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Friday, 16 May 2008

An even stronger Kwacha?

A new Standard Chartered bank assessment on Zambia released yesterday is now pointing to an even stronger Kwacha very soon, largely due to the windfall tax. Excerpt:

Now the mining sector faces a higher royalty rate (from 0.6% to 3%), higher corporate taxes (from 25% to 30%, although losses may still be carried forward according to a predetermined 75:50:25 formula), and – most significantly - will see a windfall tax imposed on copper earnings of up to 75% .... Moreover, it is probable that these payments will be made in ZMK, significantly increasing the demand for ZMK relative to the FX inflows to which the market is accustomed. There is some possibility that payments might be made in USD to the Zambia Revenue Authority, which will then convert the proceeds at an average interbank USD-ZMK rate in an off-market transaction with the Bank of Zambia, thus preventing the inflows from impacting the market severely. However, at the time of writing, our information suggests that tax payments will be due - and made – in ZMK. A sizeable currency appreciation appears imminent.

What will the impact of all of this be? Official attitudes to currency appreciation are still ambiguous. While Zambia, as a net oil importer, will benefit in the near term from a stronger currency, other factors are likely to dominate government thinking. Although Zambia plans to reduce its traditional reliance on donor financing, for the moment, the contribution of donors to Zambia's budget is large enough for the authorities to be wary of seeing dramatic and sustained currency strength. (The proceeds of the windfall tax have not been included in the 2008 budget. With domestic revenue collection set to surge, Zambia will be able to make rapid progress in reducing its traditional donor reliance, should it wish to do so. But questions about revenue sustainability and the optimal means of development financing must still be considered).

In recent years, Zambia has also tried to boost its 'non-traditional' sectors, especially agriculture and tourism. While we believe that demand for high-end tourism may be relatively inelastic with respect to the exchange rate, and that a stronger ZMK may actually help with the cost of imported inputs for agriculture, such as fertiliser, (to say nothing of the cost of much-needed infrastructure development), the authorities - under the influence of various lobby groups - may not be receptive to this view. There is therefore a risk that sharp ZMK appreciation might be met with an official effort to reverse or slow the currency's gains. We have incorporated this into our currency forecasts, with a mid-09 USD-ZMK rate of 3500, compared with a rate of 3120 by the end of this year. But it is not just the currency impact of kwacha strength on the economy that should be considered. The impact on future mining sector developments is equally important.

25 comments:

  1. While we believe that demand for high-end tourism may be relatively inelastic with respect to the exchange rate, and that a stronger ZMK may actually help with the cost of imported inputs for agriculture, such as fertiliser, (to say nothing of the cost of much-needed infrastructure development), the authorities - under the influence of various lobby groups - may not be receptive to this view.

    Isn't it odd that he doesn't explain the reason why authorities - under the influence of various lobby groups - may think a Kwacha appreciation is bad for agriculture and tourism (and manufacturing) ?

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  2. Its a she :)

    I suspect that she did not have time! Or may be the document had to a fixed length - so she skipped over that one. lol!

    I have to admit she's the first person who has taken the idea of an appreaciation actually HELPING agriculture through implements...and then gone onto imply that the lobby groups are being greedy!

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  3. It is worthwhile to remember that back in the 1970s, the Kwacha was 1/US$.

    When KK left office in 1991, it was 113/US$.

    In 2006, after 15 years of neoliberalism and the loss of the mines, it bottomed out at around 4800/US$.

    With the right policies that develop the actual economy and create anything close to full employment, the Kwacha can get back to 1/US$ again.

    There is an interesting page on the Kwacha at Wikipedia.

    There is also an interesting page on the Zambian economy.

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  4. Just a question, Mr K.

    Is the idea that protectionism and interventionism work the only valuable lesson you get form Korea ?

    Do you have any interest in how they did it or is it just some stuff that (partially) contradicts your neo-liberal foes ?

    I'm asking because all of the East-Asian economic successes had the same currency policy. They all voluntarily undervalued their currency. Not only it made their exports cheaper but it also did make foreign products more expensive. And that was a crucial part of their protectionist program. Just look at how the US has been crying foul over China's refusal to reevaluate the Yuan.
    That is also the tool used by Italy to support its domestic industrial sector up until the introduction of the Euro.


    Yes, back in the 70's, the Kwacha was on parity with the US$.
    Not only it has disatreous effects in itself (by making imports cheaper) but it was most likely artificially kept high through capital controls and other strong government efforts that had their own effects on the overall economy.
    Of course KK, just like most other African presidents did that to buy off the educated upper-middle class. To them keeping the consumption level of the elite high was worth desindustrialising the country (by pricing out exporting and import-competing industries), wasting the currency reserves, creating capital flight and restraining the productive sectors (by rationing forex to consumers, by driving a bunch of people/companies to the black market, by using restrictive capital controls)..

