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 

Overview of global economic analysis research paper.Mapping the way.

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. In addition to that, 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 1980 as 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 up the 1980s, many African countries were recommended by the IMF and World Bank to adopt neo-liberal economic policies. These 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. Nevertheless, IMF and World bank`s conditionality programs were unsuccessful as growth declined sharply in most adjusting countries of the region between 1980 to 2004.So, 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.

Literature Review

The Future of democracy in Zimbabwe the Case for MDC.

 

 Tsvangirai with Statesmen at the GNU signing ceremony in 2008

Friends, allow me today to make my own analysis of the MDC journey since their creation in 1999, incidences at Harvest House have led me to take a close look at this popular society and make my own analysis before you. I am sure you recently noticed that, over the past months I been concentrate most of my efforts on the MDC which has now disintegrated into MDC-T, MDC-M and the recently formed MDC-99 over the few years.


The movement for democratic change was formed in the late 1990s and emerged as the only challenging party to unseat senior nationalists who had been the dominant force in Zimbabwe’s political system. The prominence of the MDC to national and global stage has no doubt a result of President Mugabe`s inflationary and fiscal policies in 1992 (structural Adjustment programs) coupled with drought in that same year the president didn’t measure the misgiving of such contraction spending. I must admit before you that it’s not clear whether the President turned a full time capitalist in those years or he wanted to please officials at No.10 and Washington in those years given both Mrs Thatcher and Bill Clinton seemed supportive to the Zimbabwean efforts. Comrades I have no doubt that, circumstances of the early to mid 1990s left millions of people unemployed as retrenchments became a common feature in Zimbabwe’s labour market. Whilst on the other hand inflation took its course causing uncertainty to social services delivery scheme in the country. For example, health care and education provisions became inaccessible, at the same time real value of individual pension funds began to shrink due to rapid increase in inflation. This scenario led to both working class and student movements to stage regular mass stay aways and strikes against their government and hence triggered the birth of a new political party (MDC) formed of workers and students activists who had been affected by cuts in government expenditures.

After several years of strikes and mass stay away in the early 1990s, over 300 men and women from all walks of life converged at the women’s bureau in Hillside Harare for two day summit to decide the way forward in regards to the future .I am proud that my daddy was part of those delegates who congregated at the summit engineering a new fashion in Zimbabwean political mechanics. Yes the MDC was then formed on the basis of carrying on the struggle for workers rights, jobs creation, decency working conditions and a formidable democratic right for all but not forgetting equal distribution of resources. As such, the Movement for democratic change was built on the socialist manifesto and in 2000 general election the party almost unseat ZANU-PF; two years later Tsvangirai did very well in the presidential vote because there was a lot enthusiasm that generated higher level of expectations amongst Zimbabwean electorates. So what went wrong with the MDC as a party that belongs to the future?

The death of the MDC`s founding principle can be traced to just after 2002 presidential election following claims of rigging but Tsvangirai`s bid to overturn the votes through the courts was on several occasions without success. Since then the party shifted from being a social welfare club to a civil society up till now. There is no doubt that, transforming a political into a civil society or NGO can denature a party`s potential to govern. For example, senior leader in the party is more likely to be on the payroll with the National constitutional Assembly(NCA) or in some cases with various groups with so many interest of which in the end this have inevitably destroyed the direction of the MDC as a true political force in Zimbabwe. Therefore, the MDC as a collective voice should move away from being a NGO or civil society to a proper political party, but hurdles always exist especially if the marginal benefits of being a stakeholder in those NGOs and Civil societies are high.

In 2005 the ZANU-PF government introduced senatorial parliament, but the MDC was sharply divided and the division in the party led to constitutional violation which led to a break away faction MDC-M and MDC-T both claiming legitimacy to be the founding party. This is where everything went wrong against the party, all officials from the MDC-M were barred from entering Harvest House by MDC-Youths /militias paving a way for the MDC-T to occupy the building this kind of infighting forced President Thabo Mbeki of South Africa to intervene for years but without success and negotiations for reconciliation between the two camps went on right through 2008 general election. So in this matter it will be right to say weak political institutions and lack of formidable cooperate governance are the main causes of the MDC crash in 2005. Not to forgetting the worst attack of MDC-M (Trudy Stevenson) legislature that was blamed MDC-T and other incidences happened those days remind us the pain of democracy. Even those who claim to have formed on the basis of modernisation fail to honour their commitments to the working of the good. Recently the MDC-T has deleted party of its constitution that govern the selection of party executives, making it possible to for party president to remain on the post forever i that democracy?? On the other hand we have the MDC-M stripping elected member of parliament for not voting Paul Themba Nyathi who a party nominee for the Spear`s post since then those constituency have no representative in Parliament right now can that be justified ???

After sometime of internal wrangling within the MDC-M, a firebrand politician Job Sikhala one of the founding member of the old MDC formed his own branch of the MDC called MDC-99 and as of now he (Mr Sikhala) installed himself a President. Also events at Harvest house are not very encouraging at all which the PM have nudged it on outsider but I don’t know really that such educated members would be used by ZANU-PF or outsiders to inflict factionalism within the MDC-T?? Up to when should we continue to blame on outside elements why cants those situations be minimise? From this one would whether both MDC factions are strong enough to embarrass the importance of modern democracy and does these political entities built on strong values of modern corporate governance??

Also on foreign affairs the Former Prime Minister and his MDC-T increasingly abort the importance of African institutions and governments in pursuits of extending friendships overseas such the US, Europe and Australia. This will make it even difficult for them to engage with our neighbours if salt or tea bags or sugar runs, can they fly to Europe or the US or New Zealand to beg for sugar ?? In a speech at the GNU signing ceremony the PM thanked and saluted President Thabo Mbeki for his role in facilitating negotiations which led to GNU, but we must remember this is the man, who time and again attacked Thabo Mbeki, and again he thanked SADC and other statesmen happened to be there at the time.

