Industrial Policy and the Transformation of the Colonial Economy in Africa: The Zambian Experience 0367699605, 9780367699604

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Industrial Policy and the Transformation of the Colonial Economy in Africa

Industrial Policy and the Transformation of the Colonial Economy in Africa offers an in-depth analysis of the role industrial policy can play in the transformation of African economies. Using examples from Zambia’s industrial development experience, this book illustrates that core features of the colonial economy have not just survived six decades of independence in most African countries, but they have continued to shape the nature, scope, and pace of economic activities on the continent. The book argues that since the colonial economy in Africa was not intended to serve the interests of Africans, it is imperative that the structures and the underlying rationale of the colonial economy are radically reoriented if economic activities in Africa are to benefit the majority of Africans. Drawing from the Zambian experience, the book shows that the transformation of the colonial economy in Africa is urgently needed. Whilst this has proved to be difficult over the past six decades, it can be done. The book outlines a specific type of industrial policy, Frontier Industrial Policy, as a key instrument for transforming the structure of African economies. At a time when economic growth across Africa is under considerable pressure due to COVID-19, the insights in this book will be of interest to researchers across Economics, Development, Postcolonial Studies, and African Studies. Horman Chitonge is Professor at the Centre for African Studies, University of Cape Town, South Africa.

Routledge Studies in African Development

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Industrial Policy and the Transformation of the Colonial Economy in Africa The Zambian Experience Horman Chitonge

First published 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 Horman Chitonge The right of Horman Chitonge to be identified as author of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record has been requested for this book ISBN: 978-0-367-69960-4 (hbk) ISBN: 978-1-003-14400-7 (ebk) Typeset in Times New Roman by Deanta Global Publishing Services, Chennai, India

Contents

Acronyms List of figures List of tables Acknowledgements Preface

vi x xi xiii xiv

1

The colonial economy in Africa: Structure and rationale

1

2

The structure of the Northern Rhodesia economy

32

3

Industrial policy in Northern Rhodesia

65

4

Industrial policy in Zambia

93

5

Mining and industrial development in Zambia

124

6

The manufacturing sector in Zambia

157

7

The agro-processing sector in the Zambian economy

193

8

Industrial policy and the challenges of economic structural transformation in Zambia

226

9

Transforming the colonial economy in Africa: A Frontier Industrial Policy perspective

254

Appendix Index

283 285

Acronyms

3ADI AAC ACET ACFTA ACID ADLI AIA AIDA AMC AU BCE BMC BSA CAGR CEN-SAD CID COMESA CIT CSO DAFF DAs DESA DNA DRC DTI EAC EBZ ECOWAS EIR EITI EPR

African Agribusiness and Agro-processing Development Initiative Anglo-America Corporation African Centre for Economic Transformation African Continental Free Trade Agreement Advisory Committee on Industrial Development Agriculture Demand-Led Industrialisation Alliance for the Industrialisation of Africa Accelerated Industrial Development for Africa American Metal Company African Union Before Common Era British Metal Corporation British South African (company) Compound annual growth rate Community of Sahel–Saharan States Committee on Industrial Development Common Market for Eastern and Southern Africa Corporate Income Tax Central Statistical Office Department of Agriculture Forestry and Fisheries Development Agreements Department for Economic and Social Affairs Deoxyribonucleic Acid Democratic Republic of Congo Department of Trade and Industry East African Community Export Board of Zambia Economic Community of West African States European Industrial Revolution Extractive Industries Transparency Initiative Effective Protection Rate

Acronyms FBT FDI FEIR FIP FNDP FTA GDP GIP GRZ GVCs HS2 ICMM IFIs IGAD IDA IDB IDC IDDA I IDDA II IES IGC ILO IMC IMF INDECO IP IPAP ISI ISIC KCM KIFCO LME LPA LSE MCM MCTI MFEZ MINDECO MMD MOSS MPMSP MVA MVCMP NDP

Food Beverage and Tobacco Foreign Direct Investment First European Industrial Revolution Frontier Industrial Policy First National Development Plan Free Trade Area Gross Domestic Product General Industrial Policy Government Republic of Zambia Global value chains Harmonised system at 2-digits International Council on Mining and Metals international financial institutions Intergovernmental Authority on Development Industrial Development Act Industrial Development Board Industrial Development Corporation First Industrial Development Decade for Africa Second Industrial Development Decade for Africa Industrial Extension Services International Growth Centre International Labour Organisation International Missionary Council International Monetary Fund Industrial Development Corporation Industrial policy Industrial Policy Action Plan Import Substitution Industrialisation International Standard Industrial Classification Konkola Copper Mines Kabwe Industrial Fabrics Company London Metal Exchange Lagos Plan of Action London School of Economics Mopane Copper Mines Ministry of Commerce, Trade, and Industry Multi-Facility Economic Zone Mining Development Corporation Movement for Multi-party Democracy Mineral Output Statistical System Mineral Production Monitoring Support Project Manufacturing value added Mineral Value Chain Monitoring Project National Development Plan

vii

viii Acronyms NEDTF NFMC NHDC NIDL NIEC NIP NRILB NTEs PIA PPA PSDRP RAA RECs RIP RoZ RST RVCs SADC SAPs SEDB SIDO SIP SIJC SMEs SNA SNDP SOEs TEs TIP TNCs ToT UDI UK UNCTAD UNDP UNECA UNIDO UNIP US VIS WPIP ZAFFICO ZCCM ZCCM-IH

National Economic Diversification Task Force Non-Ferrous Metal Company National Hotels Development Corporation New International Division of Labour National Import and Export Corporation National Industrial Policy Northern Rhodesia Industrial Loan Board Non-traditional exports Pioneer Industries Act Power Purchase Agreement Private Sector Development Reform Programme Rhodesian Anglo American Regional Economic Communities Regional Industrial Policy Republic of Zambia Rhodesia Selection Trust Regional value chains Southern Africa Development Community Structural Adjustment Programmes Small Enterprise Development Board Small Industrial Development Organisation Selective Industrial Policy Strategy Paper on Industrialisation and Job Creation Small and Medium Enterprises System of National Accounts Second National Development Plan State-Owned Enterprises Traditional Exports True Industrial Policy Transnational Corporations Terms of Trade Unilateral Declaration of Independence United Kingdom United Nations Conference on Trade and Development United Nations Development Programme United Nations Economic Commission for Africa United Nationals Industrial Development Organisation United National Independence Party United States of America Village Industrial Services White Paper on Industrial Policy Zambia Forest and Forestry Industries Corporation Zambia Consolidated Copper Mines Zambia Consolidated Copper Mines-Investment Holdings

Acronyms ZDA ZEPZA ZESCO ZIC ZIMCO ZPA

Zambia Development Agency Zambia Export Processing Zone Authorities Zambia Electricity Supply Corporation Zambia Investment Centre Zambia Industrial and Mining Corporation Zambia Privatisation Agency

ix

Figures

1.1 4.1 4.2 4.3 5.1 5.2 5.3 5.4 5.5 6.1 6.2 6.3 6.4 6.5 6.6 6.7 7.1 9.1 9.2

Share of commodity in total export, selected African Countries (%) 2009, 2014, 2017 Copper price and mining contribution to public revenue (1964–1980) Trends in terms of trade for Zambia (1970–1983) Zambia’s Export Purchasing Power Index (1970–1983), 1970=100 Mining investment structure in Northern Rhodesia Trends in the price of copper and production volume (1954–1970) Share of mining in GDP, 1965–2018 (%) Copper production index and volume (1980–2018) 2000=100 Share of non-traditional exports (NTEs) in total export and in traditional exports (TEs) (2008–2018) (%) Manufacturing share in GDP (1965–2018), per cent Manufacturing Production Index 1964–1998 (1990=100) Manufacturing Production Index 2000–2019 (2000=1000) Manufacturing share in industrial output (1994–2018). per cent Share of manufacturing and construction in total industrial output (1994–2018), per cent Manufacturing employment (1965–2018) Share of manufacturing in total employment (1965–2018) Share of agro-processing in GDP (1965-2018) (%) RECs’ five-year average merchandise trade growth rates (1992–2019) Intra-Regional Economic Community (REC) trade in Africa (2010–2016)

2 99 100 100 133 138 145 146 152 159 177 178 179 180 184 186 204 274 277

Tables

1.1 1.2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 3.1 3.2 4.1 4.2 4.3 5.1 5.2 5.3 5.4 5.5 5.6 5.7 6.1 6.2 6.3

Top three export commodities and export concentration index, selected African countries (2017) Share of top six African exports in total export % (2011–2017) Population of Northern Rhodesia (1911–1959) European agriculture production in Northern Rhodesia, 1920–1936 (tons) Value of mineral and non-mineral export (£’000), selected African countries Northern Rhodesia manufacturing value added (MVA) by subsector (1947) Trends in the composition of GDP by sector in Northern Rhodesia (1954–1963) Labour composition by sector and racial group (1961) Earning by sector and race (£ per year) 1961 Gross capital formation by sector (1954–1963) Average earnings of Europeans and Africans (£/year) Northern Rhodesia imports (1945–1964) per cent Parastatal sector share in MVA and in employment by subsector (1972–1980) Manufacturing employment, output, and MVA growth rates (1960–1980), per cent Composition of GDP by Sector (1965–1985) Copper production trends (1926–1960) Mine ownership structure and production (1928–2012) The new mine ownership and production structure (2015–2018) Mineral production by volume (’000 tons) and value (Kwacha) Gemstone production (kg) Formal employment in mining (1965–2018) Mining share in GDP (1965–2018), per cent Components of the manufacturing sector under ISIC Rev. 4 Manufacturing five- and ten-year average growth rates (1965–2018) MVA per capita selected African countries (in constant 2010 US$) 1990–2018

3 5 39 43 49 51 53 55 56 57 81 85 111 114 115 131 140 144 147 147 149 151 163 170 172

xii

Tables

6.4

Manufacturing GDP by subsector of gross output (1965–1998), per cent Manufacturing GDP by subsector (2000–2018), per cent Growth rates in manufacturing and construction sectors, (2000–2015), per cent Manufacturing index of production Volume by sector 2000–2019 (2000 = 100) Formal and informal manufacturing employment (2005–2018) Components of the agro-processing industry Agro-processing share in manufacturing and total GDP (1965–2018), per cent Agro-processing value added by sector (1965–2018), per cent Agro-processing production index 2000–2018 (2000 = 100) Imports by Regional Economic Communities (US$ billion)

6.5 6.6 6.7 6.8 7.1 7.2 7.3 7.4 9.1

174 175 176 183 186 196 199 201 202 275

Acknowledgements

I received support from different people during the time I was writing this book, and I would like to acknowledge their contribution. I would like to acknowledge the support I received from my family; my wife Dr. Millicent A. Chitonge, and my sons, Chilufya and Alinda, for giving me the space to put this book together under challenging circumstances. I started writing the book before the outbreak of the COVID-19 pandemic, but the larger part of the book was written during lockdown a measure implemented to mitigate the COVID-19 pandemic. I would also like to acknowledge Professor Peter Lawrence for his assistance with the literature on the operations of the colonial office in London, and Minga Kongo for assisting with translating a paragraph in Chapter 1, from French to English. My sincere gratitude to the four anonymous reviewers of the manuscript for their useful comments and suggestions. I would also like to thank Helena Hurd and Rosie Anderson from Routledge for taking this book project from its inception to publication. The book draws from research conducted in Zambia in 2016 and 2017 on the agro-processing sector. The study was commissioned by the International Growth Centre (IGC) at the London School of Economics (LSE). I am grateful for the research grant from the IGC, which supported our agro-processing study in Zambia. I would also like to acknowledge the contribution of the owners and managers of the agro-processing firms in Zambia who participated in our study and gave information and insights about the agro-processing sector in Zambia. I would also like to acknowledge the assistance from the University of Cape Town Library staff who were able to make online resources available during lockdown when the library was not physically accessible.

Preface

Karl Aiginger and Dan Rodrik in their recent article1 have argued that industrial policy has now become a favoured policy position in both developing and developed countries, after many years of declining interest. They attribute, what they call, the “rebirth of Industrial Policy” to several reasons including the pushback against market fundamentalism in the developing world, the challenge of creating adequate employment, the desire to reinvigorate economic activities, the need to create smart industries in the face of climate change, and the imposing figure of Chinese manufacturing. What caught my attention is the question they ask about “whether Africa will become a supplier of manufacturing goods, with manufacturing playing a key in turning around the fortunes of Africa.” Karl and Dan’s paper does not answer this question directly, although there is an implicit expectation in the paper that Africa should actually transition to a stage where manufactured products constitute the largest portion of the export basket. Many non-Africans have asked this question, and although most of them think that Africa should enlarge and deepen its manufacturing capacity, many doubt whether Africa can achieve this. While industrialising the continent has proved to be elusive, it is something many Africans on the continent earnestly yearn for, like a farmer, during drought, waits for the rain. So for most Africans on the continent, the question is not whether manufacturing will become a key economic activity, but rather, when this will be. In this book, I have argued that industrialising Africa will be an act of decolonising African economies because it would entail reorienting the logic and structure of African economies away from the colonial and neocolonial interests. Using Zambia’s industrial journey from colonial times to the present, the book presents a concrete illustration of the elusive nature of industrial development in Africa. One of the questions that attracted my attention leading to writing this book was around why the structures of African economies are so oriented to the export of commodities. For sure, Africa is not the only continent on the planet which exports commodities; commodities are exported from different parts of the globe. What caught my attention, though, was the fact that in African countries, commodities (mostly raw and semi-processed) make up the bulk of the export basket. Not only that, in many countries, the export basket is filled by only a few commodities. When one looks at the trends over time, it is not only the dominance of

Preface xv commodities which becomes evident but also that the dependence on commodities in many countries has been intensifying in the first two decades of the twenty-first century. The United Nations Conference on Trade and Development (UNCTAD), which has been tracking the level of commodity dependence among countries in the world, reported in 2019 that Africa is the most commodity-dependent continent on the planet. For instance, while the share of commodities in total export of other developing regions such as Latin America, South Asia, and the Caribbean was below 40 per cent in 2017, in Africa, commodities constituted an average of 80 per cent of total export. Other indicators, such as the export concentration index, also suggest that Africa has the highest level of export concentration, mainly commodities. One of the things that is quite striking is the number of countries in Africa which are commodity dependent. In 2017, only 8, out of 54 African countries included in the 2019 UNCTAD report on the status of commodity dependence, were not classified as commodity dependent. Even if some of these countries were classified as non-commodity dependent, the share of commodities in total export is still high, averaging more than 50 per cent in some cases (a country is classified as commodity dependent if commodity makes up more than 60 per cent of its export). High dependence on commodity export has long been known in economic development literature to be problematic, largely because of the volatility of commodity prices which impacts on a country’s foreign exchange earnings, the country’s macroeconomic stability, and socioeconomic development prospects. While most African countries depend on the export of commodities, there are variations in the levels of dependence but also the type of commodities in the export basket. In some countries (resource-rich countries), particularly the oiland mineral-rich countries, only a few commodities fill up the export basket. In the non-commodity rich countries, the export basket is filled by a few natural resources, mainly agricultural produce in raw or semi-processed form. Looking at African countries’ structure of export, one is struck by the level of similarity in terms of the composition of export trade. Arguably, this level of similarity in the structure of export cannot be a matter of chance. The similarities we see in African export is a manifestation of the core feature of the colonial economy in Africa, which was set up primarily to supply raw materials to developed countries. In other words, commodity dependence in Africa’s export has its origin in the colonial economy where the export of raw materials was one of its key characteristics. The fact that most African economies have continued to depend on commodities for export show that the core feature of the colonial economy has survived to today. Drawing from the Zambian experience, the book illustrates some of the core features of the colonial economy still present in most African economies today. The book has identified and discussed the core features of the colonial economy in Africa. Using examples from the Zambian economy, the book shows that these features have not only survived to the present, but they have continued to shape economic activities on the continent. In linking the high levels of commodity dependence in African export today to the way the colonial economy in Africa was set up, the book is not focusing

xvi

Preface

on the colonial economy nor entirely blaming the current African export structure on colonialism. By highlighting the colonial economic features exhibited in most African economies, the book is seeking to underscore the point that African leaders have so far failed to decolonise economies on the continent. My intention in this book is not just to point out the failure to transform the colonial economy in Africa, but that Africans need to take responsibility for the failure to decolonise economies on the continent. My other motivation for writing this book was to unambiguously assert that while transforming the colonial economy has been difficult over the past six decades, it is possible to reorient African economies and that this task should not be left to politicians or bureaucrats. The Zambian economy, which is used as an example in this book, while it is not representative of the African experience, illustrates well the challenges of transforming the colonial economy in Africa. Almost six decades after independence, the country still relies on the export of copper for the lion’s share (more than three quarters) of its foreign exchange earnings. It is not just the dependence on the export of commodities which is evident, but other features of the colonial economy such as massive capital outflows, economic and social dualism, enclavity, and lack of or weak internal coherence in the economy. An analysis of most African economies reveals similar features, manifesting the failure to transform these economies. After illustrating the failure to transform the colonial economy in Africa , it is important not just to explain the reasons behind the failure, but also to suggest ways in which the colonial economy in Africa can be radically transformed. In this book I argue that industrial policy is one of the instruments that has the potential to reorient and restructure African economic activities and rationale. However, one has to be aware of the shortcomings of conventional industrial policy, which many African countries have tried in the past, but with little success. Aware of the shortcomings of conventional industrial policy, it is argued in this book that a special type of industrial policy, which I call the Frontier Industrial Policy(FIP), if implemented consistently, can contribute significantly to transforming the colonial economy in Africa. While most African leaders have acknowledged the critical role industrial policy can play in the transformation of African economies and societies, it remains to be seen whether they will be able to formulate and, later on, implement consistently, an industrial policy that can contributes to the structural transformation of economies on the continent. In the current global economic conditions, it is becoming increasingly difficult to achieve meaningful industrial development today, especially in less industrialised countries. But industrialising Africa is still possible, though it would require African leaders to think on the margins; conventional approach to industrialisation will not make a different.

Note 1 See Aiginger, K. and Rodrik, D. (2020). “Rebirth of industrial policy and an agenda for the twenty-first century.” Journal of Industry, Competition and Trade, Vol. 20. No.4. 189–207.

1

The colonial economy in Africa Structure and rationale

Introduction One of the astonishing features of African economies today is how little they have changed in terms of both the structure and the logic under which they operate. Six decades after many African countries started to celebrate the end of colonial rule, most (if not all) economies on the continent have, surprisingly, maintained the colonial economic structure and logic. Even the most structurally transformed economy on the continent (South Africa) has not succeeded in transforming the colonial structure of wealth, income distribution, and spatial residence. For most economies on the continent, the structure of production, for instance, has remained overwhelmingly oriented towards the production of raw materials and semi-processed commodities. The 2019 state of commodity dependence report produced by the United Nations Conference on Trade and Development (UNCTAD, 2019) highlights the extent of commodity dependence in African economies, including the most diversified economies such as South Africa, Egypt, Morocco, Senegal, and Mauritius. According to the 2019 UNCTAD report, almost 90 per cent (45 out of 50) of countries in sub-Saharan Africa are commodity dependent, with the majority (42) of countries having more than 90 per cent of their exports made up of commodities. Only eight countries in Africa (Morocco, Tunisia, Eswatini, Lesotho, Mauritius, Western Sahara, South Africa, and Egypt) in 2017 were classified as non-commodity dependent economies.1 If we look at the share of commodities in total export, the commodity orientation of African economies is clearly evident, with countries such as Algeria, Angola, Libya, Burkina Faso, Chad, Botswana, Congo Republic, Gabon, having their export baskets almost entirely comprising of commodities (an average of over 95 per cent, see Figure 1.1). Only in a few countries such as Tunisia, Morocco, Lesotho, Eswatini, DRC, and Ethiopia have we seen a steady drop in commodity dependence between 2009 and 2017. What is of concern is that, since the first commodity super cycle of the twentyfirst century started at the beginning of the current millennium, commodity dependence has been increasing in most countries. While one might argue that there is nothing fundamentally wrong with relying on commodities, that African countries and indeed some of the now-developed countries such as Sweden, Australia,

2

The colonial economy in Africa

Figure 1.1 Share of commodity in total export, selected African Countries (%) 2009, 2014, 2017. Source: Author Based on data from UNCTAD (2019).

