Find us on Google+

Thursday, 12 March 2009

Growth, poverty in Zambia...

Peter de Haans has written an interesting Op-ed in the Post, that hopefully signals some elevation in the quality of their columns. I suppose this is what Ha-Joon Chang would call the "neo-liberal narrative" (e.g. the early SAP did not work because it was half-hearted, the asian economies grew from gradual liberalisation, no mention of the disastrous privatisation process of the 90s, a positive assessment of the agrarian reforms, no role for state capitalism, etc). More on that in the future, for now over to Mr Haans:

Growth, poverty in Zambia, Peter de Haans, The Post (subscription), Commentary

Zambia has seen bouts of economic growth since Independence. Zambia also receives foreign investment and a lot of foreign aid. The question is: did growth, investment and aid help reduce poverty?

I believe that without economic growth, poverty cannot be reduced. After all, equally distributing a small economic ‘cake’ amongst a large group of people would make everybody equally poor. We need a bigger one to overcome poverty. Of course, other aspects also play a role such as health and education accessible to all, a just tax system, and a well functioning public sector. A country’s infrastructure should also be in order. The investment climate should be favourable, the rule of law should be upheld and corruption should be held in check.

Very important is sound economic policies. Look at the Asian countries which managed to grow spectacularly after World War II. This was triggered by sound economic policies of their governments. In economics, this is more and more recognised as an important explanatory element and it is captured under the term political economy. Politics and economics can be a successful combination. Unfortunately, in quite a few African countries it isn’t. I would describe political economics in those cases as economic commonsense diluted by political considerations.

Being poor is awful. One stands to lose one’s dignity; poor parents can’t send their children to school; and, what happens when a family member falls ill or dies? Poverty may also trigger instability. It is for these reasons that combating poverty is an important social, economic, political (and I would even say moral) objective of any responsible government. Government leaders the world over agreed at the UN in New York in 2000 that they would bring absolute poverty down by half in 2015.

Zambia has its poverty reduction programmes, and the donors are here mainly to help Zambia to fight poverty. However, Zambia was poor and still is: 64 per cent of all Zambians are poor. A lot of studies have been undertaken in Zambia to find out where exactly the poor live, how they cope and – very importantly - whether the gap between rich and poor widened or not. These poverty studies are often more sophisticated than only measuring income. As many poor Zambians hardly take part in the formal monetised economy, it is not so much their income that counts; it is other things such as access to health and education which better measures poverty.

Now, what do these studies tell us? They conclude that over the period 1996 – 2006, poverty in Zambia did not change much, with the exception of the urban poor; they did a bit better. Poverty remains a predominantly rural phenomenon; some rural poor even got poorer. Poverty rates are highest amongst small and medium-sized farmers and non-farm rural residents. When looking at poverty with a gender perspective, female-headed households are disproportionally poor in Zambia.

What about the interaction between economic growth and poverty? We know that economic growth did take place between 1996 and 2006; the growth rate varied between 3 and 6 per cent per year, reflective of the pro-growth policies of the Mwanawasa administration. This decade long consistent economic growth benefitted, as already noted, the urban population but it didn’t ‘trickle down’ to the rural poor.

Despite this recent growth period Zambia’s per capita income is still below the per capita income at independence. Zambia’s stagnant development is difficult to understand given its rich copper deposits and its abundant potential in agriculture, energy and tourism. What went wrong, what counter-productive policies were adopted and where did the donors contributions go to?

Newly-independent Zambia started well in that the government opted for a market economy. Mining and urban areas were favoured through import substitution financed by the growing copper income. Foreign investment in mining rose rapidly, and so did Gross Domestic Product. But only few people benefited; particularly the rural areas were left out. Accordingly, inequality which was already high prior to independence worsened.

After the collapse of the copper prices in the early 1970’s, the government opted for state control. And from that time onwards things did not fare well for a long time. Falling copper income forced the government to borrow heavily; foreign debt rose while GDP growth dropped to an average of 0.5 per cent. Rather than initiating a process of structural adjustment (which would have been a common sense decision) to put order in government’s finances, it chose to adopt control mechanisms such as subsidising urban consumption. The mining sector and state-owned manufacturing were favoured through import licensing and foreign exchange allocations, at the detriment of social spending and investment in rural infrastructure.

By the end of the 1970s the government admitted that its economic policies were wrong and started to implement its first structural adjustment programme (SAP). However, political will to implement it was half hearted, so that by the middle of the 1980’s subsidies again comprised a sizeable chunk of the fiscal budget, while price controls made many state enterprises unprofitable. Inflation was over 180 per cent in the early 1990’s. One clear success of the SAP was the regaining of macro-economic stability, including bringing the inflation rate below 10 per cent. Loss making state-run companies were sold off. The SAP also included civil service reform (CSR). This was an important aspect, as government’s wage bill was more than 40 per cent of the budget. The key word in CSR was downsizing. Fifteen thousand civil servants were sacked initially.

However, later on the number of civil servants rose again to the original levels. Civil service pay rose, at the detriment of spending in health, education and other social services, which could have contributed to the fight against poverty. Moreover, the present salary and incentive structure does not promote better service delivery: the basic salaries are too low across the board. This induces civil servants to augment their income through generous sitting and travel allowances provided when attending seminars and courses, which take them away from their core tasks, such as attending to patients or instructing pupils.

Past agricultural policies also did not help much. They limited diversification. Maize growing was promoted through production and fertiliser subsidies, to the extent that it shifted production away from more competitive products. Accordingly, agriculture’s export potential was undermined and farmers grew maize in areas that were not always best suited to this drought susceptible crop. The good news is that Zambia’s agricultural sector is catching up. More agricultural produce is being exported and the share of agriculture in Zambia’s total export hovers around 20 per cent.

