Quarterly Bulletin

The current “economic boom” being enjoyed in Zambia due to rising copper prices and better taxing system has brought many questions and policy directives on how best the resources gotten from such a “boom” can be utilised. Although it is clear that the boom can be attributed to stronger Zambian Kwacha compared to major foreign global currencies, higher GDP, and lower inflation rates, it is not yet clear how such a “boom” will benefit majority Zambians who are mostly poor. Muyatwa Sitali, former Coordinator of the Debt, Aid and Trade Programme of the JCTR, now working for Oxfam GB in Liberia, offers ways in which such resources can be used to raise the standards of the poor in Zambia. This paper was initially presented at the Copperbelt University Workshop on “Translating Commodity Price Boom Revenues into Development in Zambia” in May 2008.

Poverty involves not only a lack of income, but also ill-health, illiteracy, lack of access to basic social services, and little opportunity to participate in the processes that influence people’s lives (UNDP). Further, the lack of deliberate efforts to reach out in predetermined ways to sectors of the society that find themselves in any or all of the conditions above reinforces the extent of poverty and sends the victims into acute deprivation under which the hope of revival is bleak. Any programme therefore aimed at directly improving any or all of the conditions above becomes a poverty reducing mechanism.

It is therefore imperative that the victims of poverty are included in the identification, design, implementation, monitoring and evaluation of mechanisms aimed at improving their wellbeing as this increases ownership of the process of poverty reduction and ultimately the process of human sustainable development.

BRIEF HISTORICAL FOCUS ON POVERTY

Focus on poverty reduction has received some attention from national priorities since independence. Rooted in socialist development ideologies prevailing at the time and pre-occupied with seeking to redress the social and economic deprivation created by the colonial regime, the Zambian government prior to 1991 played a leading role in the direct provision of social services as well as spearheading commercial production of goods and services.

Under the various reforms such as the Matero, Mulungushi reforms etc., Zambia focussed on national development through, for example, the National Economic Recovery Programme (Development Programmes) of the late 1980s. These sought to increase the industrial base and thus create jobs. These efforts were abandoned in 1991 in preference for a free market system which admittedly brought momentous changes to Zambia.

The implementation of widespread market liberalisation and structural changes under the Structural Adjustment Programme (SAP) was mainly propelled by the North which sought to promote development in the South with the assumption that economic development could lead to poverty reduction. Some programmes embarked on by the North have had direct implications on poverty.

For example, the Structural Adjustment Programmes have led to massive job losses and de-industrialisation, consequently aggravating the high poverty levels as recorded in the 1990-1998 period. SAP aimed at reducing the role of the State in the economy by stabilizing and liberalising the economy including external trade and privatizing state owned enterprises.

While SAP measures achieved macroeconomic stability, the GDP growth in the reform decade 1990-2000 was negligible, averaging 0.6 %. Between 1991 and 1995 the economy contracted by 1.6 percent and  external aid dependence increased. In 2002, 43 percent of the Government of the Republic of Zambia (GRZ) annual budget was financed from external resources that included loans (Saasa 2006).

Consequently, Zambia’s external indebtedness rose from US$3.2 billion in 1980 to US$5.6 billion at the beginning of 1987. By  2000,  it   had  skyrocketed  to over US$7 billion. As the levels of public debt rose, concurrently did the level of leverage of its creditors, especially the International Financial Institutions (e.g., World Bank, IMF). These played a key role in determining Zambia’s economic and social policies (Chisala 2006).
The recent trend, as expressed in the World Bank/IMF induced poverty reduction strategy papers (PRSP), contains deliberate efforts to increase allocations to social sectors such as education, health, and social protection with the hope of reducing poverty.

What has been unique about this concept however is its emphasis on the development programmes to be country-driven, with rare emphasis on mutual accountability. It is in this spirit that Zambia returned to national development planning to continue from the fourth development plan which was abandoned in 1991 by the formulation of the current development roadmap – the Fifth National Development Plan – 2006-2011 (FNDP).

POVERTY REDUCTION STRATEGIES

Among the many documents and policies mirroring the international call for poverty reduction are the Millennium Development Goals (to be attained by 2015). Recent reports (MDG Progress Report 2008; Global Monitoring Report 2008) indicate that while the MDG 1 poverty-reduction target will be met at the global level, Zambia is likely not to meet this goal.

The Zambian government has developed the FNDP and the Vision 2030. These documents give precise areas of focus for a country to attain poverty reduction. Despite these efforts and international technical and financial support, Zambia has not made much progress towards the realisation of integral human development.

