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Sunday, 6 September 2015

Zambia's economic woes goes viral

We recently shared this post on Facebook which has gone viral. it has been wonderfully exciting to see it re-shared countless times. Most importantly it has generated interesting discussions about how to tackle the changelings ahead .

There are essentially nine big economic policy challenges facing GRZ :

(1) Very weak copper prices (lowest in 5 years)
(2) Rising debt levels (Highest since HIPC)
(3) High fiscal deficit (likely to get even larger soon)
(4) High youth unemployment
(5) Power deficit (possible blackout in October)
(6) Volatile and falling Kwacha ($1 per K10)
(7) Poor policy credibility
(8) High and rising cost of private borrowing
(9) High poverty levels (80% poverty in some areas)

To these we can add six more "risks" which may soon materialise :

(a) Mining closures (with job losses)
(b) High inflation (due to Kwacha depreciation)
(c) Credit downgrade (Highly likely)
(d) Reduced FDI (particularly from China)
(e) Sovereign default
(f) Political instability


Which of these policy and risks do you think is the most important to deal with, and why?
You can  comment and read the Facebook contributions on this topic here.

Chola Mukanga
Copyright © Zambian Economist 2015


  1. You need to add to the woes facing the economy:
    It is so difficult to set up a successful business due to red tape.
    Corruption is also killing the economy. It's not an even playing field out there and a lot of money is disappearing out of the country.

  2. Some more issues to consider:
    1. Corruption and the impacts this has on doing business successfully in Zambia
    2. Poor management and performance of parastatals who play a significant role in the Zambian economy
    3. Low literacy & numeracy levels - Zambia's greatest natural resource is its people but a large proportion are unable to read, write or do simple arithmetic
    4. High cost and low speed of Zambian internet services

  3. "(1) Very weak copper prices (lowest in 5 years)"

    If only the government had translated profits from the boom in copper and other commodities into other assets - like a large cash reserve, or investment in manufacturing or agriculture, or any other productive sector of the economy, so there would be diversification.

    The fact that this did not happen is a crime of epic proportions. Someone should be going to jail for economic crimes. You can't steal a can of food without going to jail for years, and yet they and make billions disappear, and no one asks any questions?

  4. And meanwhile Amos Chanda is saying this:

    “...the President could intervene through the treasury off course, allowing the central bank to regulate if the markets don’t behave properly, there are exchange controls as a measure.”
    He said exchange controls means that restricting key sectors of the economy access to foreign exchange.

    Oh dear, oh dear. Well done Amos, another lurch into the tried and trusted past. Disastrous comments.


  5. The problem is that none of those issues can be dealt with in isolation.

    They are all the result of not taxing the mines, and depending on debt instead of taxes on the Zambian people's own resources. In other words, people are screwed three times. First when they don't get the development they should have (opportunity cost). Second when they don't receive compensation or taxes on their own natural resources. Third when they have to pay interest on the government's borrowing - borrowing because they don't get income from the mines.

    So of course education and employment are at low levels - those take money to invest in. Same with roads. Of course the mines are using up the electricity. Of course when the government borrows, they also borrow domestically, leaving no money for citizens to build their businesses and hire people. Of course this increased debt devalues the Kwacha. And of course, because to a degree China followed the same course and is now subject to the same boom-bust dynamics, and them being a major user of copper, copper prices have fallen - along with all the other commodities too. Because we're seeing the effect of 40 years of supply side economics on the destruction of the demand side of the economy (massive consumer debt in the US which has been building up since the 1990s for the same reason - replacing disposable income with credit).

    So it all comes back to economic policy and it's ideology. The problem is we haven't had any Zambian politicians who like a Robert Mugabe, had the backbone to go against the IMF and World Bank. Which are themselves highly ideological and corrupt, serving the economic interests of the Rothschild baron trillionairs. (For instance, they founded the world's biggest diamond miner De Beers; one of the world's biggest oil companies, Royal Dutch Shell; were the money being industrialisation, the Gold Rush, the age of rail, and they invented Privatisation, the Eurobond; the Rockefellers invented Private Equity and the Leveraged Buy Out or LBO/MBO; created Chase, which today is JPMorgan Chase; created Standard Oil, which today are ExxonMobil, Chevron, ConocoPhilips. Former World Bank President James D. Wolfensohn is a longtime Rothschild family friend, whose father worked for James Armand de Rothschild, son of baron Edmond James de Rothschild. (I have links to back up all of these statements.)

    That is whose interests the IMF/WB represent.

    So should we be surprised, that in Africa, they leave the same trail of destruction they have been leaving for 400 years? That their policy is forever out of touch with the needs of ordinary people? That their policy makes no sense economically? That there is no change in policy, no mea culpa, whenever they destroy another economy?