Taking the period 1980 – 2002 into consideration, Zambia’s average per capita growth was -1.8 per cent, while it received the highest ratio of aid/GDP of almost all African countries. Poverty is best attacked by a mix of sustained economic growth and effective government service delivery.

Zambia is expensive and its productivity is low triggered by poor infrastructure, limited energy and equally limited credit supply. All this limits job and income creation and further economic growth, which in turn hinders the fight against poverty.

Experts have advised the government to invest more in infrastructure (i.e. roads and telecommunication), energy supply and better trained people to promote private sector development. They also suggested boosting the productivity of the self-employed agricultural sector to combat poverty. Donors can help, and in doing so, they may act more business-like, in focusing on tangible results in the promotion of economic growth and in helping to bring poverty down.

3 comments:

  1. Peter de Haans wrote:

    I believe that without economic growth, poverty cannot be reduced.

    Now that is nonsense right there. You can have all the foreign mining companies in the world take raw materials out of Zambia and record incredible 'economic growth', but it will not do one thing to end poverty.

    It is the quality of economic activity, reinvestment, and the degree to which the population is actually involved in the economy that determines economic activity's impact on poverty.

    After all, equally distributing a small economic ‘cake’ amongst a large group of people would make everybody equally poor.

    As if that is the only alternative. I would suggest a model which actually gets people involved, and does not simply divide 'the economic cake', but the means of production - land, education, credit, etc.

    Then, there is the multiplier effect of using the mining industry to capitalize other economic sectors, like agriculture, infrastructure and manufacturing.

    Now, what do these studies tell us? They conclude that over the period 1996 – 2006, poverty in Zambia did not change much, with the exception of the urban poor; they did a bit better.

    So much for the effect of neoliberalism and structural adjustment. But then he continues about the 1970s...

    Rather than initiating a process of structural adjustment (which would have been a common sense decision) to put order in government’s finances, it chose to adopt control mechanisms such as subsidising urban consumption.

    Doesn't mr. Haans recognise that it was Structural Adjustment that saw major Zambian state assets privatised during the 1996-2006 period, which had little positive effect on poverty levels?

    Somehow, he doesn't make that connection.

    Not only has neoliberalism failed, it has spectacularly failed in every single global country the IMF got it's hands on, on every inhabited continent on planet earth. Governments in South America are now overwhelmingly leftwing, mainly because of Structural Adjustment. When people have a democratic say, they vote against it every single time. This underlines the fact that the effects of Structural Adjustment are so abrasive to the economy and the people, that it can only be carried through under dictatorship (like Chile and Argentina were). Or in democracies, in great emergencies that give state of emergency like powers to the President (September 11 2001 - read Naomi Klein's "The Shock Doctrine").

    By the end of the 1970s the government admitted that its economic policies were wrong and started to implement its first structural adjustment programme (SAP). However, political will to implement it was half hearted, so that by the middle of the 1980’s subsidies again comprised a sizeable chunk of the fiscal budget, while price controls made many state enterprises unprofitable.

    Which in itself should be a hint that Structural Adjustment failed in Zambia, just as it has everywhere else. The market did not step in and provide an efficient distribution of goods and services, necessitating the return of government. Just as it is doing in the world economy today. The irony is that only to the extent that a country didn't follow the IMF/Neoliberal hostility to government, does it have a government left to bail out all these freetraders - including the banking sector and their post-deregulation gambling activities.

    If Osama bin Laden created a video, and stated "I want to reduce the size of the American government, to where we can drown it in a bathtub", that would be considered a terrorist threat, even an act of war. And yet this was the policy of neoliberals for the last 28 years, and specifically, the words of their ideolog, Grover Norquist. To be a neoliberal, is essentially to be a traitor to your country, because you want to see the destruction of your government.

    Donors can help, and in doing so, they may act more business-like, in focusing on tangible results in the promotion of economic growth and in helping to bring poverty down.

    I think this opinion piece is pretty shoddy, it is ideological instead of analytical, in it's support for neoliberalism.

    It also shows why there are no quality controls on the IMF and their policies. There is no one who says - if we don't get these results by that time, out ideology has failed. Instead, they simply gloss over anything that contradicts their ideology, and keep on trucking.

    Even when the global economy is crashing around them, the way so many developing nation's economies were collapsing under their policies - Chile, Argentina, the Asian Financial Crisis, Russia, Zambia (1991), Zimbabwe (1991-1996 - read: The Tragic Tale of the IMF in Zimbabwe, by Antonia Juhasz), etc.

    We are witnessing the failure of supply side economics.

    ReplyDelete
  2. Brazilian economic growth marked by market friendly policies and poverty reduction programs:

    http://www.washingtonpost.com/wp-dyn/content/article/2010/01/02/AR2010010200619.html?hpid=topnews

    ReplyDelete
  3. Kafue,

    Interesting piece.

    I thought it did not fully get to meat of Brazil's performance. A key problem for Brazil has always been it's high levels of debt in relation to exports, which translated in high interest rates (to further attract foreign savings).

    In recent years as commodity prices have risen, the external constraint has been relaxed, with greater domestic savings and reduction in interest rates. This has helped fuel growth.

    The lesson again appears that having revenue windfalls in the economy from commodity prices is important because they help increase domestic savings and helps reduce interest rates. Of course it has also helped Brazil invest in industries and pursue poverty reduction programs.

    ReplyDelete

All contributors should follow the basic principles of a productive dialogue: communicate their perspective, ask, comment, respond,and share information and knowledge, but do all this with a positive approach.

This is a friendly website. However, if you feel compelled to comment 'anonymously', you are strongly encouraged to state your location / adopt a unique nick name so that other commentators/readers do not confuse your comments with other individuals also commenting anonymously.