Area of internal conflict (Harvest house MDC HQ)

For this reason, I am forced to conclude that MDC-T, MDC-M,MDC-Nand MDC 1 -99 have nothing to offer the Zimbabwean family unless the come out again as one and retreat to those founding principles in the late 1990s. Otherwise we are increasingly at risk if we continue to put our bets in this political party with various factions that failing to honour their own constitution which they drafted with their own hands. Now the questions, can the MDC be trusted and given a mandate to uphold our national constitutions? It’s up to you comrades this is what I have to say for now I am now tabling my analysis before for you.

Foreign Direct investment in post-war period.

The changes in foreign direct investments over the post-war period, main determinants and what are the costs and benefits to the source and host countries?



             Author: Ranganai Chiwara

Foreign direct investment is the acquisition of an asset in a foreign market (the host country) with the intent to manage it. Foreign direct investment can occur in the form new investments which arise when foreign firms build affiliates firms abroad or through equity capital, which is the value of a foreign firm’s asset shares in a venture within the host market. This is among a few ways foreign direct investment can occur. Moreover, it has increasingly source of capital worldwide in global businesses and in the past two decades total foreign direct investment rose shapely from about $59 billion in early 1980s to more than half trillion dollars in the new millennium (Alsan.M, Bloom.D.E, Canning.D, 2006).However, the unprecedented increase in international investments due to firms` activities are triggered by a number of reasons which will be discussed further in this paper.

There was a rapid increase in foreign direct investments during the early years of the post-war period till late 1970s as many countries imposed trade restrictions on each other. That was largely due to the fact that, former enemies were reluctant to open their market to each other thereby imposing trade barriers. Faced with trade restrictions, firms were forced to open foreign affiliates to reach both existing and potential customers in the host markets. This phenomenon was common in communist states and trade between the free world were virtual impossible as soviet bloc preferred to trade among themselves. In addition to that, trade barriers were so severe that foreign firms which had market base in those communist states would find it difficult to do business there since the state dictated what to import or export and quotas of certain commodities were imposed by the states. Therefore, most firms with capitalist base had little advantage to trade in those regions so they had to invest in those particular economies to serve their markets interests. Also apart from that, trade barriers were there to protect domestic markets and ease pressure on the balance of payments since an excess of imports against exports can cause huge balance of payments deficit.

Furthermore, multinational enterprises were operating under high market exposure in the early post-war period as transportation merely collapsed dues high risk in freight as companies feared their vessels would be sunk in sea by the enemy. It was most likely that companies encountered both high shipping and insurance cost because of the risk with international trade in the 1940s through early 1970s.Among other few problems faced by multinational firms could range from extreme delays on supplies which have a greater impact on production activities and consumer satisfaction. Furthermore, the existence of trade restriction made exports too expensive than domestically produced goods making foreign produced goods uncompetitive in the host markets. Therefore because of the complexity associated with international trade firms preferred to produce in foreign markets rather than export and imports oriented business. For instance, the British government in the 1950s under Winston Churchill imposed severe exchange control on the outflow of the US dollar which resulted in some British companies opting to set up production facilities to in the United States to reach out the US market. Also besides that, the revival of anti-trust policy along with higher production costs and technological advancement among the triad (US, Europe and Asia ) motivated companies to set up R & D production units in foreign countries but however such investment were mainly carryout within the triad.

Furthermore, there was an experimental of economic integration among countries in the late 1950s such as the creation of the European Economic Community (EEC), The European Free Trade Association (EFTA), The Latin American Free Trade Association (LAFTA) and others. The main reasons of forming regional blocs were to improve trade relations and the basis for economic cooperation among member states. These economic co operations were largely due to the mere collapse of trade in the first decade of the post-war period because of protectionism policies among countries; hence the main goals of economic integration was to ease trade restrictive measures deemed unfavourable to business. The creation of trade blocs had a greater impact on foreign direct investments as lots of firms rushed to invest in those new economic arrangements to access a large market share and hence there was a rapid trend in world FDI throughout the end of the 1950s up to 1970s. In addition to that, there was growing importance of human capitals skills such as managerial, marketing and technological skills in the first three decades of the post-war period. In this regards, multinational firms were eager to invest or setting up a production unit in host countries with technological and skills abundance. For example, the US was both the largest recipient and outward foreign direct investment among the triad mainly because of managerial and technological advantage and core investors were Japanese and British Firms.

Determinants

Foreign investments continued to grow at an escalating rate in the last two decades but is mainly concentrated within advanced economies and developing countries account for about 40% of the world’s foreign direct investments in the 1990s (Noorbahsh.F, Paloni,A and Youssef.A,2001). Though ,there was such a rapid flow of private capital into developing countries since the 1980s,the distribution varies with countries or regional grouping .For example, Asian countries were the largest beneficiary of inward FDI close to $100 billion followed by Latin American country while Africa has the least inflows foreign capital (Alsan.M, Bloom.D.E, Canning.D, 2006) . Globalisation seemed to have been the main driver in world FDI because it allows the process of worldwide economic integration. Hence are liberalised global economy enable flows of capital, spreading technological advancements and trade as well as labour mobility in the form of migration. As the world economy began to integrate in the early 1980s more countries started easing restrictions on foreign direct investments and hence, encouraged competition among multinational corporations. Furthermore, firms started to develop new business strategies such as setting up new R&D, packaging units and global sourcing. The main aim was to achieve sustainable competitive advantage in world market to ensure product innovations and cheaper manufacturing practices as well as enhance customer satisfactions. Subsequently, world wide foreign direct investments have been escalating at a faster rate since then. Therefore, global economic integration in this way seems to play a greater role in determining the volume of world FDI inflows as firms seek to improve their competitive advantage.

