Dedicated to President Kenneth Kaunda of Zambia ... The nation builder

Global economic analysis: The Case for The Republic of Zambia

Introduction

The prominence of the neo-liberal policies in the last the last three decades has prompted major debates among academics and policy makers around the globe although it appears as though advocates of free-market economic policy are winning the argument. Starting from the early 1970s many developing countries experience unprecedented economic crisis of which some of them were caused by decline in demand for goods in world markets and financial crisis. It could be argued that liberalism of economic and financial system in the 1970s and 1980s merely ruined economic policy framework in developing countries hence inability to protect themselves against external pressure. So many developing countries such as those in Latin America and the African region began to experience   uncontrolled balance of payment deficits, worsening of fiscal deficit and unsustainable national debts. However, supporters of neo-liberal economics believes the sluggish growth recorded in many developing countries were largely due to resource misallocations and tight regulations on economic and investment activities. Neo-liberal advocates also assumed that underdevelopment in Africa was caused by huge government expenditure, state ownership of enterprises, trade restrictions and existence of exchange controls. For instance, nearly 80% of Zambia`s economy was made up of stated owned enterprises by 1980as the country engage in nationalisation process of all major industrial sector. Also Zambia`s economy relied heavily on copper which accounted for majority of its exports commodity and accounted for almost 90% of the country`s total revenue in the 1970s.

In addition to that, majority of developing countries pursued the socialist model of development, which was characterised by generous welfare system, strong trade policy regimes to protect local industries and highly regulated economic activities to prevent foreign investments in some cases. Moreover, the newly independent countries of the 1960s and 197os such as Zambia faced numerous development challenges ranging from infrastructure and lack of skilled labour force. For example, Zambia had only few university graduates and about 0.5% of the country’s population were illiterate making state-led development more necessary as a way of promoting economic constructions of the country. Given that many African economies relied on primary production for export revenue generations, most of these commodities were prone to shift in world demand making their economies more vulnerable to external shocks, which may in some cases cause unsustainable deficits. However, after it appeared as though, state-led development strategies failed to promote growth many African countries were advisedto adopt neo-liberal economic policies bythe IMF and the World Bank. The policies were aimed at privatisation of state enterprises, deregulation, protection of intellectual property rights and prudence macroeconomic policy to allow flexible exchange rates and tightening up of fiscal policy. However, IMF and World Bankpolicies were unsuccessful in promoting encourage growth in Africa. Hence,the report present a summary of the author`s critique of the Neo-Liberal explanation for Africa`s growth “failures” over 1980-2004, and attempt to explain why the “structural handcap” argument for poor growth not apply exclusively to Africa. It will then focus on recent Chinese inward FDI /assistance into the region and assess its impact on the continent`s its future prospects. To add to the author’s critique of the Neo-liberal explanation for the growth failures in Africa, I use Zambia as a case study because it is a country, which is relatively stable since independence from Britain in the early 1960s and has implemented neo-liberal policies in several occasions as part of its growth strategy.

Summary critique

The author is not impressed by how developing countries are forced through conditionality programs to accept macroeconomic policy packages which appear to more detrimental Africa`s growth needs. Thus, the author appears to blame poor growth performance in Africa on neo-liberal policies imposed on them by the Bretton Woods institutions. They were forced to abort state-led development strategies that were a common policy feature prior to MF and World Bank macroeconomic stabilization policies. To support his views of the neo-liberal policies, the author produced a number of statistical data relating to growth rate per capita. For example, from 1960-1980 the Sub-Saharan Africa registered positive growth rate per capita compared 1980 to 2004 where growth rates were very much unimpressive. Again as of 1980 to 2000 Africa`s growth deteriorated compared to other developing countries, as such in year 200 annual growth per capita was -7% suggesting a worsening trend, but advocates of neo-liberal economic policies. However, neo-liberal explanations of Africa`s negative growth rate between 1980s and 2004 seem to be linked to natural disasters such as tropical climate which create health burden caused by diseases and hunger. However, the author argues that even many of the rich countries once suffered from tropical diseases and therefore reject the notion that poor climate is to blame for the  growth rates failures in Africa. The author suggest that a country`s inability to overcome natural disasters is a sign for under-development as such, the focus must not be responsibility but rather on neo-liberal policies which destroyed state-led development programs. In addition to that, the neo-liberal attempt to explain Africa`s growth failure on the basis of geographic that majority of countries are landlocked, but again the author argues that some developed countries such as Switzerland and some Nordic economies are landlocked or have been until they developed the ice-breaking ships.

