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Saturday, 29 November 2008

African Economies & Financial Crisis

A bleak assessment from the World Bank financial specialist Samuel Munzele Maimbo on the impact of the financial crisis on African financial systems.

The Impact of the Financial Crisis on African Financial Systems, AccessFinance, Samuel Munzele Maimbo, World Bank Group, Commentary :

Conventional wisdom has hitherto suggested that the impact of the financial crisis in Africa will be limited because the transmission mechanisms between the financial systems in Africa and the rest of the world are weak. African financial institutions, it has been argued, are not exposed to risks emanating from complex instruments in international financial markets because most of the banks in Sub-Saharan Africa rely on deposits to fund their loan portfolios (which they keep on their books to maturity); most of the inter-bank markets are small; and the markets for securitized or derivative instruments are either small or nonexistent. Exceptions to this position are then made for countries like Nigeria and South Africa which are seen as the only countries having meaningful transmission mechanisms with the global financial systems.

Increasingly, this conventional position is being questioned for the following reasons:

Weakened local investor confidence in equities and bonds on African Stock Exchanges

Expectations that investors weary of the markets in developed countries will seek opportunities in African and other developed economies are misplaced. The small size and illiquidity of Africa’s stock markets (partly a reflection of the low levels of economic activity) is likely going to be amplified rather than overlooked as both international and local investors adopt more cautious investment strategies. Thus, while the price-earnings ratios for many African stock markets were above their sectoral equivalents in mature markets in 2007, the ongoing fallout from the subprime mortgage crisis in the US will dampen investment plans. Already, examples are emerging. The market turnover on Uganda’s bourse dropped 60 percent during the third quarter (Busuulwa, 2008). In South Africa, Kenya and Ghana, the stock markets have also been bearish.

This is disappointing. Up until the recent crisis, African stock markets were displaying resurgence and an energy that had not been seen for years. Prior to 1989, there were just five stock markets in sub-Saharan Africa and three in North Africa. Today there are 19 stock exchanges ranging from starts ups like Uganda and Mozambique stock exchanges to the Nigeria and Johannesburg stock exchanges. With the exception of South Africa, most African stock markets doubled their market capitalization between 1992 and 2002. Total market capitalization for African markets increased from US$113,423 million to US$ 244,672 million between 1992 and 2002. Ghana had five new equity listings in 2004; the Kenya Electricity Generating company IPO in 2006 – the country’s first in five years attracted strong demand and enormous public interest. Since then, the 2008 cellphone company IPO’s of Safaricom and Celtel in Kenya and Zambia respectively have both been oversubscribed. This emerging confidence in the African stock markets is going to be negatively affected by the on-going financial crisis.

Slowdown in private sector lending

Unfortunately, it is not unimaginable that in the near term banks will have seen the results of the sub-prime market and decide to ease their hitherto aggressive loan book expansion. Real private sector credit, in particular, has been growing at an accelerating rate, and its median value has doubled in the past decade. Even as a share of GDP, it has turned the corner, with the median share approaching 18 percent in 2007, about a third higher than at its anemic trough in 1996. Much of this increase was on the back of innovative non-collateralized lending practices. Salary and other cash flow based lending have been on the emergence with positive outcomes for customers in the form of consumer loans. In October 2008, the Pan-African micro-lender Blue Financial’s loan book grew 236 percent and posted earnings growth of 167 percent in the six months to August 2008.

The possibility of overreaching their adoption of conservative credit appraisals processes and procedures does not bode well for the growth of private sector lending on the continent. Trade finance will come under tremendous pressure. With high fuel and food prices, foreign exchange constraints will persist on the continent for a while. A reluctance to lend by commercial banks will make it even harder to find trade financing sources. Of equal concern is the impact of the current crisis on the sources of long term funding. Where credit is still available, banks have already started in increase the cost of long-term finance. Shortening tenure of such loans is equally likely.

This is disappointing after recent years when funds were starting to enter African markets looking for both equity and portfolio investments. This slowdown will increase the need for domestic financing – pensions funds, insurance firms and domestic savings to fill the gap.

Weakened balance sheets and possible bank failures resulting from economic slowdown

In countries where the fall in investments is simultaneous coupled with drops in export earnings, a slowdown in GDP growth, and a sharp drop in domestic asset prices e.g. a local housing market correction, weakened bank balance sheets could result, including in some cases, bank failures. As the financial crisis surges into all parts of the real economy in developed economies, African countries will experience a substantial decline in exports as the rapid pace of trade expansion in this decade decelerates sharply. The IMF now projects that growth in world trade volumes in 2009 will be 4.1 percent compared to 9.3 percent in 2006. A notable part of this fall will be African. In Zambia for example, the economy is likely to take a hit from a share decline in copper prices (-24%ytd).

In this environment, large projects in Africa that require external financing to complement shorter term bank financing will face difficulties in attaining these finances, and where they do, will face higher interest rates, because of flight to safety and greater risk aversion of lenders. At the same time, portfolio outflows will put pressure on currencies for devaluations. Reduction in ODA, remittances and tourism receipts will also have a negative impact on the economy. As investments falls, some projects will not be completed making them unproductive and saddling bank’s balance sheets with non-performing loans. Lower commodity prices, combined with a credit crunch and increased risk aversion will make it more difficult to finance and develop capital investments. The economic downturn will result in pressure on the balance sheet of some of the weaker banks in the systems as non-performing loans in some sectors increase. For some banks, failures will occur.

Renewed debate on the role of governments in the financial system

The government bailout of financial institutions in developed countries will be abused by those keen to entrench government involvement in the financial sector – even when such entrenchment is detrimental to the financial system. While many government led programs in the financial sector have been well intentioned, the unintended consequences have often been severe on the level of interest of the private sector in investing in the financial sector as well as the credit culture of beneficiaries. Global experience suggests that despite the seeming advantages of government intervention in broadening access to credit, especially through government-owed banks, public banking services in developing countries have generally not been successful.

There is a close association between such participation and lower levels of financial development, less credit to the private sector, wider intermediation spreads, greater credit concentration, slower economic growth and recurrent fiscal drains. Despite these arguments, the recent massive government purchase of shares in financial institutions will in some cases not be seen as a short term remedial measure, but rather a long term repudiation of government exclusion from the sector – the unintended consequences of this position in the 1970’s and 1980s may yet again revisit the continent if this view finds traction with policy makers for existing and planned government owned financial institutions (Scott, 2007).

