Transcript 1. Presentation by Mr. Barnabas Mwansa, Founder and

History of
Zambia
Formerly Known As:
Northern Rhodesia
By Barnabas Mwansa
Structure of the Paper
• Pre-colonial Zambia
• Colonial Zambia
• Post Colonial Zambia
• Independence to the mid-1970s
• Mid-1970s to 1991
• 1992 to 2011
• 2011 to 2013
8000 BC:
Ancestors of the Khoisan/ Bushmen people
establish the first organized society in Zambia
• They were peaceful hunter-gatherers and
pottery makers
• Lived in rock shelters and caves
• Archeologists have found some of these caves
decorated with paintings
300 BC:
Bantu-speaking migrants arrive from the north
and begin farming, signifies the start of tribal
society in the region.
• With their arrival the Khosian people moved
south-east to Namibia and Botswana
• The bantu people lived in thatched houses
made of wooden poles and earthen walls
• These houses are still built today in rural
Zambia because they keep cool in the
summer and warm in the winter
700 AD - 1000 AD:
Trade with Arabians and Persians begins
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A centralized government is started with a
strong ruling class
Their economy was based on cattle and the
more cattle you owned the more wealth and
power you had
Slave trade is expanded giving them access
to luxury goods.
1500’s:
European exploration/exploitation
• Beginning of trade and exploitation
by Europeans.
• Christianity is also introduced by
European explorers.
1800’s:
European Exploration and Colonization
• Cecil John Rhodes led European
explorers to Southern Africa.
• Rhode leads the British South Africa
Company to colonize Southern
Rhodesia.
• Northern and Southern
Rhodesia are now
considered separate
territories
1920’s - 1930’s:
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Southern Rhodesia becomes a selfgoverning British colony
End of British South African administration
Whites choose self-government
Uprising of black opposition
to colonial rule
1953:
Central African Federation
• Creation of the Federation of Southern
Rhodesia (Zimbabwe), Nyasaland
(Malawi), and Northern Rhodesia
(Zambia)
• British government puts pressure on
Southern Rhodesia to allow blacks
better jobs
• White workers begin to feel
worried that their “status” will be
diminished
1960’s:
“Unilateral Declaration of Independence”
• Zambia and Malawi gain independence,
resulting in the end of the Central African
Federation
• Ian Smith becomes Prime Minister of Britain,
and creates the Unilateral Declaration of
Independence
for Zimbabwe under
White rule.
• The United Nations
reacts
with outrage and imposes
economic sanctions.
Independent Zambia
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Zambia’s colonial inheritance was unusual. Instead of being a separate colony,
Northern Rhodesia was part of the Central African Federation (of Northern and
Southern Rhodesia and Nyasaland – now Zambia, Zimbabwe and Malawi
respectively) between 1953 and 1963. The Federal capital was Salisbury (now
Harare).
From the outset the benefits of Federation were very unevenly distributed, with
industry and infrastructure concentrated in Southern Rhodesia. Most of the tax
from the Northern Rhodesia copper industry was diverted to the south
Under the Federation Northern Rhodesia ‘lacked many of the governmental
functions – fiscal, industrial and commercial policy, transport and power, overall
control of educational policy, defence and foreign affairs – that any independent
country (and even any fully fledged colony) would regard as indispensable.
Many of the ministries with which Zambia began life had only been in existence
for a few months’ (Martin 1972:47).
As a result, Zambia inherited much less at independence in terms of
infrastructure, industry and public administration than most ‘normal’ former
colonies. Essentially, the inheritance comprised a thriving copper mining
industry, the infrastructure needed to support it (particularly the railway
through Southern Rhodesia to Mozambican ports and hydroelectricity from
Kariba) – and little else. Manufacturing was limited to plants supporting the
mines and a handful of industries where proximity to the final market was
important
Independent Zambia
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Most damagingly, Zambia ‘found itself at independence with a smaller number
of educated Africans in relation to the population than virtually any other of
Britain’s African colonies.
In 1963 there were fewer than 100 Zambian
university graduates and fewer than 1,000 secondary school graduates…..[The]
lack of skilled manpower at all levels was probably the biggest single constraint
on Zambia’s development in its early years’ (Martin 1972:49).
