be invested in this initiative

and includes K36.2 billion for roads andbridges. When this block is fullypopulated, it will look like NakambalaSugar Estates, but ten times the size, withlarge estates and small scale farmerslocated in the same vicinity.

64. Sir, given the increasinglyunpredictable weather patterns, enhancingthe productivity of small-scale farmers byreducing their dependency on rain-fedagriculture is critical to development inthis sector. I have therefore allocatedK56.5 billion for various irrigationprojects.

65. To continue with its policy of supporting small-scale farmers,particularly those in outlying areas, theGovernment has allocated K100.0 billionto the Food Reserve Agency in 2009,compared with K80.0 billion in 2008.Through this effort, Mr. Speaker, ourfarmers will be guaranteed a stable andready market, which is vital in stimulatingfuture production and enhancing nationalfood security. Furthermore, K10.0 billionhas been allocated to continue the FoodSecurity Pack as part of the measures to

mitigate the high cost of food and ensurefood security at the household level.

T OURISM

66. Mr. Speaker, the pivotal role thatthe tourism sector can play in thediversification process and in theattainment of broad based economicgrowth cannot be overemphasized.Although the sector has recorded positivegrowth over the last few years,preliminary estimates indicate that growthslowed down to 6.3 percent in 2008,compared with 9.6 percent in 2007. Muchmore needs to be done however in order

to make Zambia the destination of choicefor more tourists.

67. Sir, the major challenges intourism have been inadequateinfrastructure and service delivery; andlimited marketing activities. To rise tothese challenges, the Government hasincreased the allocation for tourism toK77.6 billion from K26.0 billion in 2008.

68. Mr. Speaker, in order to improveaccess to the Northern Tourism Circuit,K24.0 billion has been allocated towardsthe rehabilitation of the road from Mbalato Kasaba Bay. Additionally, K11.0billion has been allocated towards theconstruction of a terminal building atMbala airport and the rehabilitation of theKasaba Bay airstrip. An amount of K1.0billion has been allocated towards thepreparation of an integrated developmentplan for the Kasaba Bay tourist area. Afurther K14.7 billion has been allocatedfor the electrification of Kasaba Bay.Once these infrastructural developmentsare completed, we hope to attract to thearea more than 12 world class hotels,thereby creating thousands of jobs for ourpeople.


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69. Further, a sum of K7.5 billion willbe used to develop a new tourism zone inLivingstone that will have the necessaryinfrastructure for investors to readily

establish tourist facilities there.Additionally, I have allocated K99 billiontowards the rehabilitation of the Zimba-Livingstone road, which when completedwill improve access to the tourist capital.

70. In addition to these commitmentsMr. Speaker, the Government willcontinue with the development of roadinfrastructure in other tourist areas. Tothis end, a total of K59.1 billion has been

allocated towards the rehabilitation of roads in key national parks. Of thisamount, K30.6 billion will be used for theupgrading of the Chipata-Mfuwe road,and K24.0 billion will be used for theKafue National Park spinal road.

71. Mr. Speaker, in an effort topromote the marketing of the country andas a measure of tourism promotion, theGovernment proposes to refund certainexpenses incurred in shooting movies thatwill promote Zambia.

M ANUFACTURING

72. Mr. Speaker, Zambias narrowmanufacturing base has significantlycontributed to its high import bills overthe years. The high cost of doing businesshas been a major impediment towards thedevelopment of this sector and with it theability to create more jobs. TheGovernment has taken cognisance of thefact that stimulating growth in themanufacturing sector is a critical elementof any successful diversification drive.

73. In order to expand themanufacturing base, the Government is

promoting the establishment of Multi-Facility Economic Zones, with initialZones located in Chambishi, LusakaSouth, and Lusaka East. These Zones arebeing promoted through the provision of

fiscal incentives, quality infrastructure,and a conducive regulatory environment.The development of infrastructure atChambishi commenced in 2008. Thisyear, the development of high qualityinfrastructure at the Lusaka South Multi-Facility Economic Zone will begin. On itspart, the Government has allocated K30.0billion for the construction of accessroads. Further, the Government willprovide incentives that I will elaborate on

later.74. Sir, in addition to the developmentof economic zones, processes andprocedures for doing business in thissector will be enhanced throughregulatory and other reforms relating tothe cost and conduct of business inZambia.

