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Saturday, 20 August 2011

Why does Zambia continue to wallow in poverty?

An answer from a new World Bank paper :
Rural poverty is increasing. The growth trajectory, while respectable, is not sufficient to reach the government’s objective of achieving middle-income status by 2030. There is an urgent need to increase the productivity of both the formal and informal sectors.

Why does this situation persist? Political economists point to many contributing factors: the rent-seeking behavior typical of many land-locked countries rich in natural resources; the legacy of socialism that encouraged over-reliance on the state as the engine of employment and economic growth; the volatility associated with reliance on a single commodity market; high poverty levels; and the lack of a civic voice, especially among the rural poor. Zambia manifests some key features of what has been described as a Limited Access Order (LAO). In the LAO, elites trade economic rents for political support; hence they tend to resist reforms that could detract from their financial and political dominance.

To the extent that this is true, then Zambia would seem to be caught in a vicious circle. Rents are important (due to the importance of the mining industry and aggravated by the fact that the country is landlocked), and the lack of economic/trade diversification allows capture and rent-seeking behavior to prosper. This phenomenon perpetuates the status quo (wherein many sectors seem to be captured by monopolies or cartels), which, in turn, limits productivity, economic diversification, and the formation of new businesses.
This assessment of course is in line with our previous assessment that economic outcomes are fundamentally about allocation of political and economic power. To the extent that people in power have no incentive to change the distribution of political power, they will continue to pursue economic policies that keeps them dominant politically. For example, they will seek to control loss making media houses; maintain parastatals as cash cows at the expense of genuine competition; pander to foreign corporations at the expense of locals because such firms finance their campaigns; and, only undertake development when they are politically vulnerable. In short, its not that policy makers are ignorant about the necessary solutions to move Zambia forward, rather there's an inherent lack of will on their part (incentives) to pursue that which they know is in the interests of the greater majority. We are poor because our poverty serves the elites that rule Zambia. 


  1. There is an urgent need to increase the productivity of both the formal and informal sectors.

    Now that should send shivers down the spine of any rightthinking individual. We have seen what the World Bank's definition of 'productivity' is in the famines in Somalia. Somalia was advised to 'become more productive', by forcing high rainfall food producers to become cash crop producers. We know the results - there have been famines since the 1980s.

    For more information, read:
    Somalia: the Real Causes of Famine
    by Michel Chossudovsky

    (First published in 1993, Third World Resurgence and Le Monde diplomatique)

    the rent-seeking behavior typical of many land-locked countries rich in natural resources;

    What does that mean?

    the legacy of socialism that encouraged over-reliance on the state as the engine of employment and economic growth;

    Replaced by the World Bank with the destruction of the state, and opening up markets so local producers are wiped out. Actually, a lot more was achieved under 'socialism' - large infrastructure projects that the country still relies on, universal healthcare and education, which the current 'do nothing' neoliberal government still lives on, etc.

    the volatility associated with reliance on a single commodity market;

    The money for diversification is not available because of... the free markets that the World Bank insists on are adopted by all developing countries. Except of course China, Japan or South Korea.

    high poverty levels;

    That goes without question - see the lack of diversification above. The World Bank's neoliberal policy prescriptions of course enforce and increase poverty in every country they have been tried in.

    and the lack of a civic voice, especially among the rural poor.

    If there has been a strong civic voice, the World Bank's austerity measures would never have been adopted.


    Only the countries that are strong enough or strategically imporant to 'The West' enough, to say no to the WB have developed - China, Japan, South Korea, Taiwan. None of which have opened their markets for foreign ownership or manufacturing, all of which have very strong state involvement in their domestic economies.

    Message to the World Bank: YOU FAILED. GAME OVER.

  2. Cho,

    In short, its not that policy makers are ignorant about the necessary solutions to move Zambia forward, rather there's an inherent lack of will on their part (incentives) to pursue that which they know is in the interests of the greater majority.

    Politicians will always accrue more power, connections and wealth toward themselves. That is why they are politicians, it is how they operate. This is observed in the civil service too (I'm sure everybody remembers the tv series Yes Minister, and Yes Prime Minister, from the 1980s).

    However, it goes much deeper than that. There is a reason why neoliberal economic policies like the ones demanded by the WB fail in every country they are tried in, and why the WB never changes it's opinion, or changes course.

    Whenever there is a disaster that disbenefits the majority of people, someone is benefiting from it greatly. The WB/IMF are making the world safe for the global leading corporations. They eliminate their competition, they eliminate restrictions on expatriation of profits, they protect them from paying taxes or sharing profits, or being accountable for the damage their businesses are doing to the environment.

