OUR CHALLENGE IN ZAMBIA, IN A NUTSHELL

IN

my younger days, every so often my father would call me aside and then say this to me. “I was listening to the conversation you were having and I was very attentive to what you were saying when you were outside, and all I could hear was your voice” And then the admonishment would inevitably come in an authoritative voice, never to be questioned, but directed quietly at me to ensure every nuance was heard. Then he would finally say “you would be surprised at how much you would learn if you just dared listen”.

And so, I do some listening, especially on social media, mostly staying on the boundaries with no commentaries, watching the tinkering of emotions encrusting on reactions, watching as the mini fights erupt and end, sometimes induced with mini falsehoods.

On the various social media as you read carefully, you start to see a trend. Of the general preoccupation by the supposedly intellectual class about the things that ail us, to the exclusion of what is needed to fix those thing. It is even more so about our intellectual class that seem to be cheerleading our economic downside, while adding to the sentiments that in itself result in the very things that ail us.

Our economy for a long time has needed foreign capital flows in form of donor financing, in form of foreign direct investments, in form of foreign portfolio investments, because for the most part we do not have our own capital to cultivate our resources. Therefore it follows that our economy more than any other, thrives on the assumption of confidence, and the general subsisting negative sentiments whether we like it or not, engender certain risks for the country, because they goe to the heart of what is needed in the country to induce investment and ultimately productivity.

For our country to continue to attract investment in capital and therefore stability, we must look at the potential sources of that capital and impediments to attracting it. Any thoughts that this capital will be locally generated must be countered by one thing. Our level of our budget deficits over the years point to the fact that we do not have capital.

And here is why. When inflation is high, real tax revenue is reduced and the nominal interest rate increases impacting the fiscal cost of servicing historical government debt. Therefore to cut budget deficits, the option is either to raise taxes without disincentivising the productive sector and or cutting spending without affecting the productive sector multipliers or the most vulnerable in the society.

We have failed to do both over time.

And that is because those choices are difficult to make, nonetheless if we must look beyond the borders for capital flows into the country, whether it be debt, foreign direct investment (FDI) and foreign portfolio investment (FPI), then there are certain pre-conditions that are necessary and imperative. We must criticise less of our own or do that in a way that we do not induce heightened risks.

For sure, the economics of the country is important, the structure and the political context matter as well, nevertheless there are micro bits that are necessary because the investors also look at the labour costs and their inventiveness, infrastructure quality and willing to invest in these structures, the taxes and stability of these over the long term, innovation, the subsisting economic growth etc.

Perhaps something is worth emplacing about

There were two choices for us in the past. We could either have kept lauding the macroeconomic achievements of the past without a downward impact on our society, with potholed dusty roads, limited access to our remote regions, long distances to health care outposts etc. or actually distilling some of our weaknesses by building infrastructure in exchange for potential vulnerabilities in the short-term around debt sustainability and significant upside in the long- term. Our opinion in this column is that, the focus on infrastructure notwithstanding the heightened debt was the right thing to do.

African Development Bank economic brief, volume 1 issue of September 2010 put it more succinctly, when it pointed out the relative importance of infrastructure development when it stated as follows “Africa’s absolute and relative lack of infrastructure points to the existence of untapped productive potential, which could be unlocked through scaling up of investments in the sector. Notably, infrastructure plays a central role in improving competitiveness, facilitating domestic and international trade, and enhancing the continent’s integration into the global economy”.

The central concept of mainstream economics epitomises the importance of trade as a route to prosperity. In other words, growth must be precipitated by expansion in exports to generate foreign exchange and with that a country can finance its imports, dividends to foreigners and investments of capital in things that give us comparative advantage. It won’t always follow that trajectory. The investments sometimes must be encouraged by a highly risky strategy of deficit spending which assumes that economic growth will be achieved by the private sector business investments, consumer spending and international trade after government spending.

The various vulnerabilities confronting the Zambian economy however stark should be our focus for us to grow. A country such as Zambia which had inferior infrastructure, inferior production, inferior labour market characteristics, improper sanitation, and limited access to health care, and lower costs of living could not ultimately compete with our Neighbours such as South Africa, Bostwana and Namibia. We needed to invest and invest in Infrastructure, labour market and health care, we have done at the cost of debt.

Now our efforts and intellectual labour must be targeted at managing that debt. And it requires leaders opposite and those in government, citizens to be carefully in their sentiments about the country.

So as we speak about the economic performance of this country, we should ask ourselves about the alternative courses that are available. Are we better off with nice power points documents that point to how rosy our economic environment is without direct impact on the roads we use or traverse. Or are we better off looking to the best alternative debt strategies, while we are enjoying the potential benefits of infrastructure?

About the Author

Kelvin Chungu is a Partner at Nolands Advisory Services Limited. He is contactable on kelvinc@nolands.co.zm or +260976-377484.

For our country to continue to attract investment in capital and therefore stability, we must look at the potential sources of that capital and impediments to attracting it. Any thoughts that this capital will be locally generated must be countered by one thing. Our level of our budget deficits over the years point to the fact that we do not have capital.