    But I guess those were the good old times, right ?

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  5. Mrk,

    I am not sure whether you prefer a stronger Kwacha for its own sake or you see it as an end to some means?

    Some countries have a weak currency and they do just fine.

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  6. Random African,

    Yes, back in the 70's, the Kwacha was on parity with the US$.
    Not only it has disatreous effects in itself (by making imports cheaper) but it was most likely artificially kept high through capital controls and other strong government efforts that had their own effects on the overall economy.


    I'm asking because all of the East-Asian economic successes had the same currency policy. They all voluntarily undervalued their currency. Not only it made their exports cheaper but it also did make foreign products more expensive. And that was a crucial part of their protectionist program.

    I was just reading Ha-Joon Chang's chapter on corruption. According to him, the difference between countries that developed and didn't wasn't the level of corruption, but the degree to which they kept money inside the country.

    Which makes perfect sense. Investors like Warren Buffett keep hammering on the power of compound interest, which is the same principle.

    If an undervalued currency has a role in that, more power to it. However, there are more than just monetary policies that are at issue. The attitude that the state has to foreign investment is extremely important.

    For instance, in formulating it's foreign investment policies, the state could emphasize technology transfer, joint ownership and eventual ownership transfer, or wages. Instead, what we have seen is the creation of free enterprize zones, which have minimal impact on the economy, to the extent that eventually, even unskilled labour is imported by the business owners (both in Zambia, in case of the Indian labourers, and Jamaica in case of Chinese workers).

    Undervaluing the currency reduces imports of all kinds, and is not specific about protecting locally produced goods, the way for instance tariffs are. It also limits imports of crucial capital goods that aren't locally produced. But then again, in combination with the right type of investors, that could lead to for instance the setting up of assembly plants, as long as all components are locally produced.


    Cho,

    I am not sure whether you prefer a stronger Kwacha for its own sake or you see it as an end to some means?

    I would see it as the inevitable result of a strong economy and a limited amount of cash in circulation.

    What really matters in the end, is that most people participate in the economy. I think the recent focus on low inflation has shown that you can have high and low inflation, but it doesn't matter with regard to unemployment or poverty indexes, if all the other factors are not in place.

    What we have to see is an economy that offers job creation and business creation to all people.

    I just had a thought. The government could use money from the mines, to create markets for locally produced goods.

    They could attract manufacturing plants and give loans for tractors.

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  7. MrK,

    "I would see it as the inevitable result of a strong economy and a limited amount of cash in circulation."

    1.00 Botwana Pula = 16.0849 Japanese Yen

    According to you it should be the other way round.

    Your statement is only correct under a free floating rate. In practice central banks intervene to ensure that the rate is ensync with their wider goals.

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  8. MrK,

    I just had a thought. The government could use money from the mines, to create markets for locally produced goods."

    Indeed. I think that money should be used to fund implements. Someone has also rightly suggested the we should use the weak dollar to replenish these tools, with money from the mines!

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  9. Cho,

    "I would see it as the inevitable result of a strong economy and a limited amount of cash in circulation."

    1.00 Botwana Pula = 16.0849 Japanese Yen

    According to you it should be the other way round.

    Your statement is only correct under a free floating rate. In practice central banks intervene to ensure that the rate is ensync with their wider goals.


    What I meant to say, is that when the mines are contributing to the economy again, let alone when the economy develops, and with a reduction in the cash that is floating around the economy, the exchange rate could easily go back 1/1 versus the dollar.

    I see that as an effect, rather than something that should be achieved. Of course a strong currency would be good for imports and bad for exports, but I would much rather see that policy concentrated on both creating and then saturating local markets first, before turning to exports.

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  10. I was just reading Ha-Joon Chang's chapter on corruption. According to him, the difference between countries that developed and didn't wasn't the level of corruption, but the degree to which they kept money inside the country.

    Ah !
    Now that's something I would like to read.

    For instance, in formulating it's foreign investment policies, the state could emphasize technology transfer, joint ownership and eventual ownership transfer, or wages. Instead, what we have seen is the creation of free enterprize zones, which have minimal impact on the economy, to the extent that eventually, even unskilled labour is imported by the business owners (both in Zambia, in case of the Indian labourers, and Jamaica in case of Chinese workers).