Moreover, the author is not impressed by some of the neo-liberal explanations pertaining to Africa`s growth failures which indicating that majority of countries in the region suffer from resource curse. The author argues that the vast majority of countries in Africa are not well endowed with natural resources compared to other developed countries such as the Australia, Canada and the USA. Hence, neo-liberal economic explanation concerning Africa`s poor growth rate performance in the last 3 decades is arguable flowed because it does not explain growth trends in those other rich countries. Furthermore, is unconvinced by the neo-liberal explanation that growth failures in Africa are due to interventionist policies, which deter business. In addition to that neo-liberal explanation, argues that bad governance and institutions are to blame for poor growth performance in Africa because it has promoted bad policy practice and corruption. However, the author noted that some of developed economies went through this phase during their development stage. Also the issue of ethnical division among African countries give neo-liberal economists the tools to justify growth failures of the region. Thus Africa is a continent engulfed by conflicts and ethnic divisions  which has led to numerous civil wars and genocides, as such these events are key in explaining Africa`s under-development. However, ethnic diversity is a common feature worldwide according the author and can be the basis for explaining under-performance in Africa. The author seems to prove that even advanced economies suffered from “structural handicap argument” at one point during their development process. So advanced economies should not impose conditionality programs on African countries so they can adopt neo-liberal economic policies before they are ready to adopt them. There are several empirical studies indicating that neo-liberal economics are not comparable to African economies because they are appear more detrimental to the continent’s growth prospects.  The author also criticise advanced countries of behaving as if they developed through the neo-liberal flagship of economics. The author also makes a point indicating that all nations have gone through the structural handicap arguments, as such does not solemnly apply to Africa countries.  

Neo-liberal policies in Africa: The case for Zambia 1980-2004

The country had no or little infrastructure when it gained independence from Britain in the middle of the 1960s as such the new administration embarked on State-led economic policies to addressing those challenges. Zambia’s state-led investments were aimed on both economic and social reconstruction of the country, as such major of state resource went to education, health and industrial development. Hence, the massive investments in the public sector especially in education led to a sharp increase in enrolments at all level by 1970. As a result, state-led development strategies enabled the country’s transition process faster as social protection were guaranteed to all low income families and the public sectors flourished by 1980 which was mainly financed by export revenue. However, Zambia like any other developing countries in Africa suffered balance of payment problems when the price of cooper declined sharply in the early 1980s creating huge economic crises. Many state-led projects were at risk, so the government adopted structural economic reforms, which were to be carried and implemented under the sponsorship of the Bretton Woods Institutions (IMF and the World Bank). Therefore, in the 1980s a wide range of reforms were carried out and  these include but on all, privatisation of state enterprises, deregulation, reduction in government expenditure , trade liberalism , ease of exchange control, abolition of government subsidies and adaptation of flexible exchange rate regime among others.

Industry and Manufacturing

Privation brought in by neo-liberal economic policies in Zambia transferred state-led enterprises into the private sector; as such nearly, 70% of the Zambian economy was in private hands (Lambert, T). However, privatization did not encourage growth as the country suffered from deindustrialization. That is manufacturing had already suffered due to years of failed structural reforms and incidence of capital flight were reported in the 1990s as investors sought to protect their assets against rising inflations. Emperical studies by Muuka,(1997) found that  majority of multinational enterprises operating in Zambia between 1990 and 2000 downsized their production operation or decided to relocate. In addition to that, a lot of firm closed their business sighting government policy failure to protect their operations and hence decided to relocate to countries like Zimbabwe, Tanzania, Uganda and other countries. So it can be argued that, neo-liberal economic polices had negative implication to the country’s GDP growth rates than the neo-liberal explanation. According to Muuka, (1997) foreign business participation condensed sharply in the 1990s even though all neo-liberal conditions for attracting foreign direct investments were in place. More importantly, during Zambia’s structural adjustments program formal business sector declined remarkable whilst black market activities sprung across the country resulting in huge loss of taxable income.  In addition, studies by Shawa, (1993) shows that real GDP plummeted from 1980 to 2000 due to depreciation of the value of the national currency as liberalism of domestic economy caused inflation to rise. The neo-liberal arguments in Zambia failed to promote economic growth as various social-economic indicators deteriorated during the cycle of structural reforms. For example, there was rapid decline in real GDP per capita income, dilapidation of education system, a sharp decline in taxable bases and poor health care provisions between 1980 and 2000. Furthermore, decades of structural adjustments in Zambia did not create formal employment as people end up working in the informal sector whilst inflation rocketing high leading to companies closure or relocating. However, most positive growth rates reported between 1980s and 2000 after the country suspended neo-liberal economic policies but overall it appear as though poor growth rates were further instigated by free-market approach (Table 1).Hence, neo-liberal explanation for the growth failure are inadequate  as  African countries are more vulnerable each time they adopt such orthodoxy.

