jctr.org.zm - Quarterly Bulletin; Bulletin 67

The global economic crisis that rocked the world in late 2008 and early 2009 continues to have effects on global and domestic economies. Finding ways of dealing with the crisis has been key at both global and local levels. The leaders of the G8 in its deliberations addressed specific areas of the economy that included climate change, with the hope of continued growth in economies. Humphrey Mulemba discusses the main areas discussed at the G8 summit as they relate to Zambia’s economic and social challenges.

The G8 is comprised of France, United States, United Kingdom, Russia, Germany, Japan, Italy, and Canada. This year’s summit was held in Italy between 8-10 July, with Brazil, India, China, South Africa and the EU additionally present. This showed the gravity of issues at hand and the fact that the emerging powers have a role to play. The summit came in the context of three important issues that are shaping the world thinking on development directly and indirectly. The first is that the summit occurred just after the Pope Benedict XVI’s encyclical, Caritas in Veritate, which is Latin for “Charity in Truth.”

The second is the divergent views on whether there is recovery from the Global Economic Crises (GEC) or these signs of recovery are benefiting a few and are simply false hopes for the majority -- considering the persistent job losses, high costs of living and continuing challenges of poverty. Lastly, a very important debate impacting on the livelihood and well being of people in both the developing world and developed world is climate change. With all that in mind, the Chair’s summary of the G8 captures Trade, the World Economy, Climate Change, Development and Africa, the G8 and Africa, Food Security and International Political Issues as the core topics that were discussed. Many will ask what does this mean for Zambia, how should the country react and what more does Zambia expect from the G8? Here is a brief analysis.

The G8 leaders stressed that open markets are key to economic growth and development – the more so in a period of crisis. Though trade is positively linked to economic growth, findings from the 2009 report by the World Trade Organisation (WTO) and the Organisation for Economic Cooperation and Development (OECD) show the contrary. Trade by itself cannot deliver to meet poverty reduction with equity. In fact, according to the report, studies cited in it found an increase in inequality. The World Bank (2005) concluded that during the 1990s countries with rapid economic growth and trade liberalisation achieved absolute poverty reduction but experienced increased inequality. Kremer and Maskin (2007) established that increased trade has tended to benefit elites in both rich and poor countries, thus increasing income inequalities.

Zambia is a victim of this. The country is among the most liberalised in Africa, yet rural poverty far outweighs urban poverty and all of this while the majority of the population resides in the rural areas. Therefore, the G8 should be urged to recognise that liberal reforms need to occur with the supporting accompaniment of strong institutions, effective regulation and equity.

The aspect of this debate most relevant to Zambia is the vow by the leaders of the G8 to ensure that they need to address excessive price volatility on the global commodity markets. False ideas can change the behaviour of markets, given sufficient prevalence, and one can profit from these false ideas. Few realise that base metal prices fluctuated by more than 60% during the recession but real demand did not actually reduce by more than 10%. Even though copper and other base metals have shown signs of recovery in price on the international market, there is no guarantee of price stability. So long as price setting in international markets is done where speculators have more influence on price than producing countries, a part of Zambia’s economy will forever remain at the mercy of profit seeking individuals and companies. These do not take responsibility for the impact that their behavior has on peoples livelihoods, children’s education, peoples’ health care and ability to meet basic needs. Therefore, the G8 is even further urged to clamp down and stiffen the penalties on speculation that does not reflect real demand trends and is detrimental to commodity dependent developing countries.