Norway, and the USA relied on exploiting natural resources to transform and develop their economies (Morris et al., 2012; Morris and Fessehaie, 2012), there are major challenges associated with heavy dependence on commodities, as the Zambian experience discussed in this book illustrates. It is not by accident that commodity dependent countries are strongly correlated with low income, lower levels of industrial development, and low social and economic development in general (UNCTAD, 2019). While African economies should indeed draw from the strength of having abundant natural resources, it is imperative that these economies use natural resources strategically to transform and diversify economic activities, and build capacity to produce a wide range of goods and services, in order to promote broad-based and inclusive economic growth. But as illustrated in this book, realising this goal has been an enduring challenge for the majority of African countries, suggesting that the continent has not been using the rich natural endowment to its advantage as others have done in the past. For example, the export concentration index2 for African countries was 0.24 in 1995 but rose to 0.55 in 2011 while in other developing regions, such as Latin America, the index was 0.09 in 1995 and 0.13 in 2011 (Morris and Fessehaie, 2014:26). These aggregate figures hide the variation between countries, as Table 1.1 highlights. What is more worrying is the fact that a number of countries depend on a few commodities, with some countries such as Angola, Botswana, Burundi, Chad, Congo, Gabon, Nigeria, and Zambia relying on the export of just a few

Coffee unroasted Petroleum Petroleum Petroleum Coffee unroasted Petroleum Black tea Tobacco Cotton Tuna Uranium Petroleum Coffee unroasted Petroleum Platinum Precious metal Cocoa Bean Coffee unroasted Copper cathodes Tobacco

Burundi Chad Cameroon Congo Ethiopia Gabon Kenya Malawi Mali Mauritius Namibia Nigeria Rwanda Senegal South Africa Tanzania Togo Uganda Zambia Zimbabwe

70.2 80.6 42.1 85.1 42.1 75.8 18.6 53 35.6 11.3 26.8 85.9 30.4 26.4 7.6 14.5 26.7 32.8 48 20.5

97.3 43.7 13.1 8.6 15.8 22.5 12.3 13.1 6.9 29.1 11 16.1 6.9 24.8 10.5 6.9 8.7 12.8 9.9 26.7 15.3

Sesame seed Manganese oil Cut flower Black tea Petroleum oils Shirts Diamond Natural Gas Vanadium ores Cement Gold Tobacco Gold Tobacco Copper anodes Chromium

21.9

8.6 10.7 6.1 6.5 7.8 6.8 13.4 13.8 9.8 6.4 10.1 9.3 11.2 7.1

Black tea Phosphoric acid Coffee not roasted Cement Fish fillet Cobalt Nickel

7.2

8.9

% Share

Cotton Shirts Cut flowers Coffee not roasted Uranium Sesame seed Cane beet Zinc

Diamond Pearls Wood

% Share Third commodity

Black tea Petroleum oils Cocoa bean

Nickel mattes

% Share Second commodity

2 1 6 1 19 3 48 5 4 43 6 1 4 18 92 24 8 13 3 17

1 4

Number of export products making up 75% of total export

0.39 0.77 0.34 0.54 0.29 0.65 0.24 0.45 0.62 0.21 0.26 0.76 0.34 0.21 0.13 0.3 0.24 0.21 0.67 0.33

0.93 0.89

Export Concentration index 2017

Source: Author based on data from UNCTAD (2019). Note: The export concentration index (Herfindahl–Hirschman index) measures the degree of concentration of export products for a country. The index ranges from 0 to 1, with the value close to zero being the least concentrated while the value close to 1 reflects the most concentration of export products.

Petroleum Diamonds Raw

Angola Botswana

Firstcommodity

Table 1.1 Top three export commodities and export concentration index, selected African countries (2017)

The colonial economy in Africa 3

4 The colonial economy in Africa commodities for the bulk of export earnings (see Table 1.1). Clearly, African countries have not been using commodities to build capacity to move into high value-added activities including processing of raw materials into finished products. Most of the African commodities are exported in the raw or semiprocessed form, with little value added, leading to a situation where high valueadded activities are still taking place outside of the continent, as was the case during colonial times (UNIDO, 2016).3 If we look at the top six exports from Africa between 2011 and 2017, four out of the six are commodities, and importantly, they constitute almost 93 per cent of the top six exports on average, over this period (see Table 1.2). Whereas there are various factors which account for the pervasive nature of commodity dependence in African economies, the way these economies were set during colonial times is one of the important factors. Having said that, the colonial origins of African economies should not be an excuse for African governments’ failure to transform and diversify these economies. If we agree, as I argue in this book, that the colonial economy established in Africa was not intended to serve the interests of Africans, then it is up to Africans to ensure that the structure and the logic of the colonial economy is transformed to serve the interests of the majority of the people on the continent (not just a few connected African elite as has been the case in the past). The Europeans, Americans or the Chinese will not transform the colonial economy in Africa; Africa has to reverse the colonial economic logic and structure. This is the central argument which this book, using the Zambian experience, has presented, arguing that a special type of industrial policy, which I refer to as Frontier Industrial Policy (FIP), is needed as a strategic instrument for transforming the colonial economy in Africa. This book, through the detailed analysis of the Zambian experience and strategies aimed at transforming the colonial economy, illustrates that structures of the colonial economy in Africa are very much alive today, six decades of independence. The Zambian experience is not meant to be representative of the experience of other countries; it is presented here to illustrate that the general challenge of transforming the colonial economy in Africa. Recent analysis of trends in structural transformation and diversification of African economies show that most African countries have struggled to transform the colonial economic structure (ACET, 2014, 2017; Chitonge, 2019). While it is acknowledged in the book that there have been structural shifts in African economies, including the Africanisation of major positions in both private and public sectors, the core features of the colonial economy have survived to the present. The book argues that the fundamental structure of African economies has remained extroverted such that the economic activities conducted on the continent bring little benefit to the majority of Africans. This is a central factor in explaining why a continent so richly endowed with a diverse set of human and natural resources has remained the most impoverished continent on the planet! Africa has remained the most impoverished region on the planet, and this is not by accident or the conspiracy of nature or geography, as some analysts often like to hypothesise. On the contrary, the impoverishment of the continent is a direct outcome of

27 26 71 74 87 85

54.7 3.9 8 1.8 1.8 2 72. 2

58 3.1 7.6 2 1.7 1.7 74.1

2012

Source: Author based on data from African Trade Statistics (AU, 2019).

Fuels Ores, slag, and ash Precious and semi-precious stones Copper products Vehicles Electrical equipment Total

HS2 (2-digit) 2011 codes

Table 1.2 Share of top six African exports in total export % (2011–2017)

50.9 3.8 11.2 2.3 2 2 72.2

2013 50.1 3.5 7.9 2.7 2.4 2.5 69.1

2014 37.8 3.8 9.9 3.3 3.5 3.1 61.4

2015

29.5 8.4 12 2.8 3.8 3.4 65.5

2016

31.5 15.4 9.9 2.7 3.2 2.8 65.5

2017

44.6 6.0 9.5 2.5 2.6 2.5 71.4

Average

The colonial economy in Africa 5

6

The colonial economy in Africa

the failure to reorient economic activities in such a way that these activities taking place in Africa benefit Africans most. In other words, the impoverishment of the African continent is a direct consequence of the failure to reverse the colonial economic logic and the structure this logic has given rise to. The discussion in this book is built on the simple argument that colonial economic activities and structures established in Africa were first and foremost intended to benefit Europeans who settled on the continent and those who owned the businesses which operated in Africa. Any benefit that might have accrued to Africans was secondary and unintended. In view of this, it is argued in the book that Africans must identify and analyse these surviving colonial economic structures with the aim of finding practical ways of transforming them. This requires the reversal of the colonial economic logic—the decolonisation of the economy in Africa by Africans. When the Europeans tried to organise economic activities in Africa, they did so in ways that served their own interests (although some argue, as we will see below, that they did this for the benefit of Africans), and so will the Chinese, the Americans, etc. The task of transforming economies in Africa will only be done if Africans do it themselves, and the starting point is to identify what needs to be changed. Transforming African economies will continue to be elusive without grasping the logic behind the colonial economy. It is argued in this book that a special type of industrial policy (IP) will have to be formulated and implemented consistently if the decolonisation of the economy on the continent is to succeed.

The role of industrial policy Nothing short of a Frontier Industrial Policy (FIP)4 will successfully transform the colonial economic structure and logic on the continent, both of which are still dictating the nature and pace of economic activities in Africa today . It is only when such a transformation succeeds that the majority of African people will start to benefit from African resources (human and natural). The emphasis in this argument is on the need for a radical approach to industrial policy (IP), knowing very well that conventional IP will not change much on the continent, as has been the case in the past. Given the tight global economic situation today, it is only a radical approach to IP that can meaningfully contribute to transforming the economic structure in Africa to generate sustainable and inclusive economic growth. In a fundamental way, any industrial policy deserving of the name, entails a drastic departure from orthodox theories and practices (Cramer et al., 2020). Any serious IP would involve more than just being “a good night watchman,” even if one restricts the scope of IP to that of lessening the impact of market imperfections (Rodrik, 2008). Some analysts have argued that IP is now favoured not just in developing countries seeking to catch up with industrialised countries but in developed countries also seeking to revive economic momentum (Aiginger and Rodrik, 2020). Without going into the details of what FIP entails here, it is noteworthy to point out that for any IP to be an effective tool for transforming the colonial economic

The colonial economy in Africa 7 structures in Africa, African policymakers will have to push the art of designing and implementing IP to its margins. It is in the sense of operating on the margins that I am using the term “frontier.” Frontier here also takes up a very economic meaning of coming up with strategies which enable one to operate on the margins of the production possibility boundary. Nothing less than stretching IP to its frontiers will make a difference in the African context. In other words, it is only a unique IP that will have any chance of contributing to a successful transformation of African economies; the average approach to IP will not do it, as experience in the past has shown. We come back to this point in the last chapter where the features of a FIP are discussed in more detail. Industrial policy in the context of development should be understood broadly to include the strategies aimed at promoting economic growth and development generally (UNECA, 2016). Here a restricted meaning of IP is adopted to emphasise the importance of industrial development in the narrows sense. This is not done to denigrate other economic sectors, but to stress the point that “making things matters” (Chang, 2016), and in the African context, making things matters a great deal. The need to decentre the colonial economic rationale The struggle of post-colonial African leaders to envision and create a different economic structure from what they inherited at independence is a result of internalising the colonial economic rationale rooted in the idea of static comparative advantage. This view, which was propagated during colonial rule for the simple reason that it provided a strong justification for setting up mono-economies in Africa heavily dependent on the production and export of commodities, has been internalised by African policymakers in such a way that it makes it is difficult for them to envision a different economic structure. African economies that were set up to produce copper have largely remained copper-based economies even today; economies that were steered towards the production of cocoa, tea, coffee, cotton, or rubber have largely retained the same production base, with only little cosmetic change. This is particularly true when it comes to the export base as highlighted later in the subsequent chapters on Zambia. The core production structure set up during colonial rule has largely remained intact in most countries. But the fact that the colonial economy in Africa was set up to produce raw materials is not fate; it can and should be changed

Why the Zambian experience? In order to illustrate the central argument and the analytical framework of the colonial economy in Africa, it is vital to present concrete examples. Presenting the experience of all 55 African countries is clearly beyond the scope of a single book; instead an example that resonates with the experience of many other countries is presented in this book to help illustrate the central argument. The Zambian experience is presented without presuming that Zambia is a representative case

8

The colonial economy in Africa

of the struggle to transform the colonial economy in Africa. As is well known, African economies differ in many respects, such as size, level of industrial development, organisation of production, composition of export products, etc. If one were to look for exact commonalities as the basis for grouping African economies together, it would be hard to find such. However, one of the experiences all African countries share (except Liberia and Ethiopia, which were not physically occupied though equally affected by the colonial economic logic) is that they were all set up during colonial rule. If we use the colonial origin and structure as the common factor, the South African and the Moroccan economies then have something in common with the Mozambican and the Ghanaian economies. Of course, the specific articulation of the colonial economy may be different, but the underlying factor is that they were created by colonial/imperial forces, with specific economic goals. The significance of the imperial/colonial origin is that all these economies are imbued with a specific rationality (the colonial economic logic). It is in this sense that the Zambian economy today has a lot in common with the South African, Algerian, Kenya, Ugandan, and Togolese economies, etc. The Zambian economy today manifests strong signs of an economy struggling to transform the colonial economic structure. The recently launched Seventh National Development Plan captures the struggle to transform and diversify the economic structure inherited from the colonial regime: … the country [has]continued to be dependent mainly on its copper industry. Zambia's dependency on this industry continued to make it vulnerable to commodity price fluctuations. Despite the post-2000 policy initiatives to diversify the economy by building stronger manufacturing and agriculture sectors, mining still remained the dominant sector. (RoZ, 2017:4) This is reiterated in the Draft Industrial Policy which sees the growth of the manufacturing sector as key to diversifying the economy away from being overly dependent on copper and related minerals (RoZ, 2018). As of 2015, the mining sector in general, dominated by the copper industry, still accounted for 77 per cent of total foreign exchange earnings (RoZ, 2017).

Did Africans benefit from the colonial economy? Although many commentators assume that prior to the establishment of colonial regimes in Africa there were no activities which could be classified as “economic” in the sense of organised production, markets, and systematic measure and exchange of value, a sober student of Africa does not need to be reminded of the fact that there were thriving civilisations in Africa with sophisticated organised production and market systems, and the accompanying art of recording data, centuries before the colonisation of the continent. Needless to say, “the art of accurate counting is by no means a Western invention.” Many precolonial African communities such as the Asante and Dahomey in West Africa had for centuries

The colonial economy in Africa 9 collected data on “agriculture production and the human and livestock population within their dominions” (Duignan and Gann, 1975:33). Therefore, the argument that “economic activities” in Africa were initiated through European contacts (Bauer, 1975) is a distortion that can only be defended when someone’s view is blinkered by Western hegemonic posturing. While there is no doubt that European colonisation of Africa drastically changed the structure of African economic activities, colonisation did not mark the beginning of economic production, exchange of goods and services, or systematic recording of data in Africa. African communities had engaged in these economic activities way before any contact with Europeans. The assertion that economic activities in Africa were introduced by Europeans is often used as a prelude to validate the view that the European colonial project in Africa was carried out to the benefit of Africans; that without the Europeans coming to Africa, Africa would not have seen the “progress” it has enjoyed so far. Bauer (1975:633) makes this claim more explicitly by arguing that colonialism induced “profound changes in the conditions of life, and material progress,” such as longer life expectancy, better health outcomes, the end of slavery and famine, and a reduction in pandemics. In a review of an influential book on the history of colonial expansion in Africa, The Economics of Colonialism in Africa, edited by Peter Duignan and L.H. Gann, Douglas Rimmer (1978:267) asks the question of whether colonialism was beneficial to Africans or not, and argues that “the question is of course objectively unanswerable” because it is not possible to do cost– benefit analysis on colonialism, especially in Africa. However, later in the same chapter, he provides an answer to the question he asked earlier, and openly states his position: “imposition of imperial power was an economically liberating force providing opportunities previously denied by political disorder, lack of transport and communications, absence of skills and knowledge” (Rimmer, 1978:269). For Rimmer and Bauer, the answer to the question of whether colonialism was beneficial to Africans is a resounding yes; Africans benefited from the organised economic activities, from the modern means of communications, modern medicines, European forms of governance, political and social order, new skills and knowledge and technology, and the civilising influence brought about by the introduction of colonial governments. The big debate is whether these outcomes of European activities in Africa were intended to benefit Africans. For example, even if Cecil John Rhodes’ British South African (BSA) company did build the railway line from Cape to the Congo border, the big question is, did he build this railway line to improve the welfare of Africans living in the areas through which the railway passed? Did King Leopold II’s extraction of resources in the Congo Basin benefit the people in that area? Roads, railways, modern medicine, schools, electricity supply, etc., sprung up in Africa as a result of colonisation, but that does not mean that these facilities were intended to benefit Africans. As highlighted below, in places where these facilities were well developed, Africans were tactically excluded from enjoying the benefit of these facilities; they were intended to benefit Europeans who settled in Africa. Even in parts of Africa where only a handful of Europeans settled, the settlers exclusively monopolised these facilities

10

The colonial economy in Africa

and the advantages that come with them. In cases where Africans benefited from the colonial operations, the benefits were pure externalities in the strictest sense of the term (Rodney, 1972). Even if one were to admit that the colonial project benefited Africans to some extent, weighing what Africans lost against whatever benefit they received from colonial rule points to the massive loss Africans suffered. There is nothing that can compensate for Africans’ loss of the ability to determine their own lives, the freedom to determine how to use their land, and most importantly the loss of human dignity through systematic racism which has had debilitating effects in all spheres of life in Africa, including the economic sphere. Colonialism, seen from an African perspective, was indeed a dehumanising experience. Therefore, no matter what improvements in transport, Western medicine, trade, life expectancy, education, religious practices, technology, or political organisation colonialism brought to Africa, it cannot make up for the dehumanising experience which Africans endured; the degrading of Africans into lesser human beings. Turning Africans into tenants on their own land cannot be compensated for by any notions of development or progress. No amount of benefit could outweigh the cost of enduring foreign invasion and the appropriation of the power to decide how one lives one’s life. Seen from a European perspective, where the dehumanising experience of colonialism may not be so obvious, it is possible to identify several things that might make it look as if the invasion of Africa was intended purely as an act to save those being invaded. But from an African perspective, the atrocities of colonial invasion and rule cannot be offset by whatever form of improvement one may point to. The origins of African economies In order to appreciate why African economies were structured the way they were, it is important to understand the reasons behind European colonisation of Africa, because this influenced the nature and structure of the economies set up. As noted earlier, African economies have not remained exactly the same since they were set up 140 years ago. Nonetheless, the core of the colonial economy (its logic and structure) has persisted in most of these economies and continues to shape the pace and direction of economic activities in African today. Understanding the origin of African economies today is crucial because the way these economies were initially set up has largely constrained their trajectory. In a way, the colonial economic structures have over time created vicious circles which impede economic structural transformation. Sixty years after the end of colonial rule in Africa, the signature of the colonial economic logic is neatly inscribed on all African economies and African societies like a DNA (deoxyribonucleic acid) code, dictating the nature, shape, and scope of economic activities in Africa. Most African countries have been struggling to decouple (possibly delete) the colonial economic DNA code as manifested in the failure to transform the economies and create a new economic structure infused with an African rationale. However, it is fundamentally

The colonial economy in Africa 11 wrong to sustain structures which were intended to exploit Africa and its peoples. Therefore, the definitive failure of post-colonial African economic policy lies in its inability to transform the colonial economic rationale from its strong proclivity towards extracting resources (both human and natural) to an economic structure that seeks to reinvigorate and stabilise the continent. Instead, what most African leaders have done is to continue massaging and tinkering with the colonial economy, leaving the pillars of this exploitative structure almost intact. As a result, post-colonial African economies are still operating as satellites of the developed economies in the North, embroiled in the same international division of labour (Chitonge, 2019). Some analysts (see Chabal and Daloz, 1999) have argued that the African elite benefit from this set-up just as the European settlers benefitted from colonial regimes; that what seems to be irrational, is in fact rational. If maintaining the colonial economic structure makes sense and is beneficial to the African elite, then they are betraying African people and therefore do not deserve to be leaders. A recent letter from a group of African intellectuals in the context of the COVID-19 pandemic has made this point poignantly (Aljezira News, 2020).