M INING AND QUARRYING

75. Mr. Speaker, despite theturbulence in the latter part of the year,the mining sector recorded positivegrowth of 4.9 percent in 2008, comparingfavourably with growth of 3.6 percent in2007. Preliminary estimates indicate thatcopper production increased by 3.7percent to 569,891 metric tonnes whilecobalt production increased by 19.5percent from 4,414 metric tonnes in 2007to 5,275 metric tonnes.

76. Sir, from late 2008, the globaleconomic downturn and the subsequentsharp decline in world copper prices, hashad a telling effect on the operations of the mining sector, including the loss of

jobs. The Government considers mining


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companies as important partners in theprocess of national development. In thisregard, I have proposed a number of fiscalmeasures in order to support this vitalindustry and enhance its competitiveness

in the world market. I will elaborate onthese measures later.

C ONSTRUCTION

77. Mr. Speaker, the constructionsector has performed well over the pastthree years. Commercial and residentialconstruction activities, and thedevelopment and construction of newmines contributed to this favourable

performance. Average growth in thesector reached 15.8 percent per annumover the past three years, despite growthin 2008 sharply declining to 5.0 percentfrom 20 percent in 2007. This outturn wasa result of supply constraints, particularlycement and other materials, and led to aslowdown in residential and commercialconstruction. It is expected that growth inthis sector will continue to be sluggish in2009 as Zambia faces the effects of theeconomic slowdown.

E NERGY

78. Mr. Speaker, the performance of the energy sector in the preceding yearwas unsatisfactory. This was evidenced bysignificant load shedding by ZESCO andincreasing demand with total electricitygeneration declining to 9.5 millionmegawatts from 9.7 million megawatts in2007. This challenge needs to be urgentlyaddressed in order to ensure thatdisruption to the production of goods andservices in the economy is minimized.

79. Sir, in response to this challenge,the Governments immediate focus willbe to complete the ZESCO power

rehabilitation project by the end of thisyear. In addition to the K98.5 billiondisbursed in 2008, K16.8 billion has beenallocated to ensure the completion of thisproject this year. Upon completion, 230

megawatts will be added to the existingcapacity, thereby alleviating the powershortages that our people areexperiencing.

80. Mr. Speaker, in an effort to sustainexisting capacity as well as attractadditional investment in the sector,electricity tariffs will be adjustedupwards, starting this year, to reach costrecovery levels by end-2010. With these

tariff adjustments, the Governmentexpects ZESCO to improve itsperformance and service delivery.

81. Further, the Government ispromoting private sector investment innew hydropower generation capacity.Work has already commenced on theKariba North Bank Extension Project andwill be completed by 2012. Feasibilitystudies for the Kafue Gorge Lower Projectare due to be completed early this year,paving way for investors to move forwardwith the project. Preparatory work toinitiate the development of the Itezhi-tezhipower project is also continuing.

82. In addition, the Government ispromoting private sector investment innew hydropower projects at Kalungwishiand Kabompo. Feasibility studies willcommence this year for the developmentof a mini-hydro power station at Mujila inNorth-Western Province. These projectsare due to be completed in the medium-term.

83. Mr. Speaker, less than 20 percentof Zambians, and only 3.1 percent of therural population have access to electricity.


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We, as Government, must improve on thissituation. I have therefore allocated K88.8billion to the Rural Electrification Fund soas to expand the national grid andimprove access to power in rural areas.

This is a significant increase from theK26.1 billion allocated in 2008.

T RANSPORT AND C OMMUNICATIONS

84. Mr. Speaker, preliminaryestimates indicate that the Transport,Storage and Communications sector grewby 16.4 percent compared with 19.0percent in 2007. The growth in this sectorwas largely attributed to a strong

performance in the communications androad transportation sub-sectors. The railtransportation sub-sector in contrast,continued to perform poorly in 2008.

85. Sir, to address the poorperformance of the rail sector, theGovernment is exploring ways to improvethe performance of TAZARA through theidentification of a strategic privatepartner. Furthermore, Railways System of Zambia has committed to investing US$30 million over and above that committedin the concession agreement towardsinfrastructural development. TheGovernment, on its part, will support thisinvestment, the details of which I willelaborate later.

86. Sir, there is still great potential forimprovement in the communicationssector. At the moment, the sector ischaracterised by high costs and lowquality of service. To address these issues,the Government will improve theregulatory framework and promotecompetition in the sector, as it is one of the potential sectors for job creation. Inthis regard, the Government will removebarriers to entry in the communications

sector by significantly reducinginternational gateway license fees toregional averages.

