DPMN Bulletin: Volume X, Number 2, April 2003
Development Policy and Economic
Change in Zambia: A Re-Assessment
Dr. Bertha Z. Osei-Hwedie
Policy towards industrial development in developing countries evolved from import substitution industrialisation (ISI) to export-oriented industrialisation (EOI) (Fei 1992). The ISI was adopted during the early stages of economic development in the 1950s through to the 1960s. The ISI is an inward looking industrial development strategy characterised by production of non-durable and durable consumer goods, and intermediate and capital goods to reduce dependence on Western markets.
The failure of the ISI as a sustainable development strategy paved the way for the EOI, especially in East Asia (Gwynne 1996), and more recently as a result of the adoption of the IMF/WB structural adjustment programmes in Africa and Latin America. The state plays a very crucial role in both the ISI and EOI. In the ISI, the state encourages national self-sufficiency, while in the EOI the state champions international competitiveness of industry and exports as the engines of growth. The common consensus among analysts of development is that export-led growth is more sustainable than import oriented. This article, therefore, seeks to analyse the evolution and nature of Zambia’s development policy since independence in 1964, and to evaluate its successes and failures, and to suggest the way forward.
Nationalization and Industrialisation
At independence, Zambia’s economy was mainly dependent on copper mining that accounted for 90 per cent of its export earnings (Republic of Zambia 1996). The leadership was committed to the promotion of economic development and restructuring the economy. The government, therefore, undertook rapid nationalisation of the economy shortly after independence, paving the way for state-led development. State intervention in the economy was set in motion with the 1968 Mulungushi Economic Reforms that allowed the government to acquire 51 per cent shares from private retail, transportation, and manufacturing firms (Republic of Zambia 1968). The Industrial Development Corporation (INDECO), a state industrial holding company, was created to spearhead industrialisation. Subsequently, the Matero Economic Reforms of 1969 resulted in the government purchasing 51 per cent shares from the mining companies, Anglo-American Corporation and Roan Selection Trust, leading to partial nationalisation of the copper mining industry (Republic of Zambia 1969). Nationalisation enabled the state to control 80 per cent of the economy through parastatals involved in mining, energy, transport, tourism, finance, agriculture, trade, manufacturing and construction (Turok 1989, 78). Thus, the state became the engine of growth.
State-led industrial development was possible because of the availability of copper revenues that were channelled to industrial transformation and rural development. The government relied on both monetary and fiscal policies to promote growth in the manufacturing sector. The import substitution strategy was clearly stipulated in the national development plans. The state, through the National Commission for Development Planning, formulated four national development plans between 1964 and 1991. The development plans had several objectives including the:
diversification away from copper mining to promote balanced economic development and rural development;
investment in social and physical infrastructure;
Zambianisation (domestic ownership); reduction of dependency on Rhodesia (Zimbabwe) routes to the world market by building the Tanzania-Zambia Railway; and
Admittedly, there were reasonable growth rates in the 1960s and early 1970s (Republic of Zambia 1979), primarily due to high copper production and prices and increases in maize and manufacturing output, as well as increases in numbers of social facilities and physical infrastructure.
However, the nationalization programmes in general, and import substitution in particular, proved very costly. Zambia failed to diversify the economy from copper mining and the import substitution strategy proved unsustainable, resulting in economic decline. There are many reasons for the poor economic performance. First, the decline in world copper prices since 1974 contributed to economic decline causing reduced government expenditure on development, including import substitution industries, inability to import goods, especially, inputs into manufacturing; balance of payment problems; and inability to service external debt. Lack of savings by the government during periods of high copper prices to cushion the impact of any fall in copper prices worsened the economic situation. Instead of accumulating savings, the government increased expenditure on social and physical infrastructure, imported luxury goods, assisted parastatal and private companies ‘manufacturing profits’, and compensated workers with high wages, especially, mine workers. Second, extensive state intervention gave rise to bureaucratisation, corruption and uncertainty, discouraging productive private investment and foreign trade initiatives.
Third, import substitution industries proved inefficient and uncompetitive due to high input costs, high monopoly prices, reliance on government subsidies, lack of technological dynamism, and underutilisation of capacity and labour (Gwynne 1996). INDECO failed to reduce dependence on foreign imported inputs, failed to create substantial employment opportunities due to capital-intensive machinery, and catered to small urban market at the neglect of the poor majority in the rural areas (Tangri 1999, 28). More importantly, INDECO failed to advance beyond production of non-durable consumer goods to durable and capital goods. Fourth, the bias against agriculture and rural areas meant the continued dependence on the copper mining industry. Fifth, the bias against exports and import restrictions resulted in higher exchange rates and reduced the gains from exports. Sixth, Zambia’s support for the liberation movements of Southern Africa and the closure of the border following the Unilateral Declaration of Independence by Rhodesia seriously affected implementation of development plans, as alternative export routes had to be built, especially the Tanzania -Zambia Railway.
Following the recommendations of the IMF and the WB, the government undertook economic policy reforms to rejuvenate the economy from 1983. However, the structural adjustment programmes (SAPs) worsened, rather than improved the economy. Agricultural and manufacturing outputs and exports failed to increase significantly. This was attributed to the inadequate incentives for farmers due to uncompetitive exports of manufactures, high inflation, unemployment, and rising external debts.