Conclusion

The present financial crisis will affect financial systems in African countries differently depending on the present quality of the financial sector. To each there is a litany of policy and technical options for the governments on the continent to consider. These include implementing: management takeovers ; blanket guarantees on all deposits reduce reserve requirements; offering to buy bad loans from commercial banks and revise deposit insurance guidelines to name but a few that were exercised by various governments during the month of October 2008 alone. Most of these options are for countries that are directly affected by the crisis and are in need of immediate assistance. For longer term financial sector reform options, the governments in Africa may wish to consider longer term options.

Three such options include: (i) strengthening local investor confidence in equities and bonds on African Stock Exchanges by enhancing, though legislative reforms, the participation of local institutional investor. Pension funds, especially state control pension funds will need to be instrumental in sustaining the development of the market; (ii) encouraging private sector lending, especially for SMEs, by attracting new sources of trade finance by, in some cases, rethinking support for new and existing export promotion facilities, and facilitating Risk sharing facilities in a bid to not only restore confidence in the financial sector, but also sustaining private sector enterprise, and; (iii) putting in government ownership policies that ensure that such ownership only takes place when; it is necessary to strengthen the capital base of banks to remove fears of insolvency; the managers have proved unable to raise equity capital from private sources; the bank is essential for the payments and credit systems, and the bank can reasonably be expected to be made viable in the long term. Importantly, governments must have policies in place that ensure that the government’s ownership is temporary and aimed at disposing of the investment once the financial system returns to normal operations and when it is commercially suitable.

27 comments:

  1. Somewhere on this blog I wrote that the financial crisis or the recession would not affect Zambia that much or would pass it by - I would like the amend that. I was getting carried away. However, I will say the following:

    I think the copper price has bottomed, along with the US dollar (1,25 to the Euro, which is the same level it had been for years after recently taking off to 1,60).

    I think the copper price is very closely linked with the US dollar, and much of it's decline from about $9,000 per tonne is because of the strengthening of the dollar. However, the dollar is back at it's old 1,25 level, but the economy certainly is not back at any 00s level.

    Because of deregulation and 'free markets' (meaning that NAFTA made much of the US's manufacturing capacity disappear to low wage countries), there has been a full frontal assault on the US economy's main strength, wich was consumer spending, which made up 2/3 of US GDP. That has largely disappeared with the collapse of credit. Low interest rate fueled credit taken on by people taking out cheap mortgages to buy a home and then taking second loans on those houses to create consumer spending has disappeared, and it is not coming back any time soon. There are too many houses on the market, too many people have gotten burned taking on too much credit and debt, and on top of that massive waves of joblosses are taking people's way of servicing that credit away by making them unemployed.

    We are seeing what happens when neoliberalism is successful in eroding the manufacturing base, and building the rest of the economy on the quicksand of service jobs. The US will most likely survive, but it shows that neoliberalism (privatisation, deregulation, free markets) is not an examply anyone in their right mind should follow.

    These people want Zambia to say goodbye to it's real life blood, which is it's part of the Great Rift Valley and all the real world minerals that are gained from it, and base it's future on... tourism.

    You have been forewarned. Neoliberalism does not 'bring development', all it does is massively exaggerate the business cycle.

    And my original point is this. The price of copper has bottomed out at it's current level, and the next leg is back up.

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  2. With all due respect to Mr. Maimbo, his comments and conclusions do seem to betray an almost unreasoning bias against any long term investment activity undertaken by governments directly. He appears to be in favor of investing the pension funds of government workers, yet paradoxically doesn't trust that same government to arrange good investments for the nation as a whole. He is in favor of "Risk sharing" between government and private banks, so presumably his objection stems from "Reward sharing."

    His conclusions drawn from the, "close association between such participation and lower levels of financial development, less credit to the private sector, wider intermediation spreads, greater credit concentration, slower economic growth and recurrent fiscal drains," I find somewhat questionable, given that those are the very same and apparently only market conditions under which he finds such participation acceptable. Mr Maimbo closes by stressing the importance of, "policies in place that ensure that the government’s ownership is temporary and aimed at disposing of the investment once the financial system returns to normal operations and when it is commercially suitable." Reaping the long term rewards of weathering a period of above average risk should be left to the private investors, in spite of the fact that normal operations are assumed to resume in large part due to government's capacity to absorb risks the private sector is unwilling or unable to engage?

    In short, I find it difficult to credit this analysis due to internal contradictions.

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  3. Mr K the decimation of the manufacturing sector in Zambia had nothing to do with neoliberalism. The blame lies squarely on the Chiluba regime and its unintelligent policy choices. It was stupid of them to impose duty of 35% on the importation of raw materials and 25% duty on finished products. Second the formalisation of Salaula trade did in the textile sector. Then you have the weird situation of Shoprite bringing in merchandise duty free. No wonder the list of casualties were not only local companies but companies like Colgate and Johnson and Johnson from the citadael of capitalism. They failed to 'cope' with Zambia's version of a 'free economy'. Zambia is just bad at making choices. Whether it is 'socialism' or 'capitalism' you can always count on a Zambian to screw things up!

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  4. Well, I would say all credit to Mr. Maimbo for giving by far the clearest link between the financial crisis elsewhere in the world and Africa. We may disagree over his conclusions on what exactly African countries should do to stem the spread of this crisis, but keep in kind that the the developed world is hardly in agreement about their solutions either! The UK govt and the opposition are torn apart in their strategies, as are the US Democrats and the Republicans especially before the Obama triumph.

    What's evident in this crisis, as in most crises, is that there are short term and long term strategies to be considered. The short term efforts may well appear to contradict the long term plans, but that is not necessarily true nor is it a bad thing. For instance, the EU/US stimuli is to pump money into the financial system and encourage more lending to individuals and small businesses. One might think, hang on, is it not this sort of lending that got us here? But that's just the short term strategy. Arguably the long term plan should be to curb the trade deficit with China do that the West oculd begin to generate real wealth, not artificial wealth from so called 'credit markets'.

    Yakima,
    You've 'poked holes' into Mr Maimbo's options on the way forward but you've hardly given alternatives. Do you mind...?

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  5. MrK,

    "I think the copper price has bottomed, along with the US dollar (1,25 to the Euro, which is the same level it had been for years after recently taking off to 1,60)."

    I humbly disagree. Copper prices will probably keep going down because of the imbalance between demand and supply. At the moment, all reports are indicating that of all base metals, copper has the most excess supply.

    As long as the market keeps being oversupplied (the copper producers far from cutting supply, they have kept up), the direction of prices will be downwards or atleast no increase.

    All the reports I have seen are pointing towards be surpluses next year and in 2010. As much as 1 million tonnes next year of oversupply next year compared with 100,000 this year.

