The score so far: Democracy 2, Economic Recovery 1

Readers should be aware that just as this Country Report went to press the President of Zambia declared a state of emergency amid reports of a plot by the opposition to overthrow his government. In a broadcast, the President said that democracy in Zambia had been poisoned and political stability was threatened. Several people were arrested, but freedom of expression and association remained guaranteed.

To begin with a little geography, Zambia is a landlocked country in southern central Africa. The predominant landscape is one of high plateau covered with wide expanses of bush, some of it developed for agriculture but most of it still virgin land. Population density is one of the lowest in Africa at ten per square kiLome, yet Zambia is the third most highly urbanised country on the African continent, with half its population living in towns and cities, a proportion which is steadily rising. The major focus of settlement and economic activity is the line traced by the railway which runs south from the Copperbelt, where Zambia borders on Zaire, through Lusaka, the capital, to Victoria Falls on the border with Zimbabwe. Lusaka is a planned city built where this north-south route crosses the east-west route from Malawi through to Angola.

Copper, the mainspring of Zambian history

Zambia's recorded history is comparatively recent and is bound up with what is still the country's main source of foreign earnings, its rich mineral deposits, particularly of copper. In the last century, in order to secure these for itself, and to prevent influence over the land north of the Cape being gained by its empire-building European rivals, the British, government in 1889 gave a company formed by the South African mining entrepreneur Cecil Rhodes a charter to: administer the territories which became Southern and Northern Rhodesia, now Zimbabwe and Zambia respectively. In the 1920s administrative responsibility was taken over by the British colonial office, and intensive exploitation of the copper mines began, to satisfy a worldwide demand created by the rise of the electrical and motor vehicle industries. A legislative council represented settler interests but excluded Africans, who were treated purely as a labour reserve. Overall control of Northern Rhodesia was, however, retained by London, and Europeans resented the fact that Britain took millions of pounds out in taxes on the mining companies but put almost nothing back in for development. Africans, for their part, were not keen to see settlers taking control, as they feared a mass alienation of land such as that which had occurred in Southern Rhodesia. Despite their concerns, the two Rhodesias and Nyasaland (now Malawi) were federated under settler control in 1953.

Independence

The African population took no share in the economic and political advantages of the new arrangement, and organised opposition to white interests crystallised in the late 1950s under a young radical, Kenneth Kaunda. He led the newly formed United National Independence Party (UNIP) in a campaign of civil disobedience which forced the colonial authorities to promulgate a new Constitution giving Africans a majority in the legislature. In 1963, the Federation was dissolved and, in the following year, Northern Rhodesia achieved independence as the Republic of Zambia, with Kaunda as its president.

The government of the new republic took over the mineral rights still held by the company originally formed by Rhodes, but the country's great mineral wealth had made little contribution to internal development, and the educational structure and social services were woefully inadequate. It was particularly vital to the economy that mineworkers should be contented, and peaceful industrial relations were bought at the price of a large wage rise in 1966, followed by increases for other urban workers. Subsistence farmers and the unemployed, although far greater in number, were neglected, and many migrated to the towns in search of work or a better living.

Sanctions against Southern Rhodesia following its unilateral declaration of independence, and the struggle to throw off colonial rule in Mozambique, which Zambia covertly supported, left the country economically blockaded and a prey to subversion from the south, and as the resulting political tension rose in 1972 President Kaunda declared one-party rule by UNIP. Soon after, the civil war in neighbouring Angola closed the route to the Atlantic hitherto used for carrying half of Zambia's copper exports, and at the same time the world copper price fell sharply. In 1975, for the first time, the UNIP leader urged the country to look for economic security in farming rather than mining, as food prices rose and unemployment and popular discontent grew. The closure of the export route through Rhodesia, and the open hostility of the lan Smith regime in that country to the Zambian government, were invoked as the main reasons for Zambia's economic difficulties. Yet when both these factors had been removed, by 1980, the economy continued to decline and living standards to fall, and political opposition from both business interests and workers mounted.

Repression

A failed coup attempt in 1980 was followed by reshuffles of cabinet ministers and UNIP officials, and by strikes and rioting in protest at food shortages. In July 1981 among the workers' leaders arrested and imprisoned was the chairman of the Zambia Congress of Trade Unions, Frederick Chiluba, who ten years later was to become President. Consolidating his power, Dr Kaunda won a fifth election in 1983 and turned increasing attention to the repression of internal dissent and alleged external conspiracy. Meanwhile the economic crisis continued unabated and, at the behest of the IMF, which was called in in 1983 to help with economic reforms, the Government adopted further austerity measures, such as removal of the subsidy on refined maize meal, the staple food, in 1986 and a steep increase in the price of fuel in 1987. The popular outcry was such, however, that these attempts at introducing realistic pricing were rescinded and the government announced it was breaking with the IMF but would continue with its own restructuring programme. IMF-style policies nevertheless reappeared in the Fourth National Development Plan 1989-93, only to be reneged on once again as elections approached in 1991.

