Transcript 2015-Lameck-Goma-Lecture-PowerPoint

Lusaka Lecture
• Thandika Mkandawire
• Professor and Chair
• Africa Development, LSE
• Visiting Professor and Senior Research Fellow
• Graduate School of Development Policy and Practice
Natural Resources Potential
benefits
• Revenue centralisation and nation-building
• Finance Economic Growth
o Relaxing Foreign exchange constraints on import of capital goods and
technology
o Funding “lumpy projects” such as Infrastructure
• Externalities
o Human capital
o Forward and backward linkages wuth rest of economy
•
•
•
•
Creation of Domestic markets for other sectors
Attraction of FDI
Contribution to Domestic Savings
Employment creation in direct and ancillary activities
“Born with a copper spoon in the mouth: Reflections on
Zambia and the “Resource Curse”
• Kaunda: “We Zambians were born with a copper spoon in our mouths
• Rene Dumont: “The Curse of Copper”
• President Kaunda’s Concerns over the “Copper Spoon” predates the
idea that natural resource wealth was a “resource curse”
Resource Curse
• Terms of Trade Effect:
o Commodities could be subject to secular decline on world markets
• “Dutch Disease Effect”
o
Natural resources could be dead-end sectors in the sense that crowd out manufacturing, which offer more
dynamic benefits and spill overs that are good for growth. .
• Governance Effect
o
Reliance by the state on rents from mining and not direct taxation on its citizens would undermine
accountability: The America battle cry of “No Taxation without representation” would be turned into “No
Representation with taxation”
• Conflict Effect:
o Such countries could have high a proclivity for armed conflict, which is inimical to economic growth.
• Economic Stability Effect:
o Swings in commodity price could engender macroeconomic instabilitye.
• Have high levels of inequality
• Tend to Neglect agriculture
Three propositions
• The colonial legacy
• The Fiscal Base of the state and Political Contestations
• The Cyclical nature of economic change
of a countries success or failure to one
factor
•
•
•
•
•
•
•
Initial conditions
Ideas
Individuals
interests
Institutions
Industrialization
International order
Forms of Colonial Incorporation
• Zambia’s first resource curse was
inability to use its resources
which were drained by both
colonial and federal and the
mined to develop Salisbury and
White Settler farms in Rhodesia
• Zambia belonged to labour
reserve economies so that its
wealth could be used to
developed African agriculture
as that would raise reservation
price for labour
Type
Countries
Cash crop economies
(enlarged West Africa)
Benin, Burkina Faso, Cameroon,
Côte d’Ivoire, The Gambia,
Ghana, Guinea, Guinea-Bissau,
Mali, Mauritania, Niger, Nigeria,
Senegal, Sierra Leone, Tanzania,
Togo, Uganda
Africa of the concession
companies
(Congo Basin)
Congo Kinshasa, Congo
Brazzaville, Gabon, Central
African Republic, Rwanda,
Burundi
Africa of the labour reserves
(East and Southern Africa)
Angola, Botswana, Kenya,
Lesotho, Madagascar, Malawi,
Mozambique, Namibia, South
Africa, Swaziland, Zambia,
Zimbabwe
Incipient welfare states
• In countries such as Zambia, for much of the post-World War period
the mining industry sought to stabilize African labour in the mines by
creating stable and semi-skilled labour force. The “Company Towns”
managed by the mining companies provided health, education,
entertainment facilities and housing services to the working force
Fiscal Base of the State and Political Contestation
• Th occurrence of the
“Resource Curse
depends on the political
contestation the state
has to contend with and
the ideology of the
dominant groups
• In Zambia the state was
confronted by a highly
organised labour
movement
• Resource nationalism
and an egalitarian ethos
plays an important role
Weak Political Contestation
Strong Political Contestation
Gabon
Algeria
Botswana
Zambia
Niger
Nigeria
Malawi
Senegal
Burkina Faso
Ghana
Cote d’ivoire
Mauritius
Gambia
Kenya
Rentier State
Merchant State
The cyclical nature of the impact of
resources
nvestment
nvestment
C
B
High
Investment/Low
Reserve
High
Investment/High
Reserve
D
Low Investment/Low
Reserve
A
Low
Investment/High
Reserve
Reserves
Investments-Reserves Cycles - Zambia
35
1976
1977
1975
1978
30
1973
1972
1974
1971
25
1980
1981
2006
2007
2008
2009
2010
20
2005
1982
2004
1983
15
2003
1985
1984
1987
2002
1988
1986
2001
1989
2000
1991
1999
1990
1998
1997
1995
1996
1994
1992
1993
10
Investment as share of GDP
1979
0
20
40
Reserves as percentage of External Debt
60
ZONE A: HIGH FOREIGN EXCHANGE RESERVES LOW
INVESTMENT – 1964-69
• This was the situation in which Zambia found itself at independence in 1964. Foreign
reserves exceeded annual imports and were far above the standard three months
import capacity
• The economy was basically a low expenditure economy, partly the legacy of from
the days when Zambia belonged to the Federation of Rhodesia and Nyasaland with
jts low social expenditures for Africans
• And partly due to the reticence of private investors whose fortune had been made
in a hitherto racist colonial order.
