Habari ya Umeme?

Missing in action.

Missing in action.

Nipashe and its English-language sister publication, The Guardian, have reported a few facts about Zanzibar’s ongoing power outage, which I’ve blogged about before. The title of the piece in Swahili is ‘SMZ: Umeme unaikosesha serikali mapato kibao’, which basically translates to ‘RGoZ: Electricity is causing a huge loss of Government revenue’.

I can’t find the online versions of the article in either Swahili or English, but it basically takes a few indicative facts given out by the Minister of Finance about the economic impact of the ukosefu and uses them to illustrate the scale of the economic crisis engulfing Zanzibar at the moment. Highlights:

  • Telecommunications companies are hit particularly badly. Zantel, a local mobile services provider, has seen monthly revenues drop from TSh 6.7 billion (roughly US$ 5 million) to around Tsh 3 billion (largely because people are seeking to conserve their phone batteries by using them as little as possible, except in emergencies)
  • This has a knock-on effect on Government revenues. Zantel alone normally accounts for Tsh 465 million per month in VAT, an amount that is expected to fall significantly in response to this reduction in revenues (the maths doesn’t quite tally here, but I’m reporting the newspaper’s figures)
  • Zanzibar’s electrical company, ZECO, is contributing no VAT whatsoever to the Government’s revenue basket either, since it is unable to provide any electricity through the national grid at all. Its normal contribution is about Tsh 72 million per month
  • Trade and Industry is also suffering. Some factories have closed, and as a result, people have lost work.
  • Initial indications suggest that the Government alone is losing up to 30% of its revenues each month due to the outage.

There is no further comment in the article beyond what the Minister of Finance announced. However, a little more, from my reading of the situation:

  • The VAT issue is of major importance. I’ve pointed out before that countries with large informal sectors and poorly developed tax structures depend disproportionately on VAT to raise revenues. Reduced VAT is in the short-term sharply increasing aid dependency in a place that is already heavily aid dependent. What’s more, this reduces the scope for autonomous action by domestic actors
  • The reduction in Zantel’s revenue is likely to be replicated in direction (though not necessarily size) across the board in Zanzibar, as most people are finding basic necessities more expensive and spending less on everything other than essentials
  • Profits are doing even worse than revenues: whatever money you are making is coming at a higher average cost due to the expense of running generators in businesses not designed to be generator-dependent.
  • In addition to this, noises from people working in the sector suggest tourism is down significantly from the same period last year
  • On the sunny side of things, I’m assured that the closing of factories is likely to be temporary and the loss of jobs is closer to forced unpaid leave than mass layoffs

As someone who believes that development must be driven by the development and growth of domestic capitalism, it’s sobering news. With electricity hopefully to be restored at the end of February, we will be able to start calculating the precise cost of this outage (indeed, initial data collection has already started), and seeing what damage to the economy has been done and how it can be repaired. On the plus side, this has focused attention on the basic business environment and we must take this opportunity to improve it significantly once the immediate problems are resolved.

3 thoughts on “Habari ya Umeme?

  1. Ian

    January 29, 2010 at 6:34pm

    I haven’t followed this closely. Does the root of the problem have to do with underwater cable like a couple of years ago or is it something else?

  2. Katrina Daly Thompson

    January 30, 2010 at 1:00am

    Does VAT go to the national government or the Zanzibar government? If it goes to TZ, I would have thought the reduced VAT at this time would help push them to get Zanzibar’s cable fixed quickly, yet that doesn’t seem to be the case.

  3. Ranil Dissanayake

    January 31, 2010 at 8:04am

    Ian – It’s not clear if the cable has any new damage. Parts above ground are damaged and being replaced and some other work to extend the life of the system is being done as well. The precise technical details elude me.

    Katrina – as part of Znz’s position in the union it is allowed to collect local VAT for its own treasury. Znz has it’s own budget, treasury and revenue board. The Tanzanian Revenue Board collects some taxes and tariffs in Znz for the Union, but not all.

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