A new era

This brief overview brings Zambian history up to the point where years of political and economic stagnation suddenly gave way to a new era. With such a legacy as this, the picture now is a very mixed one, but to start with the good news, after 27 years during which power was increasingly concentrated in the hands of one man, and 19 years of one-party rule, Zambia has become a democracy. This is largely the doing of a wide grouping of different interests which came together in 1991 as the Movement for Multi-party Democracy (MMD). The announcement of large increases in the price of maize meal in that year provoked an unprecedentedly violent outbreak of hostility not just to UNIP's economic policies but to the ruling party as a whole, and its President in particular. An earlier promise of a referendum on whether to change over to multi-party rule was abruptly shelved when President Kaunda saw that he had lost the political initiative, and the constitutional changes required for the holding of multi-party elections were quickly set in motion. Many UNIP members, including MPs, defected to the MMD, and nine other new parties also came into being. After lively campaigning on all sides, with the opposition challenging UNIP's control of the media and uncovering evidence of preparations for ballot rigging, freely contested presidential and general elections were held on 31 October 1991. The MMD swept to victory, taking 125 of the 150 seats in the single-chamber National Assembly, and its leader, the veteran trade unionist Frederick Chiluba, took 76% of the presidential vote and went in triumph to State House as Zambia's second President. Kenneth Kaunda had no seat in parliament but stayed on as UNIP leader; last year, however, he was replaced in an internal party leadership contest and has now retired to private life.

The new government came to power on a surprisingly low turnout of 45.4%, owing in part to shortcomings in voter registration and provision of polling booths, but foreign observers pronounced the campaign and the polling free and fair. The new Cabinet contained representatives of all the various interests backing the MMD-except that women are hardly represented at any level of government-and was welcomed internationally as a credible and competent team. There were some misgivings that the size of the MMD's parliamentary majority might mean continued domination by a single party, but a free and critical press has not been reluctant to perform the role of an extraparliamentary watchdog. Some of the reporting of alleged corruption and malpractice in official circles, particularly in a newspaper recently set up by private business interests, The Weekly Post, is harder-hitting than would be possible under the libel laws of certain longer-established democracies in the industrialised world. The MMD itself, as can be seen from the interview with President Chiluba in this Report, actively encourages democratic debate, even though it often makes life difficult for the Government. Of the 14 or so minor political parties, only the Social Democratic Party seems to stand any chance of emerging as a third force in Zambian politics.

Bankruptcy

We said the picture is a mixed one. The bad news is that by the time President Kaunda and UNIP fell, after a final attempt to buy votes by extravagant spending, they had reduced the Zambian economy to a state of total bankruptcy. Under the policy described as 'humanism', whose stated aim was to loosen the grip of 'exploitative international capital' on the economy, the UNIP government had acquired a stake in almost every branch of economic activity, from copper mining to (literally) hairdressing, and the resulting parastatal congLomtes were run and staffed by large numbers of people on the State payroll. This overgrown civil service, however, was underpaid, unmotivated and inefficient. In any case, most of the population were still employed in the informal sector and the tax base was consequently very small. Extravagant domestic expenditure was financed largely from exports of a single commodity, copper, the price of which rose and fell in line with world demand, so that economic planning became impossible except in the very short term. Deficits were paid for with the help of government borrowing from the central bank, in other words the government printed money to pay its bills. An overvalued currency, the kwacha, helped to make exports unattractive; when it was devalued, imports of manufactured goods, including spare parts for mining and other industries, in their turn became prohibitively expensive. Infrastructure became more and more dilapidated, and inflation soared out of control. Little help could be looked for from the country's foreign donors and creditors, as the abandonment of economic reforms in the last period of UNIP rule had ruined Zambia's reputation as a responsible partner in development cooperation.

Economic reform

Putting the economy back on its feet has clearly been the Government's main priority since it came to power. The economic reform plans it announced soon after taking office were firmly in line with World Bank and IMF prescriptions and feature a well-known mix: price liberalisation, involving the removal of price subsidies; the privatisation and restructuring of the many parastatals; promotion of the private sector and individual initiative, and encouragement for local and foreign private investment; more open trade; financial discipline, with tight fiscal and monetary policies, and tax reform. The Government embarked on these ambitious reforms with a speed and aggressiveness that took many by surprise and raised fears of worse economic hardship to come, and the President and Ministers were soon on the road appealing to Zambians throughout the country to bear the pain in the interests of future prosperity.

