History of Zambia

History of Zambia

Formerly Known As: Northern Rhodesia

By Barnabas Mwansa

Formerly Known As: Northern Rhodesia

By Barnabas Mwansa

Structure of the Paper 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

• 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

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

• 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.

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

• 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

700 AD - 1000 AD:Trade with Arabians and Persians begins

• 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.

• 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

1500’s:European exploration/exploitation

• Beginning of trade and exploitation by Europeans.

• Christianity is also introduced by European explorers.

• Beginning of trade and exploitation by Europeans.

• Christianity is also introduced by European explorers.

1800’s:European Exploration and Colonization

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 SouthernRhodesia are nowconsidered separate territories

• Cecil John Rhodes led European explorers to Southern Africa.

• Rhode leads the British South Africa Company to colonize Southern Rhodesia.

• Northern and SouthernRhodesia are nowconsidered separate territories

1920’s - 1930’s:1920’s - 1930’s:

• Southern Rhodesia becomes a self-• governing British colony• End of British South African administration• Whites choose self-government• Uprising of black opposition to colonial rule

• Southern Rhodesia becomes a self-• governing British colony• End of British South African administration• Whites choose self-government• Uprising of black opposition to colonial rule

1953:Central African Federation

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

• 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”

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.

• 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 Independent Zambia • 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

• 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 Independent Zambia • 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

• 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 Independent Zambia • 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 relatively few jobs. Direct employment in Zambia’s copper mines has rarely exceeded 50,000, or 10% of the formal labour force, though many other jobs are created indirectly. Mining is also much the most important source of foreign exchange.Except for the period 1998 – 2003 (when it averaged 64%), copper has always represented at least 75%of Zambian exports.

• 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 relatively few jobs. Direct employment in Zambia’s copper mines has rarely exceeded 50,000, or 10% of the formal labour force, though many other jobs are created indirectly. Mining is also much the most important source of foreign exchange.Except for the period 1998 – 2003 (when it averaged 64%), copper has always represented at least 75%of Zambian exports.

Independent Zambia Independent Zambia • 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).

• 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 Independent Zambia • 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?

• 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

• 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?

• 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

Independent Zambia Independent Zambia • 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 commercial projects.

• 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 commercial projects.

Independent Zambia Independent Zambia • 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).

• 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 Independent Zambia • )  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.

• )  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 Independent Zambia • 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 one-third 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]

• 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 one-third 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 Independent Zambia • 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

• DEBT TRAP -

• 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

• DEBT TRAP -

Independent Zambia Independent Zambia • - .        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 pre-election 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.

• - .        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 pre-election 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 Independent Zambia • 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. 

• 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 Independent Zambia • 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.

• 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 Independent Zambia • 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.

• 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 Independent Zambia • 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

• 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