• Gross domestic expenditure (consumption plus investment was around two thirds of
gross national income and so in effect Zambia was exporting capital.
• The first effort of government to stimulate investment was through investment
in both physical and social infrastructure
• Signficantly the Government’s Transitional Development Plan assumed that 69% of
investment would come from private sources
Social Problems
• The first was racial dualism in wage structure and welfare provision. The
average earnings of non-Africans were around nine times those of
African workers.
• The second was extreme rural poverty for a country whose per capita
income, at slightly more than US500, was far above the per capita
income in sub-Saharan Africa. Rural poverty was linked to the “labour
reserve” status to which much of the country outside the line of rail
was reduced.
• The third worry was the problem of human capital. Zambia inherited
an economy in which indigenous populations had received little
education. The logic of the labour reserve economy was to keep the
reserve wage down by denying indigenous population sources of
income out the migration based wage system
Social Policies
90
100
110
120
Gross Primary School Enrolment in Zambia
80
School enrollment, primary (% gross)
• The new government pursued
rather cautious social policy
• Focus was on education where
it invested massively and led to
dramatic increases in school
enrolment.
• It consciously chose to do little
about health beyond the urban
areas where mine hospitals were
adequate for the urban
population
1960
1970
1980
1990
Year
Source World Bank Databank
2000
2010
The political problems
•
•
•
•
•
•
Recall Zambia during this phase in the “Rentier State-Strong Society” category
Almost from the very the day of independence divergences of interest between the nationalist
movement and the labour movement. If the nationalist movements was focussed on the “national
question”, the trade union was focussed on the “social question” as posed by the peculiarities of
labour reserve economies.
The new government’s preoccupation was to end racism, consolidate the new nation, promote
economic development and to bridge the gap between wage in earners in the urban sectors and
the non-urban and non-wage labour population.
The “social question” as posed by labour was that of the deracialisation of the labour market and
the raising of wages and other social wages earned by African workers The “labourist” agenda of
the trade union movements had to contend with the nationalist understanding of the “national
question”.
While the government shared with antiracist impulse behind labours demands, it believe that the
“social question” as posed by labour movements was too narrow and a potential source of
segmentation of the emerging social policy regime
t thus sought restraint on the part of labour unions and sought to co-opt the Unions to its nationalistcum-developmentalist project. For tension between these “questions” in the African context
ZONE B: WHERE BOTH FOREIGN EXCHANGE
AND INVESTMENTS ARE HIGH.
• Frustrated with poor response of the private sector and the continued
capital flight and pressures from organized labour, the government
switched gears and pronounced the Mulungushi Declaration in in 1968
• The main objectives of the declaration was the assumption by the
state of a leading role. This was intended
o to accelerate the pace of Zambianisation,
o
o
o
o
to insure reinvestment of surpluses in Zambia and to minimize "profiteering".
to result in the stimulation of employment,
To speed up the diversification of the economy through more rural employment
And to redress the imbalances in the structure of ownership and management Of the
economy
ZONE B: WHERE BOTH FOREIGN EXCHANGE AND
INVESTMENTS ARE HIGH.
• The state took a more entrepreneurial role to set up new industrial and,
more significantly, nationalized the copper mines
• The government was forced to speed up “indigenisation” of the
economy. . Given the fact that Zambia had a weak capitalist class
indigenisation of ownership would effectively entail state control.
• To encourage investment and to productively make use of its trade
surpluses and reserves, the state adopted a more activist role in the
economy.
• The shift involved increased state share in mining industry, creation of
powerful parastatal to oversee the industrialization process,
• extensive provision of social services (especially education) and
acceleration of the Africanisation of the management of the
economy.
Economic performance
• Investment expanded by 11 per cent, increasing its share from 11
percent in 1964 to a peak of 41 percent in 1975.