    Re-export Zones apparently failed in Jamaica but worked in Costa Rica and Mauritius. So what do you think the countries where it worked got right and what the countries where it failed got wrong ?
    I keep asking that question but you never answer as you seem more interested in concluding that some solutions work all the time and some never do. So stop being ideological for a second and let's discuss that.

    As far as having a FDI policy that maximises growth, yes sure. It's obvious that Zambia got it wrong, just like it got Import Substitution wrong (and that's one weak point of free-marketers, they undervalue how much markets rely on competent governments). But the point is maximising growth, which means in this case, playing a balancing acts between attracting FDI and selecting the most desirable FDI. I certainly don't see how future ownership transfer could do that or even wages support. Joint-ownership makes a lot more sense than "technology transfer". After all, the technology is available on the market, it can be bought now by anyone who can afford it (Korean companies started in the shipyard business by simply buying blueprints from Europe) while the managerial knowledge acquired when operating a joint-ownership company is not.

    Undervaluing the currency reduces imports of all kinds, and is not specific about protecting locally produced goods, the way for instance tariffs are.

    That's exactly the issue. Tarriffs protect already locally produced goods. Making all imports more expensive protects future locally-produced goods. That's important to make people invest their time, work and money in future activities. And it's definetly good if they don't only invest in 2 or 3 established ones.

    It also limits imports of crucial capital goods that aren't locally produced.

    I think having an industrial policy that subsidizes that is less risky than one that subsidizes everything and then puts tarriffs.
    I just don't think the Zambian Costums are that good.

    But then again, in combination with the right type of investors, that could lead to for instance the setting up of assembly plants, as long as all components are locally produced.

    LOL @ all components.
    But yeah that could happen, or firms will be forced to devellop activities that are less dependent on some costly imports.

    What I meant to say, is that when the mines are contributing to the economy again, let alone when the economy develops, and with a reduction in the cash that is floating around the economy, the exchange rate could easily go back 1/1 versus the dollar.

    easily ? lol.
    I mean we're talking about going from 3,000 to 1 ? There's no amount of growth or high copper prices that can make it possible. Seriously.

    but I would much rather see that policy concentrated on both creating and then saturating local markets first, before turning to exports.

    And how do you avoid devellopment-sclerosis without using exports as a marker ?
    How do you make sure that your saturated market is not just a huge distortion that profits a protected industries ? How do you know how efficient your protected companies are ?

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  11. And how do you avoid devellopment-sclerosis without using exports as a marker ?

    I'm sure that makes sense to an economist (I hope)?

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  12. And how do you avoid devellopment-sclerosis without using exports as a marker ?

    I'm sure that makes sense to an economist (I hope)?


    We had this conversation before.
    Korea and Japan, the countries that succesfully develloped using ISI in the last decades used exports-related subsidies to force their companies to be competitive on the world market.
    That insures that the firms constantly improve their products, processes and that captive local consumers aren't getting a raw deal.

    The other way to do that is to open up one's economy and making local producers compete for local consumers.

    What I call "sclerosis" in this case is what happens when that competition doesn't take place. Monopolistic or oligopolistic firms simply sit on their behind and collect what is in fact a rent. They have no pressure to improve anything and keep producing the same weak products in the same unefficient way and sell it way above its value to its captive consumers.

    So knowing that you don't think opening up domestic markets work (i don't either) and now knowing that you don't view exports as a priority, how do you think the 70's can be avoided all over again ?

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  13. Mrk,

    Of course a strong currency would be good for imports and bad for exports, but I would much rather see that policy concentrated on both creating and then saturating local markets first, before turning to exports.

    Just so that I am clear on what you proposing. You are happy with a stronger Kwacha because it incentivises producers to turn inwards?

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  14. I stated:

    but I would much rather see that policy concentrated on both creating and then saturating local markets first, before turning to exports.

    Then you stated:

    And how do you avoid devellopment-sclerosis without using exports as a marker ?

    And clarified that with:

    What I call "sclerosis" in this case is what happens when that competition doesn't take place. Monopolistic or oligopolistic firms simply sit on their behind and collect what is in fact a rent. They have no pressure to improve anything and keep producing the same weak products in the same unefficient way and sell it way above its value to its captive consumers.

    In other words, what you were saying is 'how do you ensure competition'? And do so without using exports as a marker?

    The answer is to encourage and create competition between domestic producers. Or even between regions.

    When one company threatens to achieve a monopoly, the monopoly can be broken up by breaking up the company - which happens a lot in the EU, where basically a company's divisions if it achieves a monopoly are broken up into separate companies.

    This doesn't require using exports as a marker.

    In fact, a system such as is used by Japanese Keiretsu to ensure competition between suppliers can be learned from.