Although sacrifices are being asked for, the reform programme includes a social component, as the path to growth is seen as Iying through the alleviation of poverty. A social welfare programme channelled through nongovernmental organisations operates; 80% of its expenditure in 1992 was in the provinces, and went to projects in the education, health and water supply sectors, as well as to canal construction as part of a labour-intensive public works programme. The very poor are being offered food for work; several programmes are already under way, including building projects in Lusaka, Ndola and Livingstone and farming schemes in rural areas. However, an unforeseeable complicating factor which came into the equation in the very first months of the new Government's term of office both curtailed the intended spending on social welfare and increased the day-to-day difficulties faced by the ordinary people.

Drought

At the beginning of 1992 Southern Africa experienced its worst drought in living memory. In Zambia there were heavy crop losses in six of the nine provinces, and the government appealed to international donors to help it feed the population until the next harvest. Maize, the staple food, was particularly urgently needed, as 70% of agriculture is maize production (as a result of this, of course, there was very little by way of other crops which could be eaten instead). Vegetable oil, pulses and milk powder were also requested, and the outside world, including the European Community, responded rapidly with shipments over and above their normal food aid deliveries. As an emergency step, the Government bought maize at market prices for distribution to the needy, acquiring some 245 000 t out of its own resources by May 1992. The international aid community provided some US$ 200m in drought assistance, plus balance of payments support to help bear the high cost of moving the maize to Zambia. The EC's aid, for example, was transported by sea to Dar es Salaam and Port Elizabeth and thence by rail. The distribution effort put Zambia's transport sector under heavy strain but has proceeded smoothly up to the present time. A small amount of food aid was reported lost through alleged theft, but the total was only 0.2% of all shipments. Some 30 000 t of maize were given away free to very poor population groups, sometimes in return for work, but the bulk was sold in order to generate counterpart funds which were used to buy further quantities from the commercial market. To protect farmers with crops of their own to sell, the Government undertook not to undercut the commercial price for maize.

As well as losing their crop and a year's income, many small farmers had to consume their seed corn and had difficulty affording fresh seed or fertiliser for the next season. Adequate quantities for the growing season, which began in November, were imported either through a donor-assisted programme or by private companies under open general licence for sale on the open market.

Hardship

This huge drought-relief effort was all conducted against the background of the IMF-approved economic reforms, which of course included liberalising the markets for fertilisers, as for other goods. The effect of this on the ground can be gauged by a small example, the experience of an agricultural supply depot funded by the EC in Machisompola, a rural area in Central Province. The manager of this reported that last year he had sold 8000 bags of fertiliser to local farmers, but this year, over the same period, only a little above 1500 bags. This must in large part be due to the fact that the fertiliser price had quadrupled in that time. The same depot had bought only 6000 bags of maize from local farmers in 1992, whereas in 1989, a year when there was no drought, it had bought 16 000 bags. The effects on farming families' purchasing power of price deregulation and loss of income were serious enough already; but at the same time the Government went ahead with the removal of subsidies on food agreed with the IMF as part of the structural adjustment programme-and at a faster rate than the IMF had required. As these had traditionally eaten up from 20 to 25% of the total budget, the effect on the fiscal deficit will be gratifying to Government and the donors, but the hardship it has caused in rural areas -and in the towns and cities-can be easily imagined. Critics of the speed of structural adjustment say this part of the programme should have been postponed until the economy as a whole had been made more stable. The opposing theory is that the Government decided it had better act fast on this issue while it was still popular. The Government itself argues that economic instability is overwhelmingly due to inflation, and that as food subsidies contribute to that inflation they have to be removed.

The position now in relation to the drought and food supply is that rainfall this year has been satisfactory and a decent harvest is expected - where farmers have been able to afford to plant a crop in the first place, that is. The Minister of Agriculture, Dr Guy Scott, says there is enough food in reserve, even before the harvest is brought in, to feed the population till August. But to play safe, the Government has once again asked the donors, including the EC, to be prepared to send substantial amounts in food aid.