The anatomy of the colonial economy in Africa An analysis of economic structures and activities in Africa during the colonial period lays bare the intent and logic behind the colonial project, mainly because this is one area which was dominated by a small group of Europeans whose primary interest was to make money out of Africa. In the exploitation of timber and rubber in the Congo (both Congo Brazzaville and Congo Kinshasa) and rubber in Sierra Leon, copper in Zambia, gold and diamonds in South Africa, Ghana, Namibia, and Zimbabwe, the African was only seen as a tool in the grand scheme of making the most out of Africa’s resources. Even if it has been argued that colonial trading and concession companies made little money out of Africa, that the returns were very low to justify the investments that flowed into Africa (Wilson, 1975), the economic undertakings in Africa during colonial rule had no consideration of African interests either. Features of the colonial economy in Africa While many analysts acknowledge the fact that modern-day African economies have their origin in the colonial encounter, features of the colonial economy are rarely discussed in the debates by African scholars. Among African scholars, Claude Ake (1981), in his book A Political Economy of Africa, is one of the few authors who sought to outline the structure of the African colonial economy. In this rarely cited work, Ake (1981) discusses the three key features of the colonial economy in Africa: disarticulation, dependence (monetary, trade, investment, aid, technology, knowledge, etc.), and discontinuities of social relations of production. Writing in the 1980s, he argued that even if there had been attempts to reduce dependence in several countries, an overwhelming majority of African countries

12 The colonial economy in Africa continued to manifest high levels of dependence in various ways. He further argued that disarticulation was not just pervasive in economic activities, but in other fields including cultural and political ones too. The next section briefly outlines the major features of the colonial economy in Africa and shows that these features have survived to the present. Lack of internal coherence—disarticulation One of the enduring features of the colonial economy in most African countries today is the lack of internal coherence. In simple terms, an economy lacking internal coherence is one where the different parts of the economy are not complementary to each other; they are not properly connected or linked. In other words, the different parts or sectors of the economy are disarticulated (Ake, 1981). Internal coherence, on the other hand, is manifested in an economy if different sectors and subsectors are connected through inter- and intra-sectoral linkages in such a way that the primary sector’s production is largely absorbed into the secondary and tertiary sectors and vice versa (Hirschman, 1958; ACET, 2017). An economy in which different sectors are not properly connected has weak or fragmented linkages, and this often affects the overall performance of the economy in question (Saika, 2009). Internal coherence is a central feature of an established mature economy. This applies even today when globalisation has fragmented production lines into minute operations spread across different countries (Newfarmer et al., 2018; Davis et al., 2018). It is important here to highlight that internal coherence in an economy does not mean or entail self-sufficiency or autarky; an internally coherent economy can source intermediate and capital goods from other economies. It is the degree to which the linkages between different sectors and subsectors in the economy are established which distinguish an incoherent (underdeveloped) economy from a coherent (developed) economy. The idea of linkages derives from the fact that different parts of an economy rely on each other to produce the total goods and services, as such linkages create coherence in the economy such that different sectors become interdependent. For instance, in an economy with strong internal coherency, production in manufacturing draws most of its inputs from agriculture, forestry, and fisheries, just as the agriculture sector, in its production process, draws some of its inputs from the services sector (e.g., transport and financial services) and the manufacturing sector (e.g., fertilizer and machinery. In this way, the different parts of the economy articulate together to produce the total national output. In contracts, the colonial economies in Africa and elsewhere were set up as outpost centres, primarily structured to supply raw materials to the metropoles. As such, internal coherence in all colonial economies has been lacking, for the simple reason that most of the economic activities were only completed outside the countries and the continent. To put it in more concrete terms, the circuits of production in the colonial or periphery economy are mostly incomplete; they are completed outside of the colonial economy (Alavi, 1982). The copper, cocoa, tea, cotton, gold, platinum, palm oil, etc., produced in a colonial economy is not processed into a finished product there;

The colonial economy in Africa 13 instead it is exported, mostly in its raw or semi-processed form, to be processed in developed countries. During the early days of colonial rule, this was regarded as the norm because the local colonial economy was primarily set up to produce raw materials to supply the developed centres of the world. The processed raw materials were then brought back as copper wire used in electronics, chocolate, tea, and coffee for the consumption by a few elite (mainly Europeans and later a few Africans) in the colony. While the situation has slightly changed today, the underlying economic rationale is the same, which is the production of raw materials for export. Recent estimates suggest that Africa is now spending an average of US$68 billion per year on imports of processed foods consumed by the rapidly growing urban population (ACET, 2017). Absence of strong industrial development, particularly manufacturing in Africa (which has continued to the present), was often justified by the argument that economic conditions on the continent at that time were not suitable for establishing extensive secondary industrial activities. Factors cited to support this view include the view that the population in most parts of Africa was scattered (Austin and Jerven, 2018), and that most foreign investors were not keen to commit resources to Africa due to lack of infrastructure, security, and skilled labour (Pedler, 1975). Other analysts point to the small size of African domestic markets (we see this in the case of Zambia) at that time (see Kilby, 1975; Frankel, 1938). But it has been shown that even at that time, there were parts of Africa, particularly in West Africa (Nigeria for example), where the market was large enough to create significant domestic demand for manufactures (Austin and Jerven, 2018). Yet even in such places, industrialisation was ignored; it only started to grow after independence. The colonial economic structure that emerged did not create internal coherence, because the primary objective was to export commodities. As shown earlier, this commodity-oriented economic structure has not been transformed in most African countries even today, resulting in African economies having weak linkages between sectors. Individual sectors and subsectors often have strong linkages to external markets, signifying the disarticulation between sectors in the domestic economy. As the analysis of the Zambian economy reveals, six decades after the fall of colonial rule in Africa the different parts of what make up most African economies are loosely connected. A recent study of the copper value chain revealed that in 2017, only 2 per cent of Zambia’s and 0.5 per cent of the DRC’s copper export constituted semi-processed (intermediate) products in the form of copper wire (Makgetla et al., 2019:3). This means that 98 per cent of refined copper from Zambia was exported in its raw form. The extraction of copper out of Zambia without adding much value contributes to the weak manufacturing sector, as shown later. While this structure serves European (and now Chinese) interests well, it constrains economic development in Africa. Lack of internal coherence: the spatial dimension The lack of internal coherence is not just limited to the input and output flow between and within sectors; it also has a spatial dimension. In Africa, the spatial

14 The colonial economy in Africa aspect of disarticulation extends to the nature and the spatial spread of both the communication infrastructure systems and economic activities. Ake (1981) makes an interesting observation that if one looks at the colonial transport systems across Africa (most of which have remained the same even today, with minor adjustments), the logic behind the infrastructural design in terms of its spatial configuration is laid bare and ties in well with the economic structure and the logic behind it. In what is now known as Zaire [now Democratic Republic of Congo, DRC], there is the Chemin de Fer de Bas-Congo au Katanga, built to connect the mineral rich Katanga to the sea. In Congo there is the Congo-Ocean Railway, built expressly to facilitate the transportation of manganese ore from Gabon, as well as forest products. In Nigeria, the Kano-Apapa railway line was built to facilitate the collection of cotton, groundnuts and cocoa for export. And the Enugu-Port Harcourt line was built to serve the oil-palm trade (Ake, 1981:44) There are other examples of the transport system which specifically targeted a single activity, without any connection to other activities in the area, leading to spatial incoherence in the system. Peemans (1975) argues that the incoherence in the transport system, and indeed in the entire economic structure, was partly a result of the fact that most of these colonial projects were being undertaken at the behest of the concession companies in alliance with the colonial state. For the colonial companies in Africa this made sense since the primary aim was to extract natural resources to promote rapid accumulation of wealth and power. Although it has been argued that the construction of this fragmented transport system presented an opportunity for auxiliary activities to emerge alongside these lines of communication (Katzenellenbogen, 1975), the fact remains that the colonial transport system, from the beginning, was never planned to be a coherent system. Pedler (1975) notes that while the colonial state in the days following the Scramble for Africa participated in the administration of the newly acquired territories, most of the planning and administrative tasks, including the construction of transport infrastructure for the colonies were conducted by trading companies, often in a disarticulated fashion. In this sense, The railway systems of colonial Africa are an excellent example of the disarticulation of the colonial economy. They did not constitute in any country a coherent system of communications. Neither did they contribute to the building of a coherent economy. They were built ad hoc according to the metropolitan interests of the moment… The incoherence of the railway system rendered related ancillary communication facilities chaotic as well. (Ake, 1981:44) For example, in Southern Africa, the Rhodesian Railway from Cape Town to the Congo Border was constructed by the British South African (BSA) Company,

The colonial economy in Africa 15 while the Niger Company built harbour facilities in Nigeria, and the Sierra Leon Development Company built a railway line to facilitate the transportation of iron ore to the sea (ibid.:1010). In other words, a transport system that was carefully planned to cater for a number of industrial activities provides a better foundation for the emergence of an internally coherent economy, because there is an intention for the different parts of the economy, including the transport sector, to function as a coherent unit. The implications of the failure on the part of post-colonial African leaders to transform the colonial structures are that lack of coherence, not just in the transport sector but in the entire economy and society at large, persists. It can therefore be argued that the incoherent nature of the colonial economy has imposed a huge constraint on the development of industries in Africa, particularly manufacturing. The dominance of extractive activities The other surviving feature of the colonial economy in Africa is the dominance of the extractive sector as a major economic activity. The extractive sector is understood as a primary sector which includes agricultural, forest, fisheries, mining, and extraction of oil. In 2019, the UNCTAD report cited earlier shows that the levels of commodity dependence in most of these countries are extremely high (see Figure 1.1). One of the major problems of depending solely on the export of a few commodities is that when the prices of commodities on the global market fall, commodity-dependent economies find it difficult to generate enough foreign currency to cover their import bills (Singer, 1950; UNECA, 2012). When the prices of commodities are high, these economies thrive, as we have seen in the past. A good example of this is the commodity super cycle of the twenty-first century which started around 2002 and ended in 2012/13 (Jacks, 2014; Lof, 2019). Falling commodities prices, as was the case in 2009, 2015, and currently as a result of COVID-19, present serious economic challenges for commodity-dependant countries (Bcom, 2020). Declining commodity prices, especially fuels (oil and gas) and minerals which have been reported,5 means that commodity-dependent countries have fewer foreign exchange earnings required to pay for imported goods. For African countries, this is familiar territory. Extractive industries, as the name suggests, involve the extraction of natural resources such as timber, agricultural produce such as cocoa, soya and coffee beans, fish, minerals, oil, and gas. In the colonial context, it made sense for the European companies to extract palm oil, cotton seeds, rubber, and timber, and send them to Liverpool and other European cities for processing into various products such as soap, animal feed, margarine, chocolates, etc. (Rodney, 1972; Wilson, 1975). What this meant was that most of the raw materials extracted from Africa left the continent with little value added, such that addition of value to these commodities occurred outside of Africa. As a result, the largest value generated in the commodity value chain was captured in countries outside of the continent.

16 The colonial economy in Africa Not only that, the dominance of extractive industrials in most African countries made it possible to disregard supporting industrial activities because it was possible to make money simply by shipping out copper ore, cocoa beans, or tea leaves. If the larger portion of the value generated in the processing of these natural resources into finished and intermediate goods were captured in Africa, Africans would benefit more from these natural resources than they currently do. An aggressive industrial policy can play a decisive role in trying to turn African economic fortunes around. If African economies diversify their production structure to include a variety of manufactured products in the export basket, it will reduce the vulnerability of their economies from the external price shocks which have rendered economic growth in Africa episodic (see Ndulu and O’Connell, 2008; UNCTAD, 2019). Economic structural dualism Dualism is another common feature of the colonial economy in African which has largely survived to the present. While dualism is a feature widely regarded as a sign of economies which have not yet undergone the process of structural economic transformation or development (Lewis, 1954), in Africa dualism assumes two meanings, both of which have their origin in the colonial experience. The first meaning of dualism is the conventional one which suggests the existence of two different but connected sectors in an economy: the modern and the traditional sector in the Lewisian framework; the formal and informal sector, and the sharp distinction between rural and urban settings. An important measure of economic dualism is the size of the productivity gap between sectors in an economy. Where dualism is eliminated, productivity and wage differentials converge within a narrow margin, signalling the integration of different parts of an economy. For example, when dualism is eliminated in an economy, “real” wages in the rural and urban sector converge, such that allocation of factors to either sector becomes competitive, leading to improved efficiency throughout the economy. The second meaning of dualism in Africa, especially during colonial rule, took on a racial dimension where a clear distinction was made between the European settler and the indigenous African in every respect of life. This dimension of dualism intersected with the first dimension to create a structure which strictly maintained separateness in labour relations, standards of living, education facilities, assessment of productivity, and wages. During colonial rule, the separation of the two systems affected not only the economic structure, but every sphere of life: The dualism of society in Rhodesia and Nyasaland is an all-pervasive phenomenon. It is expressed in all facets of social, political and economic life. But its economic aspects can best be viewed through the contrasting forms of economic organisation which coexist… (Barber, 1961:4)

The colonial economy in Africa 17 All these structures resulted in European settlers keeping Africans in a “subordinate political and economic role” that constrained their integration and progression into modern life (Mhone, 1982:29). In an African context the two types of dualism are a result of grafting a European capitalist economic logic onto a “natural” economic setting (Luxemburg, 1951). This dualistic economic, social, and political structure, while benefitting European settlers, worked against the interests of Africans in many ways by placing a structural impediment to their progress and development. In a fundamental way, this structure created a situation where the system maintained huge privileges for European settlers at the expense of indigenous Africans. This was the case even in colonies with a small settler population such as Northern Rhodesia: On the eve of independence expatriates and settler, even if they represented only 3% of the total population and 11% of the labour force in Zambia, virtually controlled the economy. They constituted almost all of the administrators, managers, professionals, and highly skilled workers in Zambia. Owing to their monopolistic position… they have wrested from the economy a standard of living unequalled by their counterparts in Rhodesia, South Africa and Great Britain, and in drastic contrast to the abject poverty of the rest of the indigenous population. (Mhone, 1982:27) This structural imbalance created during colonial rule has impacted on the nature and structure of economies in Africa, with high degrees of dualism in many aspects existing even today. Although now the line of distinction is not along the lines of racial privileges, as was the case during colonial rule, the structural challenges of creating an economy that is inclusive, with meaningful participation from the broader society, have not been addressed. Since colonial times, African economies have not solved the challenge of under-employment, which is a sign of dualism. As Mhone (2001) argues, under-employment is at the heart of the challenge of structural transformation and development in Africa, which has not been resolved. While dualism can be attributed to the uneven nature of capitalist development in any part of the world (Cramer et al., 2020), in Africa the colonial racist ideology fuelled a vicious form of unevenness built on extra-economic mechanisms and social structures. Capital outflow The other important feature of the colonial economy in Africa which has survived to the present is the phenomenon of capital flow. We will see in the case of Zambia that during the colonial period the mining companies that operated in the country paid dividends to people in Europe and America, and to European settlers in South Africa. Although capital outflow during the colonial period took the crudest form, with no restrictions on money flowing out of Africa, the situation has continued till today, though in different and more sophisticated ways. In more

18

The colonial economy in Africa

recent years, when some African countries have sought to regulate the way profits are handled by big transnational companies, the bulk of the money made in Africa flows out illicitly through various means including transfer pricing, misinvoicing, and other tax avoidance practices. The dominance of extractive activities in Africa enhances illegal capital outflows. In the example of the mining sector in Zambia, which is discussed in Chapter 5, one of the challenges that still exists is the fact that money generated within the country is often illegally expatriated (Curtis and Jones, 2017; AU/ECA, 2015). In Zambia, it is reported that in 2016, US$5.6 billion (equivalent to 10 per cent of total copper export) was lost as a result of misinvoicing of copper sales receipts by mining companies (Liebenthal and Cheelo, 2018). The effects these massive capital outflows have on Africa has been documented in a High-Level Panel Report commissioned by the African Union (AU/UNECA, 2015). There are other structures of the colonial economy that have survived in many African economies today which have not been mentioned, but those which have are meant to highlight the point that core features of the colonial economy have survived to the present day and that they have continued to constrain economic growth on the continent. In order to appreciate the reason why the colonial project has enduring effects on Africa’s economic development one has to start from the economic rationale behind the colonial project. The main rationale for setting up African economies in the way they were during colonial rule can be found in the core objective of a colony or protectorate: African colonies, like other parts of the world, were developed in order to produce raw materials while importing manufactures and capital. The result was inevitably a high degree of commercial metrocentrism, intense specialisation in a few raw materials, and uneven development. (Fieldhouse, 1971:641) The features which Fieldhouse mentions capture well the key features of a colonial economy: specialisation in production of raw materials, dependence on importation of manufactured goods, construction of enclave economic activities, and perpetual reliance on foreign capital for development. To understand why these features dominated the colonial economy in Africa it is important to look at the main motive behind colonial expansion into Africa.

The colonial project in Africa: the rationale Understanding the colonial project in Africa Why did the imperial forces (French, British, Portuguese, Spanish, German) decide to invade and rule Africa? Once we understand the reasons behind the colonial project, it is easier to understand the logic behind the colonial economy in Africa and other places. In other words, it is important to grasp the motivating factors of the colonial project in order to understand the logic behind the colonial economy in Africa. If the main aim of colonialism, as suggested here, was to

The colonial economy in Africa 19 “exploit the physical, human and economic resources of an area to benefit the colonizing nation” (Austin, 2010), then the structure of the colonial economy in Africa does not come as a surprise. Understanding the colonial economic logic requires paying attention to the inner logic of the colonial project not just from the economic point of view, because the colonial project was not just an economic excursion, as some analysts tend to suggest. The colonial project had many other dimensions to it (Wilson, 1975). I must note here that discussing the colonial project is not the focus of this book. The following brief outline is meant to highlight the fact that colonialism seen from an African perspective appears different from the European point of view. My focus here is mainly to provide the background which can help the reader to grasp the colonial economic logic. Diverse interests of the colonial project When one looks at the main actors in the colonial project in Africa, it becomes apparent that they pursued diverse interests and were motivated by different things. For example, in the case of the British, three different groups, with different objectives, stand out: the merchants; the landlords, and the politicians. Writing specifically about the British, it has been observed that the economic interest of the British officials, merchants and landlords merged in the pressure for European settlement. Landlords envisioned speculative gains, merchants saw expanded trade, and [government] officials found European immigrant settlers the best possible agents to build up and manage production of agricultural exports. (Wolff, 1974:136) In the vast literature on colonialism in general and on Africa in particular, analysts have offered a diverse set of factors as reasons behind the European expansion and colonisation of other parts of the world, including Africa. Factors which are often cited as drivers of colonisation include the expansive spirit of the Victorian era (Robinson et al., 1961), the rivalry between the major European Powers of the time (Gifford and Louis, 1971), the liberal ideology among the British, particularly, which they believed spurred them not only to conquer faraway places but to extend European civilisation to the whole of humankind (Fieldhouse, 1971). One of the common factors, though, is that the Europeans were seeking to control the supply of raw materials for industries in Europe and looking for markets for European products (Ake, 1981). It is also argued that the growth of capitalism in Europe ultimately led to the expansionist project of imperialism and colonisation (Lenin, 1917 [2005]). Other analysts suggest that the search for profitable markets and investment opportunities by investors and business people was the main driving factor behind colonisation (Hobson, 1902). The growth of nationalism and political ambition among European politicians is also often cited as a major factor behind European colonialism (Wilson, 1975; Fieldhouse, 1971). Schumpeter

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(1919) attributed colonial expansion to an irrational expansionist impulse which he believed was a remnant of medieval European practice. To these should be added other factors such as philanthropic interest and religious conviction, and, in particular, the intention to spread Christianity. A full discussion of each of these factors is beyond the scope of this chapter and book. Suffice it to say that colonialism as a project was ultimately undertaken as a result of a mixture of all these motives. A grand project of the magnitude of colonial expansion can only be a convergence of motives of the various groups which supported the project (Wilson, 1975). Ultimately, the colonial project was fundamentally a self-serving mission conducted for the benefit of the colonising nations. This has been aptly captured in a book that set out to examine the “official mind of imperialism”: Indeed any theory of imperialism grounded on the notion of a single decisive cause is too simple for the complicated historical reality of the African partition. No purely economic interpretation is wide enough, because it does not allow for the independent importance of subjective factors. (Robinson et al., 1961:471) The partition of Africa perhaps exhibits a mixture of motives more than does the colonisation of other places. European expansion into Africa, particularly by the British, has been explained as a “by-the-way” incident in the grand plan to protect British interests in the Far East, particularly India (ibid.). Colonialism: European enthusiasts and critics While there is no agreement among scholars on what exactly motivated Europeans to invade and take over the governance of Africa, debates within the colonising nations reveal that the colonial project had both enthusiasts and ardent critics. Among the enthusiasts were statesmen who were worried about the advantage that colonies could give to their rivals. For example, a growing number of public figures in Britain such as Fredrick Lugard (who later became the premier in colonial Nigeria and the mastermind of the famous British policy of Indirect Rule), Sir Edward Grey, Lord Salisbury, and later Joseph Chamberlain “were arguing that European rivals, especially France, were making it necessary for the British government not only to protect the existing British commercial interests but also to prepare the way for further expansion” (Wilson, 1975:73). Hobson (1902) also argues that for Germany, the end of the Franco-Prussian war engendered a new colonial policy based on the fear that rival nations could amass undue influence and power through the acquisition of colonies. I would argue that the influence of economic factors ultimately had a leading role in the different arguments presented to justify the occupation and colonisation of Africa. In France, the famous French politician, Jules Ferry, who was a staunch supporter of colonial expansion, is reported to have argued that “colonial policy was ‘the daughter of industrialisation’” (ibid.:72). He urged the French Government

The colonial economy in Africa 21 not to be surpassed by other European nations in the acquisition of colonies in Africa. Other strong supporters of the colonial expansion project particularly in Africa include the business class, with men like Cecil John Rhodes, King Leopold II, Louis Faidherbe, and George Taubman Goldie (owner of the famous Royal Niger Company), who lobbied their respective governments to aggressively annex any unclaimed part of the African continent. Seen from the perspective of the enthusiast, the rivalry between European nations and their business interests was the main motive behind the invasion of Africa; concerns about bringing modern ways of life to Africa was only in the distant background of the Scramble for Africa. If this had been the only motive, colonialism would have not become the grand project that it did. Critics, on the other hand, varied from those opposed to the spread of capitalism to the liberals who did not see the rationale (political or economic) behind the acquisition of territories in faraway places. Among the most prominent critics of imperialism and the colonisation of Africa are John Hobson, H.N. Brailsford, and Leonard Woolf who believed that the capitalist class was using public resources to support their private interests in the colonies. Public sentiment in the three major colonial powers of the time (Britain, France, and Portugal) was largely against the use of state funds for colonial missions, which they saw as having no direct public benefit to the colonising nation. Public opinion in Europe was also strongly against what was perceived as the exploitation of Africa, both in terms of labour and of natural resources, to the benefit of Europe (Duignan and Gann, 1975). It is difficult to say how the ordinary European perceived the colonial project. What is clear is that even if most of the people in Europe were opposed to colonialism for various reasons, the project could not be stopped as long as the ruling class found a reason to undertake it. In analysing the intentions and motives of colonial officials in Europe, one thing that is clear today is that if the intention of the colonial enthusiast was to modernise and develop the African continent, the project was a complete failure because, “by the end of the colonial era, the African continent as a whole remained economically backward, still dependent to a considerable extent on fairly simple forms of farming” (Duignan and Gann, 1975:689). Advancing the commercial interest of imperial powers To get a glimpse of the principal motive behind the colonial project in Africa, it is important to know what the different colonial actors said and did in Africa. In this regard, the writings, speeches, and records of politicians, businesspeople, and colonial officials as well as stories from Africans themselves give us a clue as to the dominant motives behind colonialism. The words of the British Prime Minister at the height of the Partition of Africa are quite telling: It is our business in all these new countries to make smooth the paths for British commerce, British enterprise, the application of British capital, at a

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The colonial economy in Africa time when other paths, other outlets for the commercial energies of our race are being gradually closed by the commercial principles which are gaining more and more adherence. (Cited in Wolff, 1974:134)

We see here that the top British politician saw colonialism as a project that had the potential to advance the greatness of his country. In pursuing this grand plan to expand and secure British and European interests, the interests of Africans, where considered, only came second. It is therefore not surprising that the economic structures set up by colonial governments in Africa had little consideration for the progress of African people.