    Again, exports as a marker are not required.

    And another thing. Not all industries lend themselves to competition. For instance, fixed land lines once laid are there permanently, making it almost impossible for the ordinary consumer to switch between companies. You can switch providers, but you can't switch ulitities companies. Therefore, it should be to the state to supply and maintain infrastructure.

    So knowing that you don't think opening up domestic markets work (i don't either) and now knowing that you don't view exports as a priority, how do you think the 70's can be avoided all over again ?

    I'm not saying exports are not a priority. Not exporting raw materials butu instead export finished products is.

    I don't know what you think happened in the 1970s, or how you interpret it.

    Cho,

    Just so that I am clear on what you proposing. You are happy with a stronger Kwacha because it incentivises producers to turn inwards?

    I think that could be an effect of having a strong currency, but I wouldn't count on it alone. Obviously a strong currency would encourage imports, but whether that is bad depends on what kind of imports are encouraged (consumer goods versus capital goods for industry and agriculture).

    I don't think a strong currency should be a goal, I just think it is a likely outcome if there is a strong economy and the state doesn't print money or have huge inflationary expenditures (like a bloated bureaucracy).

    My main point is that we should be encouraging local production and first saturate local markets, and that we can create local markets creating infrastructure and by raising people's wages by increasing employment, including in agriculture.

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  15. MrK,

    "My main point is that we should be encouraging local production and first saturate local markets, and that we can create local markets creating infrastructure and by raising people's wages by increasing employment, including in agriculture."

    I agree on encouraging local production. But surely long term employment can only come from improving our competitive position i.e. generating greater exports and revising the current tradeable deficit?

    I would therefore say, we need to focus on encouraging export industries. When we are able to compete with outside world, jobs for our people will flow from that. For that reason I very much favour a more competitive currency.

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  16. for the avoidance of doubt by "competitive currency" I mean a weaker Kwacha.

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  17. In other words, what you were saying is 'how do you ensure competition'? And do so without using exports as a marker?

The answer is to encourage and create competition between domestic producers. Or even between regions.

    not "how do you ensure competition", but "how do you ensure that protected firms even try to be competitive on the global market". "how do you ensure those firms catch up" etc..

    Catch up is the important sentence. And global market/global standards is the other.


    when one company threatens to achieve a monopoly, the monopoly can be broken up by breaking up the company - which happens a lot in the EU, where basically a company's divisions if it achieves a monopoly are broken up into separate companies.

    Actually it doesn't. What happens is that companies that achieve a monopolistic position have to carefull not to abuse it and may be sued for that.( http://en.wikipedia.org/wiki/European_Community_competition_law#Dominance_and_monopoly )

    But anyway, this is is irrelevant. I said monopoly or oligopoly.

    In fact, a system such as is used by Japanese Keiretsu to ensure competition between suppliers can be learned from. 

Again, exports as a marker are not required.

    But the Keiretsu themselves were subjected to exports as a marker. So they simply "transfered" the pressure to the suppliers. Same in Korea.
    Those countries basically invented "exports-as-a-marker".

    And another thing. Not all industries lend themselves to competition. For instance, fixed land lines once laid are there permanently, making it almost impossible for the ordinary consumer to switch between companies. You can switch providers, but you can't switch ulitities companies. Therefore, it should be to the state to supply and maintain infrastructure.

    I lived in France during the transition from a France Telecom monopoly to an open market.
    To put it simply, the state can do a very good job of enhancing competition by using smart regulation.

    (in this case, companies that own the actual landline have to rent it at a no-loss price basically)


    I'm not saying exports are not a priority. Not exporting raw materials butu instead export finished products is. 


    Who said anything about raw materials ?
    We are here talking about the effect a high kwacha has on agriculture and manufacturing and you bring up raw materials ?

    I don't know what you think happened in the 1970s, or how you interpret it.

    Well, the Chicago School attack didn't come in vaccum. ISI and Keynesian Macro-Policies were used all over the world and didn't universally create the results we saw in Japan and Korea.
    Before you get into one of your rants, I am not saying the IMF/Chicago School remedy (privatize everything, lower tarriffs) was the right one. But there was a real crisis. And it was sclerosis.

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  18. Cho,

    "My main point is that we should be encouraging local production and first saturate local markets, and that we can create local markets creating infrastructure and by raising people's wages by increasing employment, including in agriculture."

    I agree on encouraging local production. But surely long term employment can only come from improving our competitive position i.e. generating greater exports and revising the current tradeable deficit?

    I don't know if that is the only source. For instance, a country like the USA generates 80% of it's GDP domestically. African countries should follow suit in that regard.

