Figure 1 : Composition of Zambian Exports (US$ million and %)
Figure 2 : Share of Exports across African countriesI have been deeply frustrated by the failure of Zambian politicians and academics to recognise that although all nations are facing difficult times, thanks to the global slowdown, our problems are both unique and more severe than others. The charts above demonstrates why. Zambia has one of the highest shares of mineral exports on the African continent, making us extremely vulnerable to base metals shocks. But more importantly, a closer inspection of figure 2, shows that nearly all the countries to our right are oil producers, with significant riches to tap into. For example, Angola may be suffering from low oil prices, but it is still aiming for $40bn plus budget for 2009. When you have oil, diversification is less important. Zambia on the other has really blundered over its many decades. It has failed to sufficiently diversify and while there are some signs of hope, the global slowdown has come too early for us.
Incidentally, I find the discussion among Zambian policy makers mind boggling. Its almost like diversification has become a buzz word that they do not grasp. Surely before you call for accelerated diversification you should first ask the basic question : why has Zambia not diversified sufficiently in recent decades ? You cannot create solutions without a full understanding of your previous mistakes. The answer to that question provides significant clues on how to develop policies that would enable rapid and sustainable export diversification.
Other countries have sufficiently diversified their economies from resource dependence to low value manufacturing products coupled with service expansions. Chile successfully transformed itself from a low-income copper dependent economy into a stable middle income structurally diversified economy. So its not exactly impossible, but to achieve the same feat requires us not just to ask what Chile has been able to do well (and stands far better than we do in face of growing crisis), but why have we failed to sufficiently diversify? I would be interested to hear what others think, but two immediate mistakes come to mind.
First, foreign ownership of key resources diverted significant mineral wealth from the state of Zambia. Diversification requires significant access to sizeable pot of funds. Most emerging countries pursuing diversification use "resource wealth" to fund infrastructure and other industries. Chile is the case in point. They have used the mineral wealth prudently, not only in terms of keeping the exchange rate in check through a stabilisation fund, but have also used windfall revenues to enhance productivity in other sectors. Indonesia in the 1970s and 80s also stands out as another example. It used its oil revenues to pursue an agriculture-led growth strategy with investment in rural infrastructure, such as irrigation and roads, as well as in input subsidies for fertilisers and pesticides. Unfortunately, Zambia was unable to do any of these things because of our poor approach to issues. I am afraid to say, we have only ourselves to blame for missing the windfall and finding ourselves in this mess.
Secondly, the investment framework adopted by Zambia did not directly deliver infrastructure investment. In other words, not only did money from minerals flee the country at the height of the boom, leaving little to spend on other areas, we also were refused to compel investors to invest in significant infrastructure, as a second best solution. The GRZ was hoodwinked in the useless concept called "social responsibility". The people of Zambia developed irrational expectations that mining companies would behave in the nation's interests when it comes to the delivery of new infrastructure. There's no such as thing as "social responsibility" because mining companies were motivated purely by profit and always acted in the interest of their shareholders. If using an existing road proved cheaper than building a new one, they proceeded to using the existing one. The same went for local schools and hospitals. When they occasionally provided a new school or funded the local football team, they "appeared" to be socially responsible. Their true motivations was always those of the company. It follows that even now we should not expect these companies to invest in local infrastructure unless it was legally mandated. Had the government moved quickly to put in place a coherent framework that leveraged private sector investment into delivering local infrastructure, as I had previously proposed, Zambia would today be better positioned to withstand the storm. The pace of diversification would have been faster and other sectors such as agriculture and tourism would have been better positioned to expand, while copper goes through the downturn. My point is not that I was right, but that the GRZ approach to these issues continue to be characterised by incompetence. We are now paying the price for the failure to think ahead, and we have no one to blame but ourselves.