Table 1.Zambia GDP Per capital annual growth rate (%) 1980-2004

Moreover, Zambia like any other developing countries in the Region managed to build state institutions such health, education and other state-benefit system, however the implementations of neo-liberal economic policies between 1980 and 2004 appear to have destroyed the social welfare net which majority of low income earners enjoyed in the past.  Poverty worsened between 1980s and 1990s than previous decades in Zambia as empirical evidence by (Garenne and Gakusi (2006) found that the abolition of government food subsidiesled to rapid increase in child mortality rate between 1990 and 2000. Given that majority of  households were either unemployed or engaged in informal employment with low return, adopting austerity measures on both fiscal and monetary policy had negative repercussions on Zambia`s growth performance from 1980 to 2004. Furthermore, economic trends in Zambia between 1980 and 2004 mirrored that of the whole Sub-Saharan Africa region. Majority of African countries abolished state-led development strategies to purse neo-liberal economic policies on the assumption that free-market approach would attract growth rates. Therefore, it appears as though neoliberal economic policies had negative impact on growth than shifting the attention away from failed IM/World Bank conditionality programs.  For example, relaxation of economic restrictions did not promote foreign direct investment in the Region according (Stein.H, 1992) instead it encouraged plight flight. Consequently, neo-liberal explanation on poor performance in Africa is not sufficient because it appears to exacerbate economic problems in Less Developed Countries (LDCs). That the Sub-Saharan experience over the last three decades has been associated with rapid decline of GDP per capita and deterioration of socioeconomic indicators during the cycle of neo-liberal reforms. In the early years of neo-liberal adaptation, many African countries experienced a sharp decline in GDP growth and the positive were associated with temporary suspension of IMF orthodoxy, 

Analysis of economic liberalism  

Neoliberal reforms failed to promote growth in Africa as it fuel inflation, disappearing of the formal sector, capital flights and recurring balance of payment crisis. Many developing countries adopted the neoliberal policies in the 1980s were associated with incidence of shrinking business activities and excessive capital outflows as investors sought to shield their assets against uncertainty.Furthermore, Mary, Sanders, and Bijlmakers, (1997), examined the impact of neoliberal programs on health delivery in Zimbabwe during the late 1990s and the outcome was almost similar that of Zambia and others in the region. Gore, (1992) noted that countries that adopted neo-liberal economic policies had disappointing growth rates confirming to the general GDP Growth trends in Africa from 1980-2004. Hence, it can be argued conditionality programs enforced on African countries by neo-liberal economist are the main causes for poor growth performance recorded in the region.

The role of Chinese FDI

Table 1  show growth trends between 2001- 2004, some neo-liberal economist must explain in favor of their policies recommendations, which have lived in the region for year decades. However, growth rates recorded in Zambia and the Sub-Saharan African region in the new millennium is associated with increase in Chinese investments. China’s outward FDI to Africa has rapidly increased in recent years and in 2003 Chinese FDI to Africa was around US$ 74.8 million and by 2008 the figure rose to nearly US$ 5.5 billion, Claassen.C,Loots.E and Bezuidenhout.H, (2011). Furthermore, trade between China and Africa is on the rise this is because China does not impose condition on its trading partners, hence African economies are benefiting.  Also Chinese investment creating employment, and improving Africa`s exports thereby improve balance of payment for individual countries. For example, since 2003 Chinese FDI and official assistance have recapitalised the Zambia economy. The mining sector, which was merely dead during the 1990s due to neo-liberal economic conditions has resurface and Zambian export to China rose 17 fold between 2002 to 2006 Carmody, (2009)indicating that Chinese FDI and aid make huge contribution to Africa `s growth prospects. In this regard China`s open policy towards Africa is increasingly becoming a major source for economic prosperity developing countries than conditionality programs induced by neo-liberal economists.

Conclusion

The abolition of state-led development strategies in the 1980s has caused downward trends for majority of African countries. The dominance of neo-liberal policies in the last 3 decades appear to be correlated to poor growth rates in the Sub Saharan African region. However, the failure of neoliberal policies to promote growth might have been caused by that fact that Africa`s not ready to embraces capitalist orthodoxy at the moment. Therefore, the neo-liberal explanation on Africa`s growth failures is weakened if the case for Zambia is to be applied. This is largely due to that fact that Zambia`s climate is relatively calm and is relatively peaceful country which enjoy some kind of democratic institutions. The increasingly role of Chinese FDI and aid in Africa has an encouraging impact on the region`s future prospects. As such, all countries have suffered from the structural argument during their cycle of development and Africa should have the opportunity to pass through this stage before without any policy enforcements such as conditionality programs impose on them by the Bretton Woods institutions.

Reference

Shawa, J.J, (1993) Trade, Price and Market reform in Zambia: Current status and constraints, Butterworth-Heinemann Ltd.

Garenne, M and Gakusi, A.E, (2006), Vulnerability and Resilience: Determinants of Under-Five Mortality Changes in Zambia: World Development.34,(10),pge 1765-1787, Elsevier

NB:Ranganai Moyo is a strong admirer of baba Kenneth Kaunda and in all fairness he believe the President worked hard for his country given that his administration inherited a country which had nothing to celebrate  but within a decade it was a Zambia for sure