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Wednesday, 14 May 2008

ZCGA on the prospect of "dutch disease"

I recently noted the worrying implications of an ever stronger Kwacha. The ZCGA's Nigel Seabrook naturally agrees :

“This will have very serious implications on the country’s rural economy and could eliminate any opportunity that the country has to achieve its Millennium Development Goals in respect of the rural population.....The cotton industry plays a vital role in Zambia’s agricultural development and rural poverty alleviation. Currently, about 200,000 smallholder farmers directly depend on cotton, making it by far their most important cash crop.....This industry needs genuine investors who wish to expand cotton growing and not just exploit the existing, indeed currently shrinking, farmer base.....It is apparent that in the last two seasons, due to a number of reasons, those ginners who have pre-financed, have had poor input recoveries. If those ginners were to reduce their future pre-financing as a result of this, it would have a disastrous effect on national cotton plantings and could destroy the, already struggling, industry.”
The ZCGA position is hardly surprising, but I think the comments illustrate a critical dimension often ignored with regards to the probable effects of the "dutch disease". That is the immediate distributional impact from even minor appreaciation in the Kwacha may be significant. Simply put, for many rural Zambians relying on the agriculture sector, its bad news indeed. The urbanites of course aren't too bothered. Higher copper revenues means higher urban wages, and cheaper imports for urbanites. A stronger Kwacha might therefore widen the inequality between rural and urban dwellers even much further.

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