Economic Liberalisation in Zambia

Topics: Economics, Poverty, Zambia Pages: 8 (2625 words) Published: December 26, 2011



This essay seeks to critically analyze the statement that “Economic liberalism is a prerequisite for economic development in development economies.” This paper will begin by outlining the concept of economic liberalization and its effect on the development agenda for Zambia. An analysis of these experiences is then made in order to derive lessons regarding the linkage between economic liberalization and economic development. It will then draw the pros and cons; positives and negatives effects of economic liberalism in the Zambian economy and will finally conclude by establishing the way forward for developing economies. Zambia is located in the central part of southern Africa. This country of 11.5 million people, once among Africa’s wealthiest, long has suffered with one of Africa’s worst performing economies. Zambia’s real per capita gross national product GNP) has fallen roughly two pent per year since 1965, and was a meagre $380 in the early 1990s (Thomas P Sheehy, 1992). Zambia had one of the world’s largest per capita recipients of foreign aid throughout the 1970s and much of the 1980s. Nationalization and Industrialization

At independence, Zambia’s economy was mainly dependent on copper mining that accounted for 90 per cent of its export earnings (Republic of Zambia 1996). The leadership was committed to the promotion of economic development and restructuring the economy. The government, therefore, undertook rapid nationalization of the economy shortly after independence, paving the way for state-led development. State intervention in the economy was set in motion with the 1968 Mulungushi Economic Reforms that allowed the government to acquire 51 per cent shares from private retail, transportation, and manufacturing firms (Republic of Zambia 1968). The Industrial Development Corporation (INDECO), a state industrial holding company, was created to spearhead industrialization. Subsequently, the Matero Economic Reforms of 1969 resulted in the government purchasing 51 per cent shares from the mining companies, Anglo-American Corporation and Roan Selection Trust, leading to partial nationalization of the copper mining industry (Republic of Zambia 1969). Nationalization enabled the state to control 80 per cent of the economy through parastatals involved in mining, energy, transport, tourism, finance, agriculture, trade, manufacturing and construction (Turok 1989, 78). Thus, the state became the engine of growth. However, the nationalization programmes in general, and import substitution in particular, proved very costly. Zambia failed to diversify the economy from copper mining and the import substitution strategy proved unsustainable, resulting in economic decline. There are many reasons for the poor economic performance. Firstly, the decline in world copper prices since 1974 contributed to economic decline causing reduced government expenditure on development, including import substitution industries, inability to import goods, especially, inputs into manufacturing; balance of payment problems; and inability to service external debt. Lack of savings by the government during periods of high copper prices to cushion the impact of any fall in copper prices worsened the economic situation. Instead of accumulating savings, the government increased expenditure on social and physical infrastructure, imported luxury goods, assisted parastatal and private companies ‘manufacturing profits’, and compensated workers with high wages, especially, mine workers. Secondly, extensive state intervention gave rise to bureaucratization, corruption and uncertainty, discouraging productive private investment and foreign trade initiatives. Thirdly, import substitution industries proved inefficient and uncompetitive due to high input costs, high monopoly prices, reliance on government subsidies, lack of...

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