The colonial project: the African perspective vs. the European perspective The European perspective A review of debates on colonialism reveals that the discourse on colonialism has largely been dominated by the two sides within Europe: one group arguing for and the other arguing against colonial expansion in Africa. Interestingly, the African perspective on colonialism is always assumed to be represented in the two European sides to the debate. As Gifford and Louis (1971) argue, much of the debate on colonialism in Africa has been written from the perspective of the colonial officials on whose documentation and stories the debate has largely been constructed. In other words, the story of colonialism in Africa has been told from the European “official” archives, and the reason given for this one-sided perspective on colonialism is “because of the grey silence of Africans on the subject” (Heussler, 1971:58). But the colonial story and scholarship should not be limited to published documents in European archives; the story should be told based on the African experience, and many Africans who lived during the colonial period are still alive today (Gifford and Louis, 1971). Since the African colonial story has been told predominantly from the European perspective, drawing from archival documents gathered by colonial officials; the view that the colonial project was carried out to benefit Africans; that the project was first and foremost motivated by the selfless instincts of the colonialists to save Africans from slavery, diseases, underdevelopment, illiteracy, and the grip of traditionalism, became the dominant narrative. We find evidence of this in one of the most influential British colonial officials in Africa, Lord Lugard, who argues that: Our present task is clear. It is to promote the commercial and industrial progress of Africa, without too careful a scrutiny of the material gains to ourselves, that we may not incur the accusation of having inflicted upon the African “the grave economic wrong” for which our commercial policy in India is alleged to have been responsible in that country. (Lugard, 1926:509)

The colonial economy in Africa 23 When the colonial project in Africa is viewed from this (European) perspective, it is believed to be a selfless, philanthropic mission, spurred on by the humanitarian quest to secure the welfare of Africans. When colonialism is seen from the European perspective, it is possible for analysts to argue that there was no reason for Europeans to be interested in Africa, since the continent “had little to offer” (Duignan and Gann, 1975). For analysts who adopt the official colonial archive view, nothing is wrong with the statement that “Unlike the Indians and Chinese, Africans had practically nothing to offer, and as little to demand, from the traders who visited them” (Frankel, 1938:2). The African perspective However, when colonialism is viewed from an African perspective, one gets a totally different picture and narrative. First, it does not follow that because the Europeans could not see something of value in Africa, therefore Africa had nothing of value. Second, if Africa had nothing of value to offer Europe, as some analysts have claimed, we still must explain why European nations were at each other’s throats to establish spheres of influence over Africa. People and nations do not fight for nothing; there must have been something valuable from a European perspective to explain their invasion and conquering of Africa, given that this project came at a high cost to Europeans. European altruism, which the civilising mission argument implies, would be an outlier in human history were it to be true. The civilising mission, on its own, is not adequate to generate the enthusiasm that we saw before and after the Berlin Conference; there must have been something that European politicians and businessmen saw in Africa. The actions of invading and conquering large swaths of land could only be justified in pursuit of something they deemed valuable. The idea that Africa had nothing to offer is absurd. However, saying that the colonialists were motivated by the value they saw in Africa should not be interpreted to mean that all Europeans who came to Africa were purely motivated by selfish interests. There were many Europeans who were driven by purely philanthropic reasons towards Africa. Nonetheless, the view that the overriding motive for colonising Africa was mainly to serve the interests of Europeans remains valid, and there are convincing reasons to support it. One of these reasons is that the Europeans gradually discovered that Africa had much more to offer than they initially thought. Africa in the European economic scheme Indeed, Africa had so much of value to offer that the Europeans in the 1880s scrambled to get a slice of the African cake. At the Berlin Conference, the main reason for deciding to partition Africa among European nations was not to save Africa from epidemics or underdevelopment. The European nations who gathered in Berlin in 1884 to discuss the partition of Africa were responding to their own challenges induced by the changing economic and social conditions in Europe.

24 The colonial economy in Africa Contrary to the prevailing opinion that Africa had only slaves to offer, the continent was rich in a wide range of natural resources needed to sustain the urbanisation and industrialisation of Europe. From the 1870s a new crop of industries grew up in Britain and Europe to serve the needs of the new urban masses. They manufactured soap and margarine, chocolate and cocoa, solid and (later) pneumatic tires for bicycles and motor cars. Amongst the raw materials they began to search for to feed their rapidly expanding plants were some important products of Africa. Soap and margarine called for supplies of both animal and vegetable fats, but a chain of inventions made it possible steadily to enlarge the usefulness of African vegetable oils… Oil refining, hydrogenation (fat hardening) and refrigeration combined to make ground-nut, palm-kernels, cotton seed and the oil fats derived from them, [became] increasingly useful to the soap and margarine manufacturers. The daily diet of Europeans, especially the millions of workers in the new industrial cities of Germany (and to a lesser extent of Britain, the Low Countries and Scandinavia) came to be linked with the fortunes of Africa, which by 1909 was supplying over 25 per cent of those world vegetable oils and fats that entered into export trade. (Wilson, 1975:79) Seen from this angle, it becomes evident not only that Africa had a lot to offer, but also that the European nations’ project in Africa was primarily driven by the need to secure their commercial and industrial interests in the context of rising economic rivalry. As has been observed: At a time of increasing economic rivalry in Europe, governments tended to take more active steps than before to protect the interests of their own traders and manufacturers against those of rival countries. The only sure way for a government to do this in Africa was to control those areas where its own trade and industry were most involved. Besides, governments were not only concerned to defend existing interests; they also wished to reserve for themselves areas for possible future exploitation. (Roberts, 1976:150) There are obviously other reasons to explain why Europeans decided to invade and subjugate the entire continent to their rule, but securing their own interests is one strong reason to which one can point. Therefore, to the extent that the colonial project embarked on a mission to advance the interest of Europeans, it can be argued that the project was intently aimed at benefiting Europeans, and not Africans. This is stated by the French colonial Premier Albert Sarraut, who argued that that the colonisation and exploitation of African human and natural resources was first and foremost a project to benefit Europeans (France); the benefit to Africans and the rest of the world was only secondary:

The colonial economy in Africa 25 La France qui colonise va organiser l’exploitation, pour son avantage sans doute, mais aussi pour l’avantage général du monde [sic], des territoires et des ressources que les races autochtones de ces pays arriérés ne pouvaient à elles seules ou ne savaient pas metre en valeur, et dont le profit était ainsi perdu pour elles, comme pour la collectivité universelle. (Cited in Fieldhouse, 1971:597, emphasis added)6 Although Sarraut was trying to justify France’s colonisation of Africa by arguing that the undertaking would benefit the entire world, including Africans, he was honest enough to acknowledge that French interests came first and foremost. The French colonial policy was less pretentious in that it outrightly declared that the purposes of the colonial project in Africa were, first, to secure the interests of France, second, the interests of Africans, and third, global interests (Fieldhouse, 1971). Albert Sarraut, an influential French colonial official, in his book La Mise en Valeur des Colonies Françaises, published in 1923, admits that colonies should be exploited to bring commercial and economic advantage to France in the first place. Other people, including indigenous Africans, come second in the grand scheme of things. The interests of Africans in the colonial project When colonialism is considered from the African point of view, it becomes evident that the act of a foreigner taking over not just land but the power to make decisions about what is good, and what you should do in your life, was equivalent to depriving Africans of their humanity. It was not just the paternalistic attitude of the colonialists that inflicted incalculable loss and pain on Africans, but the perception that Africans were lesser human beings, with less ability to think for themselves, with no ability to organise and rule themselves, has had devastating effects which continue to the present. As noted earlier, even in cases where Africans benefited from colonial rule, their benefits were often unintended and small compare to what accrued to the European settlers. A commission of inquiry established to investigate the living conditions of Africans in Northern Rhodesia, for instance, concluded that, “Opportunities [in the territory were] however almost entirely concentrated in European [settler] areas to which Natives [were] only admitted in so far as they [were] required for European purposes” (Pim, 1939:244). Several such inquiries in other African colonies revealed similar appalling differences in living conditions between European settlers and Africans. The concern was not only difference in living conditions, but the inhumane treatment of Africans in all spheres of life, leading to a total loss of freedom and self-worth. In settler colonies such as Kenya, South Africa, Namibia, Algeria, and Zimbabwe, the European settlers were given absolute control over Africans. By means of a pass system, employers, particularly, had the power to control African employees to the extent of turning them into forced labourers and sometimes semi-slaves (Wolff, 1974). Drawing from the Congo Free State experience,

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Peemans (1975) argues that the colonial state, in alliance with imperial chartered companies, forced Africans into growing what the European companies wanted, and not what Africans wanted. He further argues that although the colonial state was a peripheral state, it wielded enormous power over indigenous Africans. The oral histories of Africans who lived under colonial rule attest to the dehumanising effects of colonialism on Africans. From an African perspective, colonialism, no matter how positive the externalities it produced, will always remain a blight in the memory of African people all over the world. From the perspective of the African people who bore the brunt of European colonial brutality and racism, it is not surprising that the colonial economy in Africa was structured the way it was. British vs. French colonial policy in Africa There has been debate about the differences between the British and the French colonial policies in Africa. In this debate, some analysts have suggested that the British approach, with its “open door” commercial policy was much better in terms of serving and protecting the interests of indigenous people in Africa (see Gifford and Louis, 1971). Similarly, Lee and Schultz (2011), drawing from their comparative study of parts of Cameroon administered by the French and parts administered by the British, conclude that the British-administered parts were better off than the French-administered parts in terms of wealth and access to public goods. This is then used to argue that the British liberal approach to colonialism was much better than the French, particularly because liberalism promoted accountability, which in turn led to an emphasis on the provision of public goods and greater benefits not just for the European settlers but for indigenous Africans as well. This conclusion concurs with the findings of several quantitative studies using regression analysis to establish the correlation between colonial powers and the impact on growth in post-independence Africa. Studies by Lipset (1994), Weiner (1987), Acemoglu and James (2001), and Banerjee and Lyer (2005) all conclude that the British colonial rule produced better outcomes on a number of variables including accountability, democracy, corruption, and economic growth. Without going into the details of how these studies were conducted, serious questions about what we actually learn from this kind of analysis, including the precariousness of the data used, have been rightly pointed out (Cramer et al., 2020). While one cannot deny the differences in emphasis and approach between the two major colonial powers in Africa, French and British colonial administrators had a great deal in common. Most members of both groups were imbued with the assumption prevalent throughout the West in the first half of the twentieth century—that Western cultures were absolutely superior to African cultures, and that it would take many generations before Africans could catch up with Europeans in what was viewed as a unilinear route to civilisation. Most members of both groups adopted a paternalistic attitude in their dealings with African chiefs as well as

The colonial economy in Africa 27 commoners… During the 1920s and 1930s there was a trend towards convergence in both theory and practice in the two major colonial empires in Africa. (Thompson, 1971:778) In a fundamental sense, the imperial powers in Africa, despite the differences in emphasis and method, “acted under similar assumptions, had similar expectations, and employed similar means” (ibid.:777). As Gifford and Louis (1971) observe, from an African perspective the colonial project had the same effects and outcomes regardless of whether the colonial power was France, Britain, Portugal, or Spain. The outcome was the devaluation of Africans to a status that barely resembled that of human beings; a loss of autonomy, even at the household level. Therefore, from an African perspective, the debate about which colonial power was better is a moot one; the colonial project itself, whether conducted by the French or British or Swedish, had the same effects on Africans.

Notes 1 UNCTAD classifies a country as commodity dependent if commodities account for more than 60 per cent of the total export merchandise value. 2 The export concentration index measures the extent to which exports in a country are concentrated on a number of goods, with the highest concentration being 1 and the lowest being closest to 0 (see UNCTAD, 2019). 3 Makgetla et al. (2019) illustrated this using the copper value chain example. 4 The key elements of FIP are outlined in Chapter 9, where the strategy for transformation is discussed. 5 See the Bloomberg Commodity Price Index of May 2020. 6 The English translation of this reads: “France which colonises, will organise the exploitation, for its advantage without doubt, but also for the general advantage of the world [sic], of territories and resources that the native races of these backward countries did not provide alone or did not know how to measure in value, and whose profit was thus lost for them, as for the universal community.”

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Industries Without Smokestacks: Industrialisation in Africa Reconsidered. London: Oxford University Press. 1–25. Ndulu, B. and O’Connell, S. (2008). “ Policy Plus: African Growth Performance.” In B. Ndulu, S. O’Connell, R. Bates, P. Collier and C. Soludo (eds.) The Political Economy of Economic Growth in Africa 1960–2000. Cambridge: Cambridge University Press. 3–75. Peemans, J. (1975). “Capital Accumulation in the Congo Under Colonialism: The Role of the State.” In P. Duigan and L.H. Gann (eds.) Colonialism in Africa1870-1960 (Volume 4: Economics of Colonialism). London: Cambridge University Press. 165–212. Pedler, F. (1975). “British Planning and Private Enterprise in Colonial Africa.” In P. Duigan and L.H. Gann (eds.) Colonialism in Africa1870-1960 (Volume 4: Economics of Colonialism). London: Cambridge University Press. 95–126. Pim, A. (1939). “Two Books of the Quarter—Capital Investment in Africa.” Journal of the Royal African Society Vol. 38, No. 151, 239–245. Republic of Zambia (RoZ) (2017). Seventh National Development Plan. Lusaka: GRZ. Republic of Zambia (RoZ) (2018). National Industrial Policy. Lusaka: Ministry of Commerce Trade and Industry. Rimmer, D. (1978). “Review: The Economics of Colonialism in Africa.” Journal of African History Vol. 17, No. 2. 265–273. Roberts, A. (1976). A History of Zambia. London: Heinemann. Robinson, R., Gallagher, J. and Denny, A. (1961). Africa and the Victorians: The Official Mind of Imperialism. London/New York: MacMillan & Co. Rodney, W. (1972). How Europe Underdeveloped Africa. Washington, DC: Howard University Press. Rodrik, D. (2008). Normalising Industrial Policy. Commission on Growth and Development (CGD) Working Paper No. 3. Saika, D. (2009). Agriculture-Industry Linkages: Some Theoretical and Methodological Issues in the Indian Context. Munich Personal RePEc Archive (MPRA) Working Papers No. 27820. Schumpeter, J. (1919). Imperialism and Social Class. Translated by Heinz Norden. Cleveland: Meridian Books. Singer, W.H. (1950). “The Distribution of Gains Between Investing and Borrowing Countries.” American Economic Review Vol. 40, No. 2, 473–485. Thompson, L. (1971). “France and Britain in Africa: A Perspective.” In P. Gifford and R. Louis (eds.) France and Britain in Africa: Imperial Rivalry and Colonial Rule. New Haven: Yale University Press. 777–784. United Nations Conference on Trade and Development (UNCTAD) (2019). State of Commodity Dependence 2019. Geneva: UNCTAD. United Nations Economic Commission for Africa (UNECA) (2012). Economic Report on Africa 2012: Unleashing Africa’s Potential as a Global Growth Pole. Addis Ababa: UNECA. United Nations Economic Commission for Africa (UNECA) (2016). Transformative Industrial Policy for Africa. Addis Ababa: Economic Commission for Africa. United Nations Industrial Development Organisation (UNIDO). (2016). Industrialisation in Africa and Least Developed Countries: Booting Growth, Creating Jobs, Promoting Inclusiveness and Sustainability. Vienna: UNIDO. Weiner, M. (1987). “Institution-Building in India.” In M. Weiner (eds.) The Indian Paradox. New Delhi: Sage. 77–95.

The colonial economy in Africa 31 Wilson, C. (1975). “The Economic Role and Mainsprings of Imperialism.” In P. Duigan and L.H. Gann (eds.) Colonialism in Africa1870-1960 (Volume 4: Economics of Colonialism). London: Cambridge University Press. 68–91. Wolff, R. (1974). The Economics of Colonialism: Britain and Kenya, 1870–1930. New Haven: Yale University Press.

2

The structure of the Northern Rhodesia economy

Introduction The economy of what is today called Zambia has humble beginnings. Although there have been claims that economic activities started with the arrival of Europeans in their quest to exploit African natural resources (Frankel, 1938; Bauer, 1975), the indigenous African people who lived in the territory that we today refer to as Zambia were conducting different economic activities, ranging from blacksmith to collecting and gathering of wild fruits. Oral histories of people who lived in this area, as well as records from earlier European visitors, suggest that there were different groups of people scattered throughout the territory, engaging in different activities, including trade with people from the east coast of Africa. In a book combining linguistic analysis with archaeological evidence, it has been suggested that the Bantu Botatwe group of people in Southern Zambia had been practising farming, including horticultural, cereal cultivation, cattle keeping, metal work, in addition to the gathering of food, hunting, and fishing since the first millennium BCE (de Luna, 2016). The existence of local and long-distance trade in the territory suggests that local people were engaging in different economic activities, producing products needed to meet daily needs as well as for exchange (Roberts, 1976). Even if these activities were not the same as the activities introduced by the Europeans when they arrived in the territory, local people had developed their own production and exchange systems to meet local needs. These activities represent the local people’s efforts to solve the challenge of satisfying human needs by combining labour with the available means of production. Local production together with local and longdistance trade constituted the local economy, which was mainly geared to meeting basic needs. In other words, the existing economic activity prior to the arrival of Europeans is what one would refer to as the natural economy (Luxemburg, 2003[1951]). This chapter looks at the origins of the modern Zambian economy. But before going into the details of the economy established by Europeans at the beginning of the twentieth century, the chapter provides a brief overview of the pre-colonial economic activities which were gradually displaced by the colonial economy.