Farming the land

The rural land on which half Zambia's population lives is one resource whose huge potential has hardly been tapped. In normal years, the country feeds itself and has a healthy surplus for export to its neighbours. Zaire takes vegetable crops and beef, Rwanda and Burundi sugar and maize; output in Zimbabwe is limited by land availability, and the South African decision to stop subsidising maize growing opens a large possible market in a country which is also more prone to drought. Cotton, horticultural produce and tobacco find international markets, and there is scope for producing and selling more coffee. According to the Minister of Agriculture, who in his time has been a successful exporter of strawberries, all that the commercial farmers need to be able to expand is the removal of government controls: 'Getting that sector to take off is fairly straightforward. It's a matter of what you don't do rather than what you do.' For peasant farmers the picture is more complicated. 'The previous government basically ran small holder agriculture as a very expensive form of social welfare, as a way of giving everybody an income,' the Minister says, and the focus was almost entirely on maize. Inputs, marketing, transport, milling and distribution were all subsidised. To rationalise, diversify and expand now requires finance, and, away from the main consumer centres and transport routes, especially in tribal reserves where disputes could arise as to title and succession, smallholders' land has no value as collateral for loans. The crop itself has some value as security, and the Government is working on schemes to encourage contract growing by small farmers for the financial institutions which lend them the start-up money. But Dr Scott wants to see traders, bankers, farmers or anyone but the State identifying and exploiting the opportunities. 'If the system is not constantly interfered with,' he says, 'I think it will tend to happen.'

As for commercial farmland, a recent study estimates that 400 000 hectares of cleared, good-quality land, accessible by road and with power lines, is already suitable for use-this is mostly previously productive farmland which was sold off cheap by settlers who left on independence and is now occupied by people without the resources or know-how to utilise it fully. All it needs is to be ploughed and it could be brought back into production, before there would be any need to clear huge new farms in the virgin bush. The Government itself inherited large amounts of such land from its predecessor and is quite prepared to let anyone acquire it, including white farmers from Zimbabwe and South Africa who have already expressed interest.

Privatisation

An important aspect of Zambia's economic recovery programme is the reform of the parastatals. Under President Kaunda some of these largely state-owned congLomtes had become enormous. Two of them, the Industrial Development Corporation of Zambia (INDECO) and the Zambia Industrial and Mining Corporation (ZIMCO), the holding company which partly owns Zambia Consolidated Copper Mines, together accounted for 80% of all production in the country. ZIMCO has some 135 subsidiaries and associated companies and interests not just in mining and industry but in commercial transport and energy supplies, hotels and land, finance companies, communications and farming. Its chairman during the UNIP period was none other than the Head of State himself. Even before the MMD took office, it had become apparent that the State had neither the capacity nor the money to run, still less to modernise, the enormous and run-down bureaucratic structure which the parastatals created. A technical committee on privatisation used to report to ZIMCO; in a memorable phrase, President Chiluba said asking ZIMCO to privatise the economy was like asking a fish to drain its own pond, and responsibility was transferred to the Ministry of Commerce and Industry.

The Zambia Privatisation Agency was set up by Act of Parliament in July last year, with a board consisting of leading private-sector operators and three government officials. According to an economist on the Agency's secretariat, many of the 150 or so parastatals were basically not badly run and showed a profit or at least broke even, so there is a lot of potential which should interest private shareholders, especially as there will be no political interference in the companies' operations from now on. A first tranche of small companies with between 30 and 150 employees has been offered for sale, and 180 competing tenders, mostly local but including some from Botswana and South Africa, were being evaluated at the time of writing. The policy is to encourage wide share ownership, so parts of the larger parastatals are being publicly floated and a stock exchange may be set up in 1993 meanwhile commercial banks are authorised to trade in shares. As for the timescale, some 30 companies are due to be privatised in 1993, followed by 20 or so per year thereafter, leading to a situation. when MMD's present term of office ends. where the State's interest in the productive economy is reduced from X0"/O to 20%. After seven or eight years everything should have been sold off, except for a few utilities which the agency describes as 'natural monopolies'.

White elephants

As in other countries, of course, there are no buyers for nationalised assets which do not perform, and in Zambia one of the most conspicuous white elephants which the Government cannot hope to get rid of till it becomes a great deal fitter is the national airline. Last year Zambia Airways' operating deficit required Government transfers which came to some one per cent of GDP. The airline at one time had unrealistic ambitions to he a major regional carrier, and is heavily overstaffed. Pay strikes by its employees this year and last have severely tested the Government's resolve to hold inflation down by wage restraint.