• This resulted in considerable improvements in growth so that until the
onset of the copper crisis in 1974, the economy's overall annual growth
rate was 6 percent. This was twice the rate of population growth
• And ensured a steady increase in per capita income from US$203 in
1964 to US$524 in 1974
• Problems:
o The state relied on copper for much of the revenue. In 1968, 57.6 percent of its revenue came from
the industry.
o Government expenditure grew by 9 percent while tax revenue grew at 5 percent.
o The Rhodesia problem
Social Problems
• Youth unemployment
o Zambia’s industrialisation was capital intensive and did not generate muh employment
• Growing class inequality
o Racial inequality replaced by class inequality
o Government sought to fight this with “leadership code”
• Growing urban rural divide
o Calls for wage restraint
Social Policy
• Social policy was facilitated by the substantial fiscal well-being of the
state.
• Social policy was driven by a significant ideological shift by the ruling
United National Independence Party which overlapped with the
constitution of “Second Republic” which turned Zambia into a oneparty state.
• Social policy was now couched in a more populist language
language.
• As we noted above Zambia has an extensive enterprise welfare
system managed by parastatals
Urban bias?
• Zambia was the most urbanised sub-Saharan country in the 1970s
• Did Resource wealth lead to Urban bias
o Thee was little extraction of surplus from rural areas. State relied on on income tax
and mineral rents for income
o Massive investment in national economic and social infrastructure
o Pan-territorial pricing politics that effectively subsidised agriculture
o Fairly high expenditure in agriculture in general:
• Problem in agriculture was the parcelisation of agriculture among donors and
modes of organisation of the sector
Governance issues
• Shift to one-party state
• The nature of the political and bureaucratic elite in Lusaka
• Few of the new bureaucrats were from the copperbelt
ZONE C: HIGH INVESTMENTS AND LOW
FOREIGN EXCHANGE RESERVES .1975- 82
• Already by the mid-1970s, the model of import substitution was already
begin to signal problems.
• The demand for imported input grew faster that export earnings,
pushing the economy into Zone C.
• This process was dramatically accelerated by the collapse of copper
prices in 1975 (From an average of $.93 per pound in 1964-74 to $.56),
and the Zambian economy was thrown into a deep crisis.
Policy response
• For a while the state treated the fall in copper prices as temporary.
And so public expenditure continued to be high because of high
government investment and the political pressures on the state to
sustain high levels of consumption and imports through deficit
financing and foreign borrowing.
• The state was forced to dip further into its foreign exchange reserves
and to borrow in the international market with its Zambia’s natural
resources serving as some form of mortgage, enhancing the
economy’s creditworthiness.
• For a while government could borrow to maintain investment and
social service – Hence the high levels of investment with low reserve
earnings
• This could possibly be considered a “resource Curse” but many other
countries with little resourcs did the same
ZONE C: LOW INVESTMENT AND LOW
FOREIGN EXCHANGE RESERVES -1982-2002• The model of reign borrowing to sustain high levels of investment could
not last.
• And Effectively all the three constraints savings, foreign exchange
reserves and the fiscal constraint – were now binding.
• External debt outstanding and disbursed had reached 61 per cent of
G.N.P.; and debt repayments had to be suspended.
• Investment collapsed, shrinking at the rate of 9 per cent so that in 1984
share of investment in GDP had shrank from the high of 41 percent in
1975 to 13 percent in 1984.
• The economy shark
Implementing SAP
• Between 1982 and 1985 the government entered into agreements on
structural adjustment measures.
• The new policy contained the standard package of “demand
management”. It removed subsidies on basic commodities.
• These orthodox measures immediately provoked opposition and led to
“food riots” in the Copperbelt at the end of 1986 that led to loss of
lives, forcing the government to abandon the agreement and reimpose numerous controls after political discontent.
• In May 1987 Zambia discontinued in the IMF/World Bank supported
programs and introduced its own New Economic Recovery Plan
Political Contestation
• The crisis deepened and completely undermined the one-party state
led by Kenneth Kaunda forcing him to accept a multiparty
democracy. . In 1989, the government fnally caved in to IMF pressures
and it decontrolled all consumer goods prices while holding on on to
subsidies for maize.
• In the following year, the government and the IMF drew up a new
Policy Framework Paper under which the government increased the
prices of high grade maize meal by over 100 percent in June 1990.
• Once again this led to riots in the copperbelt. I
• n 1989, the Zambian Congress of Trade Unions, with its 400,000
members, and a troubled relationship with the state finally came out in
the open for multi-partyism.
Policy consequences
• Ideological shifts marking of end of “Resource Nationalism”
• Pro-market policies
• The Zambian Privatization program that has been described as “one
of the most comprehensive and rapid privatization processes seen
anywhere in the world”
• More neoliberal approaches to public revenue and expenditure
• Corporate income tax was reduced to 25 percent (compared to 35
per cent in the non-mining sector. The effective royalty rate was 0.6
percent compared to 3 percent to 15 per cent in Brazil, Canada and
20 percent in Botswana.