87. Furthermore, I have allocated

K21.2 billion towards the rehabilitation of Kasama, Solwezi, Mfuwe, and Mansaairports. This is in addition to theallocations for the Northern TouristCircuit that I have already outlined. I havealso allocated K10.0 billion for thecompletion of the Chipata-Mchinjirailway, which could not be finished lastyear due to unexpected increases in thecost of materials.

88. Sir, in the first three years of theFNDP, the Government has invested overK2,700 billion in the construction andrehabilitation of roads across the country.Through these investments Mr. Speaker,the quality of arterial road infrastructurehas improved over the last decade.However, much more needs to be done toimprove the road network, particularly ourrural roads. I have therefore allocatedK1,356.8 billion for roads in 2009. Of thisamount, K250.3 billion has beenspecifically provided for the rehabilitationof feeder roads, and includes K2.0 billionfor each provincial rural roads unit thatwill be used to operate road maintenanceequipment procured last year.

89. Mr. Speaker, while we arespending these large sums of money,inadequate attention to road drainage inparticular, and poor quality works ingeneral by some contractors is of concern.This has led to many roads deterioratingwithin a very short period of time.Therefore, the Government will movedecisively to ensure that contractors areeffectively supervised so that the qualityof work improves and our people getvalue for money.


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SOCIAL SECTORS

90. Mr. Speaker, in line with theFNDP, social sector policies for 2009 and

in the medium term will continue to focuson among other areas, health, education,and water and sanitation. The key policyobjectives in these sectors will be gearedtowards attaining the MillenniumDevelopment Goals by 2015 throughadequate financial support and improvedservice delivery.

H EALTH

91. Mr. Speaker, in the health sector,the Government in recent years hasfocussed on:

(a) improving the supply, distributionand management of drugs andother medical supplies;

(b) recruiting frontline medicalpersonnel; and

(c) developing infrastructure,especially the construction and

rehabilitation of health centres.

92. Mr. Speaker, as a result of theneed to scale-up interventions in order toaddress these issues, I propose to increasethe allocation to the health sector by 12.9percent, from K1,586.6 billion in 2008 toK1,823.4 billion.

93. Sir, the availability of essentialdrugs at health centres was estimated at

68 percent last year, against the target of 100 percent. For referral hospitals, therewas a slight reduction in essential drugsavailability from 81 percent in 2007 to 80percent in 2008. In 2009, I have allocatedK208.6 billion towards the procurementof essential drugs and medical supplies.

94. Mr. Speaker, one of the majorconstraints in health service delivery hasbeen the inadequate level of frontlinemedical staff. In 2008, the Governmentrecruited 1,658 frontline medical

personnel, bringing the total to 15,349. Afurther 1,970 will be recruited this year ata cost of K25.0 billion. The Governmentrecognizes that this number is still farbelow what is required in the sector, but isfaced with limited output from traininginstitutions as well as having to cope withthe effects of the brain drain. To tacklethis, the Government will continue toprovide incentives to retain frontlinemedical workers in our rural areas.

95. Sir, we shall continue to improveinfrastructure in the health sector. In thisregard, I have allocated K168.1 billiontowards this effort. Some of the keyprojects to be undertaken will be theconstruction and expansion of 14 districthospitals in Samfya, Chadiza, Mumbwa,Kapiri-Mposhi, Isoka, Shangombo,Lumwana, Lufwanyama, Chiengi,Mpulungu, Kaputa, Chama, Mufumbweand Chongwe. Furthermore, theGovernment will rehabilitate and expandall 27 training schools so as to increaseenrolment and help mitigate the deficit of frontline medical personnel.

96. Mr. Speaker, the lack of medicalequipment presents a serious impedimentto service delivery. To address this issue, Ihave allocated K33.2 billion for theprocurement of essential medicalequipment.

97. Sir, as a result of the efforts beingundertaken in the health sector, somegains have been made with regard to thehealth Millennium Development Goals.Preliminary results of the 2007 HealthDemographic Survey indicate the


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following improvements since the lastsurvey in 2002:

(a) under-five mortality declined from168 to 119 per 1,000 live births;

(b)

maternal mortality declined from729 to 449 per 100,000 births;

(c) prevalence of HIV for thepopulation aged 15-49 droppedfrom 15.6 to 14.3 percent; and

(d) incidence of malaria declined from89.5 to 75 per 1,000 population.

