Zambia’s decision to nationalise the copper mines and other private enterprises, triggered a storm that has not stopped rumbling throughout financial capitals of the world since 1968 when President Kaunda announced the Mulungushi Economic Reforms.
Amid protests from various quarters, particularly in the Western world where its leaders were getting increasingly worried at growing Soviet and Chinese influence in Africa, the Zambian government acquired 51 per cent shareholding of the mines, leaving 49 per cent in the hands of ‘dispirited’ private investors.
Probably alarmed or perplexed at Zambia’s giant ‘leap forward’, one leading British newspaper’s headline screamed: ‘Kaunda grabs the mines’.
But what were the compelling reasons that prompted Dr Kaunda and his Cabinet colleagues (who had initially advocated free market economics) to change their stance(?) a friend of mine asked as we discussed Government’s recent decision to revise the mining taxes, which has impacted on State revenues that it needs to sustain its ambitious development programme.
Most people are familiar with what transpired at the end of Zambia’s one-party ‘participatory’ democracy and the re-introduction of plural politics in 1991; so I am not going to dwell on that aspect of our 50-year history. But I do recall(as most people who were there do) that the main thrust of the Mulungushi Economic Reforms was to put the country’s economy ‘firmly’ in the hands of Zambians. If that has happened, or not, is another matter.
Because of its seminal value and to throw some light on what could have forced Dr Kaunda to resort to the raft of measures he took (and in the process help the new generation of Zambians with some background information on this thorny issue) I looked up the former Republican President’s speech he delivered in Kitwe some 47 years ago as he sought to calm the storm both at home and abroad.
Explaining his and the nation’s apparent frustration, Dr Kaunda said then:
“A great deal has been said and written about the economic reforms I announced in Zambia on 19th April, 1968. I regret to say that most of it displays ignorance of the conditions prevailing in my country. I, in fact, feel that the cause of the mistrust and misunderstanding between developed and developing nations is due to this ignorance and the very lack of appreciation by the former of the problems facing the latter. This is the reason why every step taken by a developing country towards achievement of a national economic identity and independence is scrutinised, interpreted and misinterpreted by the developed world.
The conclusions inevitably attribute racial motives to the reforms or try to identify the reforms with known economic theories which developed in Europe during the last few decades. They usually end up by describing the policies of the country as being pro-west or pro-east. I do feel strongly about this and I feel that it is time that action taken by developing countries are examined in the light of circumstances prevailing in the countries themselves and in the light of the needs of the countries to set up their own course towards their economic independence.
I must spend a little time explaining some of the economic problems facing my nation in order to enable you to appreciate the reasoning behind Zambia’s recent economic reforms.
Zambia achieved Independence on the 24th October, 1964. At that time the people of Zambia took over political control, but the economy was dominated entirely by foreign and resident expatriate business.
How this came about does not need going into at this particular moment.
All I need to say is that when Zambia achieved independence all these foreign and expatriate businesses were operated by foreign and expatriate people. No Zambians had been given the opportunity to make a career in business. No Zambians could be found in jobs above those of unskilled and semi-skilled workers in industry.
It was obvious that during the time of the Federation the expatriate businessmen had chosen to create a closed shop very much like the European Mine Workers Union of Northern Rhodesia which had an agreement with the mining companies that only white people could be employed in certain jobs on the mines. On independence, therefore, you will see that we had to cope with a business community foreign-owned and foreign-managed.
We spent a great deal of time pleading with the business community and pointing out to them that it was in their best interest to introduce Zambians into management jobs. We received plenty of promises but very little action. In addition to the pleas to train Zambians as managers we tried to help the few Zambian businessmen develop by assisting them with loans.
However, you do realise the amount of money needed to develop out of nothing Zambian business to a level comparable with expatriate business. It would be impossible for the Government to provide sufficient funds for this purpose and loan schemes were scratching the surface of the problem only.
In the meantime, we had embarked upon the implementation of the transitional and first national development plan which created unprecedented boom condition in the country. Despite their previous pessimistic predictions, businessmen found themselves in a profit paradise after Independence. The activity which was generated as a result of government spending was unheard of in the past.
We had plenty of needs. We needed hospitals, we needed roads and we set about collecting the profits which resulted out of this fantastic boom and spent even less time in worrying about promoting a Zambian in business.
On top of this, Rhodesia declared independence unilaterally which imposed upon us the need for even more government spending in order to create new import routes and alleviate problems created by the new situation. The result was that when our demands were highest our ability to bring supplies in was curtailed. The businessmen again took advantage of the situation.
Both my ministers and I spent a great deal of time pointing out to the business community their short-sightedness and the dangers inherent in their actions. In January 1967, addressing the National DevelopmentConference in Kitwe, I said this:
“Government is much disturbed over certain trends in industry which reflect anything but a concern for productivity. Some sectors of industry (and commerce) are taking deliberate advantage of the transportation and economic problems besetting this country for their own private gain. There is increasing evidence of grossly inflated mark-ups, inflated beyond any level justified by transportation costs of distribution in Zambia.
The Government is increasingly concerned over the dangers implied in this trend, and determined not to let go unchecked…
I find it amazing that businessmen, who appear to hold the free price system in such high esteem, can at the same time consciously and deliberately contribute with such effectiveness to its destruction.
For that is precisely what the mark-up marauders are doing. They are simply inviting Government – and soon they may find they have forced Government – to move in with compulsory checks upon the free price system, or to go even further and replace it altogether in some sectors of the economy.
