Challenges Facing Zambia

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There are several economic challenges facing Zambia. Among them is a lack of diversification. Copper represents about ninety per cent of the country’s export revenue. Miracles do not just happen in economics; they are caused. Planning plays a very big role. But planning from a lame vantage can be very frustrating.

A nation can borrow all it can, but if it does not produce, it’s only postponing trouble. I reason that is why the wealth of nations is measured in productivity terms – GDP. The key word is “Product”. Diversification means multiplying productivity. It means lessening dependence on only one means of production and expanding the reserves. For the emerging Zambian leaders, the focus should be on those resources that are sustainable, such as land and the people.

Productivity Challenge

When I was growing up I understood economics in only three words: production, distribution and consumption. I still do. When we speak of national poverty, we are talking about lack of productivity, on one hand, and a raging disparity in the distribution of national wealth, on the other. And when we refer to the poverty-line, we mean inadequate vehicles for the distribution of wealth. Distribution is tied to consumption exponentially. The ‘haves’ consume more while the ‘have-nots’ consume less and less!

Inflation Challenge

Absence of productivity leads to economic problems. The biggest of these is inflation. Inflation not surprisingly is also defined in production terms as the rapid rise in prices caused by an inadequate supply of goods and services; inflation arises from a decline in the purchasing power of the money. In simple economic terms, this means that total demand exceeds supply. Again this is a productivity issue. It simply means that there is less than what is required. Our problem has been that instead of producing more to curb inflation, we run into borrowing more thereby compounding the problem even further.

Debt Burden

The complexity of the Zambian economic system is compounded further by a large foreign debt at US $ 4.4 billion (2006) which needs to be serviced and an insurmountable public debt which has paralyzed all efforts at redeeming the economy. Pegged at 65 per cent, Zambia’s public debt denies the proper running of the economy. In the words of Hon. Magande, Minister of Finance and Economic Planning in the Mwanawasa government, debt is a heavy burden on the government’s mind. But there is light at the end of the tunnel. Hon. Magande said the following during the 2008 budget presentation to parliament:

Mr. Speaker, preliminary information indicates that the stock of external debt increased by 9.5 percent to US $2,035.2 million in 2007 from US $1,859.0 million in 2006. The increase was largely accounted for by the 16.7 percent growth in private sector external debt to US $980.7 million
related to investment in plant and machinery by mining companies. The stock of government external debt increased by 3.5 percent to US $1,054.5 million in 2007 from US $1,019.0 million in 2006, mainly due to new disbursements to support the budget. Sir, the amount of US $635 million reported in last year’s Budget was adjusted upwards during the year. This adjustment was to reflect undelivered HIPC Initiative debt relief from some of the bilateral creditors with whom we have not yet reached agreement.

Sometimes we have lambasted the bilateral and multilateral agreements for our debts. What we forget is that the borrower is always a slave of the lender! When we borrow, we empower the lending institutions to control us. The Highly Indebted Poor Countries Initiative (HIPC) may seem like an ideal initiative now, but why don’t we avoid both the shame of being categorized as highly indebted and poor, and begin to be the lenders instead? We will never attain national dignity if we continue to borrow, and expect debt forgiveness. HIPC, introduced in 1996, is not a bad idea if its purpose is to help us stop further begging. HIPC necessitates a threshold benchmark which in turn facilitates debt reduction of up to over 60 per cent. In lieu of HIPC and related initiatives, we must strive to produce and invest so that we prevent the embarrassment of being always at the receiving end.

The history of debt in Zambia can be attributed to a number of factors. Foremost was the initial failure to diversify economic activities away from the mining industry. This subjected the national economy to the vagaries of steep decreases in copper prices and production levels.

Secondly, the unprecedented hikes in petroleum prices by the Organization of Petroleum Exporting Countries (OPEC) in 1973/74 and 1979/80 resulted in a sharp rise in the price of imported oil which essentially drained the public treasury.

Thirdly, the socialist policies espoused by the United Nations Independence Party (UNIP) barred both local and foreign private investors from certain commercial and industrial sectors of the country's economy and recommended the creation of state and parastatal companies to operate in such sectors of the economy from the late 1960s to 1991. The monopolistic position enjoyed by both state and parastatal companies in the country’s economy culminated in complacence and gross inefficiency because, in the absence of competition, government found it unnecessary to seek innovative ways and means of improving the quality and quantity of production output. This led to the rampant commodity shortages during the Second Republic. Coupled with this was the government of the day’s postponement of the macro-economic adjustment—which would have enabled Zambia to create a competitive and more productive socioeconomic system.

The moneys we borrow come with strings attached. What we call conditionality is nothing but a safeguard. Safeguards are necessary for business survival. In Africa we think that we can borrow and still be free. That’s a ruse. The International Monetary Fund (IMF) only helps countries that are facing serious financial difficulties in paying for their imports or repaying loans. Imports are goods and services we buy from outside.

IMF comes in when we fail to repay the loans we get. Some people blame the IMF for the economic problems of Zambia or Africa. That’s not being realistic. After all, if they never borrowed (or if they borrowed and invested wisely), they would not be affected in any way by the IMF conditions. In relation to production, we are mainly talking about agriculture and manufacturing. Agriculture or farming produces raw materials which industries use to make finished products. Recognizing this, the Bretton Woods created the World Bank which provides low-cost, long-term loans to less developed countries to develop basic industries and facilities, such as roads and electric power plants. So far the World Bank has fulfilled its obligation and should be commended. Onus is on affected governments to channel the loans to their intended projects.

Balance of Payment Deficit

Production leads to export spurts. In balance of trade terms, the more we export the better. Exporting more goods and services and decreasing imports has explained why despite having constant deficit in its current account, the United States continues to be the richest nation on earth.

When a country buys more goods and services made abroad than it sells to foreigners that country will have balance of payment deficit. A country cannot continue to buy more than it sells indefinitely. This scenario in Zambia has led to the inability to pay bills and to limited international trade. This state of affairs has also led in part to the frequent restrictions on the outflow of the Kwacha and the inactivity of foreign businesses in the country. And the resort has been to the IMF. In balance of trade, what matters is production. The nation that produces wins no matter on what terms or conditions!

The AIDS/HIV Challenge

The AIDS pandemic in Zambia has reached levels where it can be considered an economic challenge. In its 2008 budget the government’s allocation to the health sector budget is testimony to this. Emerging Zambian leaders should look at the pandemic as a real challenge facing the productivity of the nation because of its tendency to shorten the lives of citizens of a productive age. The deadly disease is now not only a moral issue; it also calls for serious attention and urgent economic measures.