Zambia’s economic prospects were also constrained by geography. Being a
large, sparsely populated country meant that providing social infrastructure
(health, education, roads)would inevitably be relatively expensive per
person. Its small population and domestic market meant there was limited
scope for manufacturing – unless export markets could be accessed.However,
trade prospects were limited by being landlocked and poor transport links with
all neighbours apart from Southern Rhodesia.
On the other hand, Zambia also had some substantial advantages relative too
ther former African colonies. Foreign reserves in 1965 were equivalent to nine
and a half months import coverage (IBRD 1966:14). Most obviously, Zambia
had some of the richest mineral deposits in the continent and was the fourth
largest copper producer in the world. On the eve of Independence Zambia
bought back the mineral rights (and royalties) of its own sub-soil riches, which
the British South Africa Company had owned since 1891. Now that taxation of
the copper industry was no longer siphoned off by the Federation, the new
government could look forward to a substantial stream of fiscal
revenue. Copper contributed 93% of exports and 71% of government revenue
(equivalent to 18.5% of GDP) in 1965 and more than half of government
revenue every year until 1971
Independent Zambia
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Minerals were by no means Zambia’s only natural resource. One of the largest
countries in Africa by area, it had substantial land resources; 39 million
hectares, 58% of which was classified as having medium to high potential for
agricultural production. It also had an excellent climate for agriculture and was
well endowed with water resources – valuable both for agriculture and for
generating hydro-electricity. Finally, with Victoria Falls and some of the best
game reserves in southern Africa, there was considerable potential for tourism.
The political context also appeared relatively favourable. The transfer of power
had been entirely peaceful. No ethnic group was dominant. With a much
smaller settler population than Southern Rhodesia, the new government did not
have to cater to settler interests and could focus entirely on the needs of the
African majority. Inheriting little meant starting with a ‘clean slate’. With its
rich natural resources and good fiscal prospects, therefore, Zambia started life
with great ‘potential’ (an over-used term in the Zambian context). This paper
attempts to explain why, fifty years later, solittle of this potential has been
realised.
The fortunes of Zambia’s copper industry have been closely correlated with
those of the formal economy since well before Independence. The main links
are: (i) the industry’s demand for Zambian goods and services; (ii)
employment; (iii) foreign exchange; and (iv) government revenue. Although
copper represented between 38% and 48% of GDP in the five years after
Independence (Table 1), links with the rest of the economy have always been
weak. Mining is an enclave industry everywhere, with few backward and forward
linkages; most inputs are imported, while processing beyond smelting / refining
into cathode is rarely economic. It is also a capital-intensive industry, creating
Independent Zambia
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The Role of the State
Zambia was a mixed economy at Independence. While it inherited a number of
public enterprises – eg electricity, rail and air transport, agricultural marketing
and development and rural sector financing – most commercial activity,
dominated by mining, was privately owned. Initially, the government appeared
content with this arrangement.
‘State-controlled enterprises dominate Zambia’s economy. They play a key role
in almost all major economic sectors, including Zambia’s mining industry,
manufacturing, wholesale and retail trade, energy, transport, finance, hotels
and restaurants, and agricultural services and marketing. In 1975 the Zambia
Industrial and Mining Corporation (ZIMCO), the giant state-owned parent
holding company embracing some 73 state controlled subsidiaries, reported a
turnover of K 1.2 billion[US$1.8 billion], total net assets of K 1.5 billion[US$2.3
billion, of which the mines accounted for about 80%], total employment of over
100,000 persons or close to 25% of total national wage employment. Including
an additional 14 major statutory bodies and corporations, it is estimated that
well over half of Gross Domestic Product per year originates in the parastatal
sector and that parastatals together employ at least a third of total national
wage employment’ (World Bank 1977:i).
