Economy of Zambia - AbsoluteAstronomy.com

Zambia , officially the Republic of Zambia, is a landlocked country in Southern Africa. The neighbouring countries are the Democratic Republic of the Congo to the north, Tanzania to the north-east, Malawi to the east, Mozambique, Zimbabwe, Botswana and Namibia to the south, and Angola to the west....

is one of Sub-Saharan Africa

Sub-Saharan Africa

Sub-Saharan Africa as a geographical term refers to the area of the African continent which lies south of the Sahara. A political definition of Sub-Saharan Africa, instead, covers all African countries which are fully or partially located south of the Sahara...

's most highly urbanized

Urbanization

Urbanization, urbanisation or urban drift is the physical growth of urban areas as a result of global change. The United Nations projected that half of the world's population would live in urban areas at the end of 2008....

countries. About one-half of the country's 11.5 million people are concentrated in a few urban zones strung along the major transportation corridors, while rural areas are under-populated. Unemployment

Unemployment

Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

and underemployment

Underemployment

Underemployment refers to an employment situation that is insufficient in some important way for the worker, relative to a standard. Examples include holding a part-time job despite desiring full-time work, and overqualification, where the employee has education, experience, or skills beyond the...

are serious problems. National GDP has actually doubled since independence, but due in large part to high birth rates and AIDS per capita annual incomes are currently at about two-thirds of their levels at independence. This low GDP per capita, which stands at $1400, places the country among the world's poorest nations. Social indicators continue to decline, particularly in measurements of life expectancy

Life expectancy

Life expectancy is the expected number of years of life remaining at a given age. It is denoted by ex, which means the average number of subsequent years of life for someone now aged x, according to a particular mortality experience...

at birth

Childbirth

Childbirth is the culmination of a human pregnancy or gestation period with the birth of one or more newborn infants from a woman's uterus...

(about 50 years) and maternal and infant mortality (85 per 1,000 live births). The high population growth rate of 2.3% per annum makes it difficult for per capita income to increase. The country's rate of economic growth

Economic growth

In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

cannot support rapid population growth or the strain which HIV

HIV

Human immunodeficiency virus is a lentivirus that causes acquired immunodeficiency syndrome , a condition in humans in which progressive failure of the immune system allows life-threatening opportunistic infections and cancers to thrive...

/AIDS

AIDS

Acquired immune deficiency syndrome or acquired immunodeficiency syndrome is a disease of the human immune system caused by the human immunodeficiency virus...

-related issues (i.e., rising medical costs, street children

Street children

A street child is a child who lives on the streets of a city, deprived of family care and protection. Most children on the streets are between the ages of about 5 and 17 years old.Street children live in junk boxes, parks or on the street itself...

, and decline in worker productivity) places on government resources.

For the first time since 1989 Zambia's economic growth reached the 6%-7% mark(in 2007) needed to reduce poverty significantly. Copper output has increased steadily since 2004, due to higher copper prices and the opening of new mines. The maize harvest was again good in 2005, helping boost GDP and agricultural exports. Cooperation continues with international bodies on programs to reduce poverty, including a new lending arrangement with the IMF in the second quarter of 2004. A tighter monetary policy will help cut inflation, but Zambia still has a serious problem with high public debt.

Zambia was ranked the 127th safest investment destination in the world in the March 2011 Euromoney Country Risk rankings.

Economic policies soon after independence

At independence in 1964, Zambia's economy grew the British South Africa Company

British South Africa Company

The British South Africa Company was established by Cecil Rhodes through the amalgamation of the Central Search Association and the Exploring Company Ltd., receiving a royal charter in 1889...

(BSAC, originally setup by the British imperialist Cecil Rhodes) retained commercial assets and mineral rights that it acquired from a concession signed with the Litunga of Barotseland in 1892 (the Lochner Concession). Only by threatening to expropriate the BSAC, on the eve of independence, did the incoming Zambian government manage to get the BSAC to relinquish the mineral rights. The Federation's government assigned roles to each of the three territories: Southern Rhodesia was assigned the responsibility of providing managerial and administrative skills; Northern Rhodesia provided copper revenues; and Nyasaland provided the Black labour.