The Northern Rhodesia economy 33

The natural economy in Africa Rosa Luxemburg (2003[1951) distinguishes the capitalist from a natural economy. According to her, what distinguishes a natural from a capitalist economy is the fact that “means of production and labour power are bound together in one form or another” (Luxemburg, 2003[1951]: 349). In other words, in the natural economy, the producer is not separated from the means of production and the organisation of society is tailored towards meeting internal demand. The organisation of production and society at the point of European arrival in Africa constituted the basic features of a natural economy, which had its own internal logic and structure. Drawing from the work of anthropologists in East Africa, Wolff (1974:89) argues that “fully integrated economic structures existed within … the African tribes before the British arrived. Based everywhere on agriculture and/or livestock, these structures comprised a complicated pattern of economic activities specifically distributed among the clans, sexes, and age groups of the tribe.” Assertions by some analysts that concepts such as capital, entrepreneurship, paid work, and savings1 were absent in Africa amount to a serious distortion of the historical reality of economic life in Africa, even in smaller tribal groupings. The notion that without colonisation African communities would not have progressed in the way they have (Bauer, 1975:636) can only be defended by apologists of colonialism, bent on showing that colonisation was good for Africa. For example, a commission of inquiry organised by the International Missionary Council (IMC) in 1932, tasked with establishing the impact of the new economic activities in Northern Rhodesia, described the people they were studying as follows: these peoples possess neither a culture, arts nor handicrafts which attract Europeans. The Bantu have no written language, records or literature, either philosophic, historical or religious [sic]. Their rich oral tradition and fable shed no light upon their background. … The African of the areas of this study stands before the modern world with empty hands and with little apparent contribution to offer to world culture. (Davis, 1933:1) The authors of this report, although they were linked to missionary work, saw the people they were studying as having little to offer to the world, a common narrative which many non-African authors affirm in many parts of Africa. It is narratives like this which are often used to validate the argument that Europeans brought economic activities and the art of production to Africa, and that therefore colonialism was beneficial to Africans. While the indigenous people may not have had the same culture or art as the Europeans had, it is simply not true that they had no culture or that they had nothing to offer the world. This is quite telling, given that the report was written during the 1930s when knowledge about Africa had

34

The Northern Rhodesia economy

become more available! One would think that by the 1930s European prejudice would have been overturned by the growing knowledge about the African way of life. But the passage cited above goes to show that the negative perception of Africans by Europeans runs much deeper than one would imagine. Of course, the African economy and culture were different from the Europeans’. But something being different is not a valid reason for dismissing it as having no value. Such a view exposes the authors’ inability to see things differently from what they are used to; it manifests the ingrained bias of interpreting the world only from a European point of view and taking that as the only way of seeing the world. By 1933, when the IMC report was written, the African natural economy had been largely destroyed by colonial invasion, so it is not surprising that the authors failed to see anything of value in African activities. It is such views which led to the widespread view among many colonialists that, by conquering and invading Africa, they were doing Africans a favour; they were giving Africans a culture, art, literature, philosophy, etc. As is evident from the quotation, the authors were looking to find something which could attract Europeans. This is the familiar story of European visitors to Africa regardless of whether they were missionaries, capitalists, philanthropists, politicians, travellers, Zoologists, or fortune seekers. Historical evidence, though thin and scattered, now shows that many African communities prior to the onset of colonialism had developed relatively sophisticated economic activities, including rotational saving schemes, labour sharing, entrepreneurship, and manufacturing of household tools and equipment (Iliffe, 1983). In his work in Nigeria, Kilby (1965) reports that a strong entrepreneurial culture existed way before the arrival of Europeans. Clearly, the assertion that structures or organised economic activities in Africa were introduced by the Europeans “has to be treated with the greatest caution” (Duignan and Gann, 1975:33). As noted in Chapter 1, numerous African empires and kingdoms which flourished in different parts of the continent, at different times, had organised economic activities to address not only the problem of production but also distribution and investment. In his discussion of Akan society, Wilks (1982) reports that when the Portuguese first sought to establish a gold mine in the area in 1576, they found a sophisticated organisation of production with a system of labour supply for various activities, including sorting and transporting gold to the coast for sale. Self-sufficiency As in many other parts of the world, economic organisation in Africa, especially in smaller communities, revolved around self-sufficiency through subsistence production and exchange. Most people lived in smaller communities, producing all the basic commodities, including food, clothing, and the tools they needed for production, by themselves. It was only in later years that specialisation through the division of labour emerged and led to more a sophisticated economic structure revolving around exchange through weekly markets (particularly in West Africa) and long-distance trade.

The Northern Rhodesia economy 35 The other dominant economic feature in pre-colonial Africa was the communal approach to both production arrangement and consumption (Rodney, 1972). In a fundamental sense, this is a defining feature of a natural economy. In some accounts, the communal approach to production and consumption has been blamed for inhibiting “individual progress” (Davis, 1933). But the communitarian approach to economic activities is itself an integral part of the African cosmology, where one’s humanity was authenticated and sustained by the presence of other human beings. This world view permeated all spheres of life, including economic activities. The individualistic European approach to economic activities, which was an offshoot of the European Enlightenment, was itself a later development in human history. It only became dominant in Europe after the emergence of agrarian capitalism in the seventeenth century, particularly in England (Wood, 1998). Division of labour and individualistic organisation of life is a relatively recent development in the history of humankind.

The pre-colonial economy in Zambia Although the territories that constitute what is today known as Zambia were largely inaccessible from the coast, the people who occupied this region had regularly interacted with traders from the east coast, as noted earlier. There is evidence that production of goods for exchange was stimulated by the opportunity to trade with nearby communities as well as with Swahili and Arab traders from the east coast, via routes through present-day Mozambique, Malawi, and Tanzania (Roberts, 1976). In communities with centralised authority, such as the Lozi of Western Zambia, specialisation and production of goods for exchange developed much earlier, such that by the time the Europeans arrived in the area different clans and ethnic groups developed specific skills targeted at producing particular items. The different subethnic groups were known by the industrial skills in which they specialised. In the Lozi Kingdom, for example, the Totela people, were known to specialise in the making and supply of hoes, spears and axes; the Nkoya specialised in the production of canoes and nets; the Mbundu specialised in the weaving of different types of mats, baskets and wooden utensils; the Toka Leya were known for being masters of hides production while that the Lunda specialised in the production of tusks. (Duignan and Gann, 1975:48) Drawing from archaeological evidence, de Luna (2016) also shows that while the Bantu Botatwe speaking people did not develop a stratified skills structure based on ethnic grouping like the Lozi, there is evidence suggesting that they exploited the diverse mineral deposits found in the area to produce a wide range of products mostly used in the cultivation of crops. Available evidence also suggests that they engaged in several supplementary activities including crop and livestock farming as well as blacksmithing, in addition to hunting and gathering of wild products.

36

The Northern Rhodesia economy

This arrangement of social and productive activities led to the practice of sharing and redistribution of the produce in the community, before the introduction of exchange for money. Farmers would bring their harvest and hunters their game and, through a central system, the gathered goods would be distributed to other members of the community. Hoes produced by the Totela people, for instance, would be distributed to other groups who engaged in farming, just as the mats and baskets produced by the Mbundu would be distributed to other groups. For this system to work, each member had to contribute according to his or her specialisation and station of production. This set-up was not unique to Zambia; historians have found similar arrangements in many earlier human settlements across Africa and beyond. Reciprocity and redistribution principles Polanyi (1944), in his discussion of the history of exchange (markets) in human communities in different parts of the world, cites the principles of reciprocity and redistribution as the main guiding economic philosophy in many earlier societies. In explaining how these two principles guided economic and social life in society, he argues that Reciprocity and redistribution are able to ensure the working of an economic system without the help of written records and elaborate administration only because the organization of the societies in question meets the requirements of such a solution with the help of patterns such as symmetry and centricity. (Polanyi, 1944:51) Indigenous Africans’ economic activities in most communities were structured along similar principles, based on community members sharing both happy and tough times together. In this economic set-up, although there was a division of labour, the community sought to meet most of its basic needs from its own production. In most cases, members of a (usually extended) family complemented each other’s activities initially from crafts making, hunting, farming, subsistence cropping, and local trading (Wolff, 1974). While this structure of society was obviously different from the European system at the time of colonialism, the gradual advance of specialisation and exchange is a common feature of most early human societies, as noted by Adam Smith (1776) who saw the growth of the division of labour as a function of the size and type of markets. Specialisation that comes with the division of labour is a recent phenomenon in human history, which even in Europe was largely an offshoot of the European Industrial Revolution (EIR).2 Before the EIR, Europe was dominated by cottage industries from where people met most of their basic needs (Polanyi, 1944). In the literature on Africa the difference between the evolution of how economic activities were arranged in Africa and in Europe is often exaggerated. For

The Northern Rhodesia economy 37 example, the claim that the introduction of colonisation in Africa was equivalent to a “superimposition of the twentieth century after Christ on the twentieth century before Christ” (cited in Bauer, 1975:637) is a distortion of facts aimed at elevating European civilisation to justify the downgrading of African civilisation. Even if one takes the advances in technology after the EIR, it is an exaggeration to argue that Africa was 4,000 years behind Europe, with a clear intent to distort history for the purpose of justifying colonialism. It is important here to remember that for the longer part of human existence on this planet, human communities were not organised according to capitalist philosophy; the organisation of society centred around local communities engaging in production and exchange, essentially to meet the immediate needs of the community. It is absurd to argue that a community is backward because it does not exhibit capitalist relations, especially now when many people are questioning whether capitalism is in fact an advanced means of organising society. It could be argued that capitalism is not only a regressive form of human civilisation but an illogical system that disregards the fundamental aspect of human life and nature— care for other people and the planet. Integration of economic and social activities As in many other parts of Africa, the pre-colonial economic system in what is today known as Zambia varied greatly, from the hunter-gatherers of smaller groups of semi-nomadic people to established and organised polities such as the Kingdom of the Lozi, the Bemba Establishment, Mwata Kazembe, and the Lunda kingdoms which had elaborate and complex economic, social and political activities and structures. Although these economic structures and activities were restricted to the territorial boundaries controlled by a particular grouping, they constituted a way of organising and distributing what society produced to meet basic needs, no matter how rudimentary. That is the basic function of an economic system. But the economic system was not separate from the social system; it was an integral component of the social system for a community. The main economic activities The territory which today is known as Zambia was occupied by different groups of people organised along common linguistic and cultural heritage into chiefdoms and kingdoms before the colonial conquest. The economic activities of these communities were not the same in all communities. The major economic activities in a particular community were largely determined by the natural environment surrounding the community. Communities that lived near large bodies of water, such as Lake Bangweulu in the north or Lukanga Swamp in the central part of Zambia, engaged primarily in fishing, complemented by subsistence agriculture, to meet their needs. Communities that lived near major rivers such as the Lozi along the plains of the upper Zambezi river in the west of the country practised both animal husbandry and the growing of various kinds of food crops.

38 The Northern Rhodesia economy Anthropological and missionary accounts show that the most dominant form of economic activity for most people in the territory was subsistence agriculture (both livestock and food crop cultivation) complemented by hunting and gathering of wild fruits (de Luna, 2016). Larger and more organised groupings like the Lunda, the Lozi, and others, relied on trade to build stronger political entities and to promote peaceful coexistence with neighbouring communities. The Tongas of Southern Zambia, for instance, are reported to have had extensive trade networks in which they exchanged diverse commodities with neighbouring communities (Duignan and Gann, 1975:40). Dixon-Fyle (1983) also reports similar activities among the Plateau Tonga who exchanged animal skins cattle, ivory, and salt for fish tobacco, guns, hoes, and axes with the Lozi to the west and the Lenje to the north.

The creation of the Northern Rhodesia economy One of the significant changes that the arrival of Europeans introduced was the creation of a nation by unifying several territories under different kingdoms, chiefdoms, and other smaller groupings. The territory that came to be known as Northern Rhodesia formally fell under the British sphere of influence and later, after the end of the Berlin Conference in 1885, became a protectorate. But the administration of the territory was handed over to the BSA company, which administered it on behalf of the British government from 1889. This arrangement remained in place until 1924 when the British constituted a Colonial Office which took over the running of Northern Rhodesia (Roberts, 1976). Under the BSA, Northern Rhodesia was divided into two regions which were administered separately. The Barotse North-Western Order in Council of 1899 created NorthWestern Rhodesia, while the North-Eastern Rhodesia Order in Council of 1900 established North-Eastern Rhodesia. It was only in 1911 that the two territories were merged to form a single territory called Northern Rhodesia. The detailed history of the formation of Northern Rhodesia is beyond the scope of this book; interested readers can consult Richard Gary’s (1960) The Two Nations, L.H. Gann’s (1964) A History of Northern Rhodesia: Early Days to 1953, and Sardanis’ (2014) Zambia: The First 50 Years. The demographic profile Up until the late 1900s, when colonial officials referred to the territory north of the Zambezi as Northern Rhodesia, the available information from Portuguese explorers, missionaries, and oral histories from the local people,3 suggest that the territory was sparsely populated. It is difficult to estimate the number of people that lived in the territory even after the first census in 1911. Rough estimates of the number of people in specific groupings such the Toka Leya, the Plateau Tonga, the Nkoya, the Bisa, the Lambas, the Lundas of Mwata Kazembe, the Kaondes, the Ndembus etc. exist, though it is questionable if these figures are reliable (see Roberts, 1976). It is only later in the 1920s that we get records referring

The Northern Rhodesia economy 39 to the population of Northern Rhodesia. For example, the first population census of Northern Rhodesia in 1911 reported that there were about 1,497 Europeans, 39 Asians, and 820,000 Africans (see Table 2.1). Though the details of how the 1911 census was conducted are not available, it is most likely that the number of Africans in Northern Rhodesia at the time was under-estimated for the obvious reason that some communities lived in isolated areas which could not be easily reached for enumeration. It has been observed that most of the figures on the population of Northern Rhodesia before the 1942 census were based on estimates (Baldwin, 1966). Baldwin (1966:41) notes that the figures reported should be taken as rough estimates and that the earlier figures should be treated with caution as very rough estimates. The IMC report in 1933 puts the number of Africans in the territory at slightly over 1.3 million and the number of Europeans at just over 14,000, which is similar to the figures reported in Table 2.1 for 1931. European population Other sources put the number of Europeans in Northern Rhodesia in 1921 at 3,600, and ten years later in 1931 the population grew to more than 14,000 (see Frankel 1938:249). While the size of the African population was comparable to the neighbouring Southern Rhodesia (now Zimbabwe), with 850,000 Africans in 1921 and 1,088,000 in 1936, the proportion of Europeans in Southern Rhodesia was much higher at 45,000 in 1921 (ibid.:244). The proportion of Europeans in Southern Rhodesia in 1921 was over 5 per cent, while in Northern Rhodesia it was less than 2 per cent. The size of the European population, as we shall see later, had a significant impact on the development of industries, particularly manufacturing, and subsequently on the structure of the colonial economy. When compared to Southern Rhodesia and South Africa, the European population in Northern Rhodesia and subsequently Zambia remained small, peaking at just over 3 per cent in 1960 (see Table 2.1). The share of the European population in both South Africa and Zimbabwe was much higher. According to Kilby (1975) the dynamics of colonial economic policy was influenced by the size of the European settlers. A large European settler population Table 2.1 Population of Northern Rhodesia (1911–1959) Year

African

Asian

1911 1921 1931 1946 1951 1956 1959

820,000 39 980,000 56 1,330,000 176 1,660,000 1,117 1,890,000 2,524 2,100,000 5,450 2,280,000 10,000

Coloured

European Total

European % of total

145 425 804 1,112 1,577 -

1,496 3,634 13,846 21,907 37,078 65,277 73,000

1.8 0.4 1.0 1.3 1.9 3.0 3.1

Source: Author based on data from Baldwin (1966:41).

83,535 983,835 1,344,447 1,683,828 1,930,714 2,172,304 2,363,000

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The Northern Rhodesia economy

constituted a pressure interest group that pushed imperial governments in Africa to implement policies which supported the growth of secondary industries, including protectionist policies to shield local European manufacturers from external and African competition. Austin and Morton (2018) also highlight the point that the size of European settlers in Africa played a central role in the development of secondary industries, particularly manufacturing, because a large European population not only constituted a sizeable demand for manufactured products but also mounted a strong lobby group which the imperial governments could not ignore. We see this dynamic in the case of Southern Rhodesia in the next chapter when we look at industrial policy in Northern Rhodesia. However, critics of minority European settlements in Africa have singled out protectionist policies as the major barrier to the development of colonies in Africa; they blame colonial officials who entertained and succumbed to the pressure of settler interest groups against the interest of the majority Africans who bore the burden of paying taxes to finance the colonial government (Fieldhouse, 1971). In the case of Northern Rhodesia, the copper mines attracted a relatively large European population seeking to exploit the mineral resources as investors and skilled workers looking for employment. Commenting on the development that followed the opening of copper mines in Northern Rhodesia, Frankel (1938:247) observed that the rapid development that followed “revolutionised the economic structure of the territory.” He reports that the European population rapidly increased after 1921 when more ore deposits were found, rising from just over 3,600 in 1921 to more than 14,000 in 1934 (ibid., see also Table 2.1). Frankel (1938) dismisses the disappointment expressed by some analysts who expected a much larger influx of Europeans after the copper mines started to produce, arguing that Northern Rhodesia was largely seen as a place to work and not for settlement by Europeans. Baldwin (1966) makes a similar observation that Northern Rhodesia, from the beginning, was deemed unsuitable for European settlement due to a number of reasons, including the presence of malaria. It has been argued that any place below 3,500 feet above sea level was not suitable for European settlement because it would too hot (ibid.:251). The irony of this argument, in the case of Northern Rhodesia, is that the majority of the European population actually settled in low-lying areas of Livingstone, Lusaka, and Broken Hill (now Kabwe), with only a handful of Europeans settling in the area around Fort Jameson (Chipata) and the high-lying area of Abeacaon (Mbala). Baldwin(1966:17) observes that in 1921, 82 per cent of Europeans in Northern Rhodesia lived in three main towns—Livingstone, Lusaka, and Kabwe, all of which are areas below the magical 3,500 feet above sea level. Furthermore, the remaining number of Europeans who did not live in the three towns “resided within only a few miles of the railway line connecting them [the three towns]” (ibid.). Wellington offers a much more convincing explanation for the observed low European population in Northern Rhodesia, pointing out that in this case “the Factor of communication has outweighed climatic factors” (cited in Frankel, 1938:251). As noted earlier, the Europeans who settled in Northern Rhodesia were not only involved in the exploitation of the minereal deposits in the territory; they

The Northern Rhodesia economy 41 were also engaged in agriculture. In fact, before the large-scale exploitation of copper, a majority of the Europeans were engaged in agricultural production, both livestock and cash crop farming, mainly tobacco and cotton. The 1921 estimates suggest that more than one-third of the total European population in the territory was engaged in agriculture prior to 1925, with a majority of the estimated 504 farmers living along the railway line from Livingstone to Lusaka (Baldwin, 1966:18). The main crops grown were maize, groundnuts, and tobacco, and cotton in the Fort Jameson area. Changes introduced The coming of Europeans introduced many changes in the African communities in the territory, including the introduction of a new religion, and changes in cultural practice and social relations. Many other changes were induced by the arrival of Europeans in the territory. For instance, the introduction of statutory land tenure, the emergence of race relations which defined the nature of political and economic activities, and so on. All these changes impacted on the nature and the structure of the economy which was established. Although most of these changes were slow, their impact has left an enduring mark on African communities in the territory, which we are still grappling with today. It is important at this point to hear the view of an African who was interviewed in Northern Rhodesia in 1932 on the relations between Africans and Europeans: White men are unkind to their servants. They only care for them as long as they are an asset. They do not care how they are fed or housed. If they own a horse, the animal receives much more sympathy than their servants, for often they visit the stable to see how it is housed and fed. This teaches us that the humanity of the European is very shallow although his education is very deep. A White man expects you to greet him first if you are Black … but if you are wise you don’t greet him at all if he is among his own White friends. If you do, you will be terribly disappointed, because he will either pretend not to know you or will evade you and look the other way (cited in Coulter, 1933:92–93) This is a view of one African, but it is a common experience among Africans, and this view dominated the narratives during the IMC interviews in Northern Rhodesia at that time, with an overwhelming majority of Africans expressing the view that Europeans in Africa only cared about exploiting Africa’s human and natural resources. If this was indeed a common attitude of Europeans in Africa during colonial times, it should not come as a surprise that the colonial economic structure in Africa was oriented to serve European interests. Perhaps the deepest change initiated was the gradual transition from the natural economy to the cash/money economy, which induced many other changes including changes in the social relations of production and in the structure of

42

The Northern Rhodesia economy

production. The changes that took place in Northern Rhodesia in the first three decades of the twentieth century have been aptly summed up as follows: The copper industry transformed Northern Rhodesia from a comparatively stationary economy into a rapidly growing one, and it now dominates the nation’s industrial structure. A modern, highly mechanised industry has been superimposed upon a rural … economy, 72 percent of whose population still is engaged in subsistence production. However, the development has been confined to a very small part of the total economy. (Baldwin, 1966:40) This captures well the core of what this book has discussed—the nature of the colonial economy in Northern Rhodesia and how this has influenced economic and social dynamics in Zambia ever since. Although the techniques and tools of extracting copper that the Europeans employed in Northern Rhodesia were far more advanced than those used by indigenous people , it is misleading to claim that the gap between the Europeans and African was 40 centuries apart. While the economic changes induced by European settlement in Northern Rhodesia and other parts of Africa were undeniably significant, the changes filtered into African societies much more slowly. More importantly, the economic and other social structures created during colonial rule in Africa had fundamental disadvantages for Africans, and these disadvantages have not yet been overturned.