STATISTICS AT A GLANCE

Zambia is one of the poorest countries globally as indicated in the UNDP Human Development Index (Zambia is the 165th of the 177 countries). Other indicators like maternal mortality, illiteracy rates, etc, face similar glaring indicators with 1 in 5 children being severely underweight, maternal mortality at 750 per 100 000 births, 14.3 percent of the population between 15-49 years living with HIV/AIDS.

The monthly JCTR Basic Needs Basket has constantly revealed a rising trend which has become the phenomena since the
beginning of 2008 moving from K1 636 900 in December 2007 to K1 939 800 in April 2008. This is already eroding the benefits of lower VAT (16% from 17.5%) and the 2008 exempt tax threshold which is K600 000. The rising food and fuel prices affect the total picture.

The preliminary report of the Living Conditions Monitoring Survey (2006) indicates that overall poverty has reduced from 68 percent in 2004 to 64 percent in 2006. The change was much more dramatic in urban areas where poverty reduced by 19 percent from 53 percent to 34 percent.

Mention should however be made that the reduction in urban poverty has been contested and demands for a more rigorous explanation have been made. Poverty in rural areas, where 7.6 million of the 11.6 million Zambians reside, increased by 2 percent from 78 percent to 80 percent.

Furthermore, extreme poverty is more prevalent among female-headed households than male-headed households. Female-headed households have 57 percent of the people who are extremely poor, while male-headed households had 49 percent below the extreme poverty line.

POOR BUT RICH?

Paradoxically, Zambia is a country very rich in resources and this has been reflected in the long-standing presence of the copper industry and a large diversity of both fauna and flora. The question to ask, however, is why Zambia has remained a poor country despite its rich resources?

The response is that there has been a web of causes ranging from 1) overdependence on copper and unfair agreements governing the extractive industries, 2) urban focused policies at the neglect of the rural areas, 3) lopsided support between the productive and service sectors, 4) unjust terms of trade, 5) vulnerability to international trends,  and until recently 6) subordination of social sector development, breakdown in trust and confidence in society due to 7) delayed or non-existent prosecution of national treasury defaulters  etc.

Zambia’s macroeconomic indicators, currently reveal that there has been steady growth recorded at an average of over 4 percent in the last 5 years as opposed to GDP  of 2.2 percent in pre-HIPC years. Inflation has also moved close to 10 percent in the last two years. While this favourable macroeconomic outlook is necessary for the improvement of economic and human development, in itself it does not guarantee human development and poverty reduction.

The results of a stable macro-economic outlook have not translated into direct benefits for communities. It is clear that striking the delicate balance and trade-offs between macroeconomic stability and economic growth is not adequately addressed, while certain social priorities are subordinated.

RECENT COMMODITY PRICE BOOM

The global increase in demand for copper leading to high metal prices largely as a result of growth in Asian economies has had a positive impact on Zambia. Upon the successful renegotiations of the mining contracts, the country holds a chance of becoming self-sustaining in terms of resource mobilisation. Just this year (2008), Zambia expects about US$415 million (2008 Budget Speech) as revenue from the mines. While it is clear that these resources will not all be utilised this year, it is not yet clear where and how they will be used.

There are sectors that indicate that government intends to have these resources play a stabilisation role. There are also real challenges of donors withdrawing their support on the basis that    Zambia    will  now be raising more revenue than anticipated at the formulation of the FNDP. But while Zambia needs a long term exit strategy for aid, the development challenges are still daunting and as such the revenue from commodity price boom should not substitute donor support. Rather, it should augment current domestic and donor commitments.

HOW TO UTILISE
THE RESOURCES?

For reasonable benefit to Zambians and poverty eradication, the revenues should be applied both in rural areas and urban areas. Specifically, the following areas need interventions:

First, there should be an increased focus on rural development. The space to increase spending to cover for poverty reduction should contribute towards improving productive capacity of rural areas which are mostly agricultural based. The challenges faced by rural areas are well articulated, they include 1) rundown/obsolete infrastructure (roads, bridges, storage facilities, communication, etc), 2) lack of access to farming inputs, 3) difficulties to access credit facilities and often failure to service loans, 4) difficulties to access markets, 5) lack of extension services, etc. In this regard, spending for rural development should increase, commencing with improved allocations for agriculture.

There should be increased and timely provision of agricultural inputs such as fertilisers, seeds, pesticides and extension services on key appropriate technologies including the use of treadle pumps, better animal husbandry techniques (such as dip tanks, milk storage, etc.) and irrigation techniques which can be used even for off season farming to promote continuous production. With fertilisers, improved fallows, green manures and cover crops, water harvesting and small-scale irrigation, and improved seeds, rural based small scale farmers will increase the food yield per hectare. This will promote food security and quickly end chronic poverty.