    So this is what Zambian politicians kow-tow to. KK was the last leader who did not, and they got rid of him, they way they tried to get rid of Robert Mugabe. The way they, through Cyril Ramaphosa, got rid of Chris Hani, and ended up with a neoliberal economy, in which an elite enriches itself, serving the trillionair interest.

  6. Ah here we are again MrK blaming it on the Rothschilds again. I'm sorry Sir. Any contribution that describes Robert Mugabe as a man with backbone after the catastrophic damage he has done to his nation loses all credibility right there and then. I will add it's like reading an article in any of those radical left student newspapers you used to see in Europe in the 1970s. Most of them ended up in New Labour or such like. All very amusing: a contribution packed with nostalgia MrK! Good for you. You stick to your principles comrade. I'm afraid we've all moved on however, and I include Africa.

  7. Meanwhile I read about another 'worked example'. Indonesia. Read it, and it will resonate!

    1. Do you know the history of Zimbabwe or Indonesia?

      In Indonesia, the nationalist head of state Sukarno was replaced by a neoliberal stooge called Suharto, in 1965, through the CIA. What followed was a genocide of 'communists'.

      The Guardian in 2001: "As Megawati Sukarnoputri struggles to hang on to control of Indonesia in the latest round of political upheaval, news has been published of how the British government covered up one of the worst massacres of the 20th century. The slaughter in 1965 - of up to a million alleged communist sympathisers - was carried out by General Suharto, who ousted Megawati's father, President Sukarno, to become Indonesia's military dictator. What is still less well known is that the British and American governments did not just cover up the massacre: they had a direct hand in bringing it about. "

      You can justify and rationalize the actions of the UK/US empire all you like, however at the end of the day, it is still there.

      In 1965, President Kwame Nkrumah coined the phrase that describes this slipping from an direct colonial rule, into indirect rule by proxies and the IMF/WB: neocolonialism.

      Neo-colonialism, The Last Stage Of Imperialism
      President Kwame Nkrumah of Ghana

  8. Indonesia tries to steady its economic wobbles
    With economic uncertainty in China in the spotlight over the past few weeks, Indonesia's economic wobbles have escaped the scrutiny abroad that they are now demanding at home.

    Less than half a decade ago, Indonesia was still riding the China boom. In the decade before, the Chinese economy gave the world its biggest ever resources boom, after which there's been a dramatic collapse in commodity prices. The boom generated high incomes and investment in global resource producers. It boosted Indonesian growth and — in the nature of the political economy of such countries in which good times tend to drive bad policies — diverted the policy energy away from the productivity-raising reforms necessary for broad-based growth. Arbitrary government interventions also reduced the gains from the boom, especially in resource goods other than coal, and dampened the size of the boom.

    The challenge of the economic adjustment that faces Indonesia is nonetheless enormous. Indonesia (like Australia) is now one of the world's largest coal exporters. While it may be true, as Ross Garnaut suggests, that Indonesia handled the Dutch disease and its challenges better than some countries, coming off the commodity boom high is no easy path to navigate — witness Brazil's slump towards negative growth. The end of the boom may create opportunities for a return to broad-based development. But, if that's to happen, policy settings will have to shift sharply towards support for productivity-driven growth and lifting economy-wide competitiveness, and eschew random government intervention in the economy to support particular interests or causes.

    The Jokowi government made a good start with its fuel-subsidy reforms. But thereafter economic policy thinking has drifted towards state-interventionism. The idea that the downturn was a cyclical phenomenon, and that recovery of public and private investment would soon boost demand and lift growth again, dominated. But there were few signs of an early turnaround. The view that Indonesia was simply in the throes of a cyclical downturn has lost credibility. Attention has to shift to the policy foundations to address the slowdown in Indonesian growth.

  9. The idea that the state is the manager of economic activity rather than the provider of the best enabling environment for private economic activity has captured the ascendency. This is accepted mainstream Indonesian political thought, increasingly reflected in the legal and regulatory framework. The 2014 industry law envisaged government determining the sectors of focus and establishing upstream and downstream activities in those sectors. Exports and imports are managed using tools from outright bans to local content rules and domestic market obligations. The budget boost to infrastructure spending and the injection of capital into state-owned enterprises both signalled this philosophy. While there's no doubt that increased public investment in infrastructure is justified by the dramatic failure of the public-private partnership infrastructure model over the last decade, the collapse of a balanced public and private investment strategy itself derives from the government's failure to provide an enabling environment for private investors more than a lack of investor finance and interest.

    The 2014 Trade Law, in the same spirit as the Industry Law, granted powers to manage trade directly. This trend in both industrial and trade policy failed to grasp the nature and operation of global value chains and technology acquisition. Key laws framing the post-Asian crisis recovery and the role of markets in sustaining a strong economy have also been under constitutional challenge.

