CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
by Fred Chela, Zambia, March 1999
THEME = ECONOMY
Zambia's economy needs drastic economic surgery
in order to come out from its current comatose stupor...
described by sarcastic economists «as admitted into an intensive care unit»
The Bank of Zambia's governor, Dr Jacob Mwanza, admits that Zambia's economic traumas are «ghastly but surmountable, if only Zambians can persevere with responsibility». Macro-economic stability had been manifested in Zambia's economic growth in 1996 with the Gross Domestic Product at 6% and inflation controlled from an average 400% in 1991 to 18% in January 1998. Paradoxically, this escalated to about 30% in December 1998. Unfavourable exchange rates throttled the local currency from US $1=K1,200 in January 1998 to US $1=K2,350 by December 1998, rendering the Zambian currency almost useless. The economic barometer has drastically changed. Bank rates also plummeted to dismal levels, from an average 26% in January 1998 to 45% in December 1998, consequently inhibiting and restricting borrowing by small and medium scale entrepreneurs. Even the bigger firms are grumbling about the high cost of borrowing from banks.
This has inevitably made the manufacturing industry in Zambia go to sleep, as cheaper and subsidised competitive products flooded the Zambian market, notwithstanding the fact that Zambia is the most economically liberal country in the Southern African Development Community (SADC) region.
Let's look at one tangible example of what's happening. Zambia Bottlers, the manufacturers of Coca Cola products, hiked the price of their products by 90%. So what happened? Consumers switched to other brands like Cadbury Schweppes and South African and Zimbabwean products which have extended their soft drink manufacturing tentacles into Zambia.
Zambia's Commerce Minister, David Mpamba, regrets the demise of the manufacturing sector. He says: «This is the price of a liberalisation policy. Nevertheless, the government will review duty rates in the 1999 budget.
Finance Minister Edith Nawakwi attributes the current economic woes to the present US $6.4 billion external debt. She says: «We are spending vital foreign exchange on debt servicing rather than spending it on development programmes...consequently, there was no growth in 1998, nor will there be an improvement in 1999.» Zambia was plunged into a further economic quagmire in the 1998 fiscal year when donors squeezed the country for various spurious reasons, for example, demanding «good governance». The donors however, kept on shifting their goal posts, saying the pledged US 530 million can only be released if and when, Zambia Consolidated Copper Mines (ZCCM) is privatised. This has now taken place with the giant mining conglomerate, Anglo American Corporation (AAC) having concluded a purchase deal for ZCCM 's major assets.
AAC has also clinched a deal to buy the Konkola Deep Mine Project, the core future of Zambia's mining industry, by March 2000. Konkola Deep has an extremely rich copper ore with an estimated 3.8% pure copper with a lifespan of about 60 more years. Pledged investment is US $800 million.
Finance Permanent Secretary Bernard Nonde says Zambia's current debt crisis originates from the 1970s, with the debt making itself felt in the 1980s when the country's economic performance began to deteriorate rapidly. This triggered a continued worsening balance of payments position, exacerbated by the government's cancellation of the International Monetary Fund's Stabilisation Programme on 1 May 1987. This resulted in the donors suspending external financing, and plunged Zambia into deep economic blues. Foreign exchange dwindled and civil servants were paid from parastatals like CCM, the Zambia State Insurance Corporation, the Zambia National Provident Fund.
The country's economic malaise precipitated the June 1990 five-hour military coup plot and subsequent food riots, that culminated in the acceptance of plural politics by former Zambian president Dr Kenneth Kaunda.
Zambia consequently accumulated external payments arrears of US $3 billion. Lusaka's noted economic analyst, Elias Mpondela, says that despite all the strategies which the government has put in place, it is evident that Zambia's debt is unsustainable. Invariably, the debt burden has had a negative impact on the living conditions of Zambians. The debt keeps on growing; it remains astronomical and debt servicing absorbs a significant share of the resources meant for critical development programmes. This stagnates economic growth everywhere.
The country's sluggish export performance has not helped the situation, neither has Zambia's dependence on an economy based on copper mining with crippling poor prices on the international metal markets.
The continued increase in debt means that Zambia has had to take on board an appropriate debt strategy. The Zambian government fully supports the Heavily Indebted Poor Countries Debt Initiative (HIPC) launched by the World Bank and the IMF in September 1996. Under the HIPCinitiative, multilateral institutions will provide heavily indebted poor countries with additional relief, after mechanisms under the Paris Club and London Club have been exhausted.
President Frederick Chiluba's economic austerity programme, has by and large, received massive support from the grassroots who have embraced the spirit of self economic empowerment as opposed to economic dependence. People have come to realise that determination and hard work are the solution to current economic woes.
END
CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
PeaceLink 1999 - Reproduction authorised, with usual acknowledgement