Indeco revival – governance persepctive

By Lucky Mulusa (part 1)

The pronouncement by President Sata that his government will reintroduce INDECO has raised a lot of debate and I thought I should share my views. I believe that the reason there are divergent views over the pronouncement are threefold:

(i)             Whether this would be a loan dispensing Development Finance Institution (DFI) like the Industrial Development Corporation (IDC) in South Africa; or

(ii)           It would be a State Owned Business Entity (Parastatal) as the INDECO we know was; and

(iii)          The PF governments’ lack of a known developmental strategy premised on a particular ideology which would have informed us in advance of the likely developmental path and related strategies and institutions to be created.

Before advocating state intervention or non-state intervention one needs to obtain an understanding of Zambia’s challenges, the stage of development the country has reached and the type of the economy’s integration into the global economy; and the challenges brought about by globalisation.

Zambia’s challenges are immense. The rest of the world however is far developed while trade protocols are designed to provide an even playing ground much to our detriment.

In fact, we are too late in intervening and showing commitment and maintaining a purposeful journey to our desired destination – that of an upper middle income country by 2030 – that will represent a decent legacy of this generation.

The second factor that should trigger state intervention of our circumstances which needs reversing include:

  • Lack of economic and social infrastructure; contributing to
  • An industrial base which is below our domestic consumption capacity before we can even consider opportunities in the 300 million SADC consumer base or the 1 billion African market potential and later on the 7 billion global market;
  • High levels of unemployment; leading to
  • High incidences of poverty; a consequence of which are
  • Social vices such as early marriages and pregnancies; drug and alcohol abuse; and presence of street children.

The issue of the youths is serious. They form the majority of our people and are feeling the negative impact of our lack of planning more than anybody else. 92 percent of our population is aged below 50 years old, meaning that out of 14 million Zambians, 13 million Zambians are aged between 0 and 50 years old. The above demographic challenges are general but specifically unique to youths. Our society has a demanding demographic characteristic that puts unsustainable pressure on our economy. 45.4 per cent of the total population or 6.3 million are aged below 15 years they hope to grow and find jobs; 54.6 per cent or 7.6 million of our population is aged above 15 years and fall in the category of potential labour force but they do not have jobs. To be specific if you removed the 8 percent who are aged above 50 years, 6.5 million or 46.6 percent of Zambians form the potential labour force. With just around 600,000 formal jobs in our country, it gives us a real unemployment rate of close to 92 per cent in a country with a GDP growth of well over an average of 5 per cent over a 14 year period.

Of the 14 million population 8.5 million representing 60.5 per cent are in rural areas where there are no job or economic opportunities and most of the households are headed by women. The government recently observed through information from the 2010 Living Conditions Survey carried out by the Central Statistical Office (CSO) that 60.5 percent of Zambia’s population is living in poverty. Poverty in rural areas stand at just below 80 percent.

To deal with the above national challenges, debate for or against state intervention should therefore make serious response. According to Datuk, (2005), in a laissez-faire economy, an efficient financial intermediation system mobilises and allocates scarce resources towards activities that would optimize the rates of return. On this basis, the commercially-driven and profit-maximising banking institutions would often tend to take a short-term view and solely consider the private benefit of a project, at the expense of the potential long-term social benefit that could be derived from financing a particular project. This, he says, has therefore created a gap in the marketplace whereby certain segments of the economy have been underserved by the banking system. These include development projects that involve high potential risks and long gestation periods, but yet have significant long-term benefits to the overall economic development of a country.

Similarly, there are also some sectors or groups of businesses which, due to their business characteristics and lack of track record, limited credit history and inadequate collateral, do not have adequate access to financing from the banking system. These clearly are instances of market failure, and the establishment of the Development Finance Institutions (DFIs) and state owned business entities (Parastatals) is indeed an attempt to rectify this shortcoming (Datuk Ghani, 2005). Accordingly, Sata’s pronouncement is therefore not necessarily out of order.

Look out for Part Two tomorrow entitled “Governance in Perspective – Examining the nature of the proposed entity”.

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