    So clearly most people in a country lose out from austerity, but a tiny few of highly connected individuals globally only sees more power and wealth accrue to them.

    For instance, when ZCCM was privatised, many people lost their jobs. The Zambian state lost a major future source of income, considering the massive rise in copper prices. However, the privatisation of ZCCM was handled by NM Rothschild & Sons, whose owners are now also the largest single shareholder in Anglo-American De Beers. Anglo-American De Beers was assigned Konkola Deep Mine, almost for free. So, was the privatisation of ZCCM successful, or a failure. I can guarantee you that Anglo-American thought it was as success.

    So whether their policies are a failure or a success primarily depends on who you are, not whether they have ever developed an economy. My guess is that this is why they keep doing the same policy over and over, for decades, with the same results and never change their policy.

  3. Never truer words were spoken. Pretty much sums it up. So how do you get out of this situation ?

  4. Mark,

    So how do you get out of this situation?

    1) A single raw materials policy for the entire African continent (or the world):

    a) Raw materials are only sold to the state, at an uninflated cost and

    b) Raw materials are only sold by the state, at international market prices.

    That way, there is no room for sweetheart deals, no ministers skimming money off the sales price, etc.

    You would also see 99% of the 'wars' in Africa disappear. You would see NATO losing interest in invading Libya very quickly. The conflicts over industrial and precious metals and stones in the Eastern DRC, in Cote D'Ivoir would all disappear.

    2) Unity

    We have to come together through SADC and the AU, and form a united front to protect the continent's raw materials. This is going to be very difficult, because of the degree to which the IMF/WB/Corporations have infiltrated not only the governments, but the very economy. For instance, there is as revolving door between the World Bank and the finance ministries of many African states. So who does their finance minister work for? The President, or the World Bank? They are basically in government carrying out the policies of the World Bank - austerity, deregulation, low interest rates, high unemployment. Even minister Situmbeko Musokotwane was caught in a communication with the IMF/WB, saying very different things about government policy than he stated in public. So who is running the show? Not the electorate.

    3) End Supply Side Economics, bring back Demand Side Economics

    This is a universal principle, in that the entire global economy is being brought down by the financial sector, because of the deregulation and the support given to them over the last 30 years (Reaganomics, Thatcherism, even the New Democrats of the US's Democratic National Party).

    Policies that would swing back the economy towards the middle class and poor, would be:

    * a living wage instead of a minimum wage
    * widespread unionisation to ensure compliance with labour standards
    * protection for domestic producers and farmers through selective import tariffs
    * nationalisation or strong state control over the mining industry
    * strong subsidiarity - local councils have a greater say than districts, districts supersede provinces, and provinces supersede national government.
    * Redistribution of national tax revenues to local government

    In the end, democracy is nothing more than that public opinion is driving public policy. The degree to which this is true, is the degree to which a country is democratic.

  5. Mark,

    There are no easy answers. But in my assessment there's a clue : "only undertake development when they are politically vulnerable".

    The goal is to create a political system that is more contestable and puts the ordinary voter in the driving seat.

    How you bring that about is difficult because it wont be driven by the governing elite. In effect we are talking about bringing about change that bypasses the current elite. So the solution has to either somehow emerge from among the people themselves (a grass roots renewal or revival for change - I think churches, ngos, chiefs can do that - but they also face constraints in terms of incentives) or most likely external pressure (e.g Zambians abroad who face different incentives, foreign NGOs - we have a precedent for this in the mining reforms in 2008).

  6. It is high time we accepted that the predicament we are in is a result of our own incompetence. The World Banks and the IMFs do not invite themselves into countries. They are invited by countries that have messed themselves up like the PIGS(Lol).

    Our leaders have made very wrong policy choices at critical moments of our country's history. One may ask; was it really necessary for KK to squander all the country's reserves on 'nationalising' companies that were already operating in Zambia? What if KK had used those monies to set up sugar plantations at Luena in Luapula, Kalungwishi in Northern Province, Namushakende in Western Province, Zambezi in Northwestern Province in addition to the Nakambala one? Wouldnt have the fortunes of rural Zambia been different? Wasnt this the critical step that would have also helped in diversifying the economy? Look at the countries that had no 'mineral wealth' like Kenya, Mauritius, Ivory Coast etc. They simply got on with developing agricultural production. Shouldnt KK have just pretended that Copper didnt exist and just got on with 'simple things' like Agriculture?

    We are were we are today, unfortunately the song is still the same. The President, Finance Minister, Commerce Minister, Mines Minister and even the Bank of Zambia Governor are all talking 'copper'.