    Oversupply can be seen in stocks of copper in LME warehouses, which at more than 290,000 tonnes are up nearly 50 percent since September and the highest since January 2004.

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  6. Copper is a fungible product, so even if China has a stimulus package and the US is in recession, the net result may still be less demand and price will fall if this is the case. Hopefully the US will stimulate its economy. In the long run, due to population growth and improving economies, demand for copper will rise and price will rise if supply does not keep pace with demand.

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  7. Frank,

    Whether it is 'socialism' or 'capitalism' you can always count on a Zambian to screw things up!

    You're not getting off that easily. Who made neoliberalism fail everywhere else?

    I don't see anything peculiarly Zambian about the failure of deregulation, privatisation or 'free markets'. In fact, you can see the same results the world over. Free markets lead to local manufacturers being swamped by imported goods. Privatisation leads to asset stripping and the handover of profits to foreign corporations. Deregulation leads to terrible labour standards and environmental pollution.

    By the way, I don't confuse neoliberalism with capitalism. Capitalism is very well possible in mixed economies. There is no need to do away with all regulations and restrictions on the private sector, in order to have a functioning capitalist system - in fact it is a prerequisite that there are regulations.

    Cho,

    Oversupply can be seen in stocks of copper in LME warehouses, which at more than 290,000 tonnes are up nearly 50 percent since September and the highest since January 2004.

    By the way, annual world production is 17,974,300 tonnes.

    We'll have to see which trumps which - rising reserves, or a falling dollar. I think those reserves can be cleared out very quickly when copper's dollar value starts to rise again. Not because of an increase in demand, but because a fall in the US dollar.

    Meanwhile, China just gave another $2 billion loan to one of it's own companies to develop a copper mine in Peru.

    Full article in Chinese:

    Aluminum Corporation of China Ltd. (Chalco) has signed an agreement with the Export-Import Bank of China for $2 billion loan. The money will help Chalco to develop its copper mine project in Peru, which is expected to produce 200,000 tons of copper a year once operations start.

    *********

    I don't know whose point this proves - yours as it could be evidence of overproduction, or mine because it shows the Chinese state's continued need for industrial metals. :) We'll have to see what happens to the price of copper.


    Kafue001,

    Last time I said that neoliberalism is dead, and without supporting your point, you said 'no it isn't'.

    Well I don't know what you would call state ownership of the financial sector. But that is of course only for countries which still have a functioning state left, after privatisation - from the Financial Times:

    Broken banks put the state back in the driving seat
    By Philip Stephens

    We are watching a bonfire of the old orthodoxies as well as of the vanities. This week Barack Obama promised to spend hundreds of billions of taxpayers' dollars to prop up the sinking US economy. Gordon Brown's British government announced it would soak the rich to pay for an economic rescue package.

    In between times, the Bush administration all but nationalised Citigroup, the world's largest bank. For good measure it threw another, yes another, $800bn into the effort to thaw US credit markets. Everywhere you look, Keynes' demand management is replacing Adam Smith's invisible hand; printing money, a mortal sin under the fracturing Washington consensus, is the new prudence.


    This is the result of deregulation of the banking sector, and the unrestricted globalisation of debt and financial products. The deregulated private sector makes a huge mess, and it is to the state to bail them and the economy out.

    If that is not the end of neoliberalism (free markets, deregulation and privatisation), I don't know what is. Even Greenspan said he didn't think his beloved 'selfinterest' (greed) would bring the system down.


    UN team warns of hard landing for dollar
    By Harvey Morris in New York
    Financial Times, 1 Dec 2008

    The current strength of the dollar is temporary and the US currency risks a hard landing in 2009, according to a team of United Nations economists who foresaw a year ago that a US downturn would bring the global economy to a near standstill.

    In their annual report on the world economy published on Monday, the economists said the dollar's sharp rebound this autumn had been driven mainly by a flight to the safety of the international reserve currency as the financial crisis spread beyond the US.

    The overall trend remained a downward one, however, reflecting perceptions that the US debt position was approaching unsustainable levels. An accelerated fall of the dollar could bring new turmoil to financial markets.

    "Investors might renew their flight to safety, though this time away from dollar-denominated assets, thereby forcing the US economy into a hard landing and pulling the global economy into a deeper recession," the report said.

    Publication of the annual survey by the UN's Department of Economic and Social Affairs, its trade organisation Unctad and UN regional bodies, was brought forward by a month in the light of the financial crisis. It was launched in Doha to coincide with the UN-sponsored development financing conference in the Qatari capital.

    The UN team said that, as the financial crisis spread beyond the US, there had been a massive shift of global financial assets into US Treasury bills, driving their yields almost to zero and pushing the dollar sharply higher. At the same time, however, the US's external debt had risen to new heights that could provoke a dollar collapse.

    The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system.

    Rob Vos, a Dutch economist who heads the UN's policy and analysis division and who is responsible for the annual economic review, said the global economic pain could be eased if governments co-ordinated a spate of stimulus packages that were already under way.

    "There has been a sea change in attitudes in favour of intervention and concerted action," he told the Financial Times. He welcomed statements from US president-elect Barack Obama's transition team in support of spending on infrastructure.


    Oh irony of ironies.

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  8. Mr K,
    "Well I don't know what you would call state ownership of the financial sector"

    This is a temporary measure, until banks are not afraid to lend. In a depression situation where there is fear of lending or spending, then the government needs to intervene massively until confidence is restored. The current situation has arisen due to a set of unique circumstances and chain of events (credit default swaps, credit crunch). Once the defects have been analyzed and remedied, then neoliberalism should return as it is the most efficient way to run an economy.

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  9. Another example is South Korea with neoliberalism and North Korea with very little neoliberalism (although they have started using it because they recognize that it works). Which has the more successful economy?

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  10. Another way of seeing which has the more prosperous economy - the Korean Peninsula at night:

    http://strangemaps.wordpress.com/2007/12/16/218-koreas-dark-half/

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  11. This is a temporary measure, until banks are not afraid to lend.

    That's irrelevant, even if it were so and bank lending was the entire extent of the problem - and it isn't. The destruction of the US manufacturing base is going to haunt it's economy unless it is reversed. It goes deeper than the banks being afraid to lend of course, it goes to the fact that neoliberalism has undermined the mainstay of the US economy, which is consumer spending, by allowing the consumers to load up on lots of credit, which they can't pay back when interest rates go up and they lose their jobs. And interest rates are going to go WAY up, because of the inflationary effect of the $700 billion plus stimulus package.