• The government went so far along this path that it even embarrassed
the IMF which began to push for increased royalties
Consequences of SAP
• The capacity of the state to implement developmental goals was
seriously compromised
• the process of redefining the role of the state in the mining sector
reduced autonomy and authority of states, as well as their reduced
capacity to influence the evolution of their own structures.
• the narrowing of the margin of manoeuvre of mineral-rich states
and of their policy space as a result of having to respond to an
externally-driven reform the retreat of the state from the mediation of socioeconomic relations has left private enterprise increasingly subject to social claims
Low investment and low foreign exchange reserves 1982-2002• Despite the extensive macroeconomic reforms pursued zealously by
the Chiluba government, the foreign exchange reserve position of the
economy continued deteriorating as total exports (f.o.b.) fell by over
30 percent between 1990 and 1998
• Private investment remained low and was largely related to
privatisation and not to greenfield investment.
Consequences of Reforms
17.5
18
Share of Tax Revenue in GDP
20
percent
17
40
60
Share of Mining Revenue to Total Government Revenue
0
16.5
Percent of GDP (smoothed)
• Collapse of tax revenue
• Expenditure on education
dropped from the peak of1975
of GDP to 6 per cent by 2001.
The figures available suggest its
gone back again to 14 percent
by 2004
1990
19951965
1970
2000
Year
Source: Derived from data in Kelly (1991)
Source: World Bank Databank
1975
year
1980
2005
1985
2010
Back to ZONE C
• One major assumption of SAP is that the austerity measures will stimulate
exports and reduce import and thus facilitate renewed accumulation of
foreign exchange reserves which would eventually lead to renewed
investment.
• And so terms of our model, we would have expected the economy to enter
the ZONE A of high reserves and low investment from whence the economy
had started in 1964. In the event this did not happen in Zambia.
• The escape from the low investment-low foreign exchange zone took place
though rather fortuitous events as investment rose sharply even while foreign
reserves due improved commodity prices .
• Within a 6 year period between 2002 and Mid-2008 copper prices rose from
US$1600 per ton to US$8840. This raised export revenue from US$670 million
dollars to US$4 billion within this period.
Back To ZONE B
• The high investment in mining and the new accumulation of reserve
pushed the Zambian economy
• For while Zambia once again had high reserves and high investment
Social Policy once again
• Zambia was in the position where neither investment nor foreign
exchange reserves were binding in terms of social investment.
• What was binding instead was the weakened fiscal capacity caused
by the lowered extractive capacity of the state.
• The formulaic retrenchment of the state of the 1980s and 1990s has
severely compromised the ability of the state to benefit from
favourable economic conditions..
• On immediate effect of the decline in the share of tax in GDP was the
decline of share of social expenditure. As a result, the new commodity
boom did not translate itself into the kind of social programmes that
were introduced during the first two phases of the cycle nor did it help
is rebuilding the dilapidated infrastructure.
Income Distribution in Sub-Saharan Africa
Country
Cash crop
Burkina Faso
Cameroon
Côte d'Ivoire
Gambia
Ghana
Guinea
Guinea-Bissau
Mali
Mauritania
Niger
Nigeria
Senegal
Sierra Leone
Tanzania, U. Rep. of
Uganda
Average
Concessions
Burundi
Central African Republic
Madagascar
Rwanda
Average
Standard Deviation
Botswana
Kenya
Lesotho
Malawi
Survey year
Richest 10% to
poorest 10%
1998
2001
2002
1998
1998
1994
1993
1994
2000
1995
1996
1995
1989
1993
1999
GINI index
Standard Deviation
26.20
15.70
16.60
20.20
14.10
12.30
19.00
23.10
12.00
46.00
24.90
12.80
87.20
10.80
14.90
23.72
19.65
48.20
44.60
44.60
47.50
40.80
40.30
47.00
50.50
39.00
50.50
50.60
41.30
62.90
38.20
43.00
45.93
6.32
1998
1993
19.30
69.20
33.30
61.30
2001
1983
19.20
5.80
28.38
1993
1997
1995
1997
77.60
13.60
105.00
22.70
47.50
28.90
42.75
14.69
63.00
42.50
63.20
50.30
Resource Curse and Zambia
