Zambia: Escalating economic and political crisis (1975-1991)

Updated January 2006

Economically the situation of the country had deteriorated since independence. Government spending had increased rapidly, private foreign investment and economic growth declined while inflation accelerated. The economy itself became increasingly rigid, dominated as it was by state controlled firms, which set prices throughout the economy and crowded out private borrowing, monopolizing what little credit was available. Political considerations, nepotism and patronage increasingly underpinned decision making in the public sector resulting in the employment of unqualified people in key positions, uneconomic resource allocations and growing inefficiencies of every kind. Investments were capital intensive and heavily reliant on foreign imports, placing continual pressure on foreign exchange reserves and requiring expensive foreign experts to implement and maintain them (Mwanawina & Mulungushi 2002).

Shortages of foreign exchange made the import of key inputs difficult and the private sector and formal employment began to shrink. Agriculture was neglected and the little diversification that took place was focused around the mining industry, so that Zambia's overwhelming dependence on copper was in no way reduced. Despite ideological commitments to self-reliance, foreign donor aid and expertise remained critical to the functioning of the economy. To this must be added the economic costs of maintaining sanctions against the renegade settler state of Rhodesia (Mwanawina & Mulungushi 2002, Columbia Encyclopedia 2005a).

The economy was thus already in poor shape when the oil price shock of the 1973 took place. The price of oil rose five-fold, sending the world economy into recession and raising the cost of capital and consumption goods. Between 1974 and 1979 commodity prices, including copper, went into decline as a result of world-wide recession and Zambia's balance of payments deteriorated sharply. The government, supposing that the situation was temporary, attempted to sustain and control imports of capital and consumer goods through borrowing, subsidies, rationing of foreign exchange (through preferential allocation to the public sector) and price fixing. Thus instead of adjusting to the situation through austerity and economic diversification the economy became even more locked into state regulation, intervention and resource allocation, low economic growth rates, spiraling public debt and increasing difficulties in servicing debt (Thurlow & Wobst 2004, Andreasson 2001).

References

ANDREASSON, S 2001 "Divergent Paths of Development: The Modern World-System and Democratization in South Africa and Zambia", Journal of World-Systems Research, 7(2), fall, 175-223, http://jwsr.ucr.edu/archive/vol7/number2/pdf/jwsr-v7n2-andreasson.pdf [PDF document, opens new window] (accessed 9 Mar 2010).

COLUMBIA ENCYCLOPEDIA 2005a, "Zambia", Sixth Edition, [www] http://www.encyclopedia.com/doc/1E1-Zambia.html [opens new window] (accessed 9 Mar 2010).

MWANAWINA, I & MULUNGUSHI, J 2002 "Explaining African Economic Growth Performance: The Case Study for Zambia" (DRAFT), Global Development Network, [www] http://www.gdnet.org/pdf/draft_country_studies/Zambia-Mwanawina-RIR.pdf [PDF document, opens new window] (accessed 9 Mar 2010).

THURLOW, J & WOBST, P 2004 "The Road to Pro-Poor Growth in Zambia", International Food Policy Research Institute, [www] http://siteresources.worldbank.org/INTPGI/Resources/342674-1115051237044/oppgzambia11.pdf [PDF document, opens new window] (accessed 9 Mar 2010).