    Zambia can create a lot of jobs by doubling it's food production, for instance. Those would be long term jobs as well, especially if that was done in a way that put an emphasis on small and medium sized farms, instead of a few huge agrobusinesses.

    Putting an emphasis on job creation, that would make permaculture and sustainable agriculture (as opposed to chemically driven monoculuture) feasible.

    I would therefore say, we need to focus on encouraging export industries. When we are able to compete with outside world, jobs for our people will flow from that. For that reason I very much favour a more competitive currency.

    The question is - do we want an export led economy, or a production led economy?

    I think that the idea of focusing on exports is detrimental to actual economic development. If I remember correctly, the emphasis on exports was first because of the need for foreign currency to import oil and capital goods.

    Instead of growing products for export, let's first stimulate the growing of staple foods and biofuels. Let's first manufacture to saturate local and regional markets. Then we can export surplus manufactured goods. That will save on the requirements for foreign currency and the dependence on imported oil products.

    The country is much better off by creating a solid economic base that consists of agriculture, manufacturing and mining, and one that produces for local consumers first and keeps manufacturing at home. Exporting finished goods overseas can bring in foreign currency, but if the country is selfsufficient in most goods, that would be an afterthought.

    Local (including regional) markets are far more reliable, have much lower transportation costs (all things being equal - meaning after infrastructure is created and maintained) than far off markets.

    Think of the impact on international trade, tourism, the airline industry of 9/11. Wars have the same effect. Far off markets make the country vulnerable, the way the US's reliance on Middle East oil makes it vulnerable.


    Random,

    Well, the Chicago School attack didn't come in vaccum. ISI and Keynesian Macro-Policies were used all over the world and didn't universally create the results we saw in Japan and Korea.
    Before you get into one of your rants, I am not saying the IMF/Chicago School remedy (privatize everything, lower tarriffs) was the right one. But there was a real crisis. And it was sclerosis.


    Well I do try to not hide behind jargon.

    There never was an economic Marshall Plan for Africa, so to say Keynesian economics was tried and failed would be going too far, if that's what you said.

    Also, Africa's huge challenges were different from Europe after the war - lack of infrastructure, colonial era states that were not nation states, continued economic exploitation by western corporations and countries. In fact you can argue that even political colonialism didn't end until democracy in South Africa in 1994.

    The economic and psychological legacy is still here, and can be seen in the nature of land ownership and the predominance of western corporations in the economies.

    However, it is interesting to examine how Europe worked itself out of massive devastation of WWII.

    There were works projects that employed people to rebuild roads, buildings and infrastructure. In 1953, the flood disaster in Holland led to the creation of the deltaworks, which was a massive project to shorten the coast line and employed thousands of people.

    Zambia can have a similar project to start harnessing it's immense water resources. Dams, swales, ponds, flood plains can be employed to ensure agriculture has access to water year around, making multiple harvests per year possible, which will increase the supply of food, lower food prices, prevent the damage done to life and property by flooding.

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  19. I don't know if that is the only source. For instance, a country like the USA generates 80% of it's GDP domestically. African countries should follow suit in that regard.

    There are two typical objections:

    1. Size: the USA is a $300 inhabitants market. That's half of subsaharan Africa.

    2. you're confusing means and ends. The US didn't get rich by exporting less, it exports less because it's rich.


    Both observations are confirmed when you look at this for instance. The smaller countries are, the more they trade (see Finland, Denmark or Belgium or the fact that Japan and the United States have the lowest ratio of the whole OECD) but at equal size richer countries trade less (compare Portugal and the Czech Republic).

    I think that one empirical observation that has been done is that the trade/GDP ratio is somehow reserve U-shaped. Transitional countries being the ones with the highest ratio.

    The question is - do we want an export led economy, or a production led economy?

    Aren't exports produced ?

    If I remember correctly, the emphasis on exports was first because of the need for foreign currency to import oil and capital goods.

    That's how those who were happy with a rent-based economy viewed it. But both me and Cho are talking about improving competitiveness.

    Exporting finished goods overseas can bring in foreign currency, but if the country is selfsufficient in most goods, that would be an afterthought.

    The USSR was totally self-sufficient in most goods, quite early in the game too. But have you used those goods ? I have and I'll tell you what, by 1989, people in the USSR were paying outrageous prices for goods that were below the quality of the cheapest goods from the 60's in the West.

    Oddly enough, one good that kept up was the Kalashnikov. Is it a surprised that it was a good that was directly competing on the world market ? (though not through exports)

    There never was an economic Marshall Plan for Africa, so to say Keynesian economics was tried and failed would be going too far, if that's what you said.