After independence, Zambia followed in the steps of the Soviet Union

Soviet Union

The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....

by instituting a program of national development plans, under the direction of a National Commission for Development Planning: the Transitional Development Plan (1964–66) was followed by the First National Development Plan (1966–71). These two plans, which provided for major investment in infrastructure and manufacturing, were largely implemented and were generally successful. This was not true for subsequent plans

The Mulungushi Economic Reforms (1968)

A major switch in the structure of Zambia's economy came with the Mulungushi Reforms of April 1968: the government declared its intention to acquire equity holdings (usually 51% or more) in a number of key foreign-owned firms, to be controlled by a parastatal conglomerate named the Industrial Development Corporation (INDECO). By January 1970, Zambia had acquired majority holding in the Zambian operations of the two major foreign mining corporations, the Anglo American Corporation and the Rhodesia Selection Trust (RST); the two became the Nchanga Consolidated Copper Mines (NCCM) and Roan Consolidated Mines (RCM), respectively. The Zambian government then created a new parastatal body, the Mining Development Corporation (MINDECO). The Finance and Development Corporation (FINDECO) allowed the Zambian government to gain control of insurance companies and building societies. However, foreign-owned banks (such as Barclays, Standard Chartered and Grindlays) successfully resisted takeover. In 1971, INDECO, MINDECO, and FINDECO were brought together under an omnibus parastatal, the Zambia Industrial and Mining Corporation (ZIMCO), to create one of the largest companies in sub-Saharan Africa, with the country's president, Kenneth Kaunda

Kenneth Kaunda

Kenneth David Kaunda, known as KK, served as the first President of Zambia, from 1964 to 1991.-Early life:Kaunda was the youngest of eight children. He was born at Lubwa Mission in Chinsali, Northern Province of Northern Rhodesia, now Zambia...

as Chairman of the Board. The management contracts under which day-to-day operations of the mines had been carried out by Anglo American and RST were ended in 1973. In 1982 NCCM and RCM were merged into the giant Zambia Consolidated Copper Mines Ltd (ZCCM).

Unfortunately for Kaunda and Zambia, the programs of nationalization

Nationalization

Nationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...

were ill-timed. Events that were beyond their control soon wrecked the country's well-laid plans for economic and national development. In 1973 a massive increase in the price of oil was followed by a slump in copper prices in 1975, resulting in a diminution of export earnings. In 1973 the price of copper accounted for 95% of all export earnings; this halved in value on the world market in 1975. By 1976 Zambia had a balance-of-payments crisis, and rapidly became massively indebted to the International Monetary Fund (IMF). The Third National Development Plan (1978–83) had to be abandoned as crisis management replaced long-term planning.

By the mid-1980s Zambia was one of the most indebted nations in the world, relative to its gross domestic product (GDP). The IMF was insisting that the Zambian government should introduce programs aimed at stabilizing the economy and restructuring it to reduce dependence on copper. The proposed measures included: the ending of price controls; devaluation of the kwacha (Zambia's currency); cut-backs in government expenditure; cancellation of subsidies on food and fertilizer; and increased prices for farm produce. Kaunda's removal of food subsidies caused massive increases in the prices of basic foodstuffs; the country's urbanized population rioted in protest. In desperation, Kaunda broke with the IMF in May 1987 and introduced a New Economic Recovery Programme in 1988. However, this did not help him and he eventually moved toward a new understanding with the IMF in 1989. In 1990, with the collapse of communism in the Soviet Union and Eastern Europe (on which Kaunda's philosophy of Zambian Humanism had been fashioned), Kaunda was forced to make a major policy volteface: he announced the intention to partially privatize the parastatals. Time, however, was running out for him. As Mikhail Gorbachev

Mikhail Gorbachev

Mikhail Sergeyevich Gorbachev is a former Soviet statesman, having served as General Secretary of the Communist Party of the Soviet Union from 1985 until 1991, and as the last head of state of the USSR, having served from 1988 until its dissolution in 1991...

announced perestroika

Perestroika

Perestroika was a political movement within the Communist Party of the Soviet Union during 1980s, widely associated with the Soviet leader Mikhail Gorbachev...

and glasnost

Glasnost

Glasnost was the policy of maximal publicity, openness, and transparency in the activities of all government institutions in the Soviet Union, together with freedom of information, introduced by Mikhail Gorbachev in the second half of the 1980s...