    The principle of 'free markets' depends on the notion that markets are self-correcting. That also presumes they self-correct, without tearing down the economy beyond repair. There is no self-correcting aspect to creative destruction. It is not just the excesses that are corrected out of the markets, but the economy itself that is being destroyed.

    If everything had been successfully privatised, there would have been no state to do anything, including bailing out the banks. Which I disagree with, by the way. The cause of their problems was deregulation, and re-regulation should be the first priority, not burdoning the taxpayer with a $700 billion bill.

    Banks are deregulated, and all of a sudden they start lending what to them are the most profitable loans, which were Adjustable Rate Mortgages, which do very well for the bank if they can collect, but throws the lenders into bankruptcy if interest rates move up. They were following their own selfinterest or greed, and greed was not good. Greed did not work. Greed, again as it did in 1929 and 1987, threatened to destroy the entire economy.

    You Lose. Game Over.

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  12. Zedian,

    I am not sure that I am correctly filling in the blank in this question, "You've 'poked holes' into Mr Maimbo's options on the way forward but you've hardly given alternatives. Do you mind...?" I will just have to wing it.

    First off, my difficulty lies in trusting Mr. Maimbo's methodology, I actually have relatively few problems with his specific policy prescriptions. A stopped clock is still correct twice each day, and to dismiss the entire potential benefit of long term investment by government entities on the basis of a "close association" is indicative of sloppy thinking and ideological bias.

    For example, I can easily argue that this association between periods of high government involvement in financial sector investment and low growth is due to the fact that political opposition to such activity only relaxes during market downturns and private capital failures. When markets are strong, what Mr. Maimbo deems "normal", then lobbyists for private capital seek political means to remove competition from government investment. The waxing and waning of such political pressure can easily account for the closeness of the association between government involvement and sector performance. It is specious reasoning to conclude that the former necessarily causes the latter, and Mr. Maimbo skillfully avoids outright declaration of this while doing his best to imply it is the case.

    Secondly, as to the specific policy recommendations made, the brief paragraph on short term remedies is far too vague and general to be considered advocacy, so if the author has an axe to grind it lies in the three long term prescriptions. I will try to take them one at a time:

    (i) strengthening local investor confidence in equities and bonds on African Stock Exchanges by enhancing, though legislative reforms, the participation of local institutional investor. Pension funds, especially state control pension funds will need to be instrumental in sustaining the development of the market;

    I am not certain what enhancing participation of institutional investors means exactly, but I presume it means increasing relative returns, the most likely mechanism for which would be tax cuts on investment income. Pension funds are supposedly managed the same way that other institutional investments such as mutual funds are, in order to maximize returns and minimize risks. To mention government pensions specifically as being used to "sustain" most likely means mandating the use of such funds to purchase certain equities or securities without such regard for market conditions or prospects. Certainly the steady injection of pension fund contributions by government workers would help to stabilize otherwise falling share prices, to the benefit of institutional investors (both foreign and domestic), but not necessarily that of the government workers and pensioners themselves.

    Properly crafted tax cuts which encourage long term investment in sustainable economic development is something I very much favour. Using the retirement savings of rank and file government workers as a slush fund for private capital investors seems counterproductive to me, not to mention unfair. Pension funds work quite well if they are isolated and managed solely for the purpose of providing retirement security, they break when removed from that mold.

    (ii) encouraging private sector lending, especially for SMEs, by attracting new sources of trade finance by, in some cases, rethinking support for new and existing export promotion facilities, and facilitating Risk sharing facilities in a bid to not only restore confidence in the financial sector, but also sustaining private sector enterprise,

    I am in favour of policies which I think would pass through this paragraph without contradiction. Use of well regulated and tightly focused government institutions to provide reinsurance for development loans issued by private lenders such as the Indian NABARD could produce dramatic results for SME's in Zambia.

    (iii) putting in government ownership policies that ensure that such ownership only takes place when; it is necessary to strengthen the capital base of banks to remove fears of insolvency; the managers have proved unable to raise equity capital from private sources; the bank is essential for the payments and credit systems, and the bank can reasonably be expected to be made viable in the long term.

    No problems here, I would give similar advice to any potential investor interested in high-risk or otherwise distressed securities.

    Importantly, governments must have policies in place that ensure that the government’s ownership is temporary and aimed at disposing of the investment once the financial system returns to normal operations and when it is commercially suitable.

    Here's where I truly part company with Mr. Maimbo, I think because I only have a problem with government making long term investments if the rewards are not widely and equitably distributed throughout the society. Sovereign Wealth Funds are not a bad thing. Development Banks are not a bad thing. Municipal Transport Companies are not a bad thing. I see no reason why government stimulus in the short term cannot be combined with the long term development of targeted institutions.

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  13. Kafue,

    I would like to be certain that you are indeed intending to advocate in favour of neoliberalism specifically, as this term itself is a matter of much dispute (even the prefix "neo" is questioned by some critics, who feel much the same way about it as I do about the term "neo-nazi": there's nothing new about them).

    I am not certain that the example of the Korean Peninsula is appropriate to the classic "Smith vs. Keynes" debate, as I sincerely doubt that the latter would favour the sort of economic policy dictated by the "Dear Leader".

    A more appropriate test might be to compare Botswana with Namibia, at least with regard to their relative experiences with the traditional international instruments of neo-liberalism, the IMF and World Bank. I recommend the analysis of Joseph Stiglitz, who has worked extensively in the field for decades at the highest levels, and is intimately aware of the decision-making process at work. He draws the contrasts in his book, Globalization and Its Discontents, far more effectively and thoroughly than I can.

    I have some difficulty agreeing with one of your statements for reasons similar to my disagreement with Mr. Maimbo, namely:

    This is a temporary measure, until banks are not afraid to lend. In a depression situation where there is fear of lending or spending, then the government needs to intervene massively until confidence is restored. The current situation has arisen due to a set of unique circumstances and chain of events (credit default swaps, credit crunch). Once the defects have been analyzed and remedied, then neoliberalism should return as it is the most efficient way to run an economy.

    The central point of Keynesian economic policy is to prevent depression circumstances by using consistent government intervention to maintain full employment. Their rebuttal to Smith's liberals, neo or otherwise, is that any system which produces depression situations at all is not the most efficient way to run an economy. They wonder why it is necessary to wait until the breakdown before defects are remedied, when regular maintenance and prudent operating guidelines can prevent them?

    A common metaphor employed by economic liberals is that a rising tide lifts all boats. They usually leave out the bit where the tide goes out, probably because they opposed tax increases to fund public expenditure on harbour facilities, or they plan to be well out in international waters by then.