The evolution of the Northern Rhodesia economy The settlement of Europeans in the territory that is today known as Zambia had a great influence on the construction of the modern-day Zambian economy. As noted earlier, the indigenous people in the territory that came to be referred to as Northern Rhodesia were practising largely subsistence production, mainly growing of food crops, fishing, hunting, and rearing of livestock. Although there were iron and other metal works, this was not carried out at large scale due to limited markets (Roberts, 1976; Dixon-Fyle, 1983). Most of the iron and other metal works were confined to the making of tools for use in agriculture, hunting, and to a smaller extent for trade and coinage purposes, for example, copper crosses. Prior to the rise of copper as the main economic activity in Northern Rhodesia, agriculture was the main economic sector for both Europeans and Africans. European agriculture Investment of capital was not only in the mining industry; agriculture also received investment from Europeans settlers. By the 1930s, about 544 Europeans were involved in farming in Northern Rhodesia, and most of these were located between Livingstone and Lusaka, concentrated within a 35-kilometre stretch on both sides of the railway line (Baldwin, 1966). The IMC inquiry conducted in

The Northern Rhodesia economy 43 1932 reports that in 1931 the average landholding for Whites was 4,000 acres each (Coulter, 1933). However, the European agriculture sector in the territory was small, limited to supplying the local market, particularly food crops. There are no estimates available on how much investment flowed into the agriculture sector. Figures for the 1929/30 farming season show that only 52,200 acres were cultivated by European farmers in that farming season and that 18,000 tons of maize, 1,318 (1,000 lb) bales of tobacco, 825 tons of wheat, and 448 tons of groundnut were produced (Frankel, 1938:253). Table 2.2 provides a summary of the major agriculture crops grown and the volume produced. The main two crops which Europeans grew between 1920 and 1936 were tobacco and maize. Wheat and groundnuts were grown at a much smaller scale. It is clear from these production figures that agricultural production at that time was largely meant to supply the local market, especially maize because it was the staple food for the growing African population in urban areas. Evidently, as late as the 1930s, commercial agriculture was still on a small scale compared to Southern Rhodesia and Nyasaland at this time (Barber, 1961). As a result, Northern Rhodesia is reported to have had no significant export of agricultural produce beyond tobacco. During the early 1930s it was confirmed that there was the potential to grow coffee in what was known as the “lake districts” (areas around lake Bangweulu), and the potential to grow cotton around Abercorn (now Mbala) and mulberry, to be used as feed for silk worms in the production of silk (Coulter, 1933). But all these initiatives were not explored further. One of the reasons for the lack of interest in agriculture, despite the huge potential to produce a variety of agricultural produce, given the diverse ecological conditions in the territory, is that by the 1920s rich deposits of copper had been discovered and that is what attracted all the attention in the country. By the end of the 1920s, with the rising price of copper on the global market, the structure of the economy had already taken the shape of a “copper mono-economy” (Meyns, 1984). African agriculture The figures for Africans involved in agriculture are said to be unreliable, so no estimates during this period are available. As noted earlier, most Africans before Table 2.2 European agriculture production in Northern Rhodesia, 1920–1936 (tons)

1920/21* 1929/30 1934/35 1935/36

Maize

Tobacco

Wheat

14,500 (200 lb bags) 18,014 40,018 29,375

1,1 (million lb) 1,318 (1000 lb) 856 1,580 (1000 lb) 1,823 1,225 (1000 lb) 11,121

Groundnut 448 70

Source: Author based on data from Baldwin (1966:18) and Frankel (1938:253). Note: *Data from Baldwin (1966:18), rest from Frankel (1938:253). All figures are in tons, except where units are specified.

44

The Northern Rhodesia economy

and during colonial rule relied on subsistence production, growing food crops for their own consumption. With the introduction of a money economy after the arrival of the Europeans, several Africans started to engage in the production of agricultural surplus for sale, though the local markets were limited and this was one of the reasons why producing was largely restricted to one’s own consumption, especially before the large-scale mining of copper (Roberts, 1976). However, by the 1920s, with the development of urban centres, production for markets became more prominent among Africans in Northern Rhodesia, as was the case in the Southern and Central Africa regions (Barber, 1961). Production for markets was mainly concentrated in the Southern and Central provinces, the obvious reason being proximity to the means of transport and the markets which developed along the line of rail. Although African agriculture production was largely subsistence in scope, it is possible that the combined African production, particularly food crops such as maize, millet, sorghum, and cassava, was much more than what was produced in the European agriculture sector. Although European settler farmers cultivated maize and other food crops on a commercial scale using modern equipment and methods, the large numbers of African farmers compared to the 540 Europeans in the 1930s contributed to higher food crop production. But, as noted earlier, European farmers concentrated on growing cash crops, mainly tobacco and wheat, which many Africans did not grow. The agricultural sector, however, was not only small in terms of its share in total national output, as shown later in this chapter; but it also depended on the copper industry. During the first three decades of the twentieth century, “both native and European agriculture [were] … dependent on the development and prosperity of the mining industry” (Frankel 1938:252–253). But this view has been contested by other analysts who argue that the copper industry bought little from the agricultural sector because the production of copper relied on capital intensive technology that employed relatively few workers who could buy agricultural produce. Baldwin (1966) attributes the poor development performance of the economy at the time to the lack of momentum that the mining sector induced in other sectors including agriculture where the majority of people (72 per cent) worked at that time.4 We will come back to the issue of linkage between the copper industry and other sectors in the economy during colonial rule. Here it suffices to note that the weak linkage between mining and agriculture via the mining workers’ demand for agricultural produce is a common feature of a colonial economy, manifested by the lack of internal coherence as highlighted in Chapter 1. This lack of internal coherence worsened, since the Europeans, who received more than half of wage income from the mining sector, spent it on imported, mostly processed, agricultural produce from South Africa and Southern Rhodesia (see Henry, 1946). As a result, the mining sector had a weak connection to the biggest sector in the economy in terms of the composition of labour. This structural constraint has persisted in the country to the present day such that a majority of people are disconnected from the modern wage economy. The agriculture sector did not experience much growth in the period between 1913 and 1935. The agricultural sector production figures reported in Table 2.2

The Northern Rhodesia economy 45 exclude production by Africans, so this does not reflect the complete picture of the sector as a whole. Data from other sources indicate that the Europeans’ contribution to agriculture GDP was only 20 per cent of the total agriculture production in 1921, with the rest coming from African farmers (Baldwin, 1966:35). This is not surprising given that the number of Europeans employed in agriculture had always been small compared to the number of Africans, although most Africans were engaged in subsistence production. Figures from a World Bank report show that in 1954, while 39,000 Africans were employed in agriculture (this only refers to waged labour and the self-employed for market production), the corresponding number for Europeans was only 460, a drop from 600 reported in the 1930s (World Bank, 1964). However, the productivity of Europeans was much higher than that of Africans by a big margin in many crops, including maize (Barber, 1961:136). For cash crops such as tobacco and wheat, it is unlikely that African farmers were producing these to any significant levels, so the figures reflected here would be close to the total crop produced. Nonetheless, even if we add the production of African farmers, the share of agriculture in total output was increasingly becoming smaller from 1934 when copper production started to rise sharply.

The copper industry in Northern Rhodesia It is sometimes reported that copper ores in the territory were discovered by Europeans when in actual fact, the local people had known about copper and had been working the metal for centuries before (Faber and Potter, 1971; de Luna, 2016). Roberts (1976) notes that archaeological evidence found at various sites in Northern Rhodesia suggest that some of the copper items, such as bells, date back to the fourteenth and fifteenth centuries. As one analyst has observed, “The existence of copper was known, of course, long before the present industrial development. For centuries Africans worked the copper deposits of Northern Rhodesia and those just across the border in Katanga Province of the Congo Republic” (Baldwin, 1966:31). de Luna (2016) also asserts that both linguistic and archaeological evidence found at various sites in the territory show that the local people had been engaged in metal work since the first millennium BCE. However, the use of copper before the arrival of the Europeans in Northern Rhodesia and other parts of Africa was different in nature as well as in the scale of exploitation. The large-scale production of copper using waged labour was initiated by Europeans during the first decade of the twentieth century. The extensive working of copper in Northern Rhodesia by Europeans marked the beginning of a significant number of changes in terms of the structure of the local economy in the territory. Prior to the growth of the copper industry in the 1920s, Europeans who settled in Northern Rhodesia had undertaken other economic activities, mainly agriculture, focusing on growing cash crops. While European agricultural activities contributed to the transformation of the local economy and society, it was the mining sector that radically changed the agrarian pre-colonial economy into

46

The Northern Rhodesia economy

a modern economy. As we shall see later, it is the mining sector that formed the pillar of the colonial economy and has remained so in many ways even today. Another change that occurred as a result of the expansion of the copper industry was a large-scale capital investment. Prior to the arrival of Europeans, the exploration and use of mineral deposits throughout the territory were on a small scale, mainly for the manufacture of domestic tools as noted earlier. Although we do not have information on the amount of minerals exploited by the indigenous people prior to commercial exploitation, which started at the beginning of the twentieth century with the operation of the zinc and lead mines at Broken Hill (now Kabwe), the amount exploited was likely to have been small, given that the local people did not have appropriate technology and tools for commercial mining. It has been observed that although European mineral prospectors and explorers knew about the deposits of various mineral ores in Northern Rhodesia, production until 1931 was at a small scale. Even “the extension of the rail line from Broken Hill to the Congo Border in 1909 did not stimulate production on a large-scale. Only one mine, Bwana Makubwa [outside Ndola], was at all significant before the 1930s” (Baldwin, 1966:31). As illustrated later in this chapter, the production of copper, , rose rapidly from about 6,000 tons in 1930 to almost 140,000 tons just four years later. Prior to that, production was on a limited scale even for the European mining ventures. It has been reported that Cecil John Rhodes’ British South African Company (BSA), which owned all the mineral rights in Northern Rhodesia from 1890, when dubious contracts were signed with the local chiefs, gave wide-ranging exploration permits to international private mining companies to conduct mineral exploration ventures. Large mining companies are reported to have invested about £1 million in exploration in the first decade of the twentieth century (Frankel, 1938:248). Available estimates suggest that in the decade between 1921 and 1931, a total of £25 million was invested in the copper industry in Northern Rhodesia (ibid.:162). These estimates exclude non-listed capital which was not recorded. At this stage it is important to turn our attention to the structure of the economy set up in Northern Rhodesia by the Europeans. It is understanding this colonial economic structure that can illuminate the challenges which have continued to constrain economic growth in Zambia.

The structure of the colonial economy in Northern Rhodesia The starting point in an analysis of any economy is the way its output is constituted. In this regard, one of the key and simplest indicators of a nation’s total output is Gross Domestic Product (GDP), which captures the value of goods and services produced in a country in a year or in a specific period of time. The details of how GDP figures are estimated and the debates around what these figures mean are beyond the scope of this book; interested readers can consult Lequiller and Blades (2006). An analysis of national output as reported in the System of National Accounts (SNA) gives us a rough idea of how production is organised, which sectors are generating greater value, the linkages (trade) between sectors,

The Northern Rhodesia economy 47 and how much each sector contributes to total output and how this composition changes over time. We also get useful information about the structure of an economy by looking at how the labour force is shared between the different sectors of the economy and what proportion of the total output of that labour in each sector or subsector contributes to total output. A crucial piece of information that is critical to any analysis of the structure of the economy is the source of capital invested in the economy and its composition, and this indicator is often captured by the gross capital formation. Looking at the trends in these variables can give not only a glimpse into how the economy is structured but also how the structure changes over time. Our task here is to get a sense of how the structure of the colonial economy continues to impact on economic growth in Zambian. It is thus important to start with the initial economic structure which was set up during the early twentieth century and see how this has evolved over time. One of the biggest challenges in carrying out this task is the lack of adequate data, especially in the early periods when the national accounts framework was not in existence and data were recorded in a fragmented manner. This is even more daunting in an embryonic colonial economy with limited capacity to capture and record the various activities in the economy. However, from the skeleton of data available, it is possible to get a picture of what the initial structure of the economy set up during clonial rule looked like and analyse some of the disadvantages and advantages that this structure entails. Since there is no consolidated source of data on the economy in the early days of Northern Rhodesia, here we rely on different sources, mainly reported data from published reports, documents, and books. In this section the focus is on the early days of the colonial economy. Certainly, the Zambian economy today has not maintained the same structure, nor does it face the same challenges as in the 1920s. But, as we shall see later, the key challenges faced today have remained largely the same as at the time when the economy was set up. This is why it is useful to identify some of the key features of this economy which have proved difficult to transform over the past 100 years. Pillars of the Northern Rhodesia economy As noted earlier, the main economic activities in Northern Rhodesia at the beginning of the twentieth century were mining (mainly copper) and agriculture. From the available data, it is clear that even as late as 1921, mining was still an insignificant part of the economy, with only 133 Europeans and a much larger number of Africans employed in the sector. The first mine opened was Broken Hill Mine, which concentrated on the production of lead and zinc. It was only later, in 1906, that the production of copper at Bwana Mukubwa in Ndola commenced. The sequential commencing of commercial mining in Kabwe and then in Ndola was determined by the fact that the railway line reached Kabwe before it reached Ndola. The total value of export from the mining sector before 1926 was estimated at an average of £161,000 per year, and copper only contributed £7,000

48

The Northern Rhodesia economy

(Baldwin, 1966:19). In comparison, the agricultural sector produced an export value of £153,000 in the same year and this, together with the export of minerals, accounted for 70 per cent of the total export earnings of £456,000. But this profile changed rapidly starting from 1926, when the share of minerals (mainly copper) in total output rose sharply, overshadowing agriculture. A report by the commission established to investigate the financial and economic position of Northern Rhodesia reported that in 1930 the number of Europeans employed in mining was estimated at 1903, while that of Africans was estimated at over 16,200. This is a sharp increase from the figures reported just nine years earlier; it represents a phenomenal rise in the importance of mining in the economy (Frankel, 1938). By 1938, it has been reported that copper alone accounted for 86.5 per cent of the total export value from Northern Rhodesia, and the export of minerals accounted for 69.3 per cent of Northern Rhodesia’s GDP (Baldwin, 1966:36).5 The rise in the importance of copper in the economy comes out more clearly when we look at the trends in export value between 1913 and 1935. In 1913 the ratio of the export value of non-minerals to minerals (mainly copper) was 2.6 (260 per cent) more, while in 1935 the ratio of the value of non-mineral exports was only less than 3 per cent that of mineral export value (see Table 2.3) When we compare trends in the value of export for minerals in Northern Rhodesia to other African countries, the growing dependence on minerals in Northern Rhodesia is overwhelmingly evident in the period referenced in Table 2.3. While the importance of minerals is evident in Southern Rhodesia, South Africa, and South West Africa between 1913 and 1935, the dominance of the mineral sector in Zambia is a clear outlier, such that the non-mineral share in export was largely insignificant by 1935. The production of copper rose rapidly from 1925 when new sulphide ores were discovered at lower depths in Mufulira, Roan Antelope (Lwanshya), and Nchanga (Chingola), different from the oxide ores at Bwana Mukubwa and Kansanshi which occured at deeper levels (Robinson, 1933). The production of the volume of copper grew by more than 20 times in just four years, between 1930 and 1938 (see Table 5.1). This growth was mainly accounted for by two major factors. One is the rising demand for copper from pre–Second World War industrial and armament expansion (Barber, 1961), and the other is the recovery of economies from the Great Depression of 1929, which had negatively affected production in 1930– 32, leading to the closure of Mufulira and Nchanga Mines (Henry, 1946; Hulec, 1969).6 We come back to these factors in the chapter on the mining industry in the Zambian economy (Chapter 5). The growth in the production of copper continued at phenomenal rates until the outbreak of the Second World War in 1939. The manufacturing sector Other than mining and agriculture, limited manufacturing activities emerged, following the growth of the copper industry during the 1930s. Other components of the broader industrial sector, particularly construction, and the provision of utility services, mainly water and energy (electricity and gas) , were slowly added to

143 220 1,008

1,777 12,708 2,510

3,358 6,211 1,376

52 3,077 -

51,857 1,005

1,656 568 -

2,203 2,300 -

95 61,496 2,709

557 4,359 345

Source: Author based on data from Frankel (1938:212).

N. Rhodesia S. Rhodesia Kenya and Uganda Tanganyika South Africa South-West Africa Gold Coast Nigeria Sierra Leone

Mineral

Mineral

Non-mineral

1929

1913

10,198 15,281 1,319

3,627 27,535 815

262 2,250 6,676

Non-mineral

3,793 1,753 810

404 77,505 812

4,492 6,457 419

Mineral

1935

Table 2.3 Value of mineral and non-mineral export (£’000), selected African countries

5,448 9,444 746

3,041 20,426 1,661

176 1,620 6,190

Non-mineral

1929

1935

2 11 -

0.3 2.5

2.6 0.07 -

4.6 6.6 -

38.2 0.4 0.3

0.5 0.5 19.4

1.4 5.4 0.9

7.5 0.3 2

0.04 0.3 14.8

Ratio of non-mineral: mineral

1913

The Northern Rhodesia economy 49

50 The Northern Rhodesia economy the economy. Of particular importance, in the context of the focus here on the colonial economic structures, is the manufacturing sector. The importance of the manufacturing sector with regard to structural transformation is that this is the sector where the momentum for growth in the entire economy is created, mainly because the manufacturing sector tends to have stronger linkages with agriculture in the initial stages of economic development. Growth of the manufacturing sector has been strategically important in the case of Zambia where there is consensus among different analysts that the industrial sector, particularly manufacturing in Northern Rhodesia, was very small from the start of the European development efforts at the beginning of the twentieth century(Barber, 1961; Young, 1973; Kilby, 1975). The low levels of industrialisation in Northern Rhodesia become evident when one compares industrial capabilities and levels of production that emerged in neighbouring Southern Rhodesia and South Africa (Barber, 1961). Among the key factors which have been cited for the relatively low levels of industrial and manufacturing capacity in Northern Rhodesia are the small size of the domestic market, lack of skilled manpower, lack of interest among foreign investors to invest in the manufacturing sector, the prohibitive transport costs for bringing in intermediate goods and taking finished products to markets. Henry (1946) proposed an interesting view arguing that little was done by the colonial government (following advice from experts) to expand manufacturing industries in the territory. Part of this can be attributed to the fact that the country for the first two and half decades of the twentieth century was run by a chartered company (BSA) whose main interest was in exploiting mineral resources and not developing industries outside of mining (Austin and Morton, 2018). The other factor is that the small group of European settlers, as noted earlier, did not have a strong voice to lobby the imperial government to support the development of secondary industries beyond mining and its auxiliaries. We come back to discuss this in more detail in the chapter on industrial policy in Zambia (Chapter 4). In 1947, when the first census of industrial production was conducted, it was reported that only a handful of manufacturing firms were operating, and most of them were concentrated on the processing of food and forestry products (Young, 1973). In the early 1920s, only one manufacturing firm was reported to have been established—the Zambezi Sawmill in Livingstone, which started in 1912 to provide timber products needed for railway sleeper couches, not only for Northern Rhodesia but for Sothern Rhodesia and South Africa as well. Young (1973), however, disputes this, arguing that the timber sawmill at Livingstone was not the only manufacturing firm in Northern Rhodesia. He argues that the 1931 population census indicated that 20 per cent of Europeans were employed in manufacturing firms, although he acknowledges that the majority of these were actually employed in firms providing services and inputs to the mining sector. Nonetheless, before the 1940s, the manufacturing sector in Northern Rhodesia was almost non-existent. By 1954, the industrial sector accounted for only 4.6 per cent of GDP and employed 19,000 people, representing 7 per cent of total employment in the country (World Bank, 1964). Of the total 6,334 employees in

The Northern Rhodesia economy 51 the manufacturing sector, more than half (3,473) were employed in wood processing, and another 1,300 were employed in the processing of food (Young, 1973:6). As Table 2.4 shows, the manufacturing sector in Northern Rhodesia was underdeveloped, and concentrated on the processing of natural resources for the domestic market, with few manufactured products for export, apart from the semi-finished copper products, mainly copper wire and slabs. Understandably, for an economy in the early stages of development, the manufacturing sector concentrated mainly on the processing of natural resources. Processing food and other agricultural products including timber and wood accounted for almost 60 per cent of the total manufacturing value added (MVA) in 1947 as Table 2.4 shows. The wood and timber subsector, which accounted for 29 per cent of MVA, employed more than half of the workers in the sector. Figures on output per worker suggest that subsectors with the largest share of employment had the lowest labour productivity, reflecting weak linkages between sectors. As noted in Chapter 1, large productivity gaps between sectors are an indication that resources in the economy are not optimally utilised due to poor inter-sectoral linkages, creating isolated pockets of efficiency—enclaves. It is interesting

Table 2.4 Northern Rhodesia manufacturing value added (MVA) by subsector (1947) Number Net output Number of % of total Labour of firms (£) employees MVA share % Food, drink and 9 tobacco, and confectionary Grain milling 6 Brewing and 7 soft drinks Other 4 Textiles and 5 clothing apparel Metal 22 engineering and repairs Wood and 7 furniture Building 6 materials Printing and 4 publishing Miscellaneous 4 Average 74

Output per employee (£)

69,845

286

9.8

4.5

244.21

58,079 40,913

394 257

8.2 5.8

6.2 4.1

147.41 159.19

36,376 19,245

389 163

5.1 2.7

6.1 2.6

93.51 118.07

82,634

413

11.6

6.5

200.08

210,890

3,473

29.7

54.8

60.72

10,794

440

1.5

6.9

24.53

110,467

178

15.5

2.8

620.60

71,410 710,653

341 6,334

10.0 100.0

5.4 100.0

209.41 112.20

Source: Author based on data from CSO (1947) “First Report on Census of Industrial Production,” Northern Rhodesia. Salisbury: CSO.

