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Theoretical and Practical Implications of I.M.F. Conditionality in Zambia

  • Neva Seidman Makgetla

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Zambia has faced an economic crisis since 1975. Living standards for most of the population have deteriorated sharply, with falling real wages and a drop in G.D.P. per capita by about a quarter. At the same time, the gap between the high- and low-income groups has probably widened.

Zambia's economic difficulties originated in international factors. In the two decades of independence, and unusually high degree of external dependency, inherited from the colonial era, continued to chatacterise the economy. Imported inputs accounted for at least one-third of all costs in mining and manufacturing, as may be seen from Table I. Meanwhile, the production of copper and relate minerals contributed a steady nine-tenths of export revenues. But in 1975, the terms of trade for copper plummeted by nearly 50 per cent, and merchandise imports promptly contracted by almost one-quarter, seriously affecting production. Since then the price of copper has stagnated.

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Page 396 note 1 Source: Bank, World, Zambia: Country Economic Memorandum–Issues and Options for Diversification (Washington, D.C., 16 04 1984), Tables 2.01, 3.06, 3.07, and 9.04.

Page 396 note 2 Mwananshiku, L. J., Minister for Finance, ‘Statement at the Official Opening of the Workshop on the Economic Problems Facing Zambia’, University of Zambia, Lusaka, 26 11 1985 – hereinafter referred to as University of Zambia Workshop.

Page 397 note 1 Kaunga, Ephraim, Zimco, University of Zambia Workshop, 27 November 1985.

Page 397 note 2 Standard Chartered Review (London), 10 1985, p. 9.The World Bank certainly endorsed currency auctioning for Zambia, as may be seen from Country Economic Memorandum, p. 26.

Page 398 note 1 Government of Zambia, , Restructuring in the Midst of Crisis (Lusaka, 1984).

Page 399 note 1 World Bank, Country Economic Memorandum, pp. 21–3 and 27.

Page 399 note 2 Tseng, Wanda, ‘The Effects of Adjustment’, in Finance and Development (Washington, D.C.), 12 1984.

Page 399 note 3 Karim Nashashibi, ‘Devaluation in the Developing Countries: the difficult choices’, in ibid. March 1983.

Page 401 note 1 I.e. arithmetically: not γ = C+I, but γ = Cn + In + CI + II + Κo, where n stands for necessities, l for luxuries, and Κo for capital outflow.

Page 402 note 1 Source: ibid. XXI, 4–5, April–May 1985, Table 53.

Page 402 note 2 Compare the figures given for consumption in Central Statistical Office, Monthly Digest of Statistics (Lusaka), for 12 1984 and 0405 1985.

Page 402 note 3 The results of this survey, which was carried out by a government agency, have not yet been published in full.

Page 402 note 4 Nominal wages from Monthly Digest of Statistics, April–May 1985, devalued using the low-income cost-of-living index. See also, Valentine, Theodore, ‘Income-Distribution Issues in a Structurally Dependent Economy: an analysis of growing income inequality in Zambia’, in I.D.R.C., The Zambian Economy: problems and prospects (Ottawa, 1985).

Page 402 note 5 See Memorandum of Agreement between the I.M.F. and the Government of Zambia, April 1984.

Page 402 note 6 Valentine, loc. cit.

Page 403 note 1 See Government of Zambia, Report of the Administrative Commission of Inquiry into the Salaries, Salary Structures and Conditions of Service of the Zambian Public and Teaching Services, the Local Government Service, the Judicial Service, the Zambian Police and Prisons Service (Lusaka, 1980), Vol. I.

Page 403 note 2 See Neva Makgetla, ‘Investment in the Third World: the Zambian experience’, in I.D.R.C., op. cit. p. 193.

Page 403 note 3 See ibid. for more details.

Page 403 note 4 The high cost of borrowing from the I.M.F. led one observer to comment that Zambia was borrowing from Peter to repay, not even Paul, but Peter himself. Seshamani, Venkatesh, University of Zambia Workshop, 26 November 1985.