• Resource abundance does not doom countries to primary production
and stagnation
• Resource rich countries like Australia, Canada, Chile, South Africa,
and the United States built high-value processing and manufacturing
industries around abundant
• Zambia has in many way escaped the worst aspects of resource curse
• But has failed to use its copper for economic transformation
• Negative
o Faiure to diversify its economy
o Great vulnerability to commodity prices
o The rural Urban divide
• Positives
Zambia is of the more robust democracies in Africa
Th venality of the ruling class has never reached the levels often associated with “resource curse”
There has over the years significant investment in human capital
Levels of inequality are high ut there are lower than what is typical in the “labour reserve economies
of Southern Africa
o There have been no violent conflict in
o
o
o
o
Zambia as Tax and expenditure regime
1.6
Two Dimensional Classification of Welfare Regimes in Africa
Zambia is among those economies
1.2
Mali
which have historically collected
KenyaNamibia Lesotho
Angola
Zambia
Benin
relatively high taxes and spend much
Zimbabwe
on welfare regimes
1
Uganda
Sierra Leone
South Africa
Senegal
Gabon
Togo
Swaziland
Niger
Mozambique
Cameroon
.8
Rwanda
Burundi
Guinea
Chad
Madagascar
Mauritania
.6
Social Welfare Effort
1.4
Malawi
.5
1.5
1
Tax Effort
2
Reasonably good user of its nature
resources
Partial Plot - Resource Conversion
.1
Uganda
Kenya
Rwanda
Malawi
Ghana
Namibia
Botswana
.05
South Africa
0
Togo
Liberia
Zambia Gabon
Eritrea
Zimbabwe
Cameroon
Ethiopia
Sierra
Leone
Lesotho
-.05
Equatorial
Guinea
Swaziland
Senegal
Nigeria
Angola
Guinea
Guinea-Bissau
Mauritania
Faso
Benin Burkina
Mozambique
Sudan
-.1
Non-income HDI
Burundi
Niger
Chad
Mali
-1
-.5
0
Log Per Capita income
coef = .06097745, (robust) se = .01601906, t = 3.81
.5
1
Zambia’s per Capita income
GDP per capita (constant 2005 US$)
1200
1000
800
600
400
200
GDP per capita (constant 2005 US$)
YR2014
YR2011
YR2008
YR2005
YR2002
YR1999
YR1996
YR1993
YR1990
YR1987
YR1984
YR1981
YR1978
YR1975
YR1972
YR1969
YR1966
YR1963
0
YR1960
• Per capita income decreased
from a peak of US Dollars
US$1028 (in constant terns) in
1967 to close to half as much
(US$556) in 1994. GDP only
began to increase with
improved copper prices siring as
high as Us$1032 in 2014
• This kind of declined by many
countries in Africa including nonresource rich ones
• Zambia's economy is still to ties
to the fate of copper
Real resource curse
• The real resource curse in Zambia has been the bleeding the country
due to faulty privatisation and lack of “Resource Nationalism”
The case of Zambia – compared to Chile
Chile
Zambia
Years
Copper Share of
Fiscal Revenue (%)
Copper
Revenue/GDP (%)
Copper Share of
Fiscal Revenue (%)
Copper1
Revenue/GDP (%)
1994
8.3%
1.6%
1.1%
0.5%
1995
12.2%
2.5%
3.0%
0.6%
1996
7.9%
1.4%
2.8%
0.5%
1997
8.5%
1.4%
3.0%
0.4%
1998
2.9%
0.5%
1.5%
0.3%
1999
3.1%
0.4%
11.8%
2.1%
2000
5.8%
0.9%
12.9%
2.8%
2001
3.4%
0.5%
11.4%
0.1%
2002
3.5%
0.5%
0.1%
0.0%
2003
6.4%
10.0%
0.3%
0.0%
2004
18.6%
3.1%
0.1%
0.0%
2005
20.7%
3.8%
0.7%
0.1%
2006
31.1%
5.7%
0.7%
0.1%
2007
25.7%
4.8%
1.0%
0.2%
2008
24.6%
4.0%
3.4%
0.6%
Reform of the Mining
Regimes
• The reforms were informed by interests of the
industry and not host country
• The objective was to attract foreign investment,
premised on a sectoral approach that privileged
the perspectives of potential investors rather than
broad developmental an approach
Reform of the Mining Regimes
• Second, after the period of stringent state withdrawal in the
1980s, what was central to the World Bank strategy of the
1990s was the emerging new role assigned to the
governments of mineral-rich countries.
• Third, the adopted approach sought to provide a general
template for mining codes, disregarding to a large extent
the diverse specificities of different countries, characterized
by distinct policy traditions, trends, and objectives.
Natural resources and
development
• Importance of natural resources to African economies
• “… mineral-rich countries, minerals can be a principal
source of revenue for states to finance security, social
services and infrastructure, and a principal source for
investment in agriculture and other productive activities”