Independent Zambia
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It was one of the most remarkable economic developments in post-colonial
Africa, with profound consequences for future generations. In just a decade
Zambia had gone from a predominantly private economy with very weak public
institutions and fewer than 100 university graduates to a country where the
state dominated not just the ‘commanding heights’ of the economy but virtually
all medium and large scale business.[9]It is hard to think of a successful
modern economy with anything like this degree of state control. It is now
widely recognised that governments are ill equipped to undertake such
commercial activities as manufacturing and agricultural marketing, let alone
wholesale and retail trade, hotels and restaurants. How did this come about?
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The growth of the state took three distinct forms:
Investment to reduce dependence on Southern Rhodesia following its Unilateral
Declaration of Independence (UDI) in November 1965;
Direct investment in large scale manufacturing where the private sector was
unwilling to invest; and
Nationalisation of private enterprises.
1) UDI
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Independent Zambia
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UDI in 1965 had a profound impact on the Zambian economy, the effects of
which are still felt today. Its colonial history had tied Zambia’s economy firmly
to that of its southern neighbour. Virtually all its international trade was
transported through Rhodesia by rail or road – the only paved roads out of the
country went south. Fuel was imported via the pipeline from Beira to the
Rhodesian refinery at Umtali. Though it was jointly owned, the power station on
which the copper mines depended was situated on the south bank at Kariba.
Zambia suddenly ‘found itself in the forefront of the economic war that broke
out between Rhodesia and the rest of the world…. Many of the sanctions
invoked against Rhodesia worked much more quickly and devastatingly against
itself.’ For example, ‘the oil embargo cut off Zambia’s supplies, too, and it had
to depend on a ridiculously elaborate and expensive airlift over distances of
upwards of a thousand miles’(Martin 1972:52-53).
While sanctions caused considerable short termdisruption, the fiscal damage
was limited by booming revenue from mining. However, the infrastructure
investments GRZ was forced to undertake to reduce dependence on Rhodesia
and the impact of sanctions had far greater long term significance for the
economy. They were undertaken for urgent strategic reasons, rather than any
great desire for an increased role for the state in the economy.
2)Direct investment
While its initial policy was to leave industrialisation largely to the private sector,
the Government was prepared to invest itself (sometimes in joint ventures) in
projects that were deemed strategic and/or where the private sector was
reluctant to invest.The success of the road haulage operation and the TAZAMA
pipeline increased GRZ confidence in its own ability to undertake major
Independent Zambia
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The Government’s own programme was spearheaded by the Industrial
Development Corporation (Indeco), a small development finance company
engaged primarily in long-term lendingto the private sector inherited from the
Federation. Headed from 1965 by Andrew Sardanis, a Cypriot / Zambian
businessman, Indeco’s initial role was to participate in, or set up if necessary,
industrial enterprises and to provide incentives for prospective foreign and
Zambian private investors.
It became ‘the main channel for applying
government funds to industry by means of loans, share capital and the provision
of factory buildings’ (Martin 1972:57). In addition to Tanzania Zambia Road
Services and TAZAMA, between 1965 and 1967 Indeco signed contracts for
several major projects, most of which were in production by 1970. The largest
(K18 million) was for Nitrogen Chemicals of Zambia (NCZ), a colossal fertiliser
plant which also produced explosives for the mines. Other major contracts
included a fully integrated textile mill, Kafue Textiles (K7 million), Zambia Metal
Fabricators (a copper cable plant), a second cement plant, tyres, grain bags and
fishing, plus two Intercontinental Hotels and several smaller enterprises (Martin
1972:63).
Independent Zambia
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) Nationalisation
By 1968 the government ‘became convinced that most foreign-controlled and
local expatriate companies, which still made up most of the private sector, were
more preoccupied with fast and high returns and with transferring capital
abroad than with local reinvestment, diversification of Zambia’s economy and
Zambianization of personnel’ (World Bank 1977:i).In April 1968 President
Kaunda announced the ‘Mulungushi Reforms’,the first in a series of economic
reforms which, among other things, considerably expanded the role of the state
– primarily by taking majority shareholdings in established larger scale private
enterprises.