98. Sir, these achievements are theresult of significant investments overrecent years, as evidenced by steadilyincreasing budget allocations to the sector.

99. Mr. Speaker, in order to continuethe fight against major causes of morbidity and mortality in Zambia, I haveallocated K170.7 billion for theprevention and treatment of HIV/AIDS,K94.9 billion for the control andmanagement of malaria, and K9.6 billionfor the fight against tuberculosis.

100. Mr. Speaker, the Government willwelcome private sector investment in thissector, and has provided incentives toentice investors to take advantage of thesemeasures. The Government recognizesthat a partnership with the private sectorcan go a long way in improving thequality of health care services available toour people.

E DUCATION AND S KILLS D EVELOPMENT

101. Mr. Speaker, in line with theFNDP, the Government will continue toinvest in human capital development inorder to enhance productivity andcontribute to the attainment of a vibranteconomy. This investment will enable our

children and youth to become skilled andindustrious citizens and thereby escapethe shackles of poverty. In this regard, Iam increasing the allocation to theeducation sector by 24 percent, from

K2,118.5 billion in 2008 to K2,628.0billion this year.

102. Sir, the Government will use theseresources to continue improving access toeducation at all levels. In this vein, a totalof 5,000 teachers were recruited anddeployed to basic and high schools in2008, thereby reducing the pupil-teacherratio. The ratio at grades 5 to 7 dropped to34.7 in 2008 from 37.5 in 2005 while for

grades 10 to 12, the ratio fell to 18.9 from21.7 in 2005. With a further netrecruitment of 5,000 teachers in 2009 at acost of K45.0 billion, the Governmentexpects the pupil teacher ratio to continueimproving, thereby raising the quality of education in the country.

103. Mr. Speaker, the Governmentmust improve access to education,especially in rural areas. This can only beachieved by increasing investment inschool infrastructure and continuing therecruitment effort. The Government hastherefore put in place an ambitiousinvestment plan to construct basic schoolclassrooms and high schools using bothcontracts and the community mode of construction. Using these methods, theconstruction of 1,527 classrooms wascompleted in 2008 across the country,thereby creating additional school placesfor 137,000 children. The communitymode of construction has proven to be aquicker method of providing schoolinfrastructure and enhances localownership.

104. Sir, this year the Government hasprovided K577.9 billion towards


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infrastructural development in theeducation sector compared with K368.7billion in 2008. Of this amount, K423.3billion will be for construction of basicand high schools, providing an additional

2,500 classrooms. In addition to theseallocations, K42.8 billion has beenallocated for educational materialsincluding books and desks.

105. Mr. Speaker, with regard totertiary education, the Governmentsfocus remains to enhance infrastructureand skills development. To this end, Ihave allocated K207.9 billion to the threepublic universities. Of this amount, K35.0

billion has been allocated towardsinfrastructural development. Resourceshave also been provided to completeconstruction activities that wereearmarked for the All-African Games.Further, K164.9 billion has been allocatedfor operations in the three universities.

106. Furthermore, the CopperbeltSecondary Teacher Training College andKwame Nkrumah Teacher TrainingCollege will be converted into universitycolleges this year at a cost of K5.0 billion.The Government will also convert thedilapidated Mulakupikwa Police TrainingCollege in Chinsali district into a teachertraining college specialising in sciences ata cost of K5.0 billion.

107. Sir, the development of technical,vocational and entrepreneurship training(TEVET) in Zambia is of greatimportance. It provides a gateway totraining for a significant number of ouryoung hard-working citizens who areeager to acquire skills that can lead themtowards gainful work. I have thereforeprovided K71.3 billion for this sub-sector.Of this, K37.7 billion will be used for theconstruction and rehabilitation of trades

training institutes at Mongu, Kaoma,Ukwimi, Mwinilunga, Lusaka, Chipata,and Solwezi.

W ATER SUPPLY AND S ANITATION

108. Mr. Speaker, increasing access toclean water and sanitation for our peoplecontinues to be a major goal of Government, not least in order to preventwater-borne diseases. The Governmenthas, accordingly, prioritised this sector, bymaking it one of the seven maininvestment areas in the FNDP. Theprovision of clean water has however notreached the desired level, as only 58

percent of our population has access toclean drinking water. To increase accessto clean water and sanitation, I haveallocated K214.4 billion to the NationalRural and Urban Water SupplyProgrammes. These resources willimprove current infrastructure, and extendservices to underserved areas, particularlyin peri-urban areas.

