Zambia: The Closure of BAT

Source from:  The Post (Lusaka) March 31, 2006 Sue M. Mwanza 04/02/2006

Recently, there have been statements in the press about British American Tobacco (BAT) seeking to fold up its manufacturing business in Zambia. These pronouncements come in a business environment where Zambia is being lauded for successful public expenditure management, reduction in inflation, a fairly stable exchange rate and a significant fall in the rate of inflation and indeed a stable political system. One would have thought that the current macroeconomic indicators are in fact a recipe for expansion of existing business on the one hand, and for attracting foreign direct investments on the other. Firstly, I would like to urgue that it is possible that there are fiscal policy instruments in the 2006 budget as presented by Hon Minister of Finance and National Planning which, if enforced only serve to cripple industrial development. If this is a widely held view, stakeholders must be able to make representation at the highest level. Secondly, it is important to underscore the role of corporate management. Management in any organisation have a responsibility to carry business forward with specific objectives including increase in profits and market share on behalf of the Directors of the Board, who in turn represent corporate shareholders. To this end, management have a role to advise the Board on behalf of shareholders about business realities and implications of their business in a wider context and propose business action. Amid the issues surrounding BAT, it is not clear what position management are championing. The first implication is an immediate loss of 80 jobs. Although BAT believes the affected staff will be fully compensated, the point is that more people will have been offloaded onto the unemployed labour market. The absence of a proper social security system in most organisation also means the loss of disposable income. We must be clearly alive to the existing high dependency ratio for families in Zambia and the impact of a job loss by a breadwinner. There is also documented evidence about the correlation between unemployment and poverty and associated negative effects of lack of social security. Currently, Zambia's unemployment rate estimated at 73 per cent is significantly high and attempts by industry to create further involuntary unemployment are not acceptable. Secondly, consideration must be given to the plant and equipment that will now become redundant as a consequence of the closure of BAT. Indeed, closure of existing, functioning, profitable and serviceable operations must be avoided at all costs. Leadership at BAT should clearly have been talking about options in their decision-making. These options must include consideration to sell the firm to industrialists that may continue to run the plant successfully. These industrialists may be an employee/management arrangement; management/external equity partner arrangement; complete new investing individual Zambians on their own or with the support of external partnership. The technical know how to run and maintain the plant is assumed not to be beyond Zambia's capability. One assumes that Zambians have been involved in plant maintenance and will remain capable even under new shareholding. Empirical evidence shows that there is a link between the exchange rate and the flow of trade. One way the current movements in the exchange rate in respect of Zambia can be sustained in the long term is if economic growth is led by growth in the export sector. Clearly, the role of BAT has been fundamental, particularly in terms of foreign exchange inflows arising from exporting quality finished tobacco products. Similarly, the absence of BAT in the near future will result in foreign exchange outflows to purchase tobacco products for local consumption. The effect on the exchange rate, even if it were marginal, should not be ignored. Looking at BAT's current business, the company currently manufactures its tobacco products from presumably out-growers' schemes, as it does not itself grow the tobacco. The two per cent that it purchases from growers may be small in absolute number terms, but very significant in economic terms for those who produce and sell it because this is their livelihood. Attempts to close BAT therefore impacts negatively on the tobacco agribusiness and the multiplier effect of entrenching rural poverty further is already there for all to see. Clearly, out-grower suppliers that have sustained the plant up to this day should be given confidence to continue in production through assurance about continued availability of a market for them by the new plant owners. From an accounting perspective, BAT's financial performance as may be seen from the last two years' year end financial statements show a health profitability level of over 100 per cent and a tax liability of the same margin including a total dividend that compares favourably to other listed operating companies. Enditem