Essays On Statecraft :Why Is Zambia Broke? Part 1

By Jones K Kasonso

This series of articles attempts to provoke a conversation about the fundamental issues that touch on the current economic problems of our country and how we can utilize the collective genius of all patriots to resolve them. The problem to be addressed in this article is understanding why Zambia is broke. I was alarmed at the beginning of the year when the Minister of Finance at the time (Hon Felix Mutati and Team) was in town and reported to have been denied a credit facility by the IMF here in Washington. Moreover, news has surfaced that Zambia’s external debt stock is so huge that financiers of sovereign credit facilities see our country as being too susceptible to default. In which case financiers in the global economic system have reached a decision that Zambia is a serious risk and therefore not creditworthy. But after reaching the Highly Indebted Poor Countries (HIPC) completion point under the Levy Mwanawasa government (January 2, 2002 – August 19, 2008) and becoming debt free, how can this be true so soon?

To a simple mind in the opposition, Zambia is broke because the people in-charge of the national treasury are looting the nation and must be stopped. On the other hand, those in charge of the country are keen to persuade us that Zambia has just been dealt a bad hand and we must stand together in prayer to overcome the odds and “develop the nation.” Whereas there might be some truth in either position, I take the view that neither position has paid enough attention to significant details or relevant economic facts. Both the ruling class and the opposition parties don’t seem to show any interest in resolving the current and inevitably future bankruptcy of the republic, if not addressed. Apparently, an exchange of anger and insults over this matter is no longer sufficient to address the perilous problems of the country in this 21st Century. Now is the time to start framing the politics of the nation around this dangerous threat to the future of the country than divide and rule through accusations and counter-accusations of tribalism or imaginary irrelevant religious tests.

I am inviting thinking minds in our nation to discourse why the nation is broke and how we can utilize the collective genius of our 16 million population strong republic. A great son of Zambia, the 5th President of the Republic Michael C Sata in captioning how he wanted to be remembered as a voice of the people once lamented the indifference of highly educated Zambians. He said:

“Zambians to remember me that I spoke for the people of Zambia, I have italanta. Kwalibo lwimbo chila muntu netalanta lyakwe. Italanta kulandilako abalanda, ukundilako abatwa tabakwato utulimba, kulandilako abamwenso ngaiwe. Bonse mwebasambila muliba mwenso sana. You are the worst cowards. All educated people you can’t speak out because you are scared of going to prison. All educated people are the worst cowards.”

Similarly, a bright spot and concerned patriot Dr. Sishuwa Sishuwa recently exhorted that:

“Zambia’s intellectuals, though few in number, have a duty to publicly share their knowledge and expertise.”

If I may echo my two compatriots to awaken the consciousness of others to accept the duty of true intellectuals to become a voice of the people, the poor, those without access to media, and those who know something is wrong but have no courage to speak for fear of retribution. Fixing Zambia can no longer be left to those inept in matters of governance, chancers and those who haven’t taken time to understand the human condition through study. Leaders of our country and framers of public policy must be those who best understand what can make Zambia tick, the impact and the functionality of the global economy, and how we can collectively begin to make the efforts to address the deficits of resources and hope in our broken country.

The purpose of this article and similar ones to follow is not to demean our leaders even though some of my sentiments might veer mukanama kabishi (into head-butts or ruffle some skins). But to sensitize readers and contributors and hopefully trigger interest in critical issues and offer ideas on ways and means to ameliorate the financial hardships of our people. So why is Zambia so broke? Why is there no money in the economy to meet the PF or UPND (wish lists) manifesto? There are many ways to understand this quandary and a good place to start is the current structure of the Zambian Economy.

Current Structure of the Zambian Economy

The wisdom of applied economists on the determinants of the financial position of any enterprise in business is very helpful. The financial position of any country or company is determined by the equation A=L+OE, where A=Assets, the value of any company or country is made up of L (liabilities, the money we owe other people) plus OE (owners’ equity or simply our own money). Wise and prudent stewardship that advances corporate growth or economic development is one where OE is always greater than L that way we can use A to improve the welfare of stakeholders through equitable dividends or other direct social investments. The Central Intelligence Agency (CIA) posits that Zambia’s public debt is estimated at 62.8% of GDP (2017 est.). If the GDP is $25.58 billion (2017 est.), that public debt is at least $16.06 billion. That’s almost twice the $8.7 billion that the Minister of Misinformation Hon Dora Siliya conjectured in her press briefing on Friday, April 13th, 2018 CIA report

Now imagine an A= L+ OE which is 100= 63 + 37. Cash is an element within Assets (A) but was Liabilities or debts (L) is almost two times greater than Owners Equity (OE) it means most of the Assets including cash are owned by debt stockholders. Debt stockholders do not only suck interest and repayment cash out of the economy but restrict the use of Assets (including cash) to safeguard their investments and maximize their returns. This is the first reason why Zambia is broke. The nation has no access to its own assets and cannot spend cash on the social welfare or processes to uplift living standards for the majority poor. That is Zambia under President Edgar Lungu. 37% or even less is our own stake in the economy and 63% is the stake of all sovereign debt stockholders, foreign investors, and other creditors. That is why there is no money for social-economic investments. Perhaps this should also put to bed why the IMF in Washington DC babatanine akapiya (could not advance more loans to Zambia) when government applied for more debt. In short, the financial priorities of the current administration do not make business or economic sense.

Mis-definition of “Development”

There is an improper understanding of the nature of development in Zambia and none of our current crop of leaders and aspirants has defined for us what development in Zambia is or should be. What does a developed Zambia look like and what’s the strategy to achieve that objective? The biggest mistake was for the Zambian government under Mr. Edgar Lungu to double up on Michael Sata’s borrowings to “develop” the country. The latest is the declaration of 7 new districts. Governing by photocopy or Xerox as we put it this side of the world. I have often been dismayed by the President that his goals are to develop Zambia and he has been in power for much longer than President Sata was and yet he has not defined a developed Zambia with specifics.