Another encumbrance on the Government's hands is Zambia Consolidated: Copper Mines (ZCCM). This parastatal. which mines cobalt, zinc and lead as well as copper, is the second largest copper company in the world in terms of production and employment (after Chile's CODELCO), but output has dwindled steadily for several years as world demand for copper has fallen (fibre optics are more suitable for many applications) and the grade of recoverable ore has deteriorated. For years the company has been unable to reinvest, and its mines are overmanned and run down. According to the Deputy Minister of Mines, Dr Matthias Mpanbe, a large injection of capital will be required over the short and medium terms to keep ZCCM viable. But where is it to come from? Dr Mpanbe himself wondered last year what foreign investor could possibly be interested in, to use his expression, 'such a monstrosity'. The only solution, he now says, is to divest it of all activities not related to mining, so its management time and capital can be put to more profitable use. At the time of writing, it was reported that the Anglo American Corporation, already a minority shareholder, was tipped to buy a majority holding this year, but at a fraction of the several billion dollars the Government had hoped for. As there are no other contenders, Anglo American can dictate terms, and they are also likely to include heavy job reductions. Although that will dent the Government's popularity still further, it has little choice but to accept.

The high cost of rationalisation

Recent events in another area of the economy illustrate the difficulty the Government faces in trying to reduce the public-sector wage bill without alienating the trade unions which played a large part in bringing it to power. In October 1992 the government withdrew its annual grant of 600 million kwacha to Zambia Airways, which had up till then been the only company to escape the decision to stop subsidising the parastatals. The airline said it would have to cut 800 jobs, but it was reported to have no funds to pay for retrenchment packages for those made redundant or cover wage increases for the 1200 employees left. In January the pilots announced that inflation had so eroded their salaries that they could no longer afford to house and feed their families, so they called a strike. Management dismissed 31 of the pilots, a move which looked very like pre-sell-off asset stripping, as the pilots selected for sacking were precisely those not involved in flying the airline's one DC-IO, which operates the more lucrative long-haul routes. The other pilots came out in sympathy and refused to fly any of the aircraft, so the company had to charter 'planes from foreign companies to move stranded passengers and goods. This exercise cost millions of kwacha-far more, according to critics of the dismissals, than it would have cost to meet the pilots' original demands. After a few days' of the ruinously expensive stoppage, the board had no alternative but to reinstate the pilots unconditionally and announce a pay review, whereupon normal service was resumed. Social peace was restored, but the underlying problem of overmanning remained unresolved.

Part of the problem is the high cost of the retrenchment packages for those who lose their jobs in the public sector. The figure for 1993 was put in December at 2.5 billion kwacha, with lump sum pension payments to retired civil servants at 13.4 billion-a heavy charge on the budget.

Union backing

The attitude of the trade unions to the economic reforms will be crucial. The Zambia Congress of Trade Unions (ZCTU) represents about 75% of workers in formal employment, mainly in the public service and parastatals. It was instrumental in setting up the MMD, though it is not formally linked to it or any other political party. It differs, for example, with the MMD on privatisation: while supporting the policy in general, it thinks that certain strategic industries, such as mining, should remain under state control as long as they are so important to the economy. ZCTU's leaders are as enthusiastic for democracy as the Government is, which is no doubt why its Secretary-General, Alec Chirwa, says ZCTU is aggrieved that Government did not consult it properly over the content or implementation of the economic recovery programme. Its members are suffering from the job cuts, and it suggests that a way of taking the pressure off them would be to widen the tax base -at present fewer than half a million workers are in the formal sector-so that personal taxation and sales tax could be cut. MrChirwa also says unions, employers and government should sit down together and set up the social security scheme which Zambia lacks, and believes that the Government avoids acting on ZCTU's suggestion that a poverty datum line be established out of a fear that if it were, most of the population would be found to be below it and would have to be helped. The social safety net is already minimal; the country simply cannot afford to pay for anything more extensive.

Make or break

1993, people inside and outside the country say, will be make-or-break year for Zambia. Thousands more will lose their jobs, inflation will eat into already meagre pay packets, a debt service requirement of US$1.2 billion a year cripples the treasury. The Government gets full marks from the IMF and the donors for its courage in the face of daunting difficulties-praise for implementation of the necessary solutions is more muted. The Government still enjoys some respect at home for its honesty about the hardships still to come, even if the lamentable 13% turnout in the local elections last November suggests that voters are growing disillusioned. If organised labour withdrew its support, or at least its understanding, life for the Government could become very hard indeed.

But is this likely to happen? As Alec Chirwa puts it on behalf of the trade unions, 'If we tore each other apart, we would only sink deeper into our problems with the economy,' and, as far as the Government's credibility is concerned, 'The eyes of the world are on the performance of this government, so we should try as much as possible to support it, so that, if it succeeds, it could be used as a model for other parts of the world, particularly Africa. If this government fails, then you can be sure that in future nobody will pay attention to any government which comes out of the support of labour.' Robert ROWE