The G8 agreed on a global long-term goal of reducing global emissions by at least 50% by 2050 and, as part of this, 80% or more reduction goal for developed countries by 2050. More importantly, they highlighted the adaption needs of developing countries in terms of resources, capacity building and policy support, particularly for the poor and most vulnerable. In Zambia, the Climate Change Facilitation Unit (CCFU) was recently setup in June of this year, housed by the Ministry of Tourism Environment and Natural Resources. The challenge now remains in mainstreaming the realities of climate change into the broader development agenda of Zambia, especially in the Sixth National Development Plan. According to the Inter-Governmental Panel on Climate Change (IPCC) Report 2007, 75 -250 million people across Africa could face water shortages by 2020. Crop yields from rainfall-fed agriculture could drop by 50 percent in some African countries, including Zambia. The report provides a comprehensive analysis of how crosscutting climate change is and how it is affecting natural and human systems from health, to wildlife in the tourism sector, to development of power generation, and to increase in trade capacity. If sustainable development is to be achieved, concerted efforts by all Government ministries is needed to overcome this challenge. The G8 is urged to be even more ambitious by actually meeting the new targets as opposed to their abysmal shortcomings in meeting the Kyoto protocol commitments.

The G8 decided to implement a set of measures to help the most vulnerable to withstand the global economic crisis. These include, to: fulfill their ODA commitments including on aid for trade; keep markets open to re-launch economic growth to the benefit of the poor; enhance transparency and competition among intermediaries to halve transaction cost of migrants’ remittances; strengthen partnership with Africa to improve access to water and sanitation; support innovative financing instruments for health; put agriculture and food security at the top of the agenda by increasing multilateral financing to support comprehensive country strategies and improving coordination of existing mechanisms.

For Zambia, liberalisation has shown that it does not address poverty with equity but instead increases inequality. Therefore, Zambia needs to recognise that as a result of this market failure due to liberalisation Government will need to intervene in the market. It must provide the necessary support structures to enable the vulnerable in society to meet their basic needs. The most important role the G8 will need to play here is live up to their commitments and begin taking steps to remove trade-restricting and trade distorting protectionist measures that the countries imposed when the crisis began.

Leaders from the G8 met with leaders of several African countries, the African Union Commission and relevant International Organisations to seek ways to limit the impact of the crisis on the achievement of the Millennium Development Goals (MDGs) in Africa. However, the reality is that in Zambia, the MDGs are under strain due to factors such as climate change, lessened support from donors due to the economic crises, and systemic corruption. The G8 countries are amongst the most responsible for contributing to the climate change induced by human activity and they are also the main donors in the international community. The G8 countries have to make sure that aid is “charity in truth” where there is sincerity in the support that is given and donors lend responsibly in recognition of country priorities.

The G8 leaders committed to mobilise US$20 billion over three years through the L’Aquila Food Security Initiative in support of rural development in poor countries. This included G8 commitments to keep agriculture at the core of the international agenda, re-launch investments and boost aid and in country coordination with the involvement of all relevant stakeholders. Zambia has seen a growing number of land investments for agricultural development. But Zambia should ensure that this development is for the benefit of the people. Food security is central to meeting basic needs. In times of shortages, people are wary about having foreigners owning local land. Therefore, there will be need for safeguards against exports during times of famine or drought in order to increase yield, transfer technology and create jobs. When taking up this responsibility, the G8 must support sustainable best practices and ensure that the current trend of multinationals’ purchasing large areas of farmland are not at the expense of food security for the local people in the least developed countries.

This is a wake-up call for Zambia. As the rich and powerful G8 have met to map out the way forward on emergent issues during trying times, Zambia too needs to rise to the challenges ahead which require addressing the problems of today and preparing for the challenges of tomorrow. In order to achieve this, Zambia needs firstly to ensure that the institutions to regulate the free market are available and adequately equipped to do so.

Secondly, there is need for a strong, simple and transparent regulatory framework to guide the regulation of the free-market and ensure that where market failure occurs Government adequately intervenes to ensure the vulnerable are protected. Thirdly, Government must work with the Bank of Zambia to build capitalisation levels of financial institutions to enable them to take on greater risk and lend at higher levels through policies to accelerate development of different sectors of the economy.

Lastly, the time has come to recognise climate change as an impediment to development and begin to undertake measures that will counteract the cross cutting challenges that it will pose. Action by both Zambia and the G8 on emerging issues is the next most important step after identifying the challenges that the country and world is faced with.

Quarterly Bulletin

Bulletin 80 2nd Quarter 2009