  10. In the past six months, the pressure on Indonesia and other emerging economies has intensified around volatility and weakness in international capital markets. The dive in the value of the rupiah — to below 14,000 to the US dollar, a level not reached since the Asian financial crisis of 1998 — and the collapse in the stock market and bond prices, with yields on bonds maturing 10 years out edging up to nearly 8.8 per cent, Indonesian policy makers have been badly spooked. In the cabinet reshuffle in August, Darmin Nasution, former Governor of Bank Indonesia, was drafted as the new Coordinating Economics Minister. It was past time for a change in policy strategy and the reshuffle a welcome development.

    Indonesia's announcement of a comprehensive package of reforms aimed at reducing inflation and stabilising the exchange rate and stimulating demand through 'deregulation' now signals some further change in direction. The reforms are scheduled to come into effect tomorrow.

    In our lead essay this week, Chris Manning, based in Indonesia, reviews these reforms. The package is enormous in scope and encompasses many existing government initiatives, he reports. The measures announced last week are just part of a series of packages that are yet to be promulgated so it's difficult to be definitive about what their ultimate shape will look like. But one thing is clear, Manning says: 'it is a different package of “deregulation” reforms from that announced in the second half of the 1980s when the economy appeared similarly to be on its knees. Now the focus is more on public sector support and increasing demand, rather than market oriented reforms to improve competitiveness'.

    This strategy is unlikely to correct the wobbles that now afflict the Indonesian economy. The economy may not be in meltdown, but, at 4.5 per cent, growth is well below potential and decelerating and, at 7 per cent, inflation is far too high. With direct interventions that put bans and restrictions on imports of key foodstuffs like beef, the market is not being deployed to alleviate these pressures. Despite the depreciation of the currency, inflation undermines cost competitiveness and exports are down by more than 20 per cent on last year.

    There is still more to come but this round in Indonesia's reform package is unlikely to reassure international markets that the fundamental shift of direction in policy strategy that is needed is on the way. The public sector-led model is less viable day-by-day. There will be no 'get out of jail free' card through a turnaround in commodity prices. Achieving Indonesia's growth potential will require policy re-orientation that gets rid of the policy inconsistencies that handicap role of the market in unlocking investment, trade and productivity growth. Hopefully Indonesia can still respond pragmatically and boldly to the considerable economic challenges that it now faces.

  11. So MrK, I take it you live in Zimbabwe then.

    1. Get back to me when you're ready to admit that Zimbabwe is under economic sanctions.

  12. ...and they are under economic sanctions for very, very good reasons MrK.

    And, as if witnessing Zimbabwe's decline from food basket to dust bowl wasn't bad enough, Greg Mills discusses how Zambia has a few points to take on board too.

    1. At least you admit that there are economic sanctions. Most of the MDC have the following approach,

      which is why you know they're disingenuous to say the least:

      1) Deny there are any economic sanctions at all
      2) Admit that there are economic sanctions, but that they have no real effect and every thing is

      Mugabe's fault
      3) Yes there are economic sanctions, and they have a deleterious effects on the economy, however that's ok, because:

      a) Mugabe put economic sanctions on himself
      b) ...

      What happened in Zimbabwe, is that after the economic destruction wrought by the neoliberal economic program called ESAP (1991-1996), a new party was formed, called the MDC. This party was a socialist

      party. Within 6 months of it's foundation,

      it has been hijacked
      by big mining capital (Rothschild's De Beers), the rhodesian estate

      owners, and neoliberal opportunists with dreams of being the next Cecil Rhodes. One prominent MDC

      member (Matumwa Wamwere)

      even owns an asbethos mine - talk about bad karma.

      According to MDC co-founder Munyaradzi Gwisai: "The MDC was formed as a result of a convention or gathering which was called a 'Working People's Convention'. We didn't say 'People's Convention', we said 'Working People'. Which means those people who work and toil and suffer are the ones who formed the basis of this party. And then secondly, it was the Zimbabwe Congress of Trades Unions that actually convened it. So right from its base, the MDC was marked with the stamp of workers, the unemployed, the poor and the peasants. And then, intellectuals like ourselves, who sympathise and fight for the cause of these people were also part and parcel. The rich, the white farmers, the business community, only came in after February 2000 if you take like the economic Eddie Cross and a whole lot of other people who moved in. "

      " They only came in in February 2000, that is six months after the party had been formed, because they saw that the MDC was offering a real chance of unseating the government and bringing in a working peoples' government. And they came in to ensure that they would try and hijack this programme. So we remained in the party until 2002 when we were expelled precisely because we wanted to fight from within. But it is clear to us that after 2002 the party leadership had then been hijacked."

      That is what is going on in Zimbabwe. The regime change efforts have been real, and have been backed by now over $6 billion.


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