    Opposition to unrestrained liberalism isn't something invented behind the iron curtain or in some dictator's summer palace, it has its roots in the experience of western democratic states attempting to maximize freedom and prosperity without suffering from the Tragedy of the Commons.

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  14. Mr K,
    "The destruction of the US manufacturing base is going to haunt it's economy unless it is reversed."

    Not really, the U.S. has a well diversified economy:

    http://www.bea.gov/industry/gpotables/gpo_action.cfm?anon=84029&table_id=23499&format_type=0

    Economic activities are based on their profitability. Manufacturing aeroplanes is profitable, but not making toys due to high labor costs, so toy making goes to countries with lower labor costs. Much work in the U.S. is intellectual based like research and development, teaching foreign students, medicine, writing software and other services such as making movies - again it depends on the profitability of the activity. These activities generate high incomes. Because there is so much high incomes and purchasing power in the U.S., even the less skilled workers can obtain higher wages compared to other countries.

    Mr K,
    "And interest rates are going to go WAY up, because of the inflationary effect of the $700 billion plus stimulus package. "

    When there is a deflationary spiral in the economy as is the current situation, then the inflation effect of a stimulus package is not a problem due to the current underutilized productive capacity.

    Mr K,
    "They were following their own selfinterest or greed, and greed was not good."

    I agree, but that does not mean banks should be nationalized permanently, just that regulation should be increased.

    As proof, you can see that many decades of free markets have made countries like America and South Korea wealthy, so a few years of financial crisis and recession does not disprove neoliberalism.

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  15. Yakima,
    "I would like to be certain that you are indeed intending to advocate in favour of neoliberalism specifically, as this term itself is a matter of much dispute"

    I picked neoliberalism since Mr K uses the term presumably to refer to capitalism and free markets (correct me if I am wrong). I myself don't have any particular ideology. I observe how different countries have succeeded or failed economically and put forth my own opinion. In my view, there can be different reasons for a country to succeed (Chaebols in South Korea, MITI in Japan, Foreign investment promotion in Singapore). What I have seen on this blog is that there is a failure to understand how businesses operate and the need for competitive advantage for them to succeed.

    Yakima,
    "The central point of Keynesian economic policy is to prevent depression circumstances by using consistent government intervention to maintain full employment. Their rebuttal to Smith's liberals, neo or otherwise, is that any system which produces depression situations at all is not the most efficient way to run an economy."

    There I disagree with Keynes. It is not possible to maintain full employment. Simply because over time, due to innovations and competition, some industries will disappear while new ones will appear. So there will be some unemployment due to these adjustments. I agree a depression situation is not good, but the factors creating this one (hopefully to be averted) were not appreciated in time otherwise regulations would have increased to prevent it.

    Yakima,
    "Opposition to unrestrained liberalism isn't something invented behind the iron curtain or in some dictator's summer palace"

    I am all for liberalism subject to appropriate regulation.

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  16. Yakima,

    I am in favour of policies which I think would pass through this paragraph without contradiction. Use of well regulated and tightly focused government institutions to provide reinsurance for development loans issued by private lenders such as the Indian NABARD could produce dramatic results for SME's in Zambia.

    You're one of the smartest guys on this blog, and I always enjoy your posts immensely.

    So I'm asking you a question I really want to know the answer to:

    You mentioned regulation. Why is it that infrastructure projects are so badly run? Why isn't there more regulation and tighter supervision of road builders?

    Is it that they are boondoggles for politicians to funnel money through? Where are the state supervisors? Where are the comptrollers and compliance officers? Why do these companies seem to be paid up front? Why aren't they forced to show receipts or have their costs paid as they are incurred?

    Just wondering.

    "They were following their own selfinterest or greed, and greed was not good."

    I agree, but that does not mean banks should be nationalized permanently, just that regulation should be increased.


    I agree with that, and of course the banks wouldn't need to be bailed out without deregulation. I don't think banks should be state owned. At the same time, they or any company should never become 'too big to fail' - which is where anti-trust and anti monopolitistic legislation will help out.

    As proof, you can see that many decades of free markets have made countries like America and South Korea wealthy, so a few years of financial crisis and recession does not disprove neoliberalism.

    I think that the levels of protectionism and state involvement would argue against the idea that the US and South Korea owe their economies to free trade. I think the fact that South Korea sells it's cars and electronics all across the world hides the fact that all their major companies are Chaebol, modeled after Japan's Keiretsu, and they had massive help from their governments, both at their creation and for protection against foreign competition.

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  17. Kafue,

    Thank you for clarifying your position, it makes more sense to me now. I agree that "full employment" is a misleading term, in practice it might be more accurately called "optimal employment" or even "politically acceptable unemployment" if we want to be particularly cynical about the motives of Keynesian advocates. It is fairly incontrovertible that regulation stifles innovation to varying degrees, I suppose the only effective counter-argument is that not all innovations deserve the confidence of their creators and should be subject to oversight before the monster is unleashed on the sleeping village.

    Keynes only works to its ideal potential if you can trust the governmental institutions to be consistent and free from corruption, just as Smith only works perfectly if the invisible hand consistently guides self-interested buyers and sellers together without distortion or imbalance of information. Reality tends to include both corruption and imbalance, and to that extent both theories are wrong. Zambia suffers from an excess of both, and thus can likely benefit from remedies stemming from the experience of both schools of thought by both reducing corruption and improving access to information.

    On the down side, programs designed in accordance with Keynes will be vulnerable to corruption, even breeding grounds for it if unchecked. Likewise programs designed to encourage investment through removal or relaxation of regulation will be vulnerable to short term decision making and insufficient disclosure of information pertinent to the contractual compliance and market value of corporate actors. In short, nothing will work if regulators are either corrupt, under-empowered, or both.

    Everyone hates going through Customs and paying tariffs, on the other hand that same Everyone is awfully glad to see the Coast Guard when they are disabled by a storm or threatened by pirates. Ironically, in the current circumstance in Somalia, it is both the pirates and their victims who are calling for a government with sufficient regulatory force to effectively police the Gulf of Aden and coast of the Indian Ocean. By their own account, fishermen turned to piracy in response to widespread poaching of fish stocks and illegal dumping of industrial waste by unregulated international corporations. The central point of their hostage ransom demands is that environmental damage be restored and their fisheries protected from overfishing.

    Do the liberals at the IMF see the parallel to their calls for deregulation and "voluntary compliance" for corporations with the causes of piracy for the people actually living in a deregulated world with plenty of people who will at least try to get away with it if they think they can?

    Certainly regulations should be as simple and adaptable to real world conditions as is optimal to effectively protect the public interest and the interests of individual victims of malfeasance or negligence by someone else. Most regulations are there for a good reason, and I say this as a small business owner, they just aren't crafted or implemented properly, and so become a drag on all businesses instead of a check against a corrupt few.