Page 403 note 5 World Bank, Country Economic Memorandum.

Page 403 note 6 Ibid. p. 52.

Page 403 note 7 Calculated from Monthly Digest of Statistics, April–May 1985, Tables 53 and 57.

Page 403 note 8 Bank of Zambia, Annual Report (Lusaka, 1982).

Page 404 note 1 World Bank, Country Economic Memorandum, p. 52.

Page 405 note 1 United States Information Service, Impact (Washington, D.C.), 46, 1984, p. 13.

Page 406 note 1 Welfare economics offers arguments for accepting market allocations, despite high-income equalities. But where the majority live at the subsistence level while a few enjoy luxuries, these explanations become, at best, intellectual games.

Page 409 note 1 Hasan, Jyoti, ‘Agricultural Development and Pricing Policy’, M.A. thesis, University of Zambia, Lusaka, 1986.

Page 410 note 1 Source: World Bank, Country Economic Memorandum, Tables 2.12, 5.02, and 5.03.

Page 410 note 2 Interview with an official from the Anglo American Corporation in Zimbabwe, May 1981. Bank of Zambia, Report and Annual Statement of Accounts for the Period August 7, 1964, to December 31, 1965 (Lusaka, 1965), p. 8, estimated the annual loss of revenue to then Northern Rhodesia at £10 million a year.

Page 411 note 1 See Turner, Kaye, ‘Survey of Informal-Sector Enterprises’, Institute of African Studies, University of Zambia, Lusaka, 1985. The companies surveyed had capital of under K 500 each, and the majority had been unable to repay their loans.

Page 411 note 2 See, for example, the Mulungushi Declaration by President Kaunda, Kenneth; and Bank of Zambia, Ten Years of Banking in Zambia (Lusaka, 1975).

Page 411 note 3 See Seidman, Ann, ‘The Distorted Growth of Import-Substitution Manufacturing: the Zambian case’, in Ben, Turok (ed.), Development in Zambia (London, 1979);Turok, Ben, ‘Control in the Parastatal Sector of Zambia’, in The Journal of Modern African Studies (Cambridge), 19, 3, 09 1981, pp. 421–45; and Bhagavan, M. R., Zambia: impert of industrial strategy on regional imbalance and social inequality (Uppsala, 1979).

Page 412 note 1 World Bank, Zambia: industrial policy and performance (Washington, D. C., 12 04 1984), p. 55.See Seidman, loc. cit. for a fuller discussion of alternative strategies.

Page 412 note 2 For instance, Zambia Germics opened in the mid-1930s; by value, it imported the most important machinery and about one-third of variable inputs. Apparently, the reasons for not using local supplies, or for estalishing more decetralised enterprises, included the fear of reduced quality and the difficulties of organising small-scale workshops. The firm's products, particularly the tableware, were far too expensive for the average Zambian. See Mbikusita-Lewanika, Akashambatwa, ‘Manufacturing Localisation and Development: Zambia Ceramics, problems and prospects’, Workshop on ‘How to Increase the Share of Local Inputs for the Manufacturing Industry in Zambia’, Mulungushi Hall, Lusaka, 4706 1985.

Page 412 note 3 Thus, Zambia Ceramics was financed in part by a foreign-exchange loan from the state-owned Development Bank of Zambia, which had borrowed the funds from African Development Bank. Because of devaluation, the cost of the borrowed funds increased rapidly, adding greatly to the expenses of production and prices. The company borrowed foreign exchange worth less than K 4 million in the early 1980s; by early 1985, to repay the debt, it had to accumulate K 8 million; ibid. Six weeks after auctioning, its dept tripled in Kwacha terms to around K 24 million.

Page 412 note 4 See Makgetla, Neva, ‘A Survey of Financial Institutions in Zambia’, in I.D.R.C., op. cit.

Page 413 note 1 Source: World Bank, Country Economic Memorandum.

Page 413 note 2 See World Bank, Zambia, p. v; Turok, loc. cit.; and Restructuring in the Midst of Crisis.