[pullquote]The nation is in overdrive mode towards achieving an idiosyncratic designation[/pullquote]

The worst indictment of the Edgar Lungu Administration is that in nearly all economic measurement criteria the nation is far worse now than when Sata left it. This is the case from the prices of essential commodities, the foreign currency exchange rates, the rate of unemployment, and FDI. And yet the nation is preoccupied with petty jealousies and jailings of oppositions party leaders on petty or fabricated crimes. The nation is in overdrive mode towards achieving an idiosyncratic designation. Development is not slapping the nation with giant infrastructure on borrowed money with no plan to repay or maintain the road when it is broken. Economic development is placing an economic value on citizens by increasing owners’ equity (OE) so that citizens as participants in the nation’s economic activities have access to the Assets and the cash to spend on short-term and long-term needs at the personal and firm-levels.

There is a need for our nation to revisit the so-called “developmental” projects approach as a mainstay to improve the conditions of living for our people. Economic development is not a project but a process by which a country improves the well-being of its people economically, politically, and socially. Economic development is not a string of disparate “industrialization” “modernization, or “westernization” projects at the expenses of a country’s financial position. Economic development has a direct relationship with the financial positions of people at personal-level, firm-level, and country-level.

Economic development is a public policy initiative to intervene in the people’s welfare to uplift the economic and social well-being of all citizens. So far, the initiatives of the current administration are not achieving this given the damning statistics of $4000 GDP per capita but the majority (60% plus) of Zambian households live on less than $1 a day. This is the case despite the PF government contracting debts for “developmental” projects close to two-thirds of the GDP over the last 7 years. The problem here is insanity in government and please excuse my Greek from my professor who taught me that insanity is doing the same thing over and over and expecting a different outcome. But there is also an elephant in the room.

The Elephant in the Room

The elephant in the room which subsequent administrations have not addressed since the third republic is the externalization of household and national earnings. At the dawn of the third republic our fathers, themselves children of hunter-gathers and first-generation city-dwellers (Abena town) without a proper understanding of the structure of the global economy sought to directly integrate our nation, lacking pre-defined competencies, into the regional economy through liberalization and the botched privatization. They defined liberalization for us as releasing the improvement in the welfare of the people into the interplay of the market forces i.e. supply and demand. So that we can stop queuing up for essential commodities (Akabunga, kasaladi, naka sopo or kaEbu) as well as eat and drink what other nations are eating (utuma Apples, and Coca-Cola in place of our own Tip Top). The result is that the nation now externalizes more than $2 billion a year into South Africa mainly on imports of commodities that we can produce.

Whilst delivering on the promises of higher quality imported products and correctly defining privatization as the transfer of publicly owned enterprises into private ownership, they errored in prioritizing Foreign Direct Investment (FDI) as a manifestation of their privatization program. This meant the private hands owning the critical enterprises formerly held by the government where foreign multinational corporations. Our governments since Frederick Chiluba often espoused and glorified wooing investors knowing not they would be auctioning our future as they invited guest-entrepreneurs to become infesters. A look at the cash outflows versus cash inflows is an eyeopener. We work for the money in Zambia but because the investment community comprises mostly foreign firms they are harvesting these cashflows and it’s a net outflow for Zambia every year. In the last two years, the current account of Zambia has been in the red by about almost $1 billion.

In addition, with an unrelenting appetite to urbanize by copying other countries we are a net importing country that means we are externalizing our own earnings to other countries. That’s why there is no money in Zambia. In short, the structure of the regional economy is such that the economy of Zambia is like a slave hard drive to the regional and global economy. For the last three decades, the nation has been bleeding its productivity, industry and financial resources into the regional and global economy. That’s the elephant in the room sucking all the financial oxygen in our country.

Conclusion

In summary, understanding why Zambia is broke begins with an incisive look at the current economic structure which uncovers government mis-maneuvers and public policy deficits in addition to the impact of the regional and global economy. Zambia is currently a place to take from in terms resources. Lest we are accused of disparaging without offering solutions’, the solutions are: through constructive public policy set up the developmental process instead of sham development projects.

In this case, increasing the Owners Equity (OE) proportion of the accounting equation (A=L+OE) of Zambia must become a new priority in statecraft. For example, instead of borrowing $500m to build another Airport in Ndola where there is already an Airport, spend money directly by putting that money directly into poor and vulnerable households. That’s building ownership equity and uplifting the conditions of the poor Citizens.

Noti ukuya batipwila nachi Airport chapakongole nendeke abengi tabakwelamo ati iyi e development.

Constructing an airport in Ndola will result in most of the borrowed money going out of the country to pay contractors and importing airport contraction materials and devices. As part of government commitment to fair housing and resettlement, the government could give grants to poor families in that same area to claim their own land and build low-cost housing units using all locally produced building materials. Similarly, instead of buying 42 fire tracks for $42 million thereby externalizing every penny, assuming it was a genuine deal from which no Zambian pocketed a penny. Public spending in this should be targeted directly at specific poor or vulnerable households to achieve a broader distribution of economic benefits. Put money directly in the households to alter their bottom-line. This should be done simultaneously with shutting down the outflow of these resources into the regional economy through imports of essential commodities that we can produce at home. That’s how Michael Sata’s lower taxes and more money in your pockets can be achieved. Otherwise, what we really want as a country and the things we are doing about that are symmetrically opposed to each other. That is a serious disconnect.

The author is a Zambian, An Author, A Consultant and Accounting Professor in Washington DC and holds Ph.D., CPA, CGMA, MBA, BSc., NATech qualifications.