109. Sir, in order to alleviate theproblems relating to poor drainagesystems in Lusaka, I have allocated K10.0billion towards improvement of drainage.This will go a long way in alleviatingproblems of sanitation that the residentshave faced.

110. Furthermore, the Government hascontracted a loan of US$ 57 million toimprove water supply and sanitationfacilities in Kitwe, Kalulushi andChambishi. This project will beimplemented over a five-year period andis expected to benefit about 90,000people.


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P UBLIC O RDER AND S AFETY

111. Mr. Speaker, the maintenance of law and order protects life and property,and enables our citizens to enjoy their

fundamental human rights and freedoms.This year, the Government will spendK610.7 billion towards the maintenanceof public order and safety. Of this amount,K475.8 billion will be allocated topolicing services. This will, among otherthings, enable Zambia Police to recruit1,000 additional officers, and completethe construction of 500 houses that beganin 2008. Further, a forensic laboratory willbe built in Lusaka, which is expected to

improve criminal investigations. Inaddition to these allocations, K35.0 billionhas been provided for the construction of housing for defence personnel.

SOCIAL P ROTECTION

112. Mr. Speaker, a total of K374.2billion has been allocated for socialprotection programmes. Of this amount,K174.3 billion has been provided forgrants to the Public Service Pension Fund,with a further K128.1 billion allocated asGovernments employer contribution tothe Fund.

C ITIZENS E MPOWERMENT

113. Mr. Speaker, the Government hasset out to empower citizens throughbusiness development support through theCitizens Economic Empowerment Fund.In 2008, a total of K15.2 billion wasdisbursed, creating employment for closeto one thousand four hundred people. Thisprogramme will continue in 2009 and Ipropose an allocation of K40 billion.

C ONSTITUENCY D EVELOPMENT F UND

114. Mr. Speaker, the ConstituencyDevelopment Fund is a vital tool of the

Government to develop rural areas. Tocontinue this important programme, Ihave allocated K67.5 billion towards theConstituency Development Fund, ascompared to K60.0 billion in 2008. Whilethis represents a modest increase,prevailing economic conditionsconstrained our ability to provide furtherresources.

I MPROVING THE M ONITORING AND

E VALUATION OF P ROJECTS

115. Sir, strengthening the monitoringof implementation of infrastructureprojects is important to ensuring effectivebudget execution. To this end, keyMinistries and Government agencies willpublish booklets showing the resourcesallocated and actual locations of eachproject in order to facilitate effectivemonitoring by stakeholders. This willenhance transparency and accountability,by allowing citizens to hold theGovernment accountable for the deliveryof infrastructure projects in this budget.As an example, I expect the Ministry of Health to publish a booklet containing thelocations and resource allocations of allnew hospitals to be constructed, those thatwill be rehabilitated, and all new healthposts to be constructed.

R EVENUE E STIMATES AND M EASURES

116. Mr. Speaker, to support theplanned expenditures for 2009, an amountof K11,714.9 billion or 76.7 percent of thebudget will be raised from domesticsources. Tax revenues will account for66.7 percent, non-tax revenues 3.0


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percent, and domestic borrowing 7.0percent of the total budget.

117. Sir, the remaining 23.3 percent of the budget will be financed through

foreign assistance and grants from ourcooperating partners projected at 18.1percent and foreign loans accounting for5.2 percent of the total budget.

118. In this regard, our cooperatingpartners have committed K2,768.7 billionin official development assistance. Of this, K810.1 billion will be through directbudget support. Furthermore, K409.6billion is expected in sector budget

support. Sir, I take this opportunity tosincerely thank our cooperating partnersfor their continued support to ourdevelopment agenda.