    To improve the fortunes of the rural folk we simply need to do the basics. Roads need to be built. Promote the cultivation of local foods. Western and Southern Provinces are traditionally Sorghum growing areas. NW, Luapula and Northern Provinces are Cassava growing areas. Northern, Western provinces and Chama in Eastern province are also Rice growing areas. The question arises: why is the so called Input Support Programme focused only on one crop? How about Rice, Sorghum and Cassava ? Dont they need support? Why cant the govt also extend the ISP to the cultivation of Soyabeans? Isnt the growing season for soyabeans the same as for maize? How about ISP for Icoli (beans)?

    We certainly need 'method' and focus on the 'basics' inorder to transform Zambia.

  7. Frank,

    It is high time we accepted that the predicament we are in is a result of our own incompetence.

    You mean, react with Stockholm Syndrome?

    And when does anyone get to blame the IMF/WB for prescribing the same failed policies of austerity over and over again?

    Why do you think the countries that apply their prescriptions all have the same bad results? Are we to believe that they are all incompetent, just to withhold blame from the IMF/WB?

    Are the governments and people of Chile, Argentina, Greece, Zambia, Indonesia, Malaysia (remember their financial crisis?), Russia, etc. all 'incompetent'?

    Either the IMF/WB are incompetent, or they know what they are doing, but that isn't developing or helping any economy. It is helping their shareholder/owners.

  8. MrK,

    You better cool it down, those conspiracy theories of yours will drive you nuts eish. What did Mr. Mugabe feed you with eish.

  9. BTW MrK where do you start and end from? Which other countries, in your opinion, are being manipulated other than Zambia, 3/4 of the world?

  10. MrK,
    The World Bank and IMF do not force themselves on countries. Countries apply for membership and approach IMF/WB for help when they mess up! The Argentinas, Greeces, Zambias etc were not forced to adopt World Bank/IMF policies. They first messed themselves up and approached the two institutions because they needed money to get out of the hole they had dug themselves into. This money always has conditions attached to it. There is no use treating a drunk for liver disease if you cannot first stop him taking anymore beer. Remember Kaunda borrowed over two times Zambia's GDP to maintain an illusory standard of living that was way beyond the country's productivity. And when the bills started coming in he realised the coffers were empty! This is the same quagmire some Western country's find themselves in today with high debt to GDP ratios. This has nothing to do with socialism vs capitalism nor who controls the WB/IMF. It is a pure case of the economics of self destruction (living beyond your means)!

    Advice to everyone is dont mess yourself up! Be like the Germans! Be frugal! Dont be like the UK who messed herself and ended up with a conditional IMF loan in the late 70s. Botswana, Singapore even Chile which you are wrongly alluding to never had the need for IMF/WB sponsored adjustment programmes because they are 'competently managed' (In 2009 when Diamond prices collapsed, Ian Khama refused to touch his country's reserves nor borrow and just rode the downturn). Portugal, Ireland, Greece, Spain and even the US havent been competent enough in managing their public finances. It is as simple as that!

    Finally, MrK, I am not here to defend IMF/WB competence or the lack of it. I can, however speak to the incompetence of Zambia's leaders since independence. They have failed the country be they socialists or capitalists. The problem of Zambia's poverty has nothing to do with outsiders but the choices Zambia has made in the last 47 years! We will be making a grave mistake to always absolve ourselves of blame and putting it on someone else. Honestly, It is time to grow up! In life everyone has choices. The world doesnt owe Zambia anything.

  11. Frank, like you I find the obsession with maize baffling, and believe it to be the cause of much rural poverty in Zambia. Why does the government promote the growth of this crop instead of local crops ?Is it some sort of external market pressure or is it reacting to what the people want ?

  12. Mark,
    I am also at a loss to understand why what is basically a foreign crop imported from the Americas has become a matter of 'life and death' issue on which $400m of budgetary monies are spent. It is just a poor policy choice on the part of the succesive govts in Zambia. Like I stated earlier Zambia needs to go back to doing the 'basics' by supporting traditional crops and the technologies that are needed to process these crops. Traditional crops like Sorghum and Cassava are cheaper to grow than Maize. Maize needs a lot of chemical fertiliser and water. It wont be long before we hear of 'food shortages'(read Maize) in Zambia and other Southern African countries when the 'drought cycle' hits these parts like it always does. It is high time Zambia moved away from the nonsensical idea of a 'staple' crop and promoted a basket of crops suited to the different soils and weather found in Zambian provinces. This is the fastest way of increasing rural employment and incomes. It is also an insurance against hunger! Maize failure should never ever denote hunger when alternatives are there!

