The Economic History of Zambia
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The economy of Zambia is of considerable interest to economists. It has gone through many changes. These can be categorised into six stages:
- Post Independence Boom
- Economic Decline in the 1970s and 1980s
- Economic Reform of the 1990s
- Structural Adjustment in the 2000s
Economic activity has taken place in the Zambian area for thousands of years. Sometimes it is easy to think that it is only since colonisation that an economy has existed. Many hundreds of years prior to colonisation indigenous people lived and produced. Economic decision making was confined to the local communities, but nevertheless traditional economic systems flourished. However, their peace was disturbed as the African continent was opened up and its rich resources exploited. The richness and abundance of natural resources, both agricultural and mineral attracted groups of people from all over Southern African continent. In all over seventy different ethnic tribes settled in the area. Between 1500 and 1800 many of the peoples of Zambia were organised into chieftaincies and monarchies that developed a network of trading in copper, ivory, rhino horn and slaves. These resources also attracted interest from further afield.
The 'Scramble for Africa' saw traders in minerals, ivory and slaves and missionaries from Europe opening up the interior of Southern Africa. Later the commercial possibilities of the area known as Northern Rhodesia, and particularly of its copper, were recognised by the British government. The industrial revolution in Europe meant the demand for copper was growing rapidly.
Copper mining was largely in the hands of two firms, the South African Anglo American Corporation and the Roan Selection Trust. The mineral rights were owned by the British South African Mining Company and its founder, Cecil Rhodes. The local indigenous population provided labour for the copper mines. Many of these workers were forced from their farms and villages by European settlers. The colonial government introduced the infamous hut tax where the local population were charged such a high rate of tax on their homes that working in the copper mines was a financial necessity to pay the taxes.
The lack of political power and significant material and financial benefits from the mining of copper all served to encourage the local African labour force to form trade unions and co-operatives harbouring African Nationalist movements. When Independence and self-determination did finally arrive in 1964 the nationalist opposition under the leadership of Kenneth Kaunda was ready to take on the role of government.
Following Independence the government of Kenneth Kaunda adopted a Socialist economic model within an African context. There was large-scale nationalisation of the mining industry and the creation of large state owned conglomerates or parastatals such as Zambia Consolidated Copper Mines (ZCCM). A considerable degree of central planning involving the setting up of a large civil service followed as the government aimed to ensure self sufficiency coupled with industrial diversification. This period was relatively prosperous as the earnings from mineral exploitation grew as copper prices increased.
In the ten years following Independence the level of real GDP grew at 2.3% per annum.
The relative prosperity of the 1960s did not last. A number of external factors outside Zambia's control hit its economy. The fall in world price of copper and a decline in the quality of its ore exposed the country's over-dependence on copper. In addition the world price of oil and energy fuelled global inflation pushing up the price of capital imports. Its dependence on imported manufactured goods was also exposed. Its balance of payments situation deteriorated and borrowing from overseas grew significantly. Throughout this period Zambia was also providing support to the various Africa freedom fighting movements in Zimbabwe, South Africa, Mozambique and Angola. As a consequence its main trade routes were often interrupted. As a landlocked country this was a major barrier to development.
In the period between 1975 and 1990 the level of real GDP per capita declined by almost 30%.
Initially the government of Kenneth Kaunda, believing in self sufficiency and import substitution, reacted to the deteriorating economic situation by commercial and public borrowing and saw no need to restructure the economy. They believed that the market for copper would pick up and the economy would be kick started. The multilateral donors such as the IMF and the World Bank appeared to share this optimistic view lending sums of money to the country at reduced concessionary rates.
Finally in 1985 due to the worsening economic climate the donor organisations put pressure on the Zambian government to attempt to restructure the economy through the introduction of a structural adjustment programme. Attempts to follow these reforms were met with internal opposition such as the food riots objecting to the cutting back in food subsidies and the structural adjustment programme was abandoned in 1987.
The 1990s saw a move to a more outward oriented economy centred on a market based system. The newly elected government of Frederick Chiluba in 1991 adopted a structural adjustment programme agreed with the IMF and the World Bank. This involved three main goals:
- To restore macroeconomic stability
- To facilitate private sector growth through reducing the role of the state from controlling prices, foreign trade restrictions and foreign currency transactions
- To privatise and deregulate agricultural and industrial output
Despite attracting praise from the World Bank for the 'success' of its privatisation programme, privatisation has had a very mixed record in Zambia. Although some failing state run enterprises began to operate more effectively after privatisation, many companies collapsed, jobs were lost and welfare programmes originally performed through a parastatal were not continued by private companies.
Trade liberalisation was also disastrous for manufacturing industries, such as textiles, that used to produce import substitutes. Paid employment in mining, manufacturing and agriculture fell by nearly 40% during the 1990s. It also had a negative impact on government revenues which fell by more than 30% in real terms. With a weak tax base, tariffs were an important source of government finance before liberalisation. With declining GDP after 1993, real government expenditure in the domestic economy (excluding interest on debt) fell by almost half through the 1990s. Consequently, spending on important economic infrastructure, such as transport and communications, was heavily cut.
Agricultural market reform had a similarly poor record. A 2000 World Bank study acknowledged that the removal of all subsidies on maize and fertilizer led to 'stagnation and regression instead of helping Zambia's agricultural sector'. Devastating droughts in 1992 and 1994 deepened poverty in rural areas.
In its 2003 Human Development Report, the United Nations Development Program (UNDP) reported that Zambia was the fourth worst performing economy in Africa with a 'growth' rate of -1.7% per capita per year. The HIV/Aids pandemic had an enormous effect on life expectancy, which fell from 54.4 in 1990 to 33.4 in 2001, the lowest life expectancy of any country in the world.
Zambia's recent economic performance suffers from a mix of domestic and international unfavourable factors with serious budget problems for the Zambian government and relatively high inflation. The economy was hit by the pull out of the Anglo-American Corporation from the copper industry and the massive drought in 2002, however GDP and agricultural exports were boosted by improved copper prices and a good maize harvest in 2004.
Despite progress in privatisation and budgetary reform, Zambia's economic growth remains somewhat below the 5% to 7% needed to reduce poverty significantly. Rural farmers have suffered particularly from market reforms and HIV/Aids has led to a shortage of labour on rural farms, with families having to sell land and capital equipment to pay for medicines. Three-quarters of the population now live on less than $1 per day.
Repayments on an external debt of $6.5 billion continue to be a debilitating drain on the economy. Despite reaching targets set by the IMF for HIPCs' (Highly Indebted Poor Countries) debt relief, by the start of 2003 Zambia had received only 5% of the debt service reduction committed to it.
The most urgent issues for the Zambian economy are thus debt relief, combating HIV/Aids and a further reduction of its dependency on copper with the encouragement of private sector investment into export oriented agriculture, light manufacturing, small scale mining and tourism.
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Related Glossary Items:
Supply Side Policies
Structural Adjustment Programmes
Supply Side Approaches
The Arguments for Privatisation
The Causes of Economic Growth