The Major Economic Challenges facing Zambia

Fifty years after independence, the structure of the Zambian economy has not undergone significant transformation. This means that the country has continued to face the risks and vulnerabilities associated with heavy dependence on a single export commodity. This dependency has been influential in shaping Zambia’s development trajectory. Discussed below are some of the major challenges facing the country at the moment as a consequence of this dependence.

Economic growth and wealth creation

The prognosis for Zambia’s copper-driven economy for 2015 is not good. The declining international copper price, like that for other commodities including oil, is a disturbing indication that our economy is headed for trouble. The fragile global growth is a major challenge. The International Monetary Fund (IMF) has lowered its forecast for global growth for this year and next year. The IMF now expects growth of 3.5 percent this year, compared with the previous estimate of 3.8 percent which it made in October last year. The growth forecast for 2016 has also been cut to 3.7 percent from the previous estimate of 4.0 percent. This downgrade reflects diminished expectations about growth prospects for many developed and developing countries over the next few years. The Eurozone is a case in point. The IMF expects the recovery there to continue but not strongly. It is estimating growth of 1.2 percent for this year in the Eurozone and 1.4 percent in 2016. The slowdown in China is another factor behind the revised forecast. Available figures indicate that China’s growth slowed to 7.4 percent in 2014 from 7.7 in 2013. Its growth in 2015 is projected at 7.3 percent and 6.3 in 2016. This decline compares with an average growth of 10 percent over the past three decades.

This is not very good news for Zambia’s copper dependent economy. A decline in the international price of copper, impacts negatively on the economy with serious implications for wealth creation. Not surprisingly, the World Bank says Zambia’s annual economic growth is this year expected to slow down to below five percent in the face of the continued decline in copper prices. Copper accounts for over 70 percent of Zambia’s exports and over a third of its foreign exchange earnings. The bad news is that Zambia’s economy is highly dependent on imports and any depreciation in the value of the Kwacha tends to translate into high prices of goods and services. The depreciating Kwacha could also counter any gains from the recent reduction in the price of oil.

Mining and taxation issues

Zambia is currently in a stand-off with mining companies over unpaid value added tax (VAT) refunds amounting to over US$600 million and the new mining tax regime that saw mineral royalty tripled from 6 percent to 20 percent for open cast mining and 6 percent to 8 percent for underground operations. The mining companies are arguing that the increase in mineral royalty would adversely affect their operations given the declining copper prices. For whatever reason, government is skeptical and does not seem to believe the mining companies’ forecast, its interests lie in generating more tax revenue from them. Combined, the controversies surrounding taxation issues and the pricing of copper on the international market would add pressure on the Kwacha, which is now trading around K6.60 per US dollar. This will pose a major challenge to the Zambian economy in 2015.

Agriculture

The chaos that has characterised Zambia’s marketing of maize in the last farming season points to serious weaknesses in the country’s agricultural policy and institutional framework. Agriculture holds huge potential for transforming Zambia’s economy but the sector has a number of structural and policy weaknesses. Structural weaknesses include continued use of primitive technology, low productivity, and lack of diversification and value addition, while policy weaknesses relate to issues of extension services, inputs distribution, and marketing of produce. These weaknesses need to be corrected if Zambia is to realize its agricultural potential.

Social services

From the mid-2000, debt relief and increasing mineral taxation has created fiscal space which has provided an opportunity for successive Zambian governments to improve the provision of social services. Major improvements have taken place in the provision of education. In particular, Zambia has made steady progress on primary school enrolment, which has increased from 80 percent in 1990 to 93.7 percent in 2010. The improvement is linked to several factors such as development of education infrastructure and introduction of free education. Zambia has also made progress in boosting primary school completion rates. However, challenges still remain at higher levels of education.

Similarly, Zambia has made progress in the provision of health services. As an indicator, the proportion of underweight children under five years of age has declined from 25.1 percent in 1992 to 13.3 percent in 2010. Despite this progress, infant and child mortality rates as well as maternal mortality remain very high. Access to safe water and good sanitation and good shelter, among others, is problematic. Also, despite the recent maize bumper harvests, there are still serious challenges with regard to nutrition. According to the Food and Agriculture Organisation (FAO), Zambia, along with Haiti, is the most malnourished country in the world.

Public debt

Beginning this year, falling commodity prices will pose a major challenge for debtors like Zambia, because their incomes – or their tax revenue – may fall but the debt payments often do not. The particular challenge for Zambia is that the debt is owed to private money lenders and the country has no clear defined payback plan. At present, public debt in Zambia accounts for about 34 percent of GDP. The rule of thumb is that 40 percent is sustainable in emerging economies. Beyond this, sustainability concerns begin to arise, especially in view of the falling international price of copper.