Given the rapid growth of world foreign direct investments over the past two decades and also that these investments are unevenly distributed as some countries or region account for higher percentages of foreign inflows and other not. Although, countries have recently adopted friendly business policies, it seem as though much of the world’s FDI is concentrated in advanced economies followed by Asian countries and Sub-Saharan Africa is the least of all regions. Apart from globalization as an encouraging factor attracting world FDI, there are other variable may explain why other regions are so attractive to foreign capital inflows others. The role of foreign exchange rates is paramount especial for export-oriented foreign direct investments; thus differential in exchange rates between the source and host is positively correlated growth in FDI inflows. For example, it was noted that the depreciation of the Chinese currency is positively related to FDI inflow (Xing.Y, 2006) because domestic assets would be acquired cheap compare to home market. Empirical evidence carried out by Xing.Y, 2006 on Japanese multinational firms investing in China, showed that a depreciation of the Yuan encouraged Japanese firms to set up production affiliates. The devaluation of the Chinese currency led to reduction in production cost, increased the buying power of the Japanese yen as a result land and rents became cheaper in China. Furthermore the role of exchange rates in attracting FDI had been examined (Baek,I-M and Okawa.T,2001), their empirical analysis shows that exchange rates play an important role in firms’ decision process on where to invest. For example the study shows that Japanese outward FDI increased rapidly with the appreciation of the yen in the late 1980s and then slowed down in the 1990s due to weakening of Japanese currency. Therefore, exchange rates play any important role in attracting export-oriented foreign direct investments especial firms which manufacture for exports markets and maybe that is why Asian countries the largest recipients of world FDI than others.

The rapid growth in FDI has been accompanied by a significant shift towards service and technology-intensive manufacturing process. For example, in the first post war period FDI was more concentrated in primary sector and resources-based, hence the relative importance of these factors have been diminishing ever since the 1960s. Conversely, in the early 1980s sectorial composition of global capital inflows began to change to knowledge based For instance, the service sector accounted for about 25% in the1970s to 60% in the year 2002 world FDI stock (Noorbakhsh.F, Paloni. A and Youssef.A, 2001).Therefore, the presence of well trained workforce is increasing becoming more attractive to multinational enterprise as they face global challenge due to competition among business rivals. The absence of educated workforce can curb FDI inflows into the host country due to changing motive of foreign investments (Globerman.S and Shapiro.D, 2002).However; some of the important determinants such as infrastructure development, and higher return of capital have positive impact on other regions and to other show a negative relation. Empirical evidence by Asiedu,E (2002) on African FDI inflows shows that a number of variable failed prove if they had positive impact on FDI in Sub Saharan Africa. Determinants such as openness to trade and infrastructure development such as reliable public institutions, better legal framework to promoting property right were negative related to FDI inflows in this region but was positively correlated to other regional grouping.

Effects of FDI on host country

Host country may benefits from FDI as additional resources are being made available such as capital, technology, management and training of local laborforce. This is particularly important to developing countries where domestic investments are highly constraint due to lack of capital formation. Thus, inward foreign direct investments encourage economic growth country as additional capital inflows can boast output and income of the host country. Furthermore, FDI have a potential to benefit the host market by stimulating domestic enterprises and spreading the effects of technological change these are induced through spillover effects. Spillover effects occur through reverse engineering, labour mobility and demonstration effects and is mainly facilitated by R&D research activities as well as competition among foreign firms within the host country (Cheung, K and Lin.P, 2003).Also empirical studies by (Ruhul .S, Salim.A and Bloch.H, 2009) on Indonesian chemical and pharmaceutical sectors showed a positive relationship between FDI spillover and technological progress on Indonesian economy. Moreover, transnational enterprises may improve the export capability of the host country particularly in the case of export-oriented FDI. For example china enjoys economic prosperity as she runs a huge balance of payment surplus because most FDI operations there are destined for the exports. Besides FDI is a source of employment for the host country, the more FDI in flows the more local labour force will gain employment with foreign investors.

However, there are some criticisms about multinational enterprises` operation in developing countries that almost all of their profits out of the host country, thereby weakening its balance of payments. This argument appears to be true when considering the Asian and the Latin American economic crisis in the 1990s; these economies encounter huge capital flights which in turn threatened their current accounts. In addition to that, firms as economic agents accounting for most of FDI are being criticised for manipulating prices to evade taxes and also may cause political instability within the host country through funding opposition party or organisation to rise against the host government. Furthermore, multinational enterprises are constantly seeking to improve world worldwide profits, as such may relocate causing massive unemployment in host country. For example, Ford transferred the production of Sierras from its Dagenham plant in the UK to Gent in Belgium in 1990.Therefore; given that deregulation enable foreign firms to move capital freely mean, the perceived benefits of inward FDI is likely to be uncertain and creating unfavourable economic condition in future as firms relocate to other regional bloc.


Effects of FDI on home country

The main benefit from FDI for home country is that, multinational enterprise earns higher rate of return on their foreign investments and those profits can be repatriated to improve domestic economy. Also taxes levied on foreign income on firms can benefits home country by increasing income for the entire society in the form extra government spending on public services such as transport and health care. It was difficult to attain further benefits of FDI to home country; there seem to be very limited empirical evidences on the potential return to source country. However, it has been identified that, capital outflows can affect home country’s labour markets which is trade Unions tend to opposes FDI because it involves export of jobs, For example, many firms have been relocation to Asian economies in recent years pushing unemployment rate higher in source countries. Moreover, as China and India have become major centres for export-oriented FDI that, subsidiary firms are now producing to supply parent firms can cause balance of payment deficits fro the home country.