Zambia would by no means the first country in which such action has been forced upon an unwilling Government. And if it does happen, who will be the first to cry but those who, by their own greed, their own determination to take advantage of a difficult and unfortunate situation, left the Government no choice but to act?”
Business, however, did not respond. On the contrary, profit margins increased even higher and we have evidence of large-scale exchange control evasion by illegal means. It was obvious to us, therefore, that the members of the business community in Zambia who had chosen, despite our many appeals, not to take up Zambian nationality were there to make hay while the suns shines, and if rain comes, to run for shelter in their home countries. The need, therefore, to Zambianise business became imperative.
If our appeals to promote Zambians into management executive posts to run the affairs of foreign business had failed, if our loan schemes to help the advancement of Zambian business were slow, it was obvious that some new and more drastic approach should be adopted.
At Mulungushi on the 19th April, 1968, I directed that from the 1st January, 1969, trade and contracting should be confined to Zambians. I consider these two fields as being the less sophisticated business areas and ones in which Zambians could quickly develop if they are protected against competition by expatriates.
As from 1st January, 1969, trading by non-Zambians will be confined to the centres of ten large towns of the country. In all other areas only Zambians or State-controlled organisations will have the right to trade. Similarly contracting and quarrying has been confined to Zambians. I am confident that in these two fields Zambian business will take root, and I look forward to the day when people who have succeeded in those fields will move to the more sophisticated fields of business such as industry and finance.
When this happens we will truly have achieved economic independence in that we will have achieved a national economic identity. When this happens,we shall not be judged as to whether our methods of business are Western or Eastern, capitalist or communist. When this happens, our methods will be simply Zambian.
I consider this as the first essential step in the implementation of the philosophy of humanism, because I feel that the Zambian businessmen will agree to operate within the framework of this social philosophy which is entirely Zambian and which therefore they understand by instinct. As I indicated during my announcement of the reforms, it is my intention to encourage private initiative in Zambia. In want Zambian businessmen to develop so that they can be of service to their fellow human beings. In other words I do not want them to get rich at the expense of the rest of the nation.
Exploitation, whether it is done by people of one racial group against another or done by people of the same racial group against their own kith and kin, is wrong (remember Nelson Mandela’s Revonia Trial speech on racism?) and we shall not glorify it in Zambia by allowing it space. We are fiercely determined to fight it wherever it shows its ugly head. Even as I say this, I know that this is not an easy thing to fight.Let me emphasise that I want Zambian businesses to expand and to prosper. But for goodness sake, I do not propose to create Zambian capitalism. This is incompatible with my conception of Humanism. I want to see the co-operative spirit to develop. I want to see the businesses operate as co-operatives or as companies rather than as individuals.
If they operate as companies I want to see that when they have achieved success they will give the opportunity to fellow Zambians to share their profits. When the time comes I shall set limits of the Zambian enterprise that can remain a purely private enterprise. These limits will be based on the amount of capital employed, on turnover and on the number of employees. When an enterprise grows beyond these limits, then it must become a public company. When it grows even further, it will be taken over by the State. We do not propose to make of Zambians business barons now or in future.
In Zambia, every Zambian’s contribution must ultimately be for the benefit of MAN through the State.
Another aspect of the Mulungushi reforms again designed to assist the development of Zambia enterprise is the limiting of local borrowingby resident and expatriate enterprises. Foreign business was subject to exchange control regulations and its borrowing in Zambia was regulated according to the amount brought in from abroad.
Resident expatriate business was considered local and its borrowing was unlimited.
If, however, the resident expatriate business has chosen to remain expatriate four years after independence; if its shareholders and directors have not taken up Zambian citizenship after four years after independence, how can it expect to be treated differently than foreign companies? Besides, we are convinced that one of the reasons of exchange control evasion has been the unlimited borrowing for resident expatriate business.
In this way, companies have been kept under-capitalised, while private purses (more money in their pockets) filled up, and private individuals kept busy finding illegal ways of sending money out of the country. The new regulations will go a long way to force people to capitalize their businesses properly. At the same time, it will create liquidity with which we hope banks and financial institutions will finance the emerging Zambian business.
The measure that was most widely reported in the foreign press was my request to 25 companies to offer controlling shares to the State. I would like to make it clear that these companies have been carefully selected in order to fit in the overall economic programme announced at Mulungushi.”
On tax evasion, President Kaunda revealed that some of the companies taken over had been cheating, shipping out between 25 per cent and 30 per cent of turnover. “Dividends were often 100 percent and 150 per cent of capital”.
There had been companies that made slight losses but closer examination of their affairs revealed that while the Zambian company was making a slight loss, the parent was enjoying administration fees as high as ten percent, thus depriving Zambia’s Inland Revenue (the forerunner of the Zambia Revenue Authority) of the taxation which went to the country of origin of the company.
In conclusion, I cannot help but wonder whether after the massive privatisation launched by the Movement for Multiparty Democracy (MMD) when it came to power in 1991 one can frankly say Zambia is better off because the new foreign investors and resident expatriate entrepreneurs, who forced Dr Kaunda to have recourse to nationalisation in order to halt the revenuehaemorrhaging, are now compliant and playing their rugby according to the rules of the game?
Source: After Mulungushi, The Economics of Zambian Humanism, Bastiaan de GaayFortman.
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