  13. Frank,

    I am also at a loss to understand why what is basically a foreign crop imported from the Americas has become a matter of 'life and death' issue on which $400m of budgetary monies are spent.

    Because there is a lot of obsession with colonial era ideas. The most damaging of which would be:

    1) Maize

    As has been noted, maize is an import from America, where it was grown by the Native Americans. There are better, more drought tolerant crops that need less fertilizer, like sorghum, cassava, potatoes of various kinds, etc. During colonialism, there were various laws passed to keep Africans from growing maize, to protect the commercial farmers from competition.

    2) Big Corporations

    Zambia was founded by a transnational corporation, Cecil Rhodes' British South Africa Company (BSAC), funded by NM Rothschild & Sons. The same bank that handled the privatisation of ZCCM in the 1990s. I digress.

    The idea is that the country needs to attract giant corporations, and this is loosely equated with 'development'. We need to develop a Zambian middle class that includes 90% or more of the population - that is the ultimate goal.

    To do so, there have to be millions of Small and Medium Size Enterprises (SMEs). There should be 1 MSME for every 20 people in the population.

    3) Central Government Control

    Instead of the central government even appointing and controlling local government, there should be clear subsidiarity - the lowest level of government should have more of a say than higher levels of government. This can be done through the Constitution. There should be national protections of civil and human rights.

  14. Anonymous said...

    MrK, You better cool it down,


    those conspiracy theories of yours

    What 'conspiracy theory'?

    On NM Rotschild (Rotschild Bank) and the privatisation of ZCCM:

    Bidding for Bwana Mkubwa, Kansanshi and Konkola North was concluded early while the Konkola Deep Mining Project, which was the subject of a prior agreement with Anglo American, was not put out to tender.1 With these exceptions, ZPA duly announced on 28 February 1997 that twenty-six bids had been received from fifteen companies or bidding groups for the remaining nine ZCCM packages.
    Each package had attracted at least one bid. The bids were to be evaluated over four weeks by ZPA, ZCCM, and N.M. Rothschild and Clifford Chance as advisers to the sale. Preferred bidders would be selected and negotiations initiated. The final deal and decision to sell to a particular buyer in each case was to be subject to approval by the Cabinet and international lenders.

    From the now ZCCM-IH website:

    Brief History of ZCCM-IH

    The privatisation of ZCCM commenced in 1996, after GRZ and the Boards of ZCCM and the Zambia Privatisation Agency (ZPA) approved the ZCCM Limited Privatisation Report and Plan presented by UK based financial and legal advisors, NM Rothschild & Sons and Clifford Chance, respectively.

    On NM Rothschild on the colonisation of Africa in the 19th century:

    From the UK Telegraph:

    Rothschild: history of a London banking dynasty

    The Rothschild banking dynasty has been in London for 200 years, in which time its eponymous bank, NM Rothschild, has been at the heart of Britain’s economic life.
    By Harry Wilson
    6:15AM GMT 04 Feb 2011

    Throughout the rest of the 19th century, NM Rothschild established its pre-eminence, helping Britain buy a controlling stake in the Suez Canal, funding Cecil Rhodes’ British South Africa Company, and buying up large holdings in future giants such as mining company Rio Tinto and diamond miner De Beers.

    There are only a few trillionairs on the planet, and the Rothschild and Rockefeller dynasties are them.

  15. MrK,

    On Maize:

    Even if they were laws (i.e Maize Ordinance) to keep native Zambians from growing maize; why should we give a damn about this? This is the irony....why bother; it is a foreign crop after all! Actually during the colonial era the cultivation of local crops boomed (You can check this on NationsMaster or FAO websites). But for reasons best known to KK and Co after independence, Maize became every man and woman's crop! This is why I continue saying that the blame lies squarely on post independence economic illiteracy on the part of our leaders....wrong policy choices were made and continue to be made!

    On Corporations:

    Zambia has been independent for almost 47 years. The govts that have run Zambia should be knowledgeable about the interest of Zambia and Zambians. The Rothschilds and Clifford Chances of this World are business people. They look after their bottomline. The Zambian govt should look after Zambian interests. Rothschild and Sons were contracted by the Zambian govt in the same way RB's govt contracted RP Capital to advise on the privatisation of Zamtel. The fault lies with the Zambian govt not the 'corporations'you continue railing against. It is govts that choose who to get into bed with.

