In the early 1990s,at the time Zambia’s second President, Dr Fredrick J T Chiluba moved the Zambian economy from the humanism/socialist ideologies it had been anchored on for much of Zambia’s then existence, for many of us, the excitement associated with this change to a capitalist based economy was not borne out of real understanding of what capitalism really was. We were excited at our new found freedom to change things.
Without suggesting that this change was wrong, I hasten to mention that if nothing ever stands out as the greatest achievement of Dr Chiluba’ s presidency, perhaps I may persuade you to acknowledge this fact as such.
This change, as with most changes, came with it a great deal of challenges for the everyday citizen. Zambians had become accustomed to expecting the government to provide for pretty much every one of their basic needs. The government subsidized everything and owned all major industries that in turn provided jobs to an uneconomical number of people thereby providing the basis for a countrywide hemorrhage of economic value.
With the reserves from the export of Copper, the government was under the illusion that this could be indefinitely sustained. This was, as expected from an economic point of view, not the case and as the 1980s ushered in the 1990s, the patience of the people had ran out; the government was perceived to be out of its depth and did not seem to know how bring the economy off of its knees.
Different versions of what led to the changes of the early 1990s are told by different sides of the divide, the one thing all agree on is that the change did take place. With government depleted of all its reserves, drastic measures that would align with the new ideology of capitalism had to be taken and at the heart of all this was privatization of state owned enterprises.
It is important to restate and put into perspective the fact that prior to the 1990s, the majority of all business enterprises where owned and ran by the government. This reality denied the Zambians a chance to develop and grow their entrepreneurial and general market based economic skills as all graduates left University to do a set job without thinking beyond just that.
This meant that as the liberalization of the economy was taking root, many citizens struggled to remain afloat, as in a capitalist set-up, the market forces reigned as opposed to government directive. Some companies accustomed to getting government favors could not survive, prices of goods responded to the imbalances in the economy and some went up, privatized companies let go of many employees so as to only maintain an economic level of human resource.
The job losses, price increases, removal of government subsidies etc. left citizens wondering whether this change from socialist set up to the capitalist one was indeed a well thought out path to economic freedom. These were trying times that had been ushered in. But something interesting started to happen, the resilience of a citizen and desire to survive could not be overcome. Small, but economically balanced enterprises, responding to the gaps in the economy, started to emerge, starting off as a “Kanthemba” and growing to formidable players on the market. The remarkable story of Zambeef, which grew from a small enterprise to a multinational and multi-sector business employing thousands of people springs up as an example.
An argument can be made that, the ten (10) year reign of president Dr Chiluba provided the foundation for the current resilience and growth of the Zambian economy. These years gave birth to a new Zambian business sub-culture that had completely let go of the expectation that the government will take care of them, this culture, for lack of a better word, was and still remains, a “hustling culture”. It took in the concept of “cause and effect” whilst also appreciating the risks that came with each business adventure. Instead of expecting government mealie meal coupons, the citizens realized that they had to grow enough food, with growing enough food, it also dawned that if they produced more, the excess can be sold off at market determined prices to raise extra disposable income for the household.
In one of her writings, the Swiss-American Psychologist, Elizabeth Kuebler-Ross hypothesized a ground breaking approach at looking at change in what has come to be known as the Kuebler-Ross Change curve. This author will attempt to align the changes that the Zambian economy went through to some of the stages in the ground breaking model of change.
Image/Illustration from http://www.happymelly.com/
Stage 1: Shock-Government Change in the early 1990s and Introduction of capitalism
This stage does not last very long and is usually a honeymoon stage. Indeed this was a time when the Movement for Multi-Party Democracy (MMD) had just swept aside the United National Independence Party (UNIP) to take the reigns of government. Whilst all economic systems where more or less in a stale-mate, the citizens were in a party mood celebrating the change in a honeymoon kind of mood.
Stage 2: Denial-Newly Introduced capitalism takes route in MMD’s year 1
With socialism thrown out the window, reality of capitalism started to sink in, the coupons and subsidies some had become accustomed to, started to disappear, the free flights to Paris on the national airline equally disappeared. Refusing to align with reality, most simply believed this to be a minor hiccup and these benefits would eventually return. These unfortunately would never return, an automatic psychological feedback mechanism in the form of denial had just set in.Citizens did not want to believe what was unfolding. This stage provided a very poor basis for economic growth.
Stage 3: Frustration-Old ways were not working, Government brought in new Partners e.g. IMF and World Bank with its structural adjustment programs
The easy going approach of the old era, unfortunately stopped bringing the same results. Zambians had to re-examine their value. At a government level, the government knew they could not sustain the old approaches and needed drastic measures to align the economy to realistic market forces. This gave birth to privatization, job losses, price increases etc. Those that had been in denial, waiting for the situation to return to the old position of subsidized milk and honey, despite putting in their best effort could only find themselves frustrated, with others even losing their jobs
Stage 4: Depression-Structural Adjustment Programs (SAP)
The privatization of state-owned enterprises forced new owners to immediately align the enterprises to economic reality and this reality meant thousands of Zambians lost their jobs and with this loss, they also lost their housing benefits. “Retrenchment” became a new bad word in the country. Thrown out of the houses they had occupied for the best part of their lives, many had to make the trek back to their traditional villages from whence they came. Feeling unable to deal with this new reality, many descended into severe cases of depression, feeling powerless and weak. Some were reported to have even passed on due to the depression this came with.