Conclusion

There has been a dramatic increase in global foreign direct investments since the early post-war period and these trends are set to continue as countries adopt free market orthodoxy policies. Therefore, the main driving forces or factors determining the extent of these worldwide economic activities beginning of the 1980s seemed to have been triggered by globalization which in turn encourages multinational enterprises to invest in foreign countries to gain competitive advantage. Besides that, foreign direct investment is not evenly distributed among regional or continental groupings, for example global FDI are mainly concentrated in the USA, Europe and Asia while Sub-Saharan Africa is trailing behind. However, recently China and India are increasingly becoming the world’s largest receivers of inward FDI chiefly because of a number of factors such as cheap production cost, exchange rates, markets size among others variables. There are no empirical evidences to explain why Africa receives very small portion of foreign direct investments over the past decades. Having discussed the changes in foreign direct investments over the post war period, I have come to the conclusion that, developed countries remained both main favourite of FDI whilst emerging markets such as China and India are the largest recipient of inward foreign direct investments

Reference

Ruhul .S, Salim.A and Bloch.H, (2009) Does Foreign Direct Investment Lead to Productivity Spillovers: World Development, xx (x), pge.xxx-xxx, Elsevier Ltd.

Cheung, K and Lin.P, (2003), Spillover effects of FDI on innovation in China: Evidence from the provincial data, China Economic Review, 15(2004), pge.25-44, North-Holland.

Alsan.M, Bloom, D.E and Canning.D, (2006), The effects of Population Health on Foreign direct Investment inflows to Low-and Middle-Income Countries: World Development, 34(4), pge.617-630, Elsevier Ltd.

Xing.Y, (2005), Why China so attractive for FDI? The role of Exchange rates: China Economic Review, 17(2006), pge.198-209, North-Holland.

Baek, I-M and Okawa.T (2001), Foreign exchange rates and Japanese foreign direct investments in Asia: Journal of Economics and Business, 53(2001), page. 69-84, North-Holland.

Globerman.S and Shapiro (2002), Global Foreign Direct Investments Flows: The role of Governance Infrastructure, World development, 30(11), pge.1899-1919, Elsevier Science Ltd.

Noorbakhsh.F, Paloni. A and Youssef.A (2001) Human Capital and FDI Inflows to developing Countries: New Empirical Evidence, World development, 29(9), pge.1593-1610, Elsevier Science Ltd.
Asiedu, E (2002), ON the Determinants of Foreign Direct Investments to Developing Countries: Is Africa Different, World development, 30(1), pge.107-119, Elsevier Science

Thank you President Jacob Zuma and thank you the people of South Africa

The Presidency`s Office Republic of South Africa

Union Buildings (Pretoria)

Private Bag X1000, 

Pretoria,

0001

South Africa

13/08/2013

Ref: Thank you President and the people of South Africa

Dear Your Excellency President Jacob Zuma

Your Excellency I wish you congratulate you on the recent developments in Zimbabwe; your role in this country will not be erased and shall stand forever. We the young people of this country salute you in all efforts and commitments you have shown to us all these years. Your government and the people of South Africa remained supportive and stood with us in solidarity when our country found herself in an enemy’s mouth and it happened at a time economic restructuring, shifting national resources into majority people.

Your Excellency, imperialists through the (MDC-T leader) were so determined to see our government fail, but your government and the people of South Africa stood with us. Today your government has provided refugee (jobs, shelter and other basic services) to the millions of us to ensure that Zimbabweans never starve. We thank you for that and for this reason, we feel so compelled to write this letter to you the people of South Africa to thank you personally for this extra-ordinary hospitality provision we have enjoyed over the years. We shall continue to cherish this beyond the current leadership of this country.

Your Excellency, following massive economic destruction and decline due to economic sanctions on our nation which led to enormous suffering of the commons. In 2008, Zimbabweans acknowledged the challenges our government was facing when the Babylonians visited us (enemies of economic and social progress). So they decided to deliver a Government of National Unite (GNU) of which your government was the main engineer overseeing the implementation of necessary in fractures which would eventual led us to fresh elections on 31/7/2013.

Your Excellency, during the life of the GNU you and your team have been up and down to Zimbabwe mediating and negotiating in an effort to help Zimbabweans map their future and at some point you have sharp criticism from both at home and abroad but you remained strong in conveying your work.  Today millions of Zimbabweans in all corners of the world are celebrating the return of their sovereignty, national self-worth and determination; hence your work has never been labored in vain 31/07/2013 the people of Zimbabwe spoke for themselves and delivered the best for their future. We  continue to thank you so much for that , your extra-ordinary leadership has managed to secure our future, it has managed to bring about the government we have always hoped for and we have now buried imperialists country program manager in the name of MDC-T. We believe the just ended election lay down the best foundation for this generation and the generations to come.

Your Excellency, President Jacob Zuma we owe to you and the South African people at large.

Thank you once again the people of South Africa, you redefined the true definition of friendship and brotherhood.Surely in all our closeness shall continue.

Yours faithful 

Ranganai Chiwara 

Young Nationalist  

The politics of FDI a true comparative economic analysis

A number of economists have been trying to examine why Sub-Saharan continues continue to sink in the mud of extreme poverty whilst other region seem to do better. This scenario will lead us back into the world of foreign direct investments from the post-war period up until the new millennium. There is a general consensus among academics and government advisors that FDI bring vast opportunities to the host market (country) especial in areas of growth and development. In this analysis, I will try to concentrate more on examining the distribution of the global economic activities (FDI)with a major focus on the Sub-Saharan Africa

The global FDI had been pre-dominantly, dominated by western economies of which the US was/is the key player followed by Great Britain and then Japan in the first three decades of the post war era. In other words FDI was controlled by the Triad (US, Europe and Asia) through the 1970s and the geographic position has not yet changed since then. It is also important to note that, the rapid growth of foreign investments were merely a result of uncertainty associated with global trade due to trade restrictions as former enemies couldn’t open their market to each other. So International trade virtually collapsed, in the 1950s up till the 60s and then came the collapse of the gold standard in the early 1970s. Analyst at the time thought the crumble of the global financial was going to cripple both inward and outward FDI, but truth the trend in FDI continued at a faster rate. 