In one of the most significant measures 25 leading non-mining companies
(mainly department stores, suppliers of building materials, quarries, transport
companies and breweries) were ‘invited’ to offer the Government at least 51%
of their shares – while continuing to manage them. Indeco was to negotiate the
purchase of the shares, with compensation limited to book value, and hold them
on Government’s behalf. The President also announced that retail trading
outside the main city centres, and certain other businesses (eg small-scale
government building contracts, rural transport contracting and small quarrying),
were henceforth to be confined to Zambian citizens. Restrictions were also
imposed on local borrowing by non-Zambian businesses and remitting dividends
overseas.
Independent Zambia
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Fiscal performance to the mid-1970s
With mining revenues averaging 17% of GDP between 1965 and 1970, GRZ was
able to dramatically increase public expenditure while seemingly following
conservative macroeconomic policies. Despite the effects of UDI and despite
funding most of the investment programme from domestic resources, the
budget was usually in surplus. Gross national savings averaged 37% of GNP
over the period while gross domestic investment averaged 28%; about onethird of national savings was provided by government recurrent budget
surpluses while the remainder was contributed by the private and parastatal
sectors (World Bank 1977:18). Expansion of the money supply was consistent
with the growth of real income and the progressive deepening of the financial
system, inflation was low and external debt was minimal (McPherson 2004:30).
However, expenditure policies adopted during this period were building up
severe fiscal problems for the future. The substantial social infrastructure
programme inevitably gave rise to increased recurrent expenditure
commitments; expanded education and health facilities required more teachers
and health workers, new roads needed to be maintained, and so on. In
addition, the ‘government pursued a policy of very rapid Zambianization and an
extraordinary expansion of the entire government personnel establishment. The
latter increased at a rate of 18% per annum during 1964-69. Also, by 1969
most senior posts were staffed by Zambians. During 1964-74, the civil service
increased six-fold and became almost fully Zambianized’ (Gulhati 1989:29).The
fiscal implications were compounded by a rapid increase in public service wages
over the period.[18]
Independent Zambia
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Fiscal performance to the mid-1970s
However, expenditure policies adopted during this period were building up
severe fiscal problems for the future. The substantial social infrastructure
programme inevitably gave rise to increased recurrent expenditure
commitments; expanded education and health facilities required more teachers
and health workers, new roads needed to be maintained, and so on. In
addition, the ‘government pursued a policy of very rapid Zambianization and an
extraordinary expansion of the entire government personnel establishment. The
latter increased at a rate of 18% per annum during 1964-69. Also, by 1969
most senior posts were staffed by Zambians. During 1964-74, the civil service
increased six-fold and became almost fully Zambianized’ (Gulhati 1989:29).The
fiscal implications were compounded by a rapid increase in public service wages
over the period.[1
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DEBT TRAP -
Independent Zambia
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1991 to 2011: MMD
The 1991 elections ended the UNIP era and brought to power the Movement for
Multiparty Democracy (MMD) with a strong mandate for reform. With inflation
exceeding 100% and GDP declining, in February 1992 President Chiluba’s
government agreed a comprehensive reform programme with the IMF and
World Bank aimed at stabilising and restructuring the economy and at
stimulating growth (World Bank 2004:7).The main reforms are summarised
below.
Fiscal policy.Progress towards stabilisation was undermined initially by a
prolonged drought in 1992, continued falls in copper revenues and high preelection wage settlements, which exacerbated both the fiscal deficit and
inflation. In 1993 the government introduced a cash budget system to
strengthen budgetary control expenditure. In 1994 the Zambia Revenue
Authority was established to strengthen revenue collection and in 1995 Value
Added Tax replaced the cumbersome sales tax. With the abolition of most
consumer and producer subsidies and with increasing aid, the fiscal deficit after
grants started to come down from 1995 – averaging 4.9% of GDP between
1995 and 2000 (McPherson 2004: Table 2-1).
Monetary policy. In 1993 the Bank of Zambia removed all restrictions on bank
lending and deposit rates and allowed official interest rates to be determined by
the market at the weekly Treasury Bill auction.
Independent Zambia
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Exchange Rate. In 1992 the Government allowed the exchange rate and the
allocation of foreign exchange to be determined by the market throughbureaux de
change. By 1993 most foreign exchange controls had been removed and by 1994,
when the Kwacha became fully convertible, the foreign exchange market was
completely decontrolled.