119. Sir, the summary of the revenueestimates and financing to support thisyears expenditure is as follows:

Estimates of Revenues for 2009

( K billion )

Tax Revenues 10,191.6

Direct Taxes 4,530.0

Company Income Tax 1,104.0Pay As You Earn 2,692.5

Other Income Taxes 579.0

Mineral Royalty Tax 154.4

Value Added Tax 2,549.9

Customs and Excise duty 3,111.6

Customs duty 1,452.5

Excise duty 1,659.1

o/w fuel levy 308.5

Non-Tax Revenue 454.3

User Fees and Charges 353.3

Exceptional revenue 34.8Dividends, Interest &other Levies 66.2

Domestic Financing 1,069.0Total Domestic RevenuesAnd Financing 11,714.9Total Foreign Grants AndLoans 3,564.1

Grants 2,768.6

Direct Budget Support 810.1

Sector Budget Support 409.6

Project Support 1,548.9

o/w SWAPS 643.8

Foreign Financing 795.5

Project Financing 580.5

Budget Financing 215.0Total Revenue AndFinancing 15,279.0

R EVENUE M EASURES

120. The Government recognises that astrong revenue base requires a strongeconomy. Given the economic challengesthe country is going through, it isimportant that emphasis is placed onstimulating growth whilst at the same timeensuring that the Government hasadequate resources to finance itsoperations. It is in this regard that Ipropose tax concessions, primarily to


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support the productive sectors of oureconomy.

D IRECT T AXES

121. Mr. Speaker, the Government iscommitted to providing tax relief to theworkers. I therefore propose to increasethe PAYE exempt threshold fromK600,000 to K700,000 per month andprovide further relief by adjusting theincome tax bands as follows:

Current System

Income BandsTaxRate

0 K600,000 per month 0%

K600,001 - K1,235,000 per month 25%K1,235,001 - K4,000,000 per month 30%

Above K4,000,000 per month 35%

Proposed System

Income BandsTaxRate

0 - K700,000 per month 0%K700,001 - K1,335,000 per month 25%K1,335,001 - K4,100,000 per month 30%

Above K4,100,000 per month 35%

122. Sir, the Government would havewished to provide greater relief to workersthis year, but is constrained by theprevailing economic environment. Despitethis, the PAYE exempt threshold hasincreased by 17 percent, which is 7percentage points above the targetedinflation rate for 2009. This measure willresult in a revenue loss of K100.7 billion.

123. Mr. Speaker, I propose to providefurther relief by:

(a) increasing the tax credit fordifferently-abled persons fromK600,000 to K900,000 per annum;

(b) increasing the exempt portion forterminal benefits from K20 millionto K25 million; and

(c) increasing the allowable pensioncontribution from K135,000 per

month to K155,000 per month.

124. These measures will result in arevenue loss of K23.6 billion.

125. Mr. Speaker, currently, gratuity istaxed based on the PAYE system. It is myview however, that gratuity should begiven tax treatment that recognizes thefact that the payment could be a finalpayment on termination of employment. I

therefore propose that qualifying gratuityis taxed as follows:

(a) income equivalent to the annualexempt income under PAYE isexempt from taxation; and

(b) the balance is taxed at a flat rate of 25 percent.

126. Sir, this measure will result in arevenue loss of K12.4 billion

127. Mr. Speaker, in view of the powershortage in the country, the Governmentspolicy is to promote investments in theenergy sector. In order to stimulateinvestment in this sector, particularly inhydro and thermal power generation, Ipropose to increase the period for carryforward of losses for companies operatingin this sector from 5 to 10 years forincome tax purposes. This measure willhave minimal revenue loss.

128. Mr. Speaker, in 2007, theGovernment introduced an advanceincome tax on commercial imports bynon-registered traders at the rate of 3percent. This was introduced to encouragethem to register for income and value


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added taxes. However, there is evidenceto suggest that traders have opted toremain unregistered, paying the advanceincome tax at the border rather than ahigher turnover tax inland. I therefore

propose to increase the advance incometax rate from 3 to 6 percent in order toencourage registration and improve taxcompliance. Sir, I expect to raise K75billion from this measure.

129. Mr. Speaker, in computingproperty transfer tax on shares, interest onrelated party loans used to purchase sharesis currently included in current liabilities,even when transactions are not conducted

at arms length. This leaves room forundervaluation, leading to loss of revenueto the Treasury. To seal this loophole, Ipropose to exclude interest accruing onloans from such transactions if they werenot conducted at arms length. This is inaccordance with the provisions under thincapitalization and will have minimalrevenue gain.

130. Sir, I propose to increase theincome tax rate on profits from export of cotton from 15 to 35 percent. This is toencourage local value addition andimprove supply to local processors.Where local processing capacity has beenreached, the Government will, underpermit, allow income tax rate on profitsfrom export of cotton at 15 percent.