    One option to streamline the effects of regulation on business is to set exacting standards, and then pre-verify the adherence to the standard of licensed operators. For example, where I live there are extensive regulations governing the installation of electrical wiring, which must pass inspection before walls can be closed up and business done. The city recognizes the burden their high standard imposes on contractors and their clients, and compensates by offering contact lists of the contractors whose work consistently passes inspection without comment. The contractors and their equipment and materials are frequently subject to thorough examinations, however a majority of jobs they undertake are assumed to be of equivalent quality and are inspected for obvious defects from human error only. This enables inspectors to spread their time over more sites, as well as reducing the frequency of delays due to improper or defective installations.

    Something similar could be employed to help streamline the land tenure process in Zambia for starters. If surveyors and realty agents can be trained and relied upon to adhere to standards with random checks, the backlog of applications awaiting review by the Ministry might be eased significantly. If the frequency of allowable errors is low enough to outweigh the infrequency of thorough examinations, then the only way (outside of corruption) for professionals to retain their preferred status is to remain in strict adherence to standards at all times. For example if a competent professional can be reasonably expected to commit one significant error every twenty jobs, then examinations of every forth or fifth job (on average that is, which jobs are examined must be random, not on a set schedule) should easily distinguish between human error and malfeasance.

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  18. Mr K,

    Very hard questions! Thank you for sugar-coating them with such high praise, I can only hope that my answers are satisfactory.

    You mentioned regulation. Why is it that infrastructure projects are so badly run? Why isn't there more regulation and tighter supervision of road builders?

    Is it that they are boondoggles for politicians to funnel money through? Where are the state supervisors? Where are the comptrollers and compliance officers? Why do these companies seem to be paid up front? Why aren't they forced to show receipts or have their costs paid as they are incurred?


    I think I inadvertently made a start on some of these in my last comment, so I won't belabour the points made there. I will instead try to focus in on roads, and what remedies might be effective in addressing corruption.

    Assuming for the moment that contract bids are treated fairly, perhaps the best methodology for determining the winning bid is the German one. Contractors must make their bid in terms of both the cost of building the road and the cost of maintaining and repairing it to a given standard with regular frequency. The winning bid is the one which provides the lowest cost per year to the taxpayers. The contractor must obtain insurance or maintain capital reserves sufficient to meet the entire replacement cost of the road for the length of the contract. The actual maintenance costs of any given stretch of road are difficult to predict, and models must accommodate wide fluctuations in multiple variables. Naturally this makes contractors somewhat vulnerable to severe weather events or other circumstances beyond their control, and thus the risks should be spread over as many comparable projects as practical. Incidentally, this is an appropriate use for a derivative instrument like a credit default swap, and a specific market in such securities might facilitate implementation of such a contract bidding regime.

    Another advantage of this method is that the inspector need only evaluate that the road is there and of sufficient quality, how much it costs to get it in that state is not their lookout. Payment of contracted amounts up front is not a problem if proper bonding and insurance arrangements are enforced up front as well. This points out another way to reduce corruption through proper crafting of regulations, having a simple oversight standard allows for easy verification of inspection results by supervisors or third parties. If the standard can be expressed in objective terms, cracks no wider than X mm, grooves no deeper than Y mm, insurance equal to the inflation adjusted replacement cost of the entire bid, etc., then even better, as a journalist can expose a corrupt inspector with nothing more than a tape measure and a camera.

    Planned obsolescence is the factor which determines profitability for road builders. By only bidding on the initial construction of the road, contractors must attempt to predict their profit margin based on the average lifespan of the materials and methods they intend to employ. In places like Chicago, road works are notorious for lasting just long enough to avoid contractual provisions, before needing to be replaced far sooner than the "average lifespan" of the materials would indicate. In fact testing of road materials is an extremely advanced science in the information age, and engineers can predict with a high degree of certainty what will cause them to fail, and when. It is not all that difficult to lay a stretch of concrete or asphalt in such a way that ice or erosion or compaction will not ruin it within five years, but will certainly do so within ten, and not that much harder to lay it to last at least twenty. The German method effectively makes planned obsolescence work in favour of more and better roads, since the contractors who need to spend the least on maintenance can consistently underbid those who don't.

    Get the regulatory regime and structural incentives right, and I believe that roads will be laid and bridges built all over Zambia within a relatively short time.

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  19. Keynesian Economics seems more suitable in my opinion to developed countries where there is unutilized productive capacity at a certain stage in the economic cycle.

    For developing countries with large unemployment and underunemployment and relatively little productive capacity, developmental economics seems more suitable to me. This could be done through cross subsidization if competitive advantage could be achieved. Alternatively or concurrently, then there should be a plan B which is easier to achieve such as policies to attract foreign investment and tourists.

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  20. Yakima,

    Some very intersting thoughts on integrating results with incentives.

    Get the regulatory regime and structural incentives right, and I believe that roads will be laid and bridges built all over Zambia within a relatively short time.

    I do wonder what is keeping the government from doing just that.

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  21. STATE INVITES OPPOSITION POLITICAL PARTIES
    By Times Reporter

    THE Government has asked opposition political parties and other stakeholders to come up with suggestions on how best to address the escalating food prices for the benefit of Zambians.
    Agriculture and Cooperatives Minister, Brian Chituwo said in Lusaka yesterday that the Government was committed to dialogue, especially over mealie meal prices and shortage of maize in Zambia.
    Dr Chituwo stressed that the call for suggestions was not a sign of failure to run the affairs of the country but a show of commitment to consultation as a way of finding solutions to the problems affecting the nation.
    Read More...

    Maybe it is time to support the government with practical advice?

    Professor Kyambalesa has run for office, so he is practically a member of the opposition. Suggestions about the reform of the FRA have already been made.

    I would like to see the state encouraging indigenous commercial farming, maybe the existing farming cooperatives could be recapitalized and revamped. Increasing supply is the best way to lower prices.

    I agree completely with the minister that consulting widely is not at all a sign of weakness or 'failure' (as was the word used in the article), but a sign of confidence and strength.

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  22. Mr K,

    It is always difficult to speculate as to the individual motivations behind the decisions produced by government committees. I think that it is not unreasonable to expect, however, that if there is sufficient public awareness of unnecessary government waste, inefficiency, and potential for fraud, then the electoral process will be easier for political reformers and harder for entrenched patronage. I say potential for fraud because a huge factor in any business is employee theft, abuse of power and misallocation of resources, and reputable studies indicate that a majority of people will commit at least one of these if they think that there will be no negative repercussions. These phenomena aren't limited to government, but government is like a business the people happen to own, which makes it our problem.