Liberalisation and Elusiveness of Development
The new government that came to power in 1991 adopted fully-fledged SAPs. The Chiluba government implemented economic reforms more rapidly than its predecessor, or any other African government for that matter, earning the reputation of a model liberalising economy. Such a reputation allowed the government to borrow heavily from the donor community, to offset deficient export earnings and to finance development. Zambia’s debt currently stands at US $7.1 billion. As most of the national income and foreign assistance went into debt service obligations, instead of socio-economic development, public confidence in the government quickly turned into disillusionment and disappointment.
Liberal economic policies, foreign assistance and democratisation did not spur economic recovery, sustainable development and poverty reduction. The five-year privatisation plan of 1993 did not go well as only 12 of the 150 parastatal companies had been privatised (Tangri 1999, 45). In spite of privatisation of the copper mining industry, production and world prices declined, and have worsened since the 1990s. These and other problems of increased mining costs forced the Anglo-American Corporation (AAC) to withdraw its investment from Konkola Copper Mines (KCM) in 2002, less than two years after purchasing a majority stake in the KCM (www.zamnet.zm, 20 August 2002). The pullout of the AAC from KCM, which produces 67 per cent of copper and cobalt exports, was a big blow to the copper-dependent Zambian economy. Recent reports seem to indicate that copper mining is no longer viable in Zambia.
The manufacturing industry collapsed partly due to mismanaged privatisation, and partly due to competition from Zimbabwe and South Africa manufactured goods (Tangri 1999, 77). Agricultural output also dropped due to drought and the government’s agricultural policies that left the producer without extension and marketing support after the abolition of marketing boards and cooperatives.
Furthermore, liberalisation was accompanied by corruption, which also contributed to poor economic performance. Rampant graft had permeated all the institutions of the government. Zambia is ranked the 11th most corrupt nation in the world (www.zamnet.zm, 9 June 2002). There had been gross misuse of national resources including foreign assistance, mishandling of privatisation, and electoral fraud. Privatisation of public companies was deliberately mismanaged to allow leaders in the ruling party and the government, and their international allies to purchase them cheaply, and at times without depositing the money in the government treasury or distributing it to intended beneficiaries. In particular, the privatisation of the Zambian copper mines was seriously flawed. For example, the Chiluba government has not accounted for the sum of US $35 million from the sale of the Roan Antelope Mining Corporation of Zambia in Luanshya (www.post.co.zm, 8 October 2002). Similarly, the foreign accounts of the government had been utilised for personal benefit by the leadership, as well as for political patronage purposes (www.zamnet.zm/zamnet/post, 8 October 2002).
The poor economic performance had severe consequences for the entire economy. Real per capita gross domestic product declined by more than 20 per cent in 1991-95, and the number of people living in poverty increased overtime to 73 per cent in 1996. Rural poverty stood at 83 per cent, while urban poverty was estimated at 56 per cent (Republic of Zambia 2000). Zambia is now one of the poorest countries in the world, having lost its middle-income status in 1985.
Zambia’s poor economic performance since 1991 can also be attributed to two other interrelated factors. First, the political elite had no well-defined long-term policies and strategies for development. They only had a short-term vision of overthrowing the government of Kaunda. Second, the excessive reliance on, and unconditional acceptance of, the IMF/WB economic decision-making reduced the state’s capacity to develop the economy (Mengisteab and Daddieh 1999). It is in this respect that Zambia lacks a developmental elite, nationalistic in outlook and determined and committed to economic progress and development. The government abandoned national development planning, public investment, financial incentives to business, and provision of social services and affordable food to its people. This stance was illogical as all countries that have experienced development, irrespective of ideology, have assigned an active role for the state, to provide financial assistance and incentives to promote industrialisation and general development; and have demonstrated the importance of a strong, interventionist state, capable of planning, directing and complementing market forces.
A Way Out?
Both the import substitution industrialisation and export orientation through SAPs have not promoted sustainable development in Zambia. While structural adjustment has contributed to improved annual growth rates since 1991, it has failed to promote viable development and has compounded the debt burden. SAPs are considered inadequate for development because of emphasis on exports of primary products (copper), yet for development to take place an economy needs to export manufactured goods and simultaneously develop domestic demand, undertake regulated liberalisation and sustain growth with equity (Morrissey 2001; Mittelman and Pasha 1997). The experience of East Asian economies might provide valuable lessons for Zambia’s economic recovery and development. Of particular relevance is the agriculture policy with emphasis on land reform and incentives for farmers, liberalised yet regulated industrial and financial sectors, and equitable distribution of income. These have to be complemented with technical capacity, political will and a state that ‘governs the market’ for successful growth with equity.
The policy of import substitution, and economic liberalisation without re-orientation from copper mining to export-oriented industrialisation has proved unsustainable to economic development. Consequently, the country has become one of the poorest in the world and suffers from economic decline, with little prospects for recovery. In order to achieve sustainable economic recovery, there is need for Zambia to go beyond SAPs and to pave the way for growth with equity.
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