, small-time dictators who had copied Joseph Stalin

Joseph Stalin

Joseph Vissarionovich Stalin was the Premier of the Soviet Union from 6 May 1941 to 5 March 1953. He was among the Bolshevik revolutionaries who brought about the October Revolution and had held the position of first General Secretary of the Communist Party of the Soviet Union's Central Committee...

's policies had no choice but to realise that their days were numbered. This included Kaunda. Kaunda called multiparty elections in 1991, and lost them to the Movement for Multiparty Democracy (MMD). Kaunda left office with the inauguration of MMD leader Frederick Chiluba as president on 2 November 1991.

Chiluba's economic reforms

The Frederick Chiluba

Frederick Chiluba

Frederick Jacob Titus Chiluba was a Zambian politician who was the second President of Zambia from 1991 to 2002. Chiluba, a trade union leader, won the country's multi-party presidential election in 1991 as the candidate of the Movement for Multiparty Democracy , defeating long-time President...

government (1991–2001), which came to power after democratic multi-party

Political party

A political party is a political organization that typically seeks to influence government policy, usually by nominating their own candidates and trying to seat them in political office. Parties participate in electoral campaigns, educational outreach or protest actions...

elections in November 1991, was committed to extensive economic reform. The government privatised

Privatization

Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...

many state industries, and maintained positive real interest rates. Exchange controls were eliminated and free market

Free market

A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...

principles endorsed. It remains to be seen whether the Mwanawasa

Levy Mwanawasa

Levy Patrick Mwanawasa was the third President of Zambia. He ruled the country from January 2002 until his death in August 2008. He is credited for having initiated a campaign to rid the country of corruption...

government will follow a similar path of implementing economic reform and undertaking further privatization. Zambia has yet to address issues such as reducing the size of the public sector

Public sector

The public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...

, which still represents 44% of total formal employment, and improving Zambia's social sector

Social sector

Social sector is one of several terms created as alternatives to nonprofit sector and nongovernmental sector. The latter are seen as putting an emphasis on what this sector is not, rather than calling attention to its focus on a social mission..Other terms that have been proposed are voluntary...

delivery systems.

After the government privatized the giant parastatal mining

Mining

Mining is the extraction of valuable minerals or other geological materials from the earth, from an ore body, vein or seam. The term also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock...

company Zambian Consolidated Copper Mines (ZCCM), donors resumed balance-of-payment support. The final transfer of ZCCM's assets occurred on March 31, 2000. Although balance-of-payment payments are not the answer to Zambia's long-term debt problems, it will in the short term provide the government some breathing room to implement further economic reforms. The government has, however, spent much of its foreign exchange

Foreign exchange market

The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...

reserves to intervene in the exchange rate

Exchange rate

In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...

mechanism. To continue to do so, however, would jeopardize Zambia's debt relief. Zambia qualified for HIPC

HIPC

HIPC may refer to:*International Conference on High Performance Computing*Heavily Indebted Poor Countries...

debt relief in 2000, contingent upon the country meeting certain performance criteria, and this should offer a long-term solution to Zambia's debt situation. In January 2003, the Zambian Government informed the International Monetary Fund

International Monetary Fund

The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

and World Bank

World Bank

The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...

that it wished to renegotiate some of the agreed performance criteria calling for privatization of the Zambia National Commercial Bank and the national telephone and electricity utilities.

Copper

The Zambian economy has historically been based on the copper-mining industry. The discovery of copper is owed partly to Frederick Russell Burnham

Frederick Russell Burnham

Frederick Russell Burnham, DSO was an American scout and world traveling adventurer known for his service to the British Army in colonial Africa and for teaching woodcraft to Robert Baden-Powell, thus becoming one of the inspirations for the founding of the international Scouting Movement.Burnham...