    I suspect that the problem is as old as any, and as the Romans said, "quis custodiet ipsos custodes," who watches the watchers? We know that the communist/fascist option of layer upon layer of watchers both open and secret simply does not work, and just employs a lot of otherwise intelligent and productive people to waste more time and resources than they are preventing others from wasting. In practice the only answer that seems to work is, "the watchers themselves." For whatever reason they do it, people who impose a standard of behavior on themselves are the only ones who can be relied upon to follow it under stress or circumstances where their own short term interest may be contrary.

    This is why military outfits go to such extreme lengths to establish an esprit de corps, why, for example, the US Marines insist on taking additional casualties to recover even dead marines from combat zones. By establishing that leadership will follow the code of "no marine left behind," under any and all circumstances, they set a tone and an aspirational standard for rank and file marines to incorporate into their personal self esteem. Whatever its flaws, the methodology is highly effective, as any survivors of engagements with such tightly organized military forces will attest.

    It is to be hoped that the stresses placed on civil servants and elected officials will not be so extreme, however the principle would still seem to apply. Perhaps the best place to start an examination of this sort of institutional environment and potential for fraud (in general that is, I am not calling for any sort of specific investigation of any specific person, just to be clear ;) is with judges since they are crucial to good governance no matter how you slice it. Personally, I actually prefer so-called "activist" judges in general, those who have an obvious judicial philosophy which they seek to apply from the bench. At least in their case I feel I can rely on them to be consistent and reasonably predictable, and therefore even-handed from a certain perspective. Judges who claim to enforce only the letter of the law without bias seem to exercise whatever bias they do in fact hold by means of selective enforcement. There is of course the optimal synthesis, where an individual judge has the passion of an activist for the letter of the law, however these appear to be rarer than public statements by the judiciary in general would claim.

    So how might we go about finding such rare persons and placing them behind the bench? It seems to me is to use the very same sorts of "litmus tests" which a majority of people seem to be dead set against. Pick precedent-setting cases and ask them directly how they would have ruled and why. Perhaps that is because I am less concerned with the answer itself than with whether they have consistent answers at all. Judges that are on the record establish a pattern and presumed philosophy which their future decisions can be measured against. Rulings that are accompanied by clearly stated judicial opinions should be the standard. This doesn't just aid public understanding of judicial behavior, it informs appellate reviews of decisions by higher courts and improves their understanding of lower court reasoning. As far as I can tell there are only two reasons to avoid litmus tests, either to preserve a fantasy vision of a god-like paternal judiciary which is drained of bias by the robes and gavels of office themselves, or to enable plausible deniability when back room deals produce selective enforcement.

    Just as the best road inspector is going to be the one who takes pride in the quality of roads under their care, the best judges will be those who care more about their philosophy than their popularity or prosperity, not to suggest that they cannot have all three. Such judges will not fear being overturned on appeal, it is more important to them to speak their minds on the case before them, and likewise defendants should not fear seemingly arbitrary or biased rulings from lower courts if they have a reasonable case for appeal as a result. Obviously not perfect, no fairy tale justice, just an attempt to balance incentives in a way that improves information and reduces potential for fraud, which in turn I am asserting would improve delivery of judicial services to the public.

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  23. Mr K,

    Another thought on road maintenance inspections and transparency: for regulations governing objective measures such as frequency, size and depth of cracks or grooves in roadway surfaces, it is possible to conduct inspections in a "double blind" fashion, hampering corruption significantly.

    The methodology is simple, and relatively inexpensive over the long term. Using digital cameras mounted at uniform height on vehicles traveling the roads, and time stamped location readings from a simple GPS locator for verification, the person reviewing any given piece of video need not ever know exactly which stretch of road they are evaluating. Since the "eyewitness" evidence can be reviewed with equal facility by subsequent examination, oversight can be improved and objectivity encouraged. Defects so detected can then be verified and again documented by a second inspector, perhaps assigned in the order they are reported to further avoid advance collusion with road builders. The accuracy of the system can be checked by random inspections of roadway which passes review, such that the second group of "field inspectors" does not know whether they are there to check if the video showed damage that isn't there or missed damage that is there. This also encourages objectivity and reduces the potential for fraud.

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  24. Kafue,

    Let me first say how glad I am that you, and others who feel like you, are here and willing to contribute your perspective on so many issues, it is rare to find an individual who is motivated, and let's face it, this blog needs some consistent voices more in synch with the views of the international, fine call it "neo-liberal", establishment. I will not speak for others, but your commentary helps to keep me grounded in the "real" world where, from a purely practical perspective, most of the available investment capital is held in hands which follow (perhaps entirely unbeknownst to you personally, I won't deny you your own reasons for what you espouse) highly similar philosophical groundwork to reach their conclusions.

    I like to consider myself to be a scientist, and strive to keep my mind perpetually open to objective evidence and metrics and to remain perpetually skeptical of that which appears in any way subjective. At the same time, I recognize that this field is Political Economy, and therefore inherently weighted with the sum total of subjective value judgments of every person, in their myriad diversity and ever growing number. Any model or policy prescription which I put forward that meets with profound resistance from any segment of society needs to be re-evaluated with an eye to what exactly that means in practice. I prefer to avoid such, because I am lazy and thrifty by nature, and prefer to get it right before I commit more resources than I have to commit (e.g. I just edited this sentence to ensure that it did not end in a preposition, on the off chance that I would later have to explain it. I only take the time to do so now to illustrate the point, and because I find the whole business mildly amusing which trumps everything else in my book and I hope that others feel similarly ;).

    All this is prelude I suppose to a question, how do we effectively enhance the ability of home-grown Zambian entrepreneurs to compete in a globalized, free market world? I ask this in all honesty, as an accomplished investment capitalist and small business owner in the US market, because I am confident that, given 7-10 days to assess the specific locale, I could in all likelihood be air-dropped into the current Zambian marketplace and successfully identify and exploit a niche market in any number of market sectors, simply due to asymmetric information about global market conditions and access to ready capital.

    Theoretically, the only way Zambia as a whole "catches up" with global economic metrics such as per capita income or standard of living in a free market system is by consistently outperforming the nations/groupings which have the highest combined measure of historically accumulated, practically applicable wealth, along with their short to medium term growth rates [n.b. in financial-speak, short term usually applies to periods ranging from tomorrow to 12 months, medium is 1-5 years, and long is, well, longer]. Over the long term, it does not appear to be enough to outperform in a given sector, or over the local geographical region.

