Current situation in Zambia

Current situation in Zambia

By Eric Teniola

I WILL like to share with you a story on what is happening now in Zambia. The story was published in last week’s edition of the British magazine, THE ECONOMIST.

The situation in Zambia is not different from most African countries.

“The cars in Lusaka are moving even more slowly than usual: hidden speed cameras have spooked drivers in Zambia’s capital.

The government is desperate for cash, so motorists who speed are being fleeced. The regime has also announced taxes on boreholes, internet calls and even weather reports.

The pressure is falling on the ordinary people,” complains John Phiri, a taxi driver. “All because the state has run up too much credit. “Concern on the street is mirrored in markets. Of the 75 countries whose bonds make up the Bloomerang Barclays Emerging Markets Index, a basket of sovereign debt, none has performed badly in 2018 as Zambia. Given crises in Argentina and Turkey, that is some achievement

“The market is pricing in a default,” notes Gregory Smith of Renaissance Capital, an investment bank. Zambia is therefore a warning for other African countries which also received debt forgiveness in 2005-2006 but today find themselves on the verge of another crises. Zambia’s economy made a good start to the century.

Growth averaged more than 7 per cent a year from 2000 to 2010, buoyed by high prices for copper, which makes up 80 per cent of exports. (The top destination for Zambia’s exports is Switzerland-home to Glencore, a commodities trader.) The boom meant that aid, which amounted to 57 per cent of national income in 1995, was just 5 per cent by 2010. The boom ended in about 2011. Copper prices fell and growth slowed.

The Patriotic Front (PF), which still rules Zambia, was elected that year. It soon embarked on a spending splurge. As well as new roads, hospitals and airports, the PF has almost doubled the civil-service wage bill in real terms and expanded the number of districts from 72 to 115 so as to dole out more patronage. Extra spending has been funded by borrowing. Public debt increased rapidly, from 21 per cent of GDP in 2011 to 59 per cent at the end of 2017.

Roughly two-thirds of that borrowing is denominated in foreign currency and owed to Chinese creditors or Western investors who bought its Eurobonds: $3billion worth of dollar bonds issued in Europe. Paying back these debts is putting huge pressure on Zambia’s finances. The biggest item in the budget used to be education. Today it is debt service, with nearly a quarter of government spending going to pay back loans. The fiscal deficit for 2018 is set to be more than 95 of GDP.

Civil servants were not paid on time last month. When pay was delayed last year a government spokesperson helpfully recommended the bureaucrats start breeding chickens. Arrears for government contractors are mounting. This in turn is hurting businesses. The share of bad loans on banks’ books has increased to 13% from 8% two years ago. Zambia is one of the 18 African countries the IMF says is at risk of “debt distress” – double the number in 2013. A further eight are already in distress (meaning they are delinquent or in default). Yet Zambia is resisting the fund’s call for restraint and relations with it have all but broken down. Talks over a bailout are on ice and, under pressure from Zambia, the IMF has reassigned its representative. It is not as if the money has been well spent.

Much has been spent haphazardly – or, in some cases, stolen. “People are asking: where did all the money go?” says Geoffrey Chongo of the Jesuit Centre for Theological Reflection, a local charity. One answer is tarmac. Since 2011 Zambia has announced plans to build 9,000km of roads. Few doubt the need for better infrastructure. But the country has overpaid.

A study by the World Bank in 2017 found that Zambia paid $360,000 per kilometer, which is more than twice the African average. And since upkeep has been neglected, many new roads are already potholed. Other deals have been similarly wasteful. Zambia bought 42 fire engines for $1m each—a 70% mark-up. And it has regularly paid over the odds for infrastructure built by state-owned Chinese companies.

Take the contract for the new airport terminal in Lusaka (known local as “the hamburger” though it looks more like a bao sandwich), which has been designed to accommodate a rather improbable ten-fold increase in passenger traffic. The deals are opaque.

Typically loans are agreed between Zambian government departments and China’s Export-Import Bank, which then lends directly to the Chinese contractor. Only later, if at all, are the true costs revealed. Many worry that some deals remain undisclosed, and that President Edgar Lungu will hand over state assets such ZESCO, the energy utility, to China in exchange for debt relief.

A Zambian delegation returned last week from Beijing, where it attended the triennial summit of Chinese and African leaders. Many Zambians resent the Chinese influence. Businessmen, for instance, complain that they are locked out of the best contracts. Privately, though, Zambia’s elites are more likely to blame their government than the Chinese.

Under the PF, governance is weak and venal. Reports from Zambia’s Auditor-General and the Financial Intelligence Centre, an ombudsman, suggest that corruption has increased markedly under Mr Lungu’s regime. One economist who has studied road deals estimates that 5-10% is skimmed off the top. Corruption goes hand in hand with repression. After the election in 2016, which he won amid allegations of rigging, Mr. Lungu jailed the opposition leader, Hakainde Hichilema, for the crime of not yielding to the presidential motorcade.

A critical newspaper was shut down and journalists have been harassed. Mr Lungu has packed the constitutional court with his hand-picked judges and threatened chaos if they do not allow him to run for unconstitutional third term in 2021.

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