    Hmm.. The Marshal Plan doesn't have anything to do with Keynesian economics. If anything Keynesian solutions had been applied before WWII.

    But Africa didn't have to rebuild everything like Europe did after WWII, did it ?

    There were works projects that employed people to rebuild roads, buildings and infrastructure. In 1953, the flood disaster in Holland led to the creation of the deltaworks, which was a massive project to shorten the coast line and employed thousands of people. 

Zambia can have a similar project to start harnessing it's immense water resources. Dams, swales, ponds, flood plains can be employed to ensure agriculture has access to water year around, making multiple harvests per year possible, which will increase the supply of food, lower food prices, prevent the damage done to life and property by flooding.

    Wasn't that done in Ghana ? in DRC ? in Nigeria ? in Ivory Coast ? in Egypt ?
    Weren't dams built ? Great infrastructure plans launched ? Thousands of housing units ? New capitals erected from the soil ?
    How come none of those places ended up like Holland or Japan ?

    The thing, once again, is that you should spend less time looking for easy answers. The whole world was keynesian up until the 70's. The whole world used Import Substitution Industries, the whole world tried "great projects"-based big pushes, the whole world confidently used deficit spending. Yet, just like when the whole world caught the liberalize/privatize/openup bug, only so many countries got the results every expected.

    And if you think the legacy of colonialism is the biggest issue, then how do we explain Botswana ? What did it have that the rest of us didn't (a small clue: the answer is policy-related) ?

    Or why did Mauritian liberalisation solutions work there but not in Jamaica ? Or where are the Argentinian Toyotas or Peugeot ? Or why did Korea grow much richer than Ghana ?

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  20. I don't know if that is the only source. For instance, a country like the USA generates 80% of it's GDP domestically. African countries should follow suit in that regard.

    There are two typical objections:

    1. Size: the USA is a $300 inhabitants market. That's half of subsaharan Africa.

    2. you're confusing means and ends. The US didn't get rich by exporting less, it exports less because it's rich.


    I'm confusing means and end. So you're saying that if we just export our raw materials and attract foreign business, eventually we are going to see intra-African commerce and trade pick up? Miraculously, infrastructure will appear and connect Africa's local and regional markets - all done by the private sector. I'd like to see you cite an example of that happening in history.

    And it is not the US that is rich, but it's people are rich. A lot of them have had great educations and start their own businesses, employing most of the labour force. They have dependable infrastructure. People can save and get credit are reasonable rates. There is an integration between universities and business in places like Silicon Valley. And property rights are upheld (usually).

    But the US is not richer in potential than Africa is. Africa has as much if not more natural resources, water and land.

    The question is - do we want an export led economy, or a production led economy?

    Aren't exports produced ?

    But not all produced goods are exported.

    Exporting finished goods overseas can bring in foreign currency, but if the country is selfsufficient in most goods, that would be an afterthought.

    The USSR was totally self-sufficient in most goods, quite early in the game too. But have you used those goods ? I have and I'll tell you what, by 1989, people in the USSR were paying outrageous prices for goods that were below the quality of the cheapest goods from the 60's in the West.

    Some of them are quite famous, like the T-55 tank, the Kalashnikov rifle, or Smirnov wodka.

    However, it was the war in Afghanistan that pushed the country over the edge.

    None of which have anything to do with selfsufficiency. You're saying that because a country is selfsufficient, but must be a lumbering communist state as well? The United States, with all it's present problems, is evidence that this doesn't have to be the case.

    There is no reason why selfsufficiency of necessity would be accompanied by a lack of competition.

    But Africa didn't have to rebuild everything like Europe did after WWII, did it ?

    Africa had to build everything for the first time. There was a huge lack of infrastructure, education, healthcare, entire populations had been removed from their land or wiped out, people thrown together in colonial states that were not nation states and the entire economy was geared toward producing for the colonial state, not the people. Add to that the fact that not all of Africa became independent at the same time, or that colonial powers stayed behind economically and often militarily, and Africa's problems were bigger than that of Europe in 1945.

    Wasn't that done in Ghana ? in DRC ? in Nigeria ? in Ivory Coast ? in Egypt ? Weren't dams built ? Great infrastructure plans launched ? Thousands of housing units ? New capitals erected from the soil ?
    How come none of those places ended up like Holland or Japan ?


    You are talking about prestige projects. I am talking about much smaller and more useful (and people oriented) infrastructure.

