PRESS STATEMENT
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ZAMBIA'S TRADE SITUATION: IMPLICATIONS FOR DEBT AND POVERTY REDUCTION Thursday, September 29th August 2005 We are delighted today to launch the report of Zambia’s Trade Situation: Implications for Debt and Poverty Reduction. (Full Report in .PDF) This report emanates from JCTR Debt and Trade Project’s efforts to employ, within its advocacy and campaign strategies, informed positions on Zambia’s trade situation and its synergies with debt, investment and poverty reduction. Since Zambia has now attained the HIPC completion point, the JCTR Debt and Trade Project’s concern is that debt and unfair external trade cannot be discussed in isolation as the two are self reinforcing and militate against the overall objective of poverty reduction and national development. Unless we pay attention to the linkages among debt, trade and poverty, it will be difficult to rid the country of underdevelopment, especially the high poverty levels among the Zambian people. Among the main focus questions addressed in the report are the following: What is Zambia’s trade situation like? How are the trade policies and negotiation positions formulated? Is there a link between trade and investment in Zambia? Is there a link between trade and poverty reduction? What are the main trade protocols that the country has so far ratified? Furthermore, the report seeks to define clearly the link between trade and debt and how these impact on the Zambian people. The problem of unsustainable external debts in many poor countries including Zambia continues to be a major source of concern among the civil society, development partners, government and indeed many other stakeholders. With Zambia’s recent qualification to the Heavily Indebted Poor Country (HIPC) completion point in April 2005, the external debt relief and cancellation proposals from the G8 and subsequently, the International Monetary Fund (IMF) and the World Bank, are likely to significantly reduce both Zambia’s external debt stock and debt service amounts, other things being equal. However, the unfair external trade regime at the international level threatens to reverse the gains accrued from HIPC relief as more debts are likely to be incurred in a bid to close perpetual trade deficits in the current account of the Balance of Payment (BOP) accounts. There is therefore need to ensure that the current trade regime is reformed to ensure economic and social equity for sustainable development among less developed countries. This report and the engagement in trade issues by the JCTR is therefore an attempt to bring to the fore the various linkages among trade, debt and poverty reduction. It goes further to show how trade can be used as a powerful tool in the fight against poverty in Zambia. Debt and trade are inextricably linked. The balance between imports and exports actually measures the size and direction of international borrowing (the current account balance). For Zambia, the present debt crisis is traced from the 1973/5 oil crises and collapse in the international terms of trade. Zambia’s imports exceeded the export earnings generating a balance of payments crisis (due to low demand in the West) as well as the decline in the volume and price of copper. Coupled with low domestic savings, the balance of payments deficit could only be mitigated by external borrowing from the IMF, private, bilateral and commercial lenders to pay for the importation of capital equipment, factor inputs and consumer goods amid the deteriorating terms of trade. The unfair trade rules left Zambia in debt and have allowed the creditors to continue imposing unfair trade conditions. Huge deficits on the current account continue to weaken Zambia’s Balance of Payments (BOP) position. In order to mitigate the deficits, Government is forced to borrow, especially from the IMF and bilateral creditors. Trade, investment policy and practice are critical ingredients of poverty reduction in several ways. First, trade and investment, when based on ideal and sustainable flows, create opportunities for employment in the country. It is one of the principle mechanisms for income distribution as it generates income for the employed. Second, since trade and investment are important for tapping and transforming resources, they determine the use or misuse of resources. Investment and trade decisions directly affect land access, use and tenure systems, natural resources use and management and largely determine the pace of human development. Thus the promotion of investment and trade is to be emphasized in any development planning. We do recognise that the general investment climate in the country promotes trade, both exports and imports, by way of incentives provided in the Investment Act. Among others, the Act provides incentives on income tax of non- traditional exports, income tax exemption on dividends from farming, recognition where double taxation agreements exists, allowing any investor to apply and operate bonded factory and provision for the declaration of Export Processing Zones. Trade liberalisation is one of the major components of conventional economic policy reforms that have occurred in the last two decades. The major argument for free trade is embedded in the view that trade improves a nation’s resource allocation and economic growth. The experience based on the ‘Asian Miracle’ so far reveals that countries that pursue export-oriented policies do economically perform better than those that pursue inward-looking policies. It is argued that trade broadens consumer choices and provides producers with a chance to generate more income from the broadened markets. In terms of debt, unfair trade has traditionally been one of the key triggers of debt. This can easily be traced empirically. It is not easy to trace the direct impact of trade on poverty mainly because most of the links between the two are case specific. Trade will always create gainers and losers depending on the owners of the factors of production that are employed in the export sector. In conclusion, trade liberalisation and membership in the regional and multilateral trading system is a ‘double-edged sword.’ It offers both challenges and opportunities. It can create winners and losers. Whether Zambia will gain from the global trading system or not will depend on how it positions itself in the trading system and responds to both domestic and foreign challenges. At the moment there is chance for Zambia to influence the global system towards helping to eliminate poverty, debt and underdevelopment by making informed commitments to the protocols it gets into. This can be achieved by an active engagement of all stakeholders in the development process such as the private sector, NGOs and non-state actors that have various levels of expertise on debt, poverty, negotiations and development issues. There is greater need for the government and civil societies to work closely together as stakeholders in the development process. Therefore the following recommendations are made, in three divisions that obviously have very close linkages: Recommendations for the Government 1. Capacity building in trade issues: Although Zambia has qualified negotiators; the capacity currently is inadequate and quite weak. Thus there is need to train and retain more people in issues of trade in the MCTI. 2. There is an urgent need for the government to send qualified trade attaches to foreign missions that are critical to Zambia’s negotiations and trade interests like the USA, Brussels and Geneva. 3. There is need for increased and timely flow of information about the current issues that affect international trade between the stakeholders, i.e., the government, the civil society, and the private sector. Furthermore, there is need to enhance coordination among the ministries and CSOs that share the responsibility of formulating trade policies. 4. It is important for either the MCTI or the private sector to undertake ex ante impact assessment studies of agreements and protocols such as the EPAs before they are concluded so that necessary precautions are put in place in order for the nation to benefit from the agreements. 5. It is also important to encourage full participation of non-state actors in the process of trade policy formulation and negotiations to strengthen the inadequate capacity at the MCTI and ensure that all issues that affect the economic and social sectors such as poverty are considered. 6. There is also greater need for government to institute complementary policies to ease the burden of adjustment for companies and households in order to avoid poverty by allowing them a greater degree of economic vulnerability Recommendations for the CSOs, including JCTR Zambia has a very strong civil society with skills in study and advocacy campaigns. The JCTR is a key actor among civil society organisations. These are some of the ways that CSOs should be responding to the trade issues affecting Zambia: 7. Trade has to be fair both domestically and internationally if it has to contribute to durable poverty eradication. It is essential therefore for JCTR and other CSOs to domestically lobby for rewarding trade conditions between the poor farmers and the exporters, especially those under out-grower schemes 8. Considering the fact that Zambia has committed herself to progressive liberalization, the role of tariffs and non-tariff barriers as a means of promoting local industries has diminished. It is important for Zambians to be encouraged to consume the locally produced goods to stimulate local production and reduce imports (which leads to current account deficits and then triggers debt problems). This strategy is well developed in the RSA where NGOs/ private sector promote the consumption of local goods through the slogan dubbed “Proudly South African”. This encourages consumers to buy locally produced goods, which in turn encourage domestic production that stimulates employment. 9. There is also a gap in terms of information flow between the MCTI and the producers in terms of the existing opportunities and changes in global trading system. Information can easily be accessed if the system is well organized. JCTR and other CSOs can complement the ministry by filling in this gap by conducting sensitisation workshops and writing regular briefs about the existing opportunities for the producers. 10. CSOs such as JCTR can play an important role in the area of trade policy formulation and negotiations by involving themselves through lobbying and advocacy. Experience so far has shown that lobbying is a very powerful tool to influence any form of negotiations. Advocacy can help bring on board broader views that traditional negotiations so far have not considered. JCTR represents the voice of the poor community. This is cardinal for all levels of negotiations. Under the EPAs, for instance, the EU has asked for all-inclusive views on the process. Recommendations Specifically for JCTR: 11. JCTR is an organisation that puts a values approach to both its analysis and its advocacy. That is, it is influenced by the values of human dignity, community, solidarity, concern for the poor, gender equity, environmental respect and, overall, integral and sustainable development. A basic question that the JCTR should always ask when looking at trade issues is: what does this mean for people, especially for the poor? It is not simply keen macro-economic study that is called for but also sharp macro-ethical study. It is unfortunate that this pro-people, pro-poor approach has not always been a priority in dealing with the economic challenges Zambia (and other developing countries) face. Had that been so, then the dismal consequences of policies such as the Structural Adjustment Programme (SAP) would not have been so sadly felt! Therefore the JCTR must keep the values approach up-front in all it does relating to the understanding, negotiations and decisions affecting trade issues. 12. Currently there is no CSO in Zambia that uniquely blends the issue of trade to the issue of debt. Having vigorously and successfully campaigned for debt cancellation, JCTR can easily line its argument for debt relief to better terms of trade. This is so because sustainable debt relief cannot be addressed without dealing with causes of debt such as poor market access. Through its debt cancellation campaigning over the past several years, JCTR already has extensive experience in relating with local and international organizations. Moreover, JCTR has room actually to request the MCTI for representation on some of the committees that deal with trade. Another indirect way is to engage the Ministry through the civil society representative, i.e., Civil Society Trade Network of Zambia. 13.
The JCTR has very good allies in its struggle for a more just global
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