Agricultural liberalisation. Subsidies of mealie meal and fertilisers were eliminated in
1992. In 1993 GRZ decontrolled maize producer prices and withdrew from
marketing agricultural inputs.
Trade liberalisation.GRZ embarked on a radical programme of trade and industrial
policy reform in 1992, eliminating all licensing and quantitative restrictions on
imports and exports over a five year period. Tariffs were reduced and the tariff
structure simplified. The effect of these reforms was to transform Zambia’s trade
regime from one of the most protectionist in Africa to – apart from fuel and maize –
one of the most liberal. This has been consolidated over time with further tariffs
reductions under regional trade agreements.
It meant the abandonment of the import substitution policy that had been in place
since Independence. Following mounting problems with foreign exchange access,
price controls and political interference during the 1980s, this was a disaster for
many of Indeco’s industrial parastatals. Some had never been economically viable
and depended on protection from imports for survival. Dismantling tariff protection
and the removal of producer subsidies was the final nail in the coffin.
Independent Zambia
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Privatisation. The MMD election manifesto contained a strong commitment to
privatisation, recognising the need both to stem the fiscal haemorrhage from loss
making parastatalsand to attract investment to enable potentially profitable
companies to survive.A privatisation act was passed in 1992, and the Zambian
Privatisation Agency (ZPA) was created to convert parastatals to private ownership.
Privatisation of ZCCM was a different story. The conglomerate was to be broken up
and sold in separate packages, with the state retaining responsibility for pension and
environmental obligations. Contrary to legislation, the process was led not by ZPA
but by former managers of ZCCM opposed to privatisation – overseen by a
committee of ministers. Political interference (particularly overLuanshya mine)
contributed to delays and increased financial losses. Pressure from the IMF, World
Bank and others resulted in the eventual sale of packages ‘one by one through
often opaque bilateral negotiations with preselected preferred bidders’ (Adam and
Simpasa 2010:66).[26]However, with copper prices approaching their lowest real
level in a century (Figure 1), GRZ was in a weak negotiating position and was forced
to offer generous tax and other concessions to close deals.
Independent Zambia
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The MMD government can be considered one of the most radical and successful
economic reformers Africa has seen. The major reforms of the Chiluba period –
privatisation, trade and financial sector liberalisation, abolition of most subsidies and
price controls – caused considerable pain initially. However, boosted by the copper
boom from 2003, they laid the groundwork for the establishment of fiscal discipline
and macro-economic stability from the mid-2000s and the longest unbroken period
of growth in Zambia’s history. By the 2011 elections the macro economy had never
been in better shape.
Some qualifications to this glowing assessment are in order. Firstly, most of the
reforms consisted essentially of just reversing misguided policies from the UNIP era
– which had clearly failed. Secondly, there was little alternative. The country was
effectively bankrupt and dependent on support from donors and the IMF – who
insisted on reform; the delay in privatising the mines suggests support for reform
was less than whole hearted. Thirdly, economic performance was greatly boosted by
external factors such as the copper price recovery and debt relief. Fourthly, while
macro-economic performance was transformed, the micro / sector record was much
less impressive – with increased fiscal space being largely dissipated on political
projects and no progress in agriculture.Finally, the MMD era is associated with
increased levels of corruption – particularly under PresidentsChiluba and Banda.
Independent Zambia
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maintain stable and favorable macroeconomic environment such as achieve a real
GDP growth rate of above 7.0 per cent; (b) achieve an end year inflation rate of no
more than 7.0 per cent;(c) increase international reserves to at least 4.0 months of
import cover;(d) raise domestic revenue collections to at least 18.5 per cent of
GDP; (e) contain domestic borrowing to no more than 2.0 per cent of
GDP;(f) accelerate the diversification of the economy, and continue the drive to
create decent jobs, especially for the youth; and (g) accelerate implementation of
interventions in the health, education and water and sanitation sectors
the US$4.7 billion debts
Governance
Constitutional Democracy
Strong Civil Society and Free Press
Mixed Economy
FDI
Gender and Development
Social Progress
Gine Coeffient 52
Socail Policy
CEEC
Socal Cash Transfer