By DARLINGTON CHILUBA
MONEY can be impartial, but he that lends it always has an agenda. In the case of countries, that agenda is couched in the philosophies or belief systems of the lenders. Zambia’s debt profile, for example, has become a subtle philosophical battlefield between the West who are owed approximately $3 billion or more, and the East (especially China) who are owed far more money in billions.
While much has been said about China’s intentions in Africa and Zambia, with its outlay of huge capital loans, what about the West, what are their intentions?
These issues influence the price of basics such as bread and butter, the price of fuel and indeed the price of our money relative to other currencies.
As the country pursues a debt management programme to restore investor confidence and perception to the wider economic world it is important to put these emotive issues into context.
This is without taking away the financial support of Zambia’s allies and the fiduciary responsibility of the authorities.
As far as states go, the two most convenient economic philosophies have been Socialism and Capitalism, loosely speaking. The one favours state dominance above free markets while the other, Capitalism, favours free markets and a receded role of the state.
More recently, however, states have begun to favour a combination of the two – a midway that encourages free markets but also the ability of government to intervene in the economy to protect the greater good against private sector (or free market) excesses.
Libraries are replete with political theory, see among others Levi-Faur’s Economic
Nationalism 1997 and Stephen Krasner’s 1978 Defending the National Interest: Raw Materials, Investments and US Foreign Policy).
From a political standpoint, Africa was either with the West or East until the collapse of the USSR and reunification of Germany made western ideology predominant. The outcome was that debt acquisition and/ or debt pardons became attached to philosophical ideals such as liberalisation, privatisation, democratisation and structural adjustments.
In the case of Zambia, debt acquired during the pro-socialist era 1972 -1990 was forgiven during the democratic phase of the third republic beginning 1991 after which Zambia joined the Highly Indebted Poor Countries (HIPC) programme and argued for total debt cancellation and a clear graduation programme in 1997.
During the same period of the 90s, Africa was touting a “go-east” policy as a counter to western debt which came with ideological strings that, at some point, aligned countries according to investors than indigenous quality. The rise of China emboldened African states even more.
In the same year, 1997, the Bank of China in Zambia was opened as the first financial institution from China in Africa. Part of the plan was Zambia becoming the centre for the go-east policy and thus taking advantage of capital flows from China.
The loans did not glue government to what were called philosophical conditions of the lender but tied instead to the development agenda of the borrower.
Nonetheless, loans from the East came with foreign labour and an influx of private business as such.
Indeed, the emergence of China at the global stage gave rise to demand for copper in Zambia more so than the London Metal Exchange (LME) system had done before. The LME, historically representative of western interest in African minerals now had a formidable competitor outside its system.
Yet in the aftermath of Zambia’s own economic growth which was inextricably linked to China’s demand for Zambia’s copper, the country opted to go to the Euromarkets to shop for debt. Thus, the Eurobonds were introduced onto Zambia’s debt profile so that Zambia borrowed $3.25 billion between 2012 and 2015.
Their complexity and dependence on information and perception is what partly makes the loans from these commercial markets volatile. Why we borrowed so much in a short period remains a valid question even now, but it’s more a basic question.
European markets represent the standard of excellence because of their capital pool and that they require stringent analysis before they lend money.
Their complex structure and reach also entails that a country must have sound economic fundamentals to borrow from there. This means that Zambia was a viable investment project for European commercial markets between 2009 and 2016 and not recently.
The reason we are currently not a viable lending project in the European markets has very little to do with the money we borrowed there in the first place.
It is largely because sentiment from those markets was that we had unsustainable debt borrowed from China and would be unable to sustain their debt. That misperception was partly what drove the Kwacha to begin a steady depreciation.
A case can be made that Chinese debt was sustainable and far from default until commercial markets in Europe repriced their loans thus causing a stroke in the country’s ability to repay its loans.
That fact that the Eurobonds are commercial debts meant that there was no cap on how high interest could go and conversely, how low the Kwacha could depreciate. This is one side of the story.
The other is that discourse now is questioning the value of commercial debt such as Eurobonds versus concessional debt such as IMF and government to government (bilateral) loans. Again, concessional debt from the West is what informed the go-east policy because IMF loans were stringent and said to be one size fits all, among other criticism.
Concessional debt from the East arguably grants more flexibility and more in terms of money. Yet, when capital loans from China fell due ahead of schedule circa 2016 this also imposed a burden on Zambia’s repayment schedule and equally raised the exchange rate because more money than planned had to be sourced by the country.
There was no immediate flexibility nor adherence to the repayment schedule designed by the Treasury at the Ministry of Finance.
Ultimately, irrespective of where the money comes from, debt reached levels that slowed organic growth because funds generated locally were servicing debt at a faster rate than borrowed funds generated revenue.
The presentation to creditors in September 2020 by the Ministry of Finance showed debt levels had exceeded safe limits.
What makes the debt scenario even worse is the acute impact Covid-19 has had on our resources and ability to function at production levels that can generate income quickly enough. We have to remember that US$790 million was cleaned off our income (as revenue) when borders closed during the first wave of the pandemic.
In this regard, the 2020-2023 Economic Recovery Plan is a good document, sound but bureaucratic. It is a good anchor document to say what and where we wish to hold inflation and/ or the budget deficit.
Recovery must be flexible in its course especially for perilous times as these.
Here’s an example, during the week of March 8, 2021, South Africa released its numbers to show how that economy performed in 2020 and its plans for 2021.
What caught my attention, among others, was that SA’s economy shrunk by seven percent in 2020 while we shrunk by less than five percent. Secondly, the South African head of State encouraged South Africans to buy local at every level and prodded the exporting industries to increase exports to get the economy running again.
SA expects its economy to grow by 3.3 percent in 2021. Zambia will grow by 1.9 percent say the authorities.
The point I’m making is that South Africa has a short-term responsive strategy, anchored on longer term goals. The intended strategy by SA to use borders as part of its internal growth strategy will have two immediate implications for Zambia.
The first is that we will earn some border revenue which is welcome given our fiscal deficit and need to widen the revenue base, particularly dollar receipts.
The second implication is that competition for local products is likely to be stiff if the growth plan for the biggest economy in southern Africa is to flood export markets with their goods.
According to the Zambia Statistics Agency monthly bulleting (February 2021), South Africa accounted for 28.1 percent of imports into Zambia worth ZMW 2.3 billion in January 2021. This represents 88.2 percent of all imports from the Southern African region.
We must not allow imports to overshadow organic growth in agriculture and key growth sectors insofar as they are response strategies of those partner nations to the pandemic.
A philosophy is nothing without an environment to practice it in. Influence, East or Western is redundant if not exported to recipient nations. Debt exists only when there are borrowers.
Zambia made the decision to borrow and decided the source of that debt with full understanding of the beliefs of our lenders. Regardless of the belief systems of our lenders, it is our philosophy and belief as a country that will dictate how we shape the future.
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