Zambia remains one of the world's poorest countries, with a major national debt and a weak currency.
In the mid-1990s, even until 1997, its prospects looked good. GDP growth was about 6.5%; inflation had been reduced to 24% (down from 187% in 1993); a prolonged decline in manufacturing was being reversed; non-traditional exports were expanding at a rate of 33% a year; and the privatisation programme was being hailed as one of Africa's most successful. Even the kwacha had been stabilised and a surge in foreign investment was being reported.
By 1998, the reversal of Zambia's economic fortunes had been stark. GDP growth was minimal, manufacturing output was again in a downturn, and inflation was slowly rising. While the breakdown in the ZCCM privatisation was a major cause of this reversal (see Copper
, under Zambia's mining industry
), part of the problem stemmed from reactions to the government's actions after the coup attempt in late '97. On both counts, Western donors withheld aid to Zambia.
A year later, in 1999, the signs improved, with aid and debt relief again forthcoming, and optimism that Zambia's economy could continue to improve.
Privatisation of government-owned copper mines relieved the government from covering mammoth losses generated by the industry and greatly improved the chances for copper mining to return to profitability and spur economic growth. Copper output increased in 2003 and is expected to increase again in 2004, due to higher copper prices. The maize harvest doubled in 2003, helping to boost the GDP by 4.0%. Cooperation continues with international bodies on programmes to reduce poverty, including a new lending arrangement with the IMF expected in the second quarter of 2004. A tighter monetary policy will help cut inflation, but Zambia still has very serious economic problems.
The burden of debt
Zambia is a country visibly crippled by its debt burden. According to UNICEF, about two-thirds of all Zambians live on less than US$1 per day; other sources observe that about 90% of the population live on less than US$2 per day. This burden is borne out by the statistics: at around US$500 per person, Zambia has one of the highest levels of per-capita debt in the world, but a GNI (gross national income) of only around US$340 per capita.
In the late 1990s, Zambia's annual debt repayments were equivalent to about a third of the value of its exports of goods and services: to put this in perspective, Zambia then spent five times more on its interest repayments than it did on education, and three times as much as on healthcare.
The consequences of this were clear: literacy declined and the percentage of infant deaths doubled from 1992 to 1999. Despite this, Zambia managed to remain current on its debt-service payments and even to clear some of its arrears. However, these commitments were clearly a major constraint on economic development. Zambia relied on foreign donors for 35% of its budget, but for every dollar Zambia received in aid, it repaid US$3 to service its debt.
Structural adjustment programme
For most of Chiluba's presidency during the 1990s, Zambia was following a programme of economic reforms largely dictated by the IMF and World Bank. This scheme, known as the Enhanced Structural Adjustment Facility (ESAF), allows the world's poorest nations to pay lower interest rates on the money that they owe.
In December 1995, Zambia qualified for assistance under ESAF and embarked on a series of far-reaching reforms. These centred on trade liberalisation, deregulation and exchange-rate reform. Pivotal to the whole programme was a greater role for the private sector, and the sale of state-owned enterprises. The main aim of the scheme was to encourage foreign direct investment.
Having met these requirements, and subsequently largely followed the dictates of the IMF and World Bank on its economy, Zambia is now in the 'good books' of its donors. However the social consequences have been onerous: rising unemployment, increased prices for basic necessities (including the staple mealie-meal) and cuts in health care and education. All of these have tended to foster an increase in social unrest. The message to the ordinary Zambian looking for his or her next meal is still getting worse, which can't be easy to accept.
As part of the structural adjustment programme, the Zambia Privatisation Agency (ZPA) was set up to oversee privatisation. By December 2001 it had sold 257 companies, of which Zambians bought about 70%. A few have failed, but the majority seem to be viable. However, most of remaining companies are large, and require more protracted negotiations – such as the Zambia National Commercial Bank, which has been in the process of partial privatisation from 2003 up to the present day (Aug 2004) and generated much political debate.
Debt write-offs & HIPC status
In mid-February 1999, the Finnish Government announced that it was writing off US$7.5 million of Zambia's debt. Later, at the end of March, the IMF decided to give Zambia a much-needed boost with US$14 million of its new US$349-million ESAF loan. Also, the World Bank promised to give US$65 million, despite the continuing problems in selling the mines. These were crucial signals to other donors, and on April 16 of the same year the Paris Club agreed to write off US$670 million of Zambian debt, and restructure the repayments of about US$330 million of the rest. Another major step towards helping the country, taken early in 1999, was to confer on Zambia the status of highly indebted poor country (HIPC), which would open the door to the World Bank and other donors relieving more of the debt.
Optimists hoped that these payments would mark the start of concerted efforts by the international community to alleviate Zambia's crippling debt, and that moves to liberalise Zambia's economy would bear fruit. However this optimism has now been tempered with more realism.
Though Zambia has taken most of the economic medicine prescribed for it, trade liberalisation has been tough on the country in the short term. Critics say that it has caused more problems than it has solved. A recent report by the World Development Movement, Zambia: Condemned to Debt
accused the IMF-backed reforms of being undemocratic and unfair and of undermining development – as well as of being counter-productive and unsuccessful. They observed, for example, that 'lowering import tariffs on used clothes from industrialised countries meant local firms could not compete. In 1991 there were over 140 textile manufacturing companies employing 34,000 people; by 2002 just 8 remained employing 4,000. Between 1991 and 1998 formal manufacturing employment fell from 75,400 to 43,320.'
In 2003 the donors' 'Balance of Payment support' was frozen, on account of the country's weak fiscal management and inability to institute a new Poverty Reduction and Growth Facility strategy (PRGF) proposed by the IMF. Successful implementation of this PRGF strategy is one of the crucial milestone indicators needed by the IMF and World Bank before Zambia can reach the 'completion point' under the HIPC initiative, and thus trigger a massive $3.8bn in debt relief. Meanwhile, Zambia's external debt stood at about $6.5bn at the start of 2004 – and the repayments continue to cripple the economy.
Structure of the economy
Zambia relies on its mining sector for the vast majority of its export earnings and about 15% of its GDP. Its other industries are small. They include construction, chemicals, textiles and fertiliser production.
Agriculture accounts for only 22% of Zambia's GDP, but around 85% of its workforce. Tourism remains tiny as yet, but is growing steadily and holds tremendous potential for the long term.
Zambia's high, well-watered plateau means that it has about 40% of southern Africa's water resources. Hydro-electric schemes, which provide most of the country's power, make it self-sufficient in energy. Zambia already exports power to neighbouring countries.