INCREASE SPENDING FOR HUMAN CAPITAL

Second, poverty based spending and development will also require an ardent programme for viable social sector services delivery. The current set of education and health infrastructure needs to be reinforced with rehabilitation of schools and clinics, and increasing skills development programmes which promote self-sustaining income generating activities. For example, provision of meals for all children at primary schools could improve the health of school children, the quality of education, and school attendance.

Expanded vocational training for students could teach them the skills of modern farming (for example, using improved fallows and fertiliser), computer literacy, basic infrastructure maintenance (use and maintenance of a diesel generator, water harvesting, boreholes/wells construction and maintenance) carpentry, etc. These skills are needed not only for economic viability but also for the promotion of diversity to some sectors that are not heavily dependent on seasons.

In the health sector, rural based clinics and health centres with well motivated staff would provide key health services.

STAFF RETENTION MECHANISMS

Third, rural development often suffers from urban migration due to the efficient services and opportunities that are often associated to urban areas. A rural based poverty reduction programme should ensure that the enclave of the young, aging and somehow illiterate society in rural areas receives good human personnel that can assist to propel the changes necessary for development to occur.

To achieve retention of this staff requires good incentives which can include, 1) setting up a bursary for career development with an agreement to compel beneficiaries to return to these areas for an agreed time, 2) providing low-cost transportation to teachers, nurses, doctors and extension workers such as bicycles, 3) improving access to capacity building programmes for entrepreneurship as this will be necessary to create a strong rural entrepreneurship spirit with basic book keeping skills. These incentives should be augmented with adequate housing, provision of safe and clean water, and low-cost energy sources such as solar panels.

INFRASTRUCTURE DEVELOPMENT

Fourth, rural areas are challenged by rundown/obsolete or inadequate infrastructure in terms of roads, bridges, storage facilities, telecommunications and energy. Programmes for grading and paving roads should be funded in order to ensure efficient connectivity between rural producers and the markets.

ENHANCE SOCIAL SECTOR DELIVERY

Fifth, in urban areas, health, education and social protection remain key challenges for Zambia. Government must not only increase investments in these areas but also enhance efficiency in the delivery of services. This can be through increased human resource, improved infrastructure, and better provision of treatments. The past three post-HIPC budgets indicate modest increments to social sectors with pledges for building more schools and clinics.

INCREASING HOUSEHOLD ECONOMIC ACTIVITIES AND PRODUCTIVITY

Sixth, urban households, who are struggling to sustain their businesses such as caterers, butchers, retailers, etc, need sources of capital which can be easily accessed. Most businesses cannot borrow from the commercial banks due to high interest rates. Therefore, there should be a pool of resources which can be easily accessed and at lower interest rates than banks are offering.

The Citizens Economic Empowerment misses the opportunity to empower small-scale businesses due to the eligibility requirement which does not include small-scale entrepreneurs of an informal nature.  Part of the resources, therefore, should be targeted at enhancing the supply side of urban based small-scale investments. The current energy crisis is proving to be overbearing on these entrepreneurs causing negative returns on their investments.

CONCLUSION

Poverty reducing interventions should work in combination and therefore a holistic view is needed to respond to challenges of deprivation. The current policies aiming at reducing poverty, namely        the      Fifth    National Development Plan – 2006-2011 and the Vision 2030, provide a framework through which government can robustly tackle the problem of poverty.

The recent gains from commodity price boom should augment the fight against poverty. In this fight, transparency, accountability, and participation remain as daunting challenges. While macro-economic stability should be sustained, the link with human development should be enhanced. It is therefore indisputable that the government must use the available resources wisely and invest in areas which will positively impact on sustainable human development as a cardinal step towards poverty eradication.  

RECOMMENDATIONS

Finally, I would recommend the following: First, given the current revenue from the mining industry, the government should place emphasis on widening the tradable commodity base to avoid a repeated economic crisis

Second, for such revenues to be transparent in their use, there is need to enshrine Economic, Social and Cultural Rights (ESCR) in the new Constitution to ensure that expenditures in social sectors can be followed up properly. Third, more emphasis should be on developing rural areas, other than the usual emphasis on urban development that leaves out the majority of Zambians who live in rural areas.

Fourth, there is an urgent need for the government to consider increasing citizen involvement in programmes aimed at reducing poverty and the effects of it at all levels, including the most overlooked but significant level – the community. Last, we should take advantage of this prevailing resource price boom to develop other sectors (investments) that may take over as income earning activities when the current resources no longer have the capacity to do so.

Muyatwa Sitali
Oxfam-GB Liberia
Liberia