Page 413 note 3 See Makgetla, ‘Investment in the Third World’.

Page 414 note 1 Mbulo, Geoffrey, member of the Bank of Zambia Foreign Exchange Committee, University of Zambia Workshop, 27 November 1985.

Page 414 note 2 Corden, W. Max, ‘Protektion, Wechselkurs und makroökonomische Politik’, in Finanzierung und Entwicklung, 2, 22, 06 1985, my translation.

Page 414 note 3 According to the statement made by Chibwe, E. C., Chairman of the Zambia Federation of Employers, University of Zambia Workshop, 1985, p. 4.

Page 415 note 1 Michael Mwape, General Manager of the Bank of Zambia, ibid.

Page 415 note 2 Wisner, Frank, U. S. State Department, quoted in Standard Chartered Review (London), 08 1985, p. 8.

Page 415 note 3 For instance, at a low estimate, half the output of manufacturing industry may be considered to be ‘luxuries’ in terms of the consumption pattern of most Zambians. Thus, even assuming that these are not more import-dependent than other goods – which is dubious – one-quarter of all imported inputs or one-tenth of all imports, are used for making such luxuries, while others are directly imported.

Page 416 note 1 Kaunga, op. cit. p. 14.

Page 416 note 2 Chivunu, Bernard, Chairman of the Prices and Incomes Commission, University of Zambia Workshop, 26 November 1985.

Page 416 note 3 Nashabishi, loc. cit.

Page 416 note 4 Ibid.

Page 417 note 1 Mwape and Mbulo, op. cit.

Page 417 note 2 A point made by Mwanza, Jacob, Vice-Chancellor, University of Zambia Workshop, 27 November 1985.

Page 417 note 3 See Macheleta, M. D. and Tembo, P. L., ‘Central Banking and Credit Control in Zambia’, University of Zambia, Lusaka, 1985.

Page 417 note 4 Chibwe, op. cit.

Page 417 note 5 Nkhoma, Francis, Chairman of Barclays Bank (Zambia), University of Zambia Workshop, 27 November 1985.

Page 417 note 6 Zambia Daily Mail (Lusaka), 6 12 1985.

Page 418 note 1 Nkhoma, op. cit.

Page 418 note 2 Ibid.

Page 418 note 3 Ibid.

Page 418 note 4 World Bank, Zambia, p. 2.

Page 418 note 5 See ibid. which, despite acknoweledgement of objective obstacles to exports, discusses only policy hindrances; and World Bank, Country Economic Memorandum, which endorses devalution to promote exports.

Page 419 note 1 The Bank of Zambia data probably understate the share of auctioned foreign exchange used for luxury imports. They derive from the declarations by purchasers about the proposed use of foreign exchange bought at auctions. Apparently, the Bank did not conduct follow-up surveys to check the accuracy of such statements; indeed, no legal instrument existed to compel bidders to use the currency as originally proposed. In addition, the classification of imports was apparently left to the applicants. In November 1985, for instance, Zambia Airways, spent almost K 2 million to import personal cars for executives – presumably such purchases could be classed as productive inputs, since they were not imported for private sale.

Page 419 note 2 For instance, a refrigerator selling for £100 in London might cost K 2,500 in Lusaka; a bottle of whisky sold for $5.50 in the duty-free shop cost K 65 in ordinary stores; some supermarkets sold small chocolate bars for K 6 each.

Page 419 note 3 Mwape, op. cit.

Page 420 note 1 Ng'andwe, Chiselebe, University of Zambia Workshop, 26 November 1985.

Page 420 note 2 Rupiah Banda, ibid.

Page 420 note 3 Chibwe, op. cit. pp. 1 and 5.

Page 420 note 4 Kaunga, op. cit. p. 11.

* Lecturer in Business and Economic Studies, University of Zambia, Lusaka.

Theoretical and Practical Implications of I.M.F. Conditionality in Zambia

  • Neva Seidman Makgetla

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