Despite those harsh economic polices at the time , world FDI continued to grow at an escalating rate but mainly concentrated within advanced economies which showed that government policy have no effect whatsoever on firms decision to invest in foreign markets. Infact the first three decades of post-war period was even much tough to do business but multinational firms overcame hurdles to the extend that there was ever increasing global economic activities throughout those years. However the distribution of FDI was/is uneven with Sub-Saharan African accounting for less private capital inflows even up to now. A number of studies were carried out on FDI inflows into the Sub African continent but nothing much proved positive including those policies advocated by (neo-liberal liberal economists. Again some of the most important variables were tasted (infrastructure development and human capital skills) to see if they contribute the amount of capital inflows into this region, results were mixed. Most genuine economists have sort to find ways of attracting investment in the Sub-Saharan continent but all studies failed. 

The main reason why we fail to attract FDI into this continent lies on the fact that we have no independence or autonomy to control policy. A lot of our policies are prescribed to our governments by the donor country or their institutions and they proved unworkable. Basally economic model we are encouraged to implement does not work here in Africa. Even though these sponsored policies fail to propel investments, their owners are constantly imposing conditions on us for the sake of exploiting wealth freely using African slave labor force. I think the Sub-Saharan Africa is in a complete state of messy because of fierce opposition of by foreign on any form of policy that seek promote economic activities. In this regard, we have lost tough with our local economy to foreign investors (rulers) and as such FDI has increasing become a political tool than business driven. Several times, we try our own domestically designed policies, but they fail to subsist, our policies are deemed unfavorable business. 


A new thinking is needed especially amongst our leaders to establish or adopt home-grown economic policies that encourage both consumer spending and to provide framework that will eventual decrease foreign aid in the region. Surely we can not infinitively survive on western handouts. That’s where it is getting wrong because those who extend their hands to us will inevitably exploit the situation on their advantage. FDI is increasingly becoming a political tool for those advocates of creating instability among the African people. It seems as though a domestic policy is being denied a chance of survival because it is perceived as detrimental to foreign investments. Why should someone out there so concerned about our policies rather than indigenous inhabitants?

There is no doubt, FDI is now regarded as part of foreign policy by those who control the global economy, they have the power to stop or discourage their home firms /corporations not to invest in a particular country even though there it is a promising market.Politics is now controlling business activities and hence in conclusion  as long western politics continue to dominate our markets in whatever way,this continent will remain trailing behind in terms of capital inflows.Let us develop our own system.

Ranganai Chiwara is keen to see economic and social progress in Africa and is trying to diagnose the problem facing the Sub-Saharan Region.

Zambia`s post-independence development strategy and what went wrong in the process ?

                                                     Authour :Ranganai Chiwara 

Introduction

The concept of development emerged immediately after the Second World War and the United States was the leading figure in attempting to address of the problems of underdeveloped areas. This was highlighted in President Truman’s inaugural speech of 1949 of which he emphasize the need to advance technological and industrial progress to the undeveloped areas of the world. The notion became a theoretical position of the United States in the post-war era which resulted in the birth of key international institutions (IMF and the World Bank) to address challenges of poor states. Since then, in 1950s and 1960s major theoretical assumptions on development began to emerge as well focusing on the causes of underdevelopment and how the problems could be rectified. Human development encompasses a number of social-economic indicators such as economic growth, enhancing individual choices, education, quality of health, democratic rights, and so on. The United Nations Development Programme (UNDP) introduced the human development index to measure the living standards of people. It is based on three broad based goals which are real GDP per capita income, life expectancy and education attainments and countries are ranked on a scale of between zero (low) and 1 (highest). Endogenous development is a localized initiative sought to advance living standards; example of this can be economic empowerment drive in Zambia in the late 1960s and 1970s. Zambia`s Humanism endogenous policy was modelled on socialism and Christian ethics and the strategy managed to mobilize national recourses to build universities, schools and other infrastructure needed for development.  Sustainable development is more concerned with issues related to environment, such as climate change and its impact in relations to social-economic issues.

The essay paper is largely relying on the case study on Zambia`s two stage republic of development the first two decades of independence and the 1980s to 2000 structural adjustment. The first stage of Zambia`s development policy was deeply rooted in Christian ethics and socialism (Humanism) as its endogenous development model and then move on to the second phases of development strategy based on neo-liberal economic reforms sponsored by IMF. The case study assist in examining the effects of neoclassical model on development after Zambia decided to abort its endogenous development strategy in pursuit of free-market economy. Given that many developing countries especially those in the Sub-Saharan Africa experience decline in human development due to lack of savings and capital investments. Theoretically assumptions of the 1950s and 1960s seem to agree that Less Developed Countries are poor because of low level of return, low savings as such they failed to reach take-off stage.  To solve the problems of developing countries, extra resources were required to increase savings and investment rates either through borrowing from IMF or in the form of foreign aid. However, neoclassical or liberal model view the problems in Less Developed countries differently, it argues that under development in third world countries is caused by poor resource allocation and excessive government interventions. So the essay paper, assess the relationship between IMF`s macroeconomic stabilization policies (neoclassical model) in Zambia and development as measured by socio-economic indicators. Zambia began to implement IMF`s sponsored policies in the 1980s after the country partly aborted its Humanism programs due to worsening balance of payment deficit.