131. Sir, all the above measures willtake effect on 1st April, 2009.

V ALUE A DDED T AX

132. Mr. Speaker, the Government hasobserved with keen interest the growinglocal capacity of manufacturers toproduce windmills and maize dehullers. In

order to support local manufactures, Ipropose to zero rate dehullers andwindmills for Value Added Tax purposes.This measure will have minimal revenueimpact.

133. Sir, with the slump in the miningsector, there is a need to accelerate oureconomic diversification programme. Onepriority sector that needs support in thisendeavour is the agriculture sector. In thisregard, I propose to zero rate thefollowing agricultural equipment andspares: Two Wheel Tractor andAccessories; Tractors up to 60 HorsePower; Ploughs; Harrows; Disc Harrows;

Planters; Seeders; Rippers; Sub-Soilers;Cultivators; Pump Sets; Treadle Pumps;Hip Pumps; Hand Pumps; Knap Sack Sprayers; and Suction, Delivery andLayflat Hoses. This measure will result ina revenue loss of K38.9 billion.

134. Sir, the above measures will takeeffect from midnight tonight.

C USTOMS AND E XCISE

135. Mr. Speaker, the aim of Government has been to foster a strongmanufacturing sector, with intent toachieve broad-based economic growthand reduce our dependency on imports. I,therefore, propose to reclassify and re-categorise certain goods with a view tolowering customs duty rates. Theseinclude the following materials mainlyused in the manufacturing and textileindustry: crude vegetable oils, gray fabricand packaging materials.

136. In addition, I also propose toremove customs duty on various capitalequipment in order to encourageinvestment and reduce the cost of doing


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business. These include: Survey and Geo-physical Instruments; Earth Working andLevelling Equipment; Refrigerating orFreezing Equipment for Cold Rooms;Track Laying Bull Dozers and Angle

Dozers; Graders and Levellers; Scrapers;Tamping Machines; Mechanical FrontEnded Shovel Loaders; Pile Drivers andPile Extractors; Coal and Rock Cutters;Tunnelling Machinery; Boring or SinkingMachinery; Tamping or CompactingMachinery; Mechanical Horses; Fork LiftTrucks; and Special Purpose MotorVehicles.

137. Sir, these measures will lead to a

revenue loss of K22.5 billion.138. Mr. Speaker, smuggling and taxevasion on certain imports has been aworrying trend. I am convinced that aprohibitive excise duty on certain importsencourages this, and one example is theclear beer industry. I therefore propose toreduce excise duty on clear beer from 75to 60 percent. This measure will lead toimproved tax compliance, and as a result Ido not expect any revenue loss.

139. Mr. Speaker, last year, theGovernment introduced an export levy of 15 percent on cotton-seed in order toencourage local value addition. In view of increasing local processing capacity, Ipropose to increase export levy on cotton-seed from 15 percent to 20 percent. Thismeasure will result in a revenue gain of K282 million

140. I also propose to increase customsduty on cellular phone handsets from 5percent to 15 percent to encourage localproduction of handsets. This measure willresult in a revenue gain of K3.6 billion.

141. Sir, all the above measures takeeffect from midnight tonight.

C ONCESSIONS FOR THE M INING SECTOR

142. Mr. Speaker, the current miningtax regime was introduced last year aimedat providing a stable and robust taxsystem that works during periods of bothhigh and low prices and costs. Thisregime was intended to ensure that thenation received a fair return from itsresources, while maintaining a globallycompetitive mining industry.

143. Sir, having consulted with theindustry and other stakeholders, and inlight of the impact of the global crisis onthe mining sector, I propose the followingrefinements:

(a) remove the windfall tax and retainthe variable profit tax, which willstill capture any windfall gainsthat may arise in the sector;

(b) allow hedging income to be a partof mining income for taxpurposes; and

(c) increase capital allowance to 100percent as an investmentincentive.

144. Sir, these measures will come intoeffect on 1 st April 2009.

145. Furthermore, I propose to reducecustoms duty on Heavy Fuel Oil from 30to 15 percent and to remove customs dutyon copper powder, copper flakes andcopper blisters. In addition, I propose toinclude copper and cobalt concentrates onthe import deferment scheme for VATpurposes. These measures will reduce theoperating costs of mining companies aswell as encourage the utilisation of localsmelting capacity. These measures will


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result in a revenue loss of K19.3 billionand will come into effect from midnighttonight.