, the famous American scout who worked for Cecil Rhodes. By 1998, however, output of copper had fallen to a low of 228,000 tonne

Tonne

The tonne, known as the metric ton in the US , often put pleonastically as "metric tonne" to avoid confusion with ton, is a metric system unit of mass equal to 1000 kilograms. The tonne is not an International System of Units unit, but is accepted for use with the SI...

s, continuing a 30-year decline in output due to lack of investment, and until recently, low copper prices and uncertainty over privatization. In 2001, the first full year of a privatized industry, Zambia recorded its first year of increased productivity since 1973. The future of the copper industry in Zambia was thrown into doubt in January 2002, when investors in Zambia's largest copper mine announced their intention to withdraw their investment. However, surging copper prices from 2004 to the present day rapidly rekindled international interest in Zambia's copper sector with a new buyer found for KCCM and massive investments in expanding capacity launched. China has become a major investor in the Zambian copper industry, and in February 2007, the two countries announced the creation of a Chinese-Zambian economic partnership zone around the Chambishi copper mine.

Today copper mining is central to the economic prospects for Zambia, but concerns remain that the economy is not diversified enough to cope with a collapse in international copper prices.

Inflation

Lack of balance-of-payment

Balance of payments

Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers...

support meant the Zambian government did not have resources for capital investment and periodically had to issue bonds

Bond (finance)

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

or otherwise expand the money supply to try to meet its spending and debt obligations. The government continued these activities even after balance-of-payment support resumed. This has kept interest rates at levels that are too high for local business, fuelled inflation

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

, burdened the budget with domestic debt payments, while still falling short of meeting the public payroll and other needs, such as infrastructure

Infrastructure

Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...

rehabilitation. The government was forced to draw down foreign exchange reserves

Foreign exchange reserves

Foreign-exchange reserves in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions...

sharply in 1998 to meet foreign debt obligations, putting further pressure on the kwacha

Zambian kwacha

The kwacha is the currency of Zambia. It is subdivided into 100 ngwee.-Etymology:The name derives from the Nyanja and Bemba word for "dawn", alluding to the Zambian nationalist slogan of a "new dawn of freedom"...

and inflation. Inflation held at 32% in 2000; consequently, the kwacha lost the same value against the dollar

Dollar

The dollar is the name of the official currency of many countries, including Australia, Belize, Canada, Ecuador, El Salvador, Hong Kong, New Zealand, Singapore, Taiwan, and the United States.-Etymology:...

over the same period. In mid- to late 2001, Zambia's fiscal management became more conservative. As a result, 2001 year-end inflation was below 20%, its best result in decades. In 2002 inflation rose to 26.7%. However in 2007 inflation hit 8%, the first time in 30 years that Zambia had seen single digit inflation.

On January 27, 2011, it was reported by the Central Statistical Office that inflation rose to 9%.

Agriculture

The agriculture

Agriculture

Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...

sector represented 20% GDP

Gross domestic product

Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

in 2000. Agriculture accounted for 85% of total employment

Employment

Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...

(formal and informal) for 2000. Maize

Maize

Maize known in many English-speaking countries as corn or mielie/mealie, is a grain domesticated by indigenous peoples in Mesoamerica in prehistoric times. The leafy stalk produces ears which contain seeds called kernels. Though technically a grain, maize kernels are used in cooking as a vegetable...

(corn) is the principal cash crop

Cash crop

In agriculture, a cash crop is a crop which is grown for profit.The term is used to differentiate from subsistence crops, which are those fed to the producer's own livestock or grown as food for the producer's family...

as well as the staple food

Staple food

A staple food is one that is eaten regularly and in such quantities that it constitutes a dominant portion of a diet, and that supplies a high proportion of energy and nutrient needs. Most people live on a diet based on one or more staples...

. Other important crops include soybean

Soybean

The soybean or soya bean is a species of legume native to East Asia, widely grown for its edible bean which has numerous uses...

, cotton

Cotton

Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....

, sugar

Sugar

Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...

, sunflower

Sunflower

Sunflower is an annual plant native to the Americas. It possesses a large inflorescence . The sunflower got its name from its huge, fiery blooms, whose shape and image is often used to depict the sun. The sunflower has a rough, hairy stem, broad, coarsely toothed, rough leaves and circular heads...

seeds, wheat

Wheat

Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...

, sorghum

Sorghum

Sorghum is a genus of numerous species of grasses, one of which is raised for grain and many of which are used as fodder plants either cultivated or as part of pasture. The plants are cultivated in warmer climates worldwide. Species are native to tropical and subtropical regions of all continents...