The Case for Zambia 1980-2000

Zambia`s economy was dependent on mineral wealth with very few trained citizens to govern the country. Like any other developing country, Zambia`s economy was mainly based on primary production and copper was its largest earning power. The country obtained independence from Great Britain in 1964 and Kenneth Kaunda was the first President of a newly independent state. The country faced numerous development challenges as it had no manpower to run and govern the country, there were only less than 100 natives with university graduates at the time. The country had no or little infrastructure and schools as such about 0.5% of the country’s population were illiterate making her (Zambia) perhaps the least developed British colony. So the new government embarked on both economic and social reconstruction of the country through a number of national projects under the commission for development planning. The first policy framework was aimed at improving the nation`s education system which was poorly developed, so in its early inception the government devoted much of resources on public sector to build infrastructure and the education at all levels. President Kaunda introduced free education policy which meant that almost very school going child had opportunities to progress in future. The country`s policy reforms were guided through an idea of Humanism (a policy mix of socialism and Christian ethics) national recourses were mobilized through donations and the first university was opened in 1966, there after a number of tertiary institutions were built. The massive investment in the public sector especially in education led to a sharp increase in enrolments at all level by 1970.In addition to that, the country`s economy was controlled by the companies that had linked with the colonial administration just after independence so the government instituted the second phase of development planning, this time with the intent of facilitating the acquisitions of major investments in the mining sector and other strategic sectors. The government successful nationalized all major industries and according to Lambert, (online) almost 80% of the Zambian economy was now made up of stated owned enterprises in 1980. The endogenous development strategy (Humanism) enabled the country`s transition process faster, social protection was guaranteed for low income families and the education systems began to flourish. However, Zambia`s economy relied on copper and was the major exporting commodity accounting for about 90% of the country`s total revenue in the 1970s.

Outline of neoclassical policies

•         Privatisation of state enterprises came into being

•         Deregulation

•         Government cuts on public service

•         Ease of Exchange control

•         Subsidies were abolished

•         Tight monetary policy

•         Trade liberalism

In trying to solve its economic crisis as the price of copper continued to decline in the 1980s, Zambia merely abandoned its humanistic philosophy and policies that were inline with the neoclassical model as its long-term economic planning .The structural reforms were to be carried and implemented under the sponsorship of the International Monetary Fund in exchange for budgetary and balance of payment support. In the 1980s a wide range of reforms were carried out  these include but on all, privatisation of state enterprises, deregulation, reduction in government expenditure , ease of exchange control, subsidies were abolished, tight monetary policy, trade liberalism among others. The  reforms were implemented in all sectors and in agriculture, price fixation were removed, producer and consumer subsidies were reduced and state monopoly on agricultural marketing rights were demolished as well as allowing foreign agribusiness participation in the economy.  According to Wood and Kean, (1992), 1980 subsidy on maize meal was about 70% of the retail price, so reduction in subsidies coupled with other reforms such as the easing of price control, accelerated inflation .Also studies by Shawa, (1993) indicate real GDP in Zambia slummed from 1980 to 19887 and that real per capital declined remarkable   maybe due to depreciation of the value of the national currency by the late 1980s. Furthermore, cuts in public services and retrenchments of workers invoked riots and strikes around the country and leadership of President Kenneth Kaunda came into serious opposition from churches and labor groups. In 1987 Zambia temporarily aborted the IMF`s sponsored neoliberal reforms and the government introduced its own program called New Economic Recovery Programme (NERP). Under the New Economic Recovery Programme, the government returned control over all economic activities and spending. This resulted in slowing down of inflation as economic performance increased which recorded a growth rate of nearly 7% in 1988 compared to less than 3% in the previous years.

However, in 1991 a new government came in office and immediately implemented radical economic reforms (neoclassical model) which immediately eased food subsidies completely, child mortality rate in the country increased steadily in the 1990s due to deteriorating   social-economic indicators. Garenne and Gakusi (2006), child mortality increase suddenly from 1990 to 2000 and was higher than the previous decades, this was chiefly caused by decrease in real per capita income and austerity measures in the health sector. Also, the years of neo-classical reforms in Zambia witness unprecedented decline in life expectancy 1990 to 2000 when compared to preceding decades, (http://www.zamstats.gov.zm/media/chapter_8_mortality-_final.pdf). The decline in life expectancy and the subsequent increase in child mortality rate during the inter years of structural reforms had been attributed by diminishing of living standards for majority of Zambians. Nevertheless, there are other factors independent from economic reforms that were carried out during this period, epidemic diseases such as HIV/AIDS and related sicknesses are some of the great challenges that continue to drag the country backwards. In addition to that, Zambia is prone to droughts and apparently, the higher cases of malnutrition were recorded between 1990 and 2000 and at the same period the country’s agricultural production plummeted. Although natural disasters might have contributed to rapid decline in human development, empirical evidence which seem to suggest that reform in the agricultural sector prompted a shortfall in maize production in the 1990s.For example, Zambia’s agricultural production is dominated by small-scale farmers and poorly equipped so liberalism of the sector and elimination of subsidies forced the cost of farming to increase. It can be argued that the neoclassical model pursued in Zambia from 1980 to 2000 negatively affected the general life expectancy and mortality rate due to poor nutrition.