    Thus far, and almost assuredly over the medium term, nations such as Zambia benefit from a kind of technological un-headstart, where a certain percentage of technological failures in other nations' pasts are so painfully obvious to anyone who makes even the most cursory analysis (see Ford Pinto and the rear-mounted fuel tank on unreinforced compact hatchback concept), that even the least educated and technologically unsavvy operator familiar with a grasp of the basics is likely to avoid it as a matter of course. That may be enough to "catch up with the peloton," to use a term from cycling, in other words to reach the lower averages of global achievement, but not enough to achieve the kind of goals articulated by Cho and others, for a Zambian character to development that excels in a uniquely Zambian way, and achieves distinction from the pack by virtue of its character if not its size.

    Just as it is in the Zambian character to live in peace with one another, despite the acknowledged existence of no less than 72 distinct Tribal entities. To go beyond this groundbreaking achievement and host on her soil both the liberation fighters of her less fortunate sister-nations and the sad refugees of fratricidal violence across her borders, is more than any human-rights activist in the Western world could have ever expected or even hoped for. To persist as she and her people have done, in the face of famine and disease, and yes, corruption by those entrusted to serve the people, well, there must be more to aspire to than a comfortable position out of the wind, at the back of the pack. I just can't see the struggles of the last several generations all leading up to, that. Please talk me down from this ledge, explain to me how the prevailing free-market logic will result in something worth aspiring to for Zambia.

    Thanks in advance,
    Yakima

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  25. MrK,

    "We'll have to see which trumps which - rising reserves, or a falling dollar. I think those reserves can be cleared out very quickly when copper's dollar value starts to rise again. Not because of an increase in demand, but because a fall in the US dollar."

    I think you are missing the point.

    The price of copper is determined by the general equilibrium in the market. We have too much copper on the market at the moment relative to demand. Its as simple as that.

    It actually turns out the speculators are now realising that they are holding onto too much copper and are dumping it on the market.

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  26. Yakima,
    "All this is prelude I suppose to a question, how do we effectively enhance the ability of home-grown Zambian entrepreneurs to compete in a globalized, free market world?"

    There are different avenues to success for Zambians. One is to work in large companies and advance to high positions in that company. Neville Isdell who spent many years growing up in Zambia is now the head of the global company Coca-Cola. Or a person can leave that company and start his own company if he spots an idea.
    Government can nurture small scale entrepreneurs to a certain extent through business incubators by giving them advice and some support services and financial support. Government should also focus on developing a good business environment (its main function) with focus on quality education, important infrastructure, basic sanitation and healthcare. Because Zambia is a poor country with limited resources, this needs to be done in a smart way with the population and businesses picking up as much as the cost as possible in the form of "user fees". That way, the limited government resources can be used to benefit the maximum amount of people. Attracting foreign investors will increase employment and hence payroll tax revenue giving government more resources also.

    Zambians should be encouraged to get together and pool their resources, similar to what the Chinese do with their family connections, rather than expecting the government to lend them capital. Study what is required to make a business succeed - a good idea, hard work, networking, good management, etc. Look at how entrepreneurs in economically successful countries operate and what economic policies these countries follow that made them successful.

    Yakima,
    "but not enough to achieve the kind of goals articulated by Cho and others, for a Zambian character to development that excels in a uniquely Zambian way, and achieves distinction from the pack by virtue of its character if not its size"

    I think we should forget about "uniquely Zambian way". The path to success is system based (good business ideas, good operational execution) and has already been shown in countries throughout the world, such as the Asian countries for example, to work the same. Also the chances of success are much higher in countries with good economic policies than in those with bad ones. So that is why it is very important to recommend that the government follow policies that have been proven successful.

    Over time, individuals and groups will come up with their own new business ideas (it is not something that can be ordered to happen), if that is what you mean by "uniquely Zambian way".

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  27. Kafue,

    I think that I understand where you are coming from, and for the most part I agree, but this is primarily "catching up with the peloton" stuff (which admittedly has to happen first). I agree that established best practices should be followed, but not at the expense of experimentation and innovation into better practices. I do not think that it is advantageous to believe that best is the enemy of better, but that best practice should be implemented in such a way that includes striving for better.

    As for a "uniquely Zambian way," Cho writes about these matters better than I do, but I will try to express what I mean by it. When I examine the experience of a nation such as Japan with an eye out for best practices adaptable to the Zambian circumstance, I cannot help but notice that Japan is not only remarkable for having the world's 2nd largest economy without any major natural resource concentrations on their territory, but that its global influence is so very, well, Japanese.

    Japanese products on the world market are in many ways distinctively Japanese in both form and function, and identifiable as such long before brand names are in evidence. There is a sense of national pride in the integration of traditional art and lifestyle into modern consumer products, which I suspect has a great deal to do with their success rather than being merely ancillary to it. I am of the opinion that Japan does not celebrate, preserve and integrate its traditions because it is rich and has the luxury to do so, but rather the reverse.

    For example, in my reading of Cho's piece on kachasu, I could not help but think of the hundreds of products sold in my restaurant, especially the bewildering variety behind the bar, containing culturally derived exports of dozens of countries, including five separate varieties of imported Japanese sake, assorted flavors of sake-to-me premixed cocktails, and several popular Japanese beers, but no kachasu.

    Even if I could get my hands on properly regulated supplies of the stuff, I am not convinced that I could generate much of a market for it given all those other cultural brews clamouring for customer attention. The main way I could get people interested, even at a competitive price point, would be to attach it to their interest in Zambian culture in a way that highlights the uniqueness of the place, the ingredients and traditional reasons for choosing them. Something from the manufacturer, which could be printed on a flier or menu insert, with pictures, would be preferable. An "African-looking" bottle would help too. Sell the whole package, as they say.

    I agree completely with you that people cannot be forced to innovate, luckily I believe that many want to do so anyway. Just to be clear, when I say, "how do we effectively enhance the ability of home-grown Zambian entrepreneurs to compete in a globalized, free market world?" I mean us, here, having this discussion, not necessarily government, although much of what we are capable of doing amounts to lobbying elected officials to encourage certain types of solution. A very large hurdle is identifying exactly which policies in use elsewhere are both proven and transferrable, and how much of the policy framework around them has to be transplanted as well in order for them to work properly within a different legal and constitutional framework.

    I am lazy. Sometimes it is just easier to start from scratch and see what I come up with. Many times it is either similar or comparable to policies in place elsewhere, which are much easier to find for comparison when I know exactly what I am looking for. Doesn't always work of course, but when it does, it saves a lot of effort.

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