Stage 5: Experiment-Kanthemba hustling sub-culture
Survival is a great motivator, despite losing their jobs, many used their retrenchment packages to experiment with different forms of entrepreneurship with a view to finding a sustainable source of income with which to raise their families. The main city streets of Lusaka were filled with street vendors selling all kinds of item and giving birth to what is popularly known as “Kanthemba”.The gap left by the closure of loss making government trading enterprises like the famous “ZCBC” and “Mwaiseni stores” was exploited by these new and upcoming small businesses. This gap, like many others in other sectors of the economy not only encouraged entrepreneurship ,but also invited other multinationals from outside the country to venture into this newly liberalized economy and set up shop, ofcourse,this in turn created new jobs.e.g Shoprite Checkers, new mine owners etc. The stage had now been set for economic growth.
Stage 5: Decision-Usher in Levy Patrick Mwanawasa, 3rd President of Zambia.
The Mwanawasa era was a time when Zambians had appreciated what capitalism was about and could not be easily duped by mere rhetoric. This period required proper strategic planning and decision making to ensure the foundation created was used as a spring board for further economic growth. Zambians could articulate the meaning of many decisions and could even challenge their leaders. The economy is market forces driven hence could join the rest of the global economy.
The 5 stages highlighted above provide an insight as to the source of the resilience of the Zambian economy. Despite the turbulence of the year 2014, the economy still grew by 6% owing to strong performances in agricultural, manufacturing, construction and financial sectors (Africa in Focus, NKC, 08 January 2015).This was however still 0.6 percentage points below the target thereby justify the anxiety the economy is having as Zambians head to the polls to elect a 6th President on the 20th of January 2015.
BEYOND THE ELECTIONS
A daring stability and growth 2015 budget was announced by the Minister of Finance. Some bold pronouncements were made in the budget. If fully implemented, Zambians should expect an economically sound 2015.However, budgets are a guide and for the most part are hardly ever implemented in the exact way they are constituted. Before close of 2014, already the need for an adjustment that will mean a detour from the budget had to be recognized so as to provide funding for the unbudgeted for Presidential by-elections
THREATS ON 2015 ECONOMY AND BUDGET PERFORMANCE
· WAGE FREEZE
The budget is premised on the continuation of the wage freeze in the year 2015.This was necessitated by governments desire to avoid escalation of government spending which would have negative impact on planned economic growth targets. However, there has been significant outcry from the unions to have this decision revisited. Indeed, some opposition leaders have even echoed their willingness to reverse the wage freeze should they be elected to the presidency. This therefore remains a point of concern for investors as Zambia’s commitments to certain economic targets and benchmarks remains to be affirmed.
· VALUE ADDED TAX RULE 18
The administration of rule number 18 of Value Added Tax that has seen millions of United States dollars in refunds to mining companies withheld by the Zambia Revenue Authority (ZRA) has taken up a lot of media airplay. Government has argued that the mining companies are guilty of not providing sufficient documentation to support the verification of the selling prices of their produce hence this limitation in scope, among others is the reason for the withholding of the funds. In response, the mining companies have threatened to freeze capital investment activities until this impasse is resolved. The freezing of investments would in turn lead to a fall in production hence making it impossible for production targets in the budget and relative tax revenue targets being missed. This therefore presents a significant threat to the implementation of the budget.
· NEW MINING TAX REGIME
The 2015 budget also goes on to propose a new approach to the taxing of mining companies. This approach is based on mineral royalty i.e. based on production rather than sales. As argued by the Chamber of Mines, this approach has the effect of taxing the mining companies regardless of whether they have sold their produce or still have it in stock. It has hence been described as a threat on liquidity to the extent that one of the major mining companies has threatened to halt operations. If realized, these threats will impact economic confidence and lead to a drop in production. Both situations would harm the implementation of the budget or the realization of set economic targets.
· CREDIT RATING
Standard and Poor’s, and Fitch Credit rating agencies affirmed Zambia’s rating as being B+ whilst placing some reliance on the 2015 national budget. The IMF alluded to the same but went on to highlight the danger posed by high government spending as a possible deviation that can throw Zambia off its growth targets. The commitment therefore in the budget to limit government expenditure was well received in supporting Zambia’s credit rating. Concerns however remain arising from the political talk surrounding the lifting of the wage freeze. A drop in the credit rating may lead to higher costs of funds which would not be a welcome turn of events at a time of high infrastructure expenditure by the government.
2015 promises to be an interesting year, from both the political and economic fronts, somehow, it’s hard not to marry the economic performance to what the politics will dictate.
Acknowledgements
3. http://www.change-management-coach.com/kubler-ross.html
4. Various Kuebler Ross Curve online writings
5. Africa in focus, Weekly Update,08 January 2015,NKC Independent Economists
7. 2015 Budget, Overview of Tax Changes(2015 NATIONAL BUDGET HIGHLIGHTS),www.zra.org.zm