52 The Northern Rhodesia economy that printing and publishing, which accounted for less than 3 per cent of the manufacturing employment, had the highest output per worker. Such large productivity differentials within the sector could also be a reflection of a colour-bar system which was common in Africa during colonial rule. The overall picture of the manufacturing industry in Northern Rhodesia which emerges from the analysis of the economy at this time is that the sector was overly underdeveloped and this, to a large extent, prevented further diversification of the economy beyond mining and mineral processing. As has been observed, It only requires a brief inspection of the industrial structure of Central Africa to establish that Southern Rhodesia is the only territory in which manufacturing industry has made any considerable strides. In Northern Rhodesia, only 107 ‘Secondary’ establishments were recorded in the first census of industrial production in 1947. Secondary industry was defined broadly and taken to include some activities … which might be treated as services in other classification. (Barber, 1961:139–140) The significant industrial advances made in Southern Rhodesia in terms of manufacturing was not by chance; there are several reasons which account for this, and these are discussed in Chapter 3, which looks at industrial policy in Northern Rhodesia and Zambia. Structure of total output When we look closely at the structure of the economy as a whole during the colonial period, there are a number of structural issues that arise. Data on total output in the economy were not readily available in the earlier period, but if we look at the post–Second World War period up to the eve of independence in 1964, the structural constraints in the economy are evident. For instance, when we look at the structure of national output, one thing that stands out is the dominance of mining in the economy, as noted earlier. The mining sector’s contribution to total output was consistently above half of total GDP between 1954 and 1960, falling to below 50 per cent only in 1962 and 1963 (see Table 2.5). The manufacturing sector, on the other hand, had a very low share in total output, persistently below 5 per cent until 1962. The agriculture sector’s contribution was also surprisingly low, just slightly over 10 per cent over the reference period. This might be attributed to the fact that in the compilation of national accounts data, subsistence production by Africans was largely excluded. Figures produced immediately after independence show a much higher share of the agriculture sector in total output (see CSO, 2015). In Northern Rhodesia, it was only in later years that subsistence production was included through the imputation of production for one’s own consumption, although even these were largely very rough estimates. It is also interesting to note that Africans accounted for the bulk of the agriculture output, averaging 80 per cent in the decade between 1954 and 1963. This is not surprising, given the proportion of Africans engaged in agriculture

13.1 13.6 18.2 2.6 2.1 4.5 15.7 15.7 22.7 Total GDP (million £) 15.7 15.7 22.7 80.3 102.9 107.3 4.6 5.9 8.6 8.9 10.8 10.2 0.4 1.4 4.1 9.2 10 14.7 0.4 0.5 0.9 1.3 1.6 3.8 4.9 5.9 10.7 3.1 3.8 7.4 1.2 1.5 3.1 0.7 0.9 1.5 7.8 8.6 12.3 138.5 169.5 207.3 23.3 94 11 7.9 3.9 15.6 1.2 3.4 10.7 9 3.6 1.6 12.8 198

17.6 5.7 23.3 25.4 96.4 12.6 8.3 4.2 15.7 1.3 4.5 10.4 9.4 4.3 1.6 13.4 207.5

20.2 5.2 25.4

1960

83.4 86.6 80.2 16.6 13.4 19.8 100 100 100 Percentage share of GDP 11.3 9.3 11.0 58.0 60.7 51.8 3.3 3.5 4.1 6.4 6.4 4.9 0.3 0.8 2.0 6.6 5.9 7.1 0.3 0.3 0.4 0.9 0.9 1.8 3.5 3.5 5.2 2.2 2.2 3.6 0.9 0.9 1.5 0.5 0.5 0.7 5.6 5.1 5.9 100 100 100

1955

Source: Author based on data from World Bank (1964). Note: Percentages may not add up to 100 due to rounding off.

Agriculture Mining and quarrying Manufacturing Building and construction Electricity and water Distribution Banking, insurance, and finance Real estate Transport and communication Public admin and defence Education Health Domestic services Total

African Non-African Total Agric

1963

11.8 47.5 5.6 4.0 2.0 7.9 0.6 1.7 5.4 4.5 1.8 0.8 6.5 100

75.5 24.5 100

1962

1954

1962

Percentage share of agriculture GDP

1960

1954

1955

Agriculture GDP (million £)

Table 2.5 Trends in the composition of GDP by sector in Northern Rhodesia (1954–1963)

12.2 46.5 6.1 4.0 2.0 7.6 0.6 2.2 5.0 4.5 2.1 0.8 6.5 100

79.5 20.5 100

1963

The Northern Rhodesia economy 53

54

The Northern Rhodesia economy

production to Whites. Aside from mining and agriculture, the contribution of other sectors to total output was insignificant, except for transport, distribution (wholesale and retail), and domestic services. This structure of production reveals the economy’s overwhelming dependence on mining, especially if we take into account the fact that metal fabrication and chemical processing, which usually fall under manufacturing, were by-products of mining. Labour force composition The structural weaknesses of the Northern Rhodesia economy are even more glaring when we look at the distribution of labour across sectors, against the sectoral composition of output. If we look at the labour force composition by sector (which includes the labour force in subsistence production), we see that the agricultural sector in 1961 accounted for almost 90 per cent of the total labour force. The mining sector, which produced almost half of GDP in the same year, accounted for only 2 per cent of the labour force (see Table 2.6). Now this configuration of output and labour shows a fundamental structural weakness in the economy, mainly that the sector that is producing the largest share of output accounts for an insignificant proportion of labour. What this suggests is that the majority of people in the economy were not contributing to (and, in turn, not participating) meaningfully in the economy. This is an indication that the economy is inefficiently using one of its vital factors of production—labour. This structure of labour composition also has a negative impact on the productivity of other factors, including capital, which gets affected when other factors are inefficiently utilised in the economy. In other words, when one factor is inefficiently utilised, it has a drag on total factor productivity in the sector, and the economy. If we look at the distribution of wage employment only (excluding subsistence production), the picture is slightly different. We see that agriculture accounted for only about 15 per cent of total wage labour (see Table 2.6). Agriculture, building and construction, mining and quarrying, and private services have similar shares in the total wage labour force. In terms of the racial distribution of the labour force, it is also apparent that African labourers had a significantly higher proportion of workers in agriculture, building, and private (domestic) services relative to non-Africans, while nonAfricans had a higher proportion of wage workers in the mining and quarrying, wholesale and retail, transport, and finance and insurance (see Table 2.7). It is not surprising that non-Africans were over-represented in the high-wage sectors, given that they had the training and skills required to operate in these sectors since educational services were largely targeted at European settlers during colonial rule (Baldwin, 1966). The high concentration of non-Africans in the high-wage sectors can also be attributed to the policies that protected high-paying/high-skills jobs for Europeans, which was a common practice throughout the colonial period (see Coulter, 1933; Mhone, 1982). In the retail and wholesale sectors, the higher proportion of non-Africans might have been pushed up by an overwhelmingly large Asian ratio, since Asians tended to specialise in this sector,

510 4,990 1,260 2,900 3,040 1,310 1,140 100 2,270 30,860

2,900 14,400 500 10,300

20,600

9,300 6,200 33,400 10,800 238,100 268,960 1,692 000

670 6,840 3,430 2,400

40,300 37,800 21,600 30,000

3.9 2.6 14.0 4.5 100.0

8.7

1.2 5.4 0.2 4.3

16.9 14.1 9.1 12.6

African

Total agriculture

4.2 3.7 0.3 7.4 100.0

9.9

1.7 16.2 4.1 9.4

2.2 22.2 11.1 7.8

Non-African

10,610 7,340 33,500 13,070 268,960 1,960,960 1,732,970

23,640

3,410 19,390 1,760 13,200

40,970 44,640 25,030 32,400

Number

Non-African Percentage share by racial group Total

Source: Author based on Baldwin (1966:43).

Agriculture Mining and quarrying Manufacturing Building and construction Electricity and water Wholesale and retail Finance and insurance Transport and communication Government administration Education Health Private services Other services Total Total wage labour Subsistence population

African

Table 2.6 Labour composition by sector and racial group (1961)

3.9 2.7 12.5 4.9 100

8.8

1.3 7.2 0.7 4.9

15.2 16.6 9.3 12.0

Share in sector, wage employment

0.5 0.4 1.7 0.7 13.7 100

1.2

0.2 1.0 0.1 0.7

88.4 2.3 1.3 1.7

Share in total labour force

Share in the total labour force (%)

The Northern Rhodesia economy 55

56

The Northern Rhodesia economy

Table 2.7 Earning by sector and race (£ per year) 1961

Agriculture Mining and quarrying Manufacturing Building and construction Electricity and water Wholesale and retail Finance and insurance Transport and communication Government administration Education Health Private services Other services Average

African

Non-African

Ratio of African to non-African (%)

54 293 137 120 124 124 146 168 149 176 122 81 113 139

956 2,326 1,493 1,434 1,875 976 1,056 1,349 1,365 1,121 1,256 622 992 1,476

5.6 12.6 9.2 8.4 6.6 12.7 13.8 12.5 10.9 15.7 9.7 13.0 11.4 9.4

Source: Author based on Baldwin (1966:43).

not just in Northern Rhodesia but in many parts of African including Uganda, Kenya, Nigeria, and Ghana (see Kilby, 1975). In many parts of Africa, the larger proportion of the Asian population was involved in the trade and often acted as middlemen in the trade between Africans and European trading companies (Rodney, 1972). The challenges associated with the structure of the economy presented above become clear when we look at the earnings by race and sector. In Table 2.7 we see that although the African wage labourer accounted for the largest proportion (88 per cent of wage labourer and 98.5 per cent of the total labour force), the African earnings were only a tiny fraction (less than 10 per cent on average) of what the non-Africans earned in all sectors (see Table 2.7). In all the sectors, African earnings as a proportion of the earnings of non-Africans did not exceed 15 per cent in the period under consideration. In agriculture, Africans’ average earnings were only one-twentieth of the average earnings of non-Africans. Given that Africans were the majority in this economy, this presents a huge problem in terms of the domestic demand structure and therefore the ability to generate an internal momentum for growth. The challenge becomes clear when we read Table 2.8 together with Table 2.7. From these two tables it is evident that it was sectors with the lowest share in total labour forces (mining and quarrying, and electricity and water) which had the highest level of earnings for both racial groups, while the sector with the largest share of labour (agriculture) had the lowest earnings, especially for Africans. This again highlights the structural problem in the economy which has persisted up to the present. An important point that this structure of the economy highlights is dualism in the economy, which is a common feature of a colonial economy, as highlighted in Chapter 1.

1.2 14.3 1.2 1.1 4 4.2 2.8 0.6 0.2 8 37.6 27.1

1 18.8 1.3 1.2 6.1 5.7 2.1 1.5 0.2 8.1 46 27.1

1955

Source: Author based on data from World Bank (1964).

Agriculture Mining Manufacturing Construction Electricity and water Transport Government admin Education Heath Other Total Capital formation % GDP

£ million

1954 1.1 13.1 2 0.8 5.5 5.5 3.5 1.1 0.3 5.5 38.4 18.5

1960

Table 2.8 Gross capital formation by sector (1954–1963)

0.8 15.6 0.8 0.3 3.2 5.6 3.2 1.2 0.3 5.7 36.7 18.5

1962 1.8 14.1 1.3 1.3 2.1 3.7 2.5 1.7 0.1 5.6 34.2 16.5

1963 3.2 38.0 3.2 2.9 10.6 11.2 7.4 1.6 0.5 21.3 100

Per cent

1954 2.2 40.9 2.8 2.6 13.3 12.4 4.6 3.3 0.4 17.6 100

1955 2.9 34.1 5.2 2.1 14.3 14.3 9.1 2.9 0.8 14.3 100

1960

2.2 42.5 2.2 0.8 8.7 15.3 8.7 3.3 0.8 15.5 100

1962

5.3 41.2 3.8 3.8 6.1 10.8 7.3 5.0 0.3 16.4 100

1963

The Northern Rhodesia economy 57

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The structure of investments The other key element to consider in an economy is how investments, measured by gross fixed capital formation, are distributed across sectors. Obviously, it makes sense that the larger share of investments goes to the sectors where the output or productivity and profits are high. But in terms of long-term economic development, it is important to ensure that other sectors are not completely left out in the way investments are distributed. It is more difficult for a severely imbalanced economic structure to generate sustained momentum for growth (Scitovsky, 1954). In the case of Northern Rhodesia, we see that investments and the formation of capital were overly concentrated in the mining sector, with little going to other sectors, particularly agriculture (see Table 2.8). It is also apparent that there was some significant investment (mainly by the state) into transport and electricity, which accounted for 10 per cent of the total gross fixed capital formation. This should not be surprising since transport infrastructure and basic services such as water and electricity play an important part in a society that is growing rapidly, especially in urban areas (Robinson, 1933). The low share of investment in agriculture, manufacturing, education, and health points to a structural problem in the economy. It is particularly concerning that education and health, which are key to building human capital given it has a crucial role in fostering economic growth (Romer, 1986), received very low attention. But in the context of the colonial policy, this was not surprising, since the education of Africans was largely overlooked not just in Northern Rhodesia but in other colonies as well (Coulter, 1933). However, capital formation as a percentage of GDP was very healthy in the last half of the 1950s, though this fell to just 18 per cent at the beginning of the 1960s. Several factors account for this, including the inability of the economy to retain the revenue generated internally due to tax by the imperial government and profit expatriation by private investors.

Structural challenges of the Northern Rhodesia economy An economy with the profile presented earlier exhibits a number of structural challenges on both the supply (production side) as well as the demand (consumption side) of the economy. Here only the major structural issues are highlighted. It should be pointed out that most of these challenges have persisted to the present day. We will come back to some of the issues in later chapters to highlight the continuity of these challenges. Dependence on a single commodity—copper The first structural challenge, which has been present in the economy since the 1930s, is the over-dependence of the economy on the export of a few minerals, mainly copper. The structural weakness of this economy was exposed as early as 1931 following the drastic fall of commodity prices on the global market as a result of the Great Depression. The fall of copper prices during this time severely

The Northern Rhodesia economy 59 affected the development of new mines in the territory, which had gained momentum during the second half of the 1920s (Henry, 1946). As noted earlier, the weakness of this economic structure became apparent when mines had to close and employment, especially among Africans, plummeted from 30,000 to 7,000 in just nine months. Commodities, particularly copper, have been known to be susceptible to external shocks, mainly through the volatility of the prices and demand on the global market. Thus, to overcome this weakness, the need to diversify the economy had been recognised from the early 1940s (see Young, 1973). Unfortunately, diversifying the economy from a “one-track” mineral mono-economy has proved to be elusive, as we shall see in later chapters. Underemployment and low productivity The second challenge, which, to a large extent, is closely related to the first, is that of the underuse of labour in the economy. In this regard, the enduring challenge has been around the failure to bring the majority of people into meaningful and highly productive economic activities. As noted earlier, during colonial times, the majority of Africans were engaged in subsistence agriculture, with very low productivity. The fact that the majority of people could not participate meaningfully in the economy is in itself a structural problem. In this regard, the main concern has been to find ways to make sure that the majority of people find opportunities to meaningfully participate in and contribute to the economy. As shown earlier, only 12 per cent of the labour force in 1961 was engaged in wage employment, and the majority of these had extremely low wages. This challenge has somehow persisted, and it has even become a much bigger problem such that the level of underemployment has contributed to the persisting high levels of poverty in the country (CSO, 2015). Low domestic demand The third structural issue evident in the economic profile presented earlier is that of constrained domestic demand. In the case of Northern Rhodesia, it was not only that the domestic market was very small, but that the majority of people did not have purchasing power, primarily because they were not engaged in the productive part of the economy (Barber, 1961). But as we have seen, the problem was also as a result of the wage structure, particularly the huge differential between African and non-African workers. In all sectors, the average pay for an African in 1961 was only 9.4 per cent of the non-African average pay. This meant that the majority of the people had no purchasing power in the economy (Baldwin, 1966). This, in particular, as we shall see, constrained the growth of the manufacturing sector and the economy as a whole. A Weak state The other major structural constraint we see in the structure of the economy presented is the reluctance of the colonial government to take an active role in driving

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and directing economic development in the country. Due to ideological reasons, the colonial government, perhaps following closely the dictates of the imperial government, shied away from taking an active part in the economy, leaving most of the crucial investments to the private sector. This issue was extensively debated in London at the Colonial Office, and the colonial government opted to stay away from intervening in the economy (see Henry, 1946). Sir Roy Welensky, who was later to become the last governor of Northern Rhodesia, opposed the view that government should not intervene in the economy. In responding to the report and recommendation by an expert tasked with investigating the potential for the development of secondary industries in Northern Rhodesia, Welensky argued that: Frankly, I dislike the whole approach to the subject by Dr. Busschau. His one judgement on any industry put to him was whether it would make profit. I do not accept this view. I consider it government’s duty to consider the value of an industry to the territory as whole. An industry might not make an immediate profit but it might improve and give other industries an opportunity to become established. (cited in Young, 1973:16–17) Welensky’s critique of Busschau’s recommendation raises an important point about the role of industrial policy and that of the state in it. This is an important point to consider, which is the main topic of the next chapter. Capital flight The flow of money out of Africa (Zambia included) is another major feature of the colonial economy that has continued up to the present. During colonial rule, only a small portion of the money made in Africa was retained in Africa for reinvestment (what in political economy terms is referred to as the reproduction of capital, see Alavi, 1982). The bulk of the profits and dividends flowed back to the industrial centres, leaving Africa a capital-scarce continent (Peemans, 1975). Walter Rodney (1972) compares this to a haemorrhaging patient, losing the vital resource continuously. In the case of Zambia, as we shall see in the next chapter, the haemorrhaging was through three major channels: the expatriation of profits, imperial tax, and the local expenditure patterns that heavily concentrated on imported goods, leaving only a tiny portion to be spent in the domestic markets. With regard to the expatriation of profit out of Zambia, this was an unavoidable consequence of the structure of the economy which was dominated by what Roberts (1976:224) refers to as the “autonomous enclave of foreign business” concentrated in the copper mining sector. When the big mining houses made their money from extracting copper, the profits were expatriated from the territory to the industrial centres, and Zambia had to bend the knee to persuade the rentiers to bring the expatriated money back as foreign investment. At times, what was taken out as profit was as high as 75 per cent of the gross profit made in the country (see Kaunda, 1968).