Foreign policy and international relations

Right now Zambia’s foreign policy remains unclear. The national interest vis-à-vis the
international community remains undefined. This implies that, as a country, we do not have a foreign policy which defines our worldview. This raises serious questions about the relevance of our costly missions abroad. Kingsley Moghalu, in his book ‘Emerging Africa (2014)’, sees the absence of worldviews as the most fundamental aspect of Africa’s development dilemma.

The Campaign Promises

Below we look at each presidential candidate or party’s promises. As the candidate and the party that emerged victorious in the just-ended elections, we begin by looking at Edgar Lungu and the PF campaign promises.

Edgar Lungu and the Patriotic Front

In the initial stages, Edgar Lungu’s campaign was not characterised by many loft promises. The candidate publicly stated that he had no vision of his own. Not surprisingly, the PF campaign for presidency had very little to say about the issues affecting Zambians at large. Apart from a focus on HH, Edgar Lungu repeatedly stated that his desire was to complete the late President Sata’s vision. But following criticism, Lungu began to make some campaign promises. During campaigns, he not only committed himself to continue building roads and hospitals, but also to create jobs and reduce the cost of mealie meal and living conditions, lift the wage freeze, reverse the retirement age, put up milling plants in all provincial capitals, and improve the water and sanitation situation in some parts of the country. The candidate assumed that the Zambian economy would continue on its growth path.

 

HH and the United Party for National Development

Right from the start and throughout the campaign period, HH made numerous, some would say lavish, promises to woo the voters. He promised to reduce the price of fertiliser, electricity tariffs and introduce soft loans to benefit taxi drivers once voted into
power. However, it was in the social sector that
HH made the most promises. Assuming that
the economy would continue to grow and
generate massive wealth, the UPND candidate
was promising free education from primary to
university, health, mealie meal subsidies, and
so on. In essence, the UPND was promising Zambians a partial welfare state in which the
state would underwrite the provision of major
public services. The lavish promises were numerous. This generated mixed feelings among members of the general public.

Edith Nawakwi and the Forum for Democracy and Development

Forum for Democracy and Development (FDD) president, Edith Nawakwi, is widely praised for
running an issue-based campaign. With backing from the women’s movement, Nawakwi’s campaign was concerned mainly with the country and the people.
She was also concerned with issues of leadership, education and poverty. But, while cautioning on borrowing, how her economic and wealth creation strategy would generate resources to finance the
provision of her campaign promises, was
not clearly articulated. 

Nevers Mumba and the Movement for Multi-Party

Democracy Apart from promising the people of
Western Province a referendum on the Barotseland issue and those of North-Western Province an ultra-modern university to be called Peter Matoka,
the MMD presidential candidate, Dr Nevers Sekwila Mumba, did not make any spectacular campaign promises. The former ruling party campaign focused
more on highlighting the PF failures than articulating their own vision and plans.
The party leadership made references to past MMD performance, including lowering taxes, as a pointer to what the party could achieve once elected into
power. Free education and a credit scheme for university students was also part of the MMD agenda.

Comparative Analysis

From the foregoing, it is evident that the presidential candidates did
not consider the economic implications of their campaign messages.
Writing in the Sunday Nation of 25th January, 2015, Professor Mwine
Lubemba notes that all the presidential campaigners did not consider the
likelihood of a continued fall in copper (prices) in 2015 as they all campaigned on free mealie meal, subsidized fuels, increased agricultural inputs and an overall brighter economy for 2015. In this regard, we now compare the promises from the selected presidential candidates within the context of the obtaining economic situation in Zambia.

Economic growth and wealth creation
The measures announced by all the political parties under review do not go far enough in addressing Zambia’s growth and transformation dilemma. In the short to medium term, the challenge is to take measures to counter the adverse impact of the falling price of copper and increasing copper production to boost government revenue. In the long terms, the challenge for Zambia is to move away from the old model of wealth creation based on comparative advantage (i.e. abundant natural resources, sunshine and inexpensive labour) to the new world of competitive advantage based on making strategic choices in the new era of global markets and ICT.

Public debt
All the parties, including the PF which has already incurred a high external debt, made the right promises on debt. Since all the parties seem to support the new constitution which has a clause that stipulates that the state cannot procure debt without parliamentary approval, then wetake it that they all support this clause. However, none of the presidential candidate came up with a clear payback plan for the already contracted debt.