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Industrialisation of Zambia

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In the period after Independence the government embarked on a programme of industrialisation based on policy of import substitution. In promoting self-reliance domestic industries were encouraged to produce manufactured goods. This support operated through putting tariff barriers on imports, keeping close government control over foreign exchange and restricting access to many multinational enterprises.

Industrialisation

The government of President Kenneth Kaunda created a large number of state-owned conglomerates called parastatals. These organisations ensured that the agricultural, mining and manufacturing output was controlled by the government. Output and pricing decision were in line with objectives of self-sufficiency and the reduction of poverty. As with many command type economies the process of planning required large bureaucracies and these parastatals employed large numbers of people.

There were further problems with this policy of self-reliance and import substitution. Domestic producers had to import large quantities of raw material and components that were not readily available at home. This contributed to regular balance of trade deficits. The demand for many imports such as oil were relatively price inelastic. As the prices of these on international markets rose, the demand for them by countries such as Zambia did not fall by equivalent amounts and the import bills rose further.

The Government operated a fixed exchange rate system and foreign exchange control where exporting firms had to surrender foreign currency to the government. This created shortages of foreign exchange and resulted in the growth of an active black market. The system of granting export licenses by government was open to corruption.

Free market reform...a recipe for growth and development?

In the 1990s the newly elected government of President Frederick Chiluba, with the assistance of the IMF and World Bank and the conditions laid down in their Structural Adjustment Programmes and stabilisation policies, adopted an alternative strategy for industrialisation. The policies aimed to reduce the role of the state and adopting a more outward orientated approach. Through market liberalisation, deregulation and privatisation the government looked to increase competition, efficiency and openness in production and commerce.

The policies included:

• The abolition of exchange controls and the floating of the exchange rate
• Deregulation of agricultural prices and subsidies
• Reform of land tenure to extend property rights to individual farmers
• Reduction of tariffs and embargoes to open up domestic markets to foreign competition
• Privatisation of state owned enterprises

These reforms are still in their early days and their long-term impact is uncertain. The liberalising of the foreign exchange markets led to substantial capital flight as wealthy Zambians moved their assets to more economically stable locations. Nevertheless, the short-term effects seem to impact differently on different groups of people. Entrepreneurs and people with jobs are taking advantage of the economic growth. However, the reforms have taken their toll on groups within society such as the small-scale farmers, the unemployed and the poor.

Next issue - Privatisation of State Owned Enterprises >>

Related Glossary Items:
Liberalisation
Inward Oriented Development
Outward Oriented Development
Import Substitution
Parastatals
Exchange Control
Privatisation
Capital Flight
Land Tenure
Property Rights

Related Issues:
The Structural Adjustment Policies of the IMF

Related Theories:
Supply Side Approaches
Models of Economic Growth and Development:
Fisher Clark's Theory of Structural Change
The Harrod-Domar Model
The Lewis Model of Development
Rostow's Model - The Stages of Economic Development
Models of Demographic Transition