C ONCESSIONS FOR DEVELOPERS AND

INVESTORS IN THE MFEZ ANDINDUSTRIAL P ARKS

146. Mr. Speaker, in order to expandthe countrys manufacturing base andenhance national competitiveness, Ipropose to establish industrial parks andextend tax incentives under the ZDA Actto developers of, and investors in Multi-Facility Economic Zones and industrialparks. In addition, I propose to:

(a) remove withholding tax onmanagement fees, consultancyfees, and interest re-payments toforeign contractors;

(b) zero rate supplies to developers of MFEZ and industrial parks;

(c) exempt foreign suppliers to theMFEZ and Industrial parks fromreverse VAT charge; and

(d) Exempt equipment and machinery

imported for the development of MFEZ and Industrial Parks fromcustoms duty.

147. For purposes of clarity, I proposethat developers of an industrial park should qualify for the above incentivesonly if:

(a) the layout of the development planis approved by the relevantplanning authority;

(b) the park to be developed is at least15 acres in size;

(c) the park will have paved roads;and

(d) water and electricity supply withinthe park is provided.

148. Sir, it is hoped that with thesemeasures, the country will attract bothlocal and foreign private investors to openup and invest in the MFEZ and industrial

parks across the country.

H OUSE K EEPING M EASURES

149. Mr. Speaker, I propose to carry outamendments to the Customs and Excise,Value Added Tax, and Income Tax Actsin order to update, strengthen and removeambiguities in certain provisions of taxlegislation and make tax administration

more effective. These measures arerevenue neutral.

O THER M EASURES

I NCENTIVES FOR SHOOTING OF WORLDCLASS MOVIES LOCALLY

150. Mr. Speaker, the tourism industryplays a significant role in job creation,foreign exchange earnings and has theability to support a number of otherindustries. However, as a country, weneed to move away from the traditionalview that tourism is restricted to hotelbuilding and costly media promotions.

151. In this regard, Sir, I propose toprovide a rebate or refund to filmmakersof up to 15 percent of the expensesincurred in shooting movies locally. Thiswill not only enhance our countrysreputation, but will also provide jobopportunities and synergies for localactors.


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I NVESTMENT IN THE R AILWAY N ETWORK

152. Mr. Speaker, in order to supportthe rehabilitation of the railwayinfrastructure and improve rail transport, I

propose fuel levy paid by RailwaySystems of Zambia be earmarked forinvestment in the rail network.

PART V

CONCLUSION

153. Mr. Speaker, as we enter the year2009, the global economy, of which we

are a part, faces unprecedented challengesnot seen for generations. Zambia is notinsulated from this turmoil, even thoughits causes were not of our making and itsorigins were far from our borders. Thisbudget offers a vigorous response tomeeting these challenges.

154. Sir, in 2008 our character as anation was severely tested, and we werenot found wanting. As we move forwardwe must not be demoralized orintimidated by these testing economictimes. We are a nation of proven characterwith unity of purpose, and we must allrise to meet these challenges withingenuity and resolve so that theattainment of our development goals isnot placed in jeopardy.

155. Mr. Speaker, at the start of myspeech I described the vision I hold of aneducated, healthy, hardworking, welldisciplined and prosperous people,nourished with plentiful food, with the

skills and drive required of a 21 st centuryeconomy, and well served with therequirements of modern life.

156. Sir, this Budget moves us towards

the attainment of this vision. It ensuresthat the difficult circumstances thatZambia, like all nations, faces this yearare confronted squarely and decisively byencouraging us all to be more productive.

157. Mr. Speaker, through this Budget Ihave significantly realigned resourcestowards the development of agriculture,tourism, education, health and nationalinfrastructure; I have provided incentives

and outlined essential structural reformsto support industry; and I have allocatedsubstantial resources to improve deliveryof basic services to our people.

158. Mr. Speaker, by so doing, thisMMD Government under the leadershipof His Excellency the President, Mr.Rupiah B. Banda, will unlock thepotential of Zambians by promotinggrowth and diversification, enhancingcompetitiveness, and improving thequality of public service delivery to ourpeople.

159. Sir, as a nation, by implementingthese measures, we can emerge from thesetroubled economic times stronger andbetter positioned to seize the opportunitiesof this still-new century. Then we will bebetter able to spread the benefits of growth and development to all our people.

160. Mr. Speaker, I beg to move.

2009 Budget Speech

Documents

Transcript of 2009 Budget Speech