    The only point I can make is that Zambians have been betrayed by their leaders. They have been inept at negotiating the constraints that the environment imposes on the country and inept at making use of the opportunites that the environment avails. It is failure of leadership! Look at the privatisation of the Sugar and beer companies in Malawi, Tanzania, and Zambia.
    In Malawi the govt sold 55% of SUCOMA to British Associated Foods. The govt retained 45% to be traded on the local stock exchange. 90% of Zambia Sugar was sold to the same company and the Zambian govt retained only 10% to be traded on LUSE. Tanzania sold 51% of its Brewing company to SABMiller and retained 49% to be traded on the local bourse. Zambia Brweries was sold to SABMiller with the Zambian govt retaining 10% to be traded on LUSE.

    Do you see why I continue harping about taking responsibility for our own actions? Why was Zambia so pathetic compared to Malawi and Tanzania when selling their parastatals to the same multinationals? Leadership, Leardership, Leadership. That is what is missing in Zambia. Forget about those dark forces who are making it difficult for little Zambia.......

  16. Frank,

    Even if they were laws (i.e Maize Ordinance) to keep native Zambians from growing maize; why should we give a damn about this?

    Because it helps explain the psychological attachment to maize.

    This is why I continue saying that the blame lies squarely on post independence economic illiteracy on the part of our leaders....wrong policy choices were made and continue to be made!

    Lack of understanding of agriculture, and the history of agriculture, obscured in no small degree by colonial (mis-) education.

    The point is that to understand the present, we have to know the past. And to shape the future, we must know the present.

    The Rothschilds and Clifford Chances of this World are business people. They look after their bottomline.

    Actually, no. Forget Clifford Chance, it are the Rotschilds who are the world's richest trillionairs, with an estimated forturn of $21 trillion. Once your wealth reaches not in the tens of billions, but in the tens of trillions, it is no longer about the bottomline. It is about global domination of the world economy. It is about taking the long view - not decades, but centuries out.

    It is about founding think tanks, to influence public opinion. It is about funding the WB and IMF, to institute policies that make it easy for you to acquire mineral deposits for next to nothing, and pay nothing except that most unavoidable costs.

    More than that, these resources are no longer about money or any bottomline, it is about a hedge of financial instruments and cash, against (hyper-) inflation.

    This is why they financed the BSAC to begin with. The saw the growth of colonialism, and the possibilities of resources coming from Africa. What the BSAC did to realize that, has nothing to do with creating a better product or minimizing costs. They killed anyone who objected, they shaped the maps, etc. They took what wasn't theirs, and didn't pay for it.

    To play a game, you have to understand it first, and that includes knowing who the players are, and what motivates them.

  17. I find validity on both sides! The drought in 1991 demonstrated the extent of Zambia's maize obsession to me. In early February I grabbed the then Minister of Ag Guy Scott and took him to Chiawa and Lusitu in the Zambezi Valley where Dr Verma Bhola Nath's (Zamseed breeder) improved sorghum trials promised yields of 1 ton/Ha when all trace of maize had literally burnt up. He was totally impressed which, if you know Guy, does not happen often!

    We spend the next years actively promoting and supporting Sorghum as a key food security crop in region 1 (low-rainfall) where maize production has always been non-viable without irrigation.

    We lost- my friend Verma despite world-wide fame for his variety development eventually gave up his Sorghum program from lack of interest from GRZ. Admittedly there is a strong social resistance amongst Zambians to non-maize carbos (we haven't eaten even after a full belly of rice!), but what really blocked the natural return of Sorghum, millet, cassava etc to the market was the creeping back of politically motivated maize subsidies in direct response to MMD's waning popularity.

    Control the staple diet and the ruling party has control of the electorate- for a while at least! Then subsidies start draining other key social services like education, health, clean water and roads. President Banda couldn't resist going down this dead-end policy with maize subsidies now costing over $80/ton. No government cannot keep it up- in the end KK was spending 75% of the national budget on maize subsidies while the country collapsed; he finally lost the confidence of the international financiers and donors.

    If MMD do finesse a win at this year's polls they could face food riots as soon as March 2012- there is a massive crop to pay for and despite increased copper revenues no cash to pay for it. If PF (or other) win, they will have to begin again the painful process of weaning the population off food subsidies immediately.

    Diversity is surely key to food security and stability ...........and perhaps everything!

  18. There is need to sort out the blockages with alternative crops. Sorghum and millet are popular but hard work to prepare. Dehuller required or lots of labour. CARE had a program for this but being an NGO, it lacked sustainability and business sense and the program fizzled. Sweet potatoes and cassava are harder to store but not impossible. Government's role here should be in providing knowledge and let the private sector find the machinery and run the business.


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