    Politicians always want to build the big dam, the thousand mile highway, and see their names immortalized. The problem is that not a lot of the infrastructure that was built, was built with African trade and economies in mind. For instance, even today traffic between some African capitals must go through Europe. And, I will say that new technology can do away with a lot of the costs and infrastructure that we have taken for granted upto now. Just as the mobile phone is quickly replacing fixed land lines, I think solar technology can some day replace the fossile fuel based economy and usher in true independence for African countries - independence from both the need to import Middle Eastern oil, and from the need to aqcuire foreign currency to pay for it.

    I am talking about infrastructure that will permanently increase agricultural output, and that will connect local and regional markets.

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  21. I'm confusing means and end. So you're saying that if we just export our raw materials and attract foreign business, eventually we are going to see intra-African commerce and trade pick up? Miraculously, infrastructure will appear and connect Africa's local and regional markets - all done by the private sector. I'd like to see you cite an example of that happening in history.

    Don't be so dense, brother.
    Me and Cho have clearly been talking about manufactured goods and using exports as an industrial policy marker.

    Why would I even bring up Korea if I had rax materials on my mind ?

    Some of them are quite famous, like the T-55 tank, the Kalashnikov rifle, or Smirnov wodka.

    Smirnoff doesn't count and I did mention the weapons, didn't I ?

    None of which have anything to do with selfsufficiency. You're saying that because a country is selfsufficient, but must be a lumbering communist state as well? The United States, with all it's present problems, is evidence that this doesn't have to be the case.

    I'm saying that self-sufficiency is an odd goal to have.
    The US is obviously not self-sufficient, same with most develloped or emmerging countries. Many of them could be but I guess they don't think it's worth it.

    There is no reason why selfsufficiency of necessity would be accompanied by a lack of competition.

    What is selfsufficiency of necessity ?

    In any case, yes, the kind of self-sufficiency you have in mind will be accompanied by a lack of competition.
    In the Ha-joon Chang metaphor about his daughter and the Italian World Cup team is about shielding infant industries from competition so they can devellop. But once again, children grow and eventually want to be self-reliant. Industries need incentives to do better and to catch up. And the world market offers exactly that. Want to build cars or phones or softwares, well, you will do better if you have to compete with the best cars, phones, softwares that ever existed.

    You are talking about prestige projects. I am talking about much smaller and more useful (and people oriented) infrastructure.

    No, we're both talking about stimulating the economy with infrastructure projects.

    Politicians always want to build the big dam, the thousand mile highway, and see their names immortalized. The problem is that not a lot of the infrastructure that was built, was built with African trade and economies in mind.

    The problem is that most of the infrastructure was built by politicians who wanted their name immortalized or who had weird nationalist notions of self-reliance and economic independence (leading to lost of redundency).

    I think solar technology can some day replace the fossile fuel based economy and usher in true independence for African countries - independence from both the need to import Middle Eastern oil, and from the need to aqcuire foreign currency to pay for it.

    1. More than a third of African countries are or are about to be oil-exporters.
    2. if you think foreign currency is mostly used to pay for oil.. well, i don't know what to tell you. We do import a lot of stuff, including the cars and trucks that use that oil.

    I am talking about infrastructure that will permanently increase agricultural output, and that will connect local and regional markets.

    That's what everybody talks about, from the World Bank to the last African Marxists to the African Libertarians. The real debate is really how it should be done and financed and by whom, at what cost..etc..

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  22. Don't be so dense, brother.
    Me and Cho have clearly been talking about manufactured goods and using exports as an industrial policy marker.


    What do you need a marker for.

    Just look at the going market price, see if your total cost is lower, and produce it.

    Perhaps I am dense in expecting you to give a real world example of any economy that is even remotely iike Africa or Zambia which has developed the way you say.

    However, I am not dense enough to miss the fact that there are few countries in the world that produce 80% of everything they need and sell it domestically, the way the United States does.

    I am not dense enough to fail to understand that it is the fact that they keep 80% of the cost of production within their own economy, while at the same time keeping 80% of the final price inside their own country, to be spent by their own citizens on more domestially produced goods. (And I am referring to the US economy as it was until the 1980s - before the neoliberal idiocy of outsourcing, 'free trade', and permanently low interest rates.)

    Now if you think that it is a coincidence that the United States just happens to be the biggest economy in the world, I am not the one who is dense.

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  23. I told you to not be dense because you asked him if I was I thought exports of raw materials would jumpstart growth.
    Not only I never said that but the conversation here was about the effects of a stronger Kwacha on MANUFACTURING AND AGRICULTURE.
    Mining won't be affected. In fact, mining booms do lead to stronger currencies. That's why Botswana is busy devaluating the Pula, because they don't want the mining boom to kill their booming services and manufacturing sectors, because they don't want their plants for more added value on their diamonds to be unprofitable.