Industry and Manufacturing

In an effort to restore economic recovery, President Frederick Chiluba decided to abandon the policy of 'humanism' altogether and pursued neoliberal economic reforms in full. All markets were deregulated, trade was liberalized and exchange control we demolished and public enterprises sold, in year 2000 almost 70% of the Zambian economy were now in the private sector (Lambert, T).However, privatization did not encourage growth as it was intended to do because the whole industry in particular manufacturing had already suffered due to years failed structural reforms. It is very likely that, most privatized   industries we left empty as investors flee the economy for competitive markets elsewhere. During the 1990s there were many incidence of capital flight as investors sought to protect their assets, a study by  Muuka,(1997), found that  majority of multinational firms operating in Zambia between 1990 to 2000 decided to either relocate or forced to downsizing their production operation due to worsen economic climate which they were operating in. 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. The result was high unemployment and shrinking in manufacturing had nock off effects on the country`s national output (GDP).As such, there is no or little evidence to suggest that neo-liberal economic policies improved the country`s development ranking instead the economy registered the worst economic performance in the 1990s where it was implemented in full. The negative outcome of reforms in Zambia overshadows free-market arguments which imply that the problems of underdevelopment in poor countries were caused by too much government interventions. In this regard, the neoclassical model pursued by two successive governments in Zambia have exacerbated economic crisis than solving it as indicated by following GDP growth rates over the period of reforms. The country is human development index (HDI) can also tell us a lot about the impact of free-market policy reforms assumed by Zambia from 1980 to 2000.

Table.1Zambia GDP annual growth (% ) 1980-2000

 Source: World Bank data.

Social welfare and economic crisis 

During the first decade of independence, Zambia adopted a policy of (Humanism) and that guaranteed social protection for majority low or middle income families. Government expenditure on pubic services such as education and health care is paramount to economic prosperity of a given country. Excellent education system and health provisions are key to a nation`s labor market conditions. For example, empirical studies by Jung and Thorbecke (2003) found that the size and efficiency of public expenditure are vital in improving socioeconomic indicators. Also other empirical studies establish that government expenditure on public sector is positively and significantly correlated to economic growth. For instance   Bose, Haque and Osborn (2007) studies concluded that government expenditure on education has long-lasting effects on economic development. These findings highlight the role and the importance of government involvement in economic activities a given country. This could be the reason why many developing countries including Zambia invested heavily in public sector after independence. In this view, social protection was guaranteed for low and middle income family in Zambia before structural adjustments. It was difficult to measure the success of government expenditure on social welfare between 1960s and 1970s due unavailable data. However, based on number empirical studies which confirms that there is a positive correlation between expansionary fiscal policy and economic growth; one might conclude that Humanism (Christianity ethics-socialism) was positively related to economic development in Zambia. Therefore the collapse of socialism and subsequent implementation of neoclassical policies in Zambia between 1980 and 2000 had a huge effects the country`s long-term economic development planning. Expenditure on public services declined steadily from 1980 to the year 2000 and this had a nock on effect on social welfare provision especially for a country like Zambia where majority of people live in poverty. Therefore, Zambia`s inter years of economic reforms coupled with natural disasters such as draught might have exacerbated the country`s socioeconomic indicators and in year 2000 the country was listed under the Highly Indebted Country (HIC). If free-market policies provide the adequately address the problems in Less Developed Countries (LDCs) then, a constant decline of  GDP per capita and socioeconomic indicators between1980 and 2000 might emphasize inconsistency of the neoliberal model. 

Discussion

Zambia `s neoclassical reforms sponsored by IMF over the period of two years failed to promote economic development as various social-economic indicators  deteriorated in the years of adjustment programs. There was rapid decline real GDP per capita income, dilapidation of education facilities, a sharp decline in taxable bases and poor health care provisions between 1980 and 2000. Also two decades of structural adjustments in Zambia did not to create formal employment as people end up working in the informal sector. For example, almost 70% of the country`s labor market was dominated primarily by the informal sector. Moreover, economic hardship among Zambians continued throughout the structural adjustment years, inflation rocketing and companies close or relocated elsewhere coupled with poor public service delivery. Therefore, economic and social conditions prevailed in Zambia between 1980 and 2000; appear to go against neoliberal model as mode for development. The macroeconomic stabilization policies implemented in the early 1980s did not improve Zambia`s balance of payment deficit although, some empirical evidence indicate a positive relationship between economic reforms and improve in balance of payments. For example, Kim and Evrensel (2006) found that countries improve both their fiscal and balance of payments discrepancies during programs years. As part of improving Zambia`s deficits IMF `s macroeconomic stabilization problem discourage imports of goods , given that, the  country required capital goods for production in agriculture and the mining sectors, restricting imports can adversely affect national output (GDP).Therefore, the marginal benefits of economic reform in Zambia are somehow very slim and perhaps  it is possible to believe that the neoclassical model  pursued in Zambia for a period of two decades was harmful and depressives to  the country`s economic development. As austerity continued in years of structural adjustments, human development remained vulnerable to recurring economic and social crisis throughout the years of adjustments in 1980 to 2000. For example, reduction in government expenditures on public services such as health care, education, and coupled removal of subsidies further exacerbated the situation. Given that most 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 human development.

Moreover, Zambia found many of its parastatals just after independence from Britain in the 1960s through collective efforts under "Humanism" and some of these state-owned firms were part of the country`s long-term development strategy. The fact that majority of Zambian needed state support in accessing  education, healthcare and jobs so some of these state owned enterprises were not intended for profit making but to maintain or improve human life. For example, healthcare, education and transport were in some cases accessed free of charge or at low-cost as part of the wider social welfare scheme system. The disappearance of state enterprises from 1980 to 2000 as a result of privatization made and some of the basic services were no longer available or were offered at a higher cost. Given that, majority of citizens had little or no income, so privatization and liberalization of the domestic economy which turned to inflationary had serious implications on peoples’ living standards as some basic goods and services were no longer affordable. Furthermore, during the reform years in Zambia trade barriers were relaxed and corporate taxes lowered to attract foreign direct investments in the country, but instead foreign business participation condensed sharply in the 1990s according to Muuka, (1997).It can be argued that all government initiatives of adopting such business friendly policies did not yield to the intended expectations. In the years of structural adjustments programs Zambia`s formal business sector declined whilst black market activities sprung across the country resulting in huge loss of taxable income. Poverty worsened in the 1980s and 1990s than the first decade of post-independence Zambia, the country built its own institutions without outside help.