, pearl millet

Pearl millet

Pearl millet is the most widely grown type of millet. Grown in Africa and the Indian subcontinent since prehistoric times, it is generally accepted that pearl millet originated in Africa and was subsequently introduced into India. The center of diversity, and suggested area of domestication, for...

, cassava

Cassava

Cassava , also called yuca or manioc, a woody shrub of the Euphorbiaceae native to South America, is extensively cultivated as an annual crop in tropical and subtropical regions for its edible starchy tuberous root, a major source of carbohydrates...

, tobacco

Tobacco

Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...

and various vegetable

Vegetable

The noun vegetable usually means an edible plant or part of a plant other than a sweet fruit or seed. This typically means the leaf, stem, or root of a plant....

and fruit

Fruit

In broad terms, a fruit is a structure of a plant that contains its seeds.The term has different meanings dependent on context. In non-technical usage, such as food preparation, fruit normally means the fleshy seed-associated structures of certain plants that are sweet and edible in the raw state,...

crops. Floriculture

Floriculture

Floriculture, or flower farming, is a discipline of horticulture concerned with the cultivation of flowering and ornamental plants for gardens and for floristry, comprising the floral industry...

is a growth sector, and agricultural non-traditional exports now rival the mining industry in foreign exchange receipts. Zambia has the potential for significantly increasing its agricultural output; currently, less than 20% of its arable land

Arable land

In geography and agriculture, arable land is land that can be used for growing crops. It includes all land under temporary crops , temporary meadows for mowing or pasture, land under market and kitchen gardens and land temporarily fallow...

is cultivated. In the past, the agriculture sector suffered from low producer prices, difficulties in availability and distribution of credit and inputs, and the shortage of foreign exchange.

Growth

There are, however, positive macroeconomic signs, rooted in reforms implemented in the early and mid-1990s. Zambia's floating exchange rate and open capital market

Capital market

A capital market is a market for securities , where business enterprises and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets...

s have provided useful discipline on the government, while at the same time allowing continued diversification of Zambia's export sector, growth in the tourist industry, and procurement of inputs for growing businesses. Some parts of the Copper Belt

Copper Belt

The Copper Belt or Copperbelt is the copper mining area of Central Africa which runs in Zambia and Democratic Republic of Congo . This area gave name to the Copperbelt Province, around the towns of Ndola, Kitwe, Chingola, Luanshya and Mufulira...

have experienced a significant revival as spin-off effects from the massive capital reinvestment are experienced.

Salaula (second-hand clothing imported from the West)

Standard economic theory and empirical data indicates that second-hand clothing import can have positive effects in a country like Zambia (one of the least developed countries in the world). The salaula
Salaula
The Chibemba term salaula means "to select from a pile in the manner of rummaging" or for short, 'to pick'. Some African nations such as Zambia have a vast internal consumer demand for second hand clothes or hand me downs from rich nations in North America and Europe...

market reduces the proportion of income that a family has to spend on clothing. It also helps to keep employments like repairs and alterations in business and forces tailors to proceed into more specialize production of styled garments.

There is a downside to such imports, however; the massive importation of used clothing from the developed world has resulted in a near-total collapse of the Zambian indigenous textile industry. In the face of cheap used clothing, tailors' specialized production may be irrelevant - customers will buy the least expensive clothing available, irrespective of style. Those who might otherwise work at textile mills or clothing factories are left jobless, or else make significantly less money in the salaula resale business.

External links

Zambia latest trade data on ITC Trade Map
Barbara Gunnell, New Statesman
New Statesman
New Statesman is a British centre-left political and cultural magazine published weekly in London. Founded in 1913, and connected with leading members of the Fabian Society, the magazine reached a circulation peak in the late 1960s....

, May 24, 2004, "A conspiracy of the rich"
CIA World Factbook Zambia
MBendi Zambia overview
UNDP in Zambia official site of the United Nations Development Programme in Zambia
World Development Movement (2004), "Zambia: Condemned to debt"

The source of this article is wikipedia, the free encyclopedia. The text of this article is licensed under the GFDL.

Economic policies soon after independence

The Mulungushi Economic Reforms (1968)

Chiluba's economic reforms

Copper

Inflation

Agriculture

Growth

Salaula (second-hand clothing imported from the West)

See also

External links