    What do you need a marker for.

Just look at the going market price, see if your total cost is lower, and produce it.

    You need a marker that make sure that the companies/industries you're helping (through barriers, subsidies, credit etc..) are indeed growing, catching up instead of just collecting rent.

    The tendency protected companies have to sit on their asses and not make any effort because they're protected is real. I'm discussing ways and means to fight it and make sure the sacrifices caused by the protectionist policies are not just wasted.

    Perhaps I am dense in expecting you to give a real world example of any economy that is even remotely iike Africa or Zambia which has developed the way you say.


    Go ahead and give me real world example of economies remotely similar to Africa or Zambia and we'll discuss how they develloped.

    However, I am not dense enough to miss the fact that there are few countries in the world that produce 80% of everything they need and sell it domestically, the way the United States does.

I am not dense enough to fail to understand that it is the fact that they keep 80% of the cost of production within their own economy, while at the same time keeping 80% of the final price inside their own country, to be spent by their own citizens on more domestially produced goods.
    
Now if you think that it is a coincidence that the United States just happens to be the biggest economy in the world, I am not the one who is dense.


    Once again, the United States has the 3rd biggest population on the planet. Most of European countries have a much bigger trade/GDP ratio but the EU's ratio is similar to the US.

    It's not a coincidence but you get the causality wrong. The US and the EU and Japan and Korea have a low trade/gdp ratio because they're rich, not the other way around.

    Just think about what is part of the GDP. There's a bunch of goods and services that one cannot export or import at all. And it just happens that those grow as the country gets richer and more people/firms have the income and the need to afford them. Lawyers, accountants, universities, amusement parks, healthcare, retails are a few of them. Those only exist because at the core, there's an industrial sector that produces more and for less.

    But once again, the US is the biggest economy in the world partially because the US is big. China, India, Brazil are the 2nd, 4th and 10th biggest economies in the world just because they're big. That doesn't mean Germany, Hong Kong, Luxembourg or Ireland should imitate them (or the US), does it ? The EU as a whole is the biggest economy in the world because just like the US, it's big and rich.
    (And I am referring to the US economy as it was until the 1980s - before the neoliberal idiocy of outsourcing, 'free trade', and permanently low interest rates.)

    The current trade/gdp ratio of the US is something like 13% and the amount traded hasn't varied much over the past century.
If you look at a chart of the US GPD per capita over a century, it's incredibly linear. Neither the 80's or the 70's had much effect.
    So what's the conspiracy theory for that one ?

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  24. You are talking about prestige projects. I am talking about much smaller and more useful (and people oriented) infrastructure.
    Politicians always want to build the big dam, the thousand mile highway, and see their names immortalized. The problem is that not a lot of the infrastructure that was built, was built with African trade and economies in mind.
    I am talking about infrastructure that will permanently increase agricultural output, and that will connect local and regional markets.



    So let's discuss this.

    How come the infrasctructure investments made were made in unproductive, prestige-driven projects rather than in stuff that would have helped ?

    What do you think happened when people argued that overtaxing cocoa to finance the Akosombo Dam wasn't a good idea ? Or that the Inga Dam (and the Inga-Shaba) was a waste of ressources ?

    Well, what happened is that Mobutu, Nkrumah and all the others resorted to accusations of treason, imperialism, neo-colonialism, pessism, lack of patriotism and other evil motives quite fast.

    You know, not so different from the way you describe MDC or whoever dares having views different from yours.

    I think the same lack of public debate, reasonable arguments and careful planning is not gone. It's as strong as it ever was, all over the continent. And mistakes aren't avoided by being more ideological than thou.

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  25. Just look at the going market price, see if your total cost is lower, and produce it.

    Manufactured products are not like commodities, there's no such thing as a "going market price" for cars or laptops or knives or software or whatever..
    That's because each product is different from its competition and buyers' decisions are made on much more than prices.
    Each car model is different from the other, even within ranges, so competition is as much about lowering prices (and improving distribution and credit systems) as it is about improving mileage, giving more option, making them more reliable and easily fixed and mantained (and making spares more easily available), improving comfort, aesthetics, accessories etc..

    Basically it's a quality/price ratio and a dynamic one at that. It changes with tastes, market conditions, new innovations and the only way to figure out if one can compete is to actually compete. Otherwise, one is shooting in the dark.

    And that works for any manufactured product. So the government trying to have an industrial policy involving protectionism still need exports as a marker (unless you can think of something else).

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