Furthermore, there were incidences companies closing down or relocating outside Zambia and also capital flight was a major economic as investors sought to shield their assets against rising inflation. In addition to that, the cost of borrowing and loan repayments were increasingly becoming too costly for business and individuals. As the crisis and growing opposition from religious and trade union movements continue the Zambian government decided to temporarily abandon the neoliberal model and commenced its own program known as the New Economic Recovery Programme (NERP).In 1988 the country registered positive economic growth and slow down of inflation under the new program. According to UNDP data Zambia`s human development index declined since 1980 to 2000 and also growth rates plummeted during the same decades of adjustment (World Bank data). Given that advocates of neoclassical model like the IMF claim that poverty in developing countries is primarily an internal issue caused by state interference in markets. Neoliberal reforms failed to promote growth and to reduce poverty in Zambia, a number of empirical studies indicate the shortfall of neoclassical policies wherever it is adopted. For in the 1980s and 1990s Latin America adopted the neoclassical model and it failed empirical evidence by Pastor, (1987) found that programs in Latin America experienced high inflation, disappearing of the formal sector, capital flights and recurring economic crisis similar to the outcome of Zambian reforms. Also other studies suggest that neoclassical economics is unsuitable for developing especially those within the Sub-Saharan region Gore,(1992) noted that economic performance of  countries which adopted free-market policies had disappointing as growth rates. Furthermore, Mary, Sanders, and Bijlmakers, (1997), examined the impact of structural adjustment programs on health delivery in Zimbabwe during the late 1990s and the outcome was almost similar that of Zambia. For this reason, given that a number of countries were unsuccessful in reforming their economies signifying that  macroeconomic stabilization based on neoclassical are detrimental to a country`s welfare. Zambia is just one of the cases proving the negative impact of adopting neoliberal policies without effective measures in place to cushion the burden of reforms away from ordinary people.  

However, analyzing IMF`s sponsored neoliberal economic policies in Zambia needs to into consideration a number of factors such as corruption, lack of citizenry support and  poor governance. For example, Zambia did nit meet the minimum standards of a democratic state in the 1980s when it adopted the neoclassical model as its long-term economic strategy. President Kenneth Kaunda imposed one party State thereby suppressing potential debate on the future of governance and accountability in the country. Since neoclassical economics is based on free markets, the failure of reform might have been contributed by such oppressive regimes in the 1980s.Also corruption became a major issue in the 1990s under President Chiluba`s democratically elected government and it cost the Zambian economy to the extent that many foreign investors decided to relocate their businesses causing a lot of hardship to ordinary citizens. Furthermore, there was a huge emphasis on copper production and other important sectors such as agriculture were neglected. It can be argued that, Zambia`s social-economic indicators worsened in the inter-years of economic reform than any other period of the country`s history and there are a number of factors attributed to decline in living standards. Though neoliberal economic approach failed to promote sustainable economic development in Zambia we can not dismiss it altogether but transitional policy measures are needed to cushion away the burden of reforms from ordinary people. These measures may be in the form of adopting a transitional policy which combine socio-liberal model with an endogenous development focus, such policy framework are likely to succeed because almost every citizen will be involved in developing their country.

Policy recommendation and conclusion

The endogenous development strategies introduced by President Kaunda in the first years of independence were successful mainly because it had the support of the people. There is no evidence to suggest that neoclassical policies were successful in Zambia as all economic and social indicators such as growth per capita, living standard, healthcare and education plummeted, In light of this, neoclassical economic policies are likely to fail if measures are not in place to cushion away the cost away from ordinary people. Therefore, y policy reforms in Zambia might have been successful if they were accompanied by some kind of social-liberal strategies to moderate the effects of the economic transformations. Having said that, I have come to the conclusion that neoclassical failed to promote development in Zambia mainly because there was no visible citizen support of reforms.

Reference

Wood.A.P and Kean.S.A, (1992), Agricultural policy reform in Zambia: The dynamics of policy formulation in the Second Republic, Butterworth-Heinemann Ltd

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

Todaro,M.P, (2000), Theories of Development: A comparative Analysis, Economic development,7^th edn  pge 77-109, Addison-Wesley,UK.

Lambert.T.Short history of Zambia (online) http://www.localhistories.org/zambia.html accessed on 28/10/2012

Muuka,G.N (1997) ,Wrong-footing MNCs and Local Manufacturing: Zambia`s 1992-1994 Structural adjustments Program: International Business Review.6 (6),pge.667-687.Elsevier  Ltd.

Jung, H-S and Thorbecke,E (2003), The impact of public education expenditure on human capital, growth and poverty in Tanzania and Zambia:a general equilibrium approach: Journal of policy modeling  25(2003),page701-725, North-Holland.

Bose.N, Haque, M.E and Osborn.D.R, (2007), Public Expenditure and Economic Growth: A disaggregated Analysis for Developing Countries; The Manchester School 75(5), pge, 533-556, Blackwell publishing Ltd, UK.

Evrensel, A.Y and Kim, J.S (2006), Macroeconomic policies and participation in IMF programs: Economic Systems 30(2006), pge 264-281,E;sevier Ltd.

Pastor,M,JR,(1987), The Effects of IMF Programs in the Third World: Debate and Evidence from Latin America , World Development 15(2),pge 249-262,Pergamon Journals Ltd, UK.

Gore, C.G, (1992, International Order, Economic Regionalism and Structural Adjustments: The Case for Su-Sahara Africa, Centre for Development Studies, Pergamon Press, UK.

Mary, T.B, Sanders, D.M and Bijlmakers. L,(1997), Professionalism ,Patient satisfaction and quality of Health  care: Experience During Zimbabwe`s structural adjustments programme,Soc.Sci.Med.45,(12),pge 1845-1852,Pergamon,UK