The Northern Rhodesia economy 61 This was not the only means through which capital was drained out of Northern Rhodesia and, eventually, Zambia. The payment of tax and royalties was another way through which money made in Africa found its way out of the continent. In the case of Zambia, the BSA, which administered the territory until 1924, had its headquarters in London and paid tax in Britain. While mining companies in Zambia paid tax to the Northern Rhodesia government, this was done in an indirect way through a special arrangement made with the British government. Profits made from mining operations were only taxed in Britain and only half of the tax was remitted to the colony in Northern Rhodesia. By means of this arrangement, the British government, on average, collected 30 per cent of the tax from mining companies, “but only 12.5 percent went to the Northern Rhodesia government” (ibid.: 193). The third way by which colonies continued to lose vital resources for development was through the way income and domestic consumption were structured. In Zambia, as we shall see later, the Europeans, during colonial rule, although they constituted only about 3 per cent of the population, received almost 85 per cent of total income (see Baldwin, 1966). The challenge this income distribution structure presented was that most of the Europeans (and, later, elite Zambians) spent their income on imported foods and consumer goods (see Henry, 1946). What this effectively meant was this expenditure pattern failed to support the growth of local manufacturing, leading to a situation where the country had to spend foreign exchange on purchasing processed food mainly from Southern Rhodesia, South Africa, and the UK (Barber, 1961). Although some of these mechanisms were challenged after independence, these structures have survived and continue to make African economies continue to haemorrhage, leaving them weak and without the vital resources for reinvestment and growth. Capital flight out of Africa and Zambia is a well-documented phenomenon today, which results in massive financial resources being shifted out of the continent through legal and illicit means (AU/ECA, 2015). The means by which capital has continued to flow out of Africa were established during colonial times. Unfortunately, many African countries have not succeeded in transforming the colonial structures which perpetuate the bleeding of Africa. These structures, as the Zambian case shows, do not just lead to the bleeding of scarce capital, but hinder the development of local manufacturing, industrial growth, employment, and sustained inclusive growth. A radical industrial policy can be used to cure some of these ills.

Notes 1 For instance, Malinowski is reported to have dismissed the idea that African communities had any grasp of concepts such as capital and entrepreneurship before the arrival of the Europeans (see Duignan and Gann, 1975:33). 2 It is questionable to call the industrial revolution in Britain the “first” industrial revolution because there were certainly other revolutions in technology and in the way production was organised in other parts of the world. In Europe, this was definitely the first industrial revolution, and this is why it should be called the European industrial revolution. 3 Often it is assumed that information about pre-colonial societies in Africa is only available from the notes of the European travellers and the missionaries who criss-crossed

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the territory before formally colonising it. But the local people are a rich repository of knowledge about the past. Many of them have vivid memories of how life was before the arrival of the Europeans. Some of these stories were still being narrated with accuracy even on the eve of independence in 1964. Even though the information from the European travellers was often inaccurate (as we saw from the IMC quote earlier), the missionaries and the early anthropologists tapped this source aggressively to construct their stories. 4 Although the share of workers in the agriculture sector (mainly subsistence farming) has declined, the sector still remains the largest in terms of labour composition. 5 The other metals accounted for 8.8 per cent of export value. This means that almost 95 per cent of export earnings were derived from minerals, mainly copper. 6 The devastating effects of the Great Depression on the copper Industry and the Northern Rhodesia economy are captured in Henry’s (1946) paper in which he reports that as a result of the closure of the mines, the European population dropped from 13,846 in 1931 to 10,553 in 1932. The number of Africans employed in the mining industry dropped from 30,000 to just 7,000 in just one year. This shows the vulnerability of African workers relative to European workers.

References Alavi, H. (1982). “The Structure of Peripheral Capitalism.” In H. Alavi and T. Shanin (eds.) Introduction to the Sociology of Development Societies. New York: Monthly Review Press. 172–194. AU/ECA (African Union/ Economic Commission for Africa) (2015). Illicit Financial Flows: A Report of the High Level Panel on Illicit Financial Flows from Africa. Addis Ababa: AU/ECA. Austin, F. and Morton, J. (2018). “Patterns of Manufacturing Growth in Sub-Saharan Africa: From Colonization to the Present.” In K.H. O’Rourke and J.G. Williamson (eds.) The Spread of Modern Industry to the Periphery since 1871. London: Oxford University Press. 345–373. Baldwin, R. (1966). Economic Development and Export Growth: A Study of Northern Rhodesia, 1920–1960. Berkley: University of California Press. Barber, W. (1961). The Economy of British Central Africa: A Case Study of Economic Development in a Dualistic Society. London: Oxford University Press. Bauer, P.T. (1975). “British Colonial Africa: Economic Retrospect and Aftermath.” In P. Duignan and L.H. Gann (eds.) Colonialism in Africa: The Economics of Colonialism, 1870–1960, Vol. 4. Cambridge: Cambridge University Press. 632–654. Central Statistics Office (CSO) (2015). Zambia in Figures: 1964 to 2014. Lusaka: CSO. Coulter, W.C. (1933). “The Sociological Problem.” In J.M. Davis (ed.) Modern Industry and the African. London: Macmillan & Co. 31–130. Davis, J.M. (1933). “Introduction.” In J.M. Davis (ed.) Modern Industry and the African. London: Macmillan & Co. 1–30. de Luna, K. (2016). Collecting Food, Cultivating People: Subsistence and Society in Central Africa. New Heaven: Yale University Press. Dixon-Fyle, M. (1983). “Reflections on Economic and Social Changes Among the Plateau Tonga of Northern Rhodesia, c1890-1935.” International Journal of African Historical Studies Vol. 16, No. 3, 423–439. Duignan, P. and Gann, L.H. (1975). “The Pre-Colonial Economies of Sub-Saharan Africa.” In L.H. Gann and P. Duignan (eds.) Colonialism in Africa: The Economics of Colonialism, 1870–1960, Vol. 4. Cambridge: Cambridge University Press. 33–67.

The Northern Rhodesia economy 63 Faber, M.L. and Potter, J.G. (1971). Towards Economic Independence: Papers on the Nationalisation of the Copper Industry in Zambia. Cambridge: Cambridge University Press. Fieldhouse, D. (1971). “The Economic Exploitation of Africa: Some British and French Comparisons.” In P. Gifford and W.R. Louis(eds.) France and Britain in Africa: Imperial and Colonial Rule. New Haven: Yale University Press. 593–662. Frankel, S.H. (1938). Capital Investment in Africa. London: Oxford University Press. Gann, L.H. (1964). A History of Northern Rhodesia: Early Days to 1953. London: Chatto & Windus. Gary, R. (1960). The Two Nations: Aspects of the Development of Race Relations in the Rhodesias and Nyasaland. London: Oxford University Press. Henry, J. (1946). “Some Aspects of The Economic Development of Northern Rhodesia.” South African Journal of Economics Vol. xiv, 100–116. Hulec, O. (1969). “Some Aspects of the 1930 Depression in Rhodesia.” Journal of Modern African Studies Vol. 7, No. 1., 95–105. Iliffe, J. (1983). The Emergence of African Capitalism. London: Macmillan Press. Kaunda, K. (1968). “Zambia’s Economic Revolution.” Address by His Excellence the President Dr. K.D. Kaunda at Mulungishi, 19 April. Lusaka: Republic of Zambia. Kilby, P. (1965). African Enterprise: The Nigerian Bread Industry. San Francisco: Institute for Contemporary Studies Press. Kilby, P. (1975). “Manufacturing in Colonial Africa.” In L.H. Gann and P. Duignan (eds.) Colonialism in Africa, 1870–1960, Vol. 4, The Economics of Colonialism, 1870–1960. Cambridge: Cambridge University Press. 470–520. Lequiller, F. and Blades, D. (2006). Understanding National Accounts. Paris: OECD. Luxemburg, R. (1951). The Accumulation of Capital. London: Routledge & Kegan Paul Ltd. Meyns, P. (1984). “The Political Economy of Zambia.” In K. Woldring (ed.) Beyond Political Independence: Zambia’s Development Predicament in the 1980s. New York: Mouton Publishers. 7–22. Mhone, G. (1982). The Political Economy of a Dual Labour Market in Africa: The Copper Industry and Dependence in Zambia, 1929–1969. East Brunswick: Associated University Press. Peemans, J. (1975). “Capital Accumulation in the Congo Under Colonialism: The Role of the State.” In P. Duigan and L.H. Gann (eds.) Colonialism in Africa 1870–1960 (Volume 4: Economics of Colonialism). London: Cambridge University Press. 165–212. Polanyi, K. (1944). The Great Transformation: The Political and Economic Origins of our Times. Boston: Beacon Press. Roberts, A. (1976). A History of Zambia. London: Heinemann. Robinson, A.E. (1933). “The Economic Problem: Part Three.” In J.M. Davis (ed.) Modern Industry and the African. London: MacMillan. 131–226. Rodney, W. (1972). How Europe Underdeveloped Africa. Washington, DC: Howard University Press. Romer, P. (1986). “Increasing Returns and Long-Run Growth.” Journal of Political Economy Vol. 94, No. 5, 1002–1037. Sardanis, A. (2014). Zambia: The First 50 Years. London: I.B. Tauris. Scitovsky, T. (1954). “Two Concepts of External Economies.” Journal of Political Economy Vol. 62, No. 2, 143–151. Smith, A. (1776). An Inquiry into the Natures and Causes of the Wealth of Nations. Pennsylvania State University, Electronic Classics Series. Pennsylvania.

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Wilks, I. (1982). “The State of Akan and the Akan State: A Discussion.” Cahiers d’Ėtudes Africaines Vol. 22, No. 87–88, 231–249. Wood, E. (1998). “The Agrarian Origins of Capitalism.” Monthly Review Vol. 50, No. 3. https://monthlyreview.org/1998/07/01/the-agrarian-origins-of-capitalism/, accessed 07/10/2006. World Bank (1964). The Economy of Northern Rhodesia. Washington, DC: International Bank for Reconstruction and Development. Wolff, Richard (1974). The Economics of Colonialism: Britain and Kenya, 1870-1930. New Haven: Yale University Press. Young, A. (1973). Industrial Diversification in Zambia. New York: Praeger Publishers.

3

Industrial policy in Northern Rhodesia

Introduction Industrial policy as a deliberate set of strategies adopted to promote the growth of the industrial sector is not something new. In the literature on industrial development, there is almost consensus on the view that many now industrialised countries used industrial policy (IP) effectively to promote the growth of various kinds of industrial activities, especially manufacturing (see Wade, 1990; Chang 2002; Cherif and Hasanov, 2019). Although the nature and type of industrial policy changes over time, many analysts agree that strategic measures adopted by the state are required to promote sustained industrial growth in an environment where competition has intensified (Wade, 1990; UNECA, 2016). But the industrial policy has been treated with suspicion by analysts with a neoclassical leaning because they see IP as something that brings inefficiencies into the economy by advocating state intervention (Saggi and Pack, 2006). However, while industrialised countries which eventually became imperial powers used IP to promote not only economic growth but also influence on the global stage (List, 1909; Chang 2002), they did little to promote industrial development in the colonies, except in a few colonies with significantly large European settler populations, as noted in Chapter 2. Although colonial governments in Africa started to contemplate the possibility of promoting the growth of secondary industries after the Second World War, this did not receive the attention it deserved. Serious efforts to formulate and implement IP in most African countries had to wait until after independence. As noted in Chapter 2, several reasons, including the small size of domestic markets, lack of skilled labour, poor infrastructure to sustain industrial production, and the unwillingness of the investors to commit the large capital outlays needed for industrial production to start in the colonies, are cited to explain low industrial development in Africa. However, it can be argued that the colonial economy, from the beginning, was not meant to promote industrial growth because this was contrary to the economic logic behind the colonial project (Peemans, 1975). Concentrating on the export of raw materials was part of the economic logic behind the colonial economy, which was structured to keep the colonies dependent (Chitonge, 2019). We see an extraordinary version of the colonial IP articulated in the case

66 Industrial policy in Northern Rhodesia of Northern Rhodesia. It has been observed that Northern Rhodesia is probably an outlier when it comes to the way the colonial economy was structured, in that “the country’s economy was quite exceptionally dependent” (Roberts, 1976:224). This chapter looks at industrial policy in Northern Rhodesia, starting from the early days when the territory under the colonial government sought to promote the development of secondary industries. The main reason for looking at industrial policy during the colonial period is to see how the scope of industrial development shaped the subsequent industrial strategies, especially after independence. The chapter looks at both the economic and the political actors that played a role in the creation of the industrial structure which emerged out of Northern Rhodesia and, subsequently, Zambia.

Background to industrial policy in Northern Rhodesia What motivated European settlement in the territory that became Northern Rhodesia was the hope that more valuable minerals deposit would be found in the area. Europeans who came to the territory were hoping to find what they hoped to be the “Second Rand,” following valuable discoveries of gold and diamond deposits in South Africa and Southern Rhodesia (Roberts, 1976). During the last decade of the nineteenth century, little mineral exploration was done by the BSA. Several mineral exploration licences were granted by the BSA in the first decade of the twentieth century covering different parts of the county. Extensive explorations led to the discoveries of copper deposits in the area that came to be known as the Copperbelt, which stretches into the modern-day DRC. As noted in Chapter 2, large-scale mining did not start until after 1926, when rich sulphide ores were discovered in the new mines. Before this time, agriculture was the main economic activity, accounting for the largest share of national output (see Table 2.2). This drastically changed from 1926 when the production and export of copper began to dominate the economy, with mining emerging as the only significant export earner in the country by 1931. But the dominance of mining in the economy did not sit well with the colonial officials at that time. What made the colonial officials in Northern Rhodesia uncomfortable was the volatility of the price of copper on the world market. In the early 1930s, for example, when the copper industry in particular was still in its embryonic stages, the effects of the Great Depression sent shock waves through the new industry, causing massive disruptions of economic activities and the livelihoods of many when three of the new mines had to be temporarily closed (Henry, 1946). During the Great Depression, the inflated confidence of new mine owners and workers alike was, in just one year (1931), turned into complete despair when everything seemed to have collapsed, following the sharp decline in the price of copper. Consequently, the colonial officials in Northern Rhodesia started to search for ways to promote the growth of secondary industries to reduce the dependence on mining (Hulec, 1969). For instance, some members of the “unofficial”1 Legislative Council during the late 1930s expressed concern

Industrial policy in Northern Rhodesia 67 over the fact that the high copper prices reported were only a temporary boom, boosted by the pre-war demand. The issue was debated at length in the Legislative Council by the ‘unofficial’ members who represented the settlers. The case for creating a manufacturing sector was given some urgency by the fear that the boom in copper would prove to be only temporary; many people expected that the end of the war would see a slump in the demand for the metal. (Young, 1973:12) Consequently, they sought to deal with the economic consequences of the anticipated fall in the price of copper by promoting the growth of other industrial activities, particularly manufacturing, which had not been developed.

The settlers’ views of industrial development Settlers in Northern Rhodesia understood well the risks of operating an economy totally dependent on the export of a single commodity, and they started to push for strategies to transform the structure of the economy to promote economic stability and sustainability. Although European settlers in Northern Rhodesia were only a small group compared to Southern Rhodesia and South Africa, they argued and pushed for measures which could transform the shaky nature of the economy in the territory. The challenges of the economy of Northern Rhodesia in the early 1930s were articulated in a report of a commission of inquiry set up to investigate the possibility of promoting the growth of secondary industries in Northern Rhodesia: In addition to copper production, the production of lead, zinc and vanadium from Broken Hill Mine has been important, but copper mining has been the predominant generator of income. The economic problem of the Territory in the future will be that of minimising the effects of any contraction in copper production, in the absence of compensating opportunities in other activities, the uncertainty in relation to copper production constitutes a major factor of instability in relation to population, income and employment. (Busschau, 1945:14 emphasis added) While the excerpt cited from the report highlights the effects on the economy of falling copper production, the main economic problem was not actually the levels of copper production; it was the volatility in the demand and price of copper on the global market. As Zambia’s experience over the years shows, when the price of copper is high, new investments are mobilised rapidly to respond to the rising price, new mines are opened within a year, and production is ramped up quickly to take advantage of the forecast windfall. The massive rise in the production of copper between 1964 and 1969 and between 2003 and 2014, when the price of copper rose sharply and remained high until mid-2015 (see Chapter 5), is one

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good example of an almost knee-jerk response to the rise in the price of copper. Similarly, when prices fall (and they have been falling, often sharply), as was the case, for example, between 1970 to 19722 and from 1974 to 1976, not only is production dramatically reduced but the entire industry losses momentum and in some cases the halting of production occurs. For example, in April 2020, Glencore’s Konkola Copper Mines (KCM) stopped production at its Mufulira and Nkana mines as a result of falling copper prices due to the impact of the COVID-19 pandemic. The company’s decision to stop production did not sit well with the Zambian government officials who ordered the detention of the Chief Executive Office, Nathan Bullock, as he tried to leave the country for a holiday to his home country—Australia (Financial Times, 2020). Following the low price of copper, no new investments are being committed to copper mining, and existing operations are being scaled down to prevent massive loses. For a country that depends on copper for a larger share of foreign exchange earnings, reduction of production and the fall in the price has often had devastating effects on the economy and society at large. The shakiness of this economic structure has been highlighted during both colonial and postcolonial times. Industrial development has long been seen as a way to mitigate the impact of a volatile copper industry on the country. However, little progress was made during colonial times to reduce the dependence on copper in the economy by diversifying economic activities. The lack of economic diversification during colonial rule can be partly attributed to the politics of the colonial government.

The politics of industrial development in Northern Rhodesia While the European settlers in Northern Rhodesia realised that the structure of the economy created would make it difficult to maintain stable incomes for workers and, later on, sustain economic development in the territory, they did not succeed in establishing alternative sources of income. The export of copper remained the only major source of foreign exchange. This should not be surprising given that the economic logic of a colonial economy dictated that there was no significant reversal of the way the economy was set up. But the dependence of the economy on copper for export earnings, in the context of the high volatility of copper prices on the market, left the economy extremely vulnerable to price shocks (Barber, 1961). While this negatively affected the settlers who saw the territory as their permanent home, the small number of European settlers in Northern Rhodesia could not exert enough pressure on the imperial government to approve the policies they advocated for regarding the growth of secondary industries. While the settlers and the colonial government pushed for policies that would have promoted the growth of industrial sectors, particularly manufacturing, the settlers in Northern Rhodesia failed to organise and express their concerns more forcefully to convince the Colonial Office in London to support the idea of building a strong industrial base (Roberts, 1976:182). The dynamics between the Colonial Office in London and the settlers and the colonial government in the colonies was quite complicated primarily because,

Industrial policy in Northern Rhodesia 69 as Pearce (1984) observes, the British colonial policy, especially just before and after the Second World War, was, to say the least, ambiguous and uncertain. This led to the frustration of officials in the Colonial Office as well as the colonial government officials in the colony. But to understand the ambiguity of British colonial policy at that time, one must locate this in the political history of the Southern Africa region. A crucial factor that influenced the politics of the region in the colonial context was largely the size of the European settler population. With specific reference to industrial development, Austin and Morton (2018) cite the size of the European population in the colonies as a critical factor in the growth of manufacturing because the large European population enlarged the markets for consumer products. They use the examples of South Africa, Southern Rhodesia, Senegal, and the Congo Free State (now DRC) to support this view. However, it is not just about the size of the population creating a sizeable market for manufactured products ; it is also about the large numbers exerting stronger pressure on the imperial government in London. In the case of Southern Rhodesia, the relatively large number of European settlers provided sufficient pressure to persuade both the colonial and imperial governments to adopt policies that promoted the growth of industries in general, and manufacturing in particular (Barber, 1961). The size of the European settler population has been cited as the reason why a larger manufacturing sector in both South Africa and Southern Rhodesia developed. In this regard, it has been argued that “the strong political leverage of the settler-interest groups on cautious colonial administration meant that they could more easily extract the necessary government support for their industrial ventures” (Kilby, 1975:473). It is important here to reiterate the point that industrialisation even during colonial rule was not just a matter of formulating a strategy based on sound economic principles; it was also about getting the politics of industrialisation right. Galvanising political support for industrialisation was very much a part of the argument advanced by the settlers in Southern Rhodesia to persuade both the British and the Rhodesian colonial government to design and implement policies aimed at promoting industrial growth. Although the advantages of a relatively large European population were secured through exerting political pressure on both the colonial and imperial governments, the size of the population also mattered a lot in terms of pushing a certain line of policy. This is why, the small European settler population in Northern Rhodesia found it hard to persuade the colonial government and the politicians in London to adopt policies that favoured its interests. The main issue was not so much persuading the colonial officials to support strategies for industrial development; the main issue was to convince the imperial government in London, which had control over the colonial government. In some cases, the colonial officials would support the implementation of strategies to promote industrial growth, but if there was no support from London, nothing much could be done. For example, even if many “unofficial members” of the Legislative Council in Northern Rhodesia were in favour of stronger government action to prop up secondary industries, the imperial government ignored their views and decided not to adopt a policy direction where the state could have played a decisive role in promoting industrial growth

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(Bhagavan, 1978). Since the local settler population was small, the colonial government in Northern Rhodesia was not pressurised enough to lobby London to support measures aimed at promoting industrial development. Instead, the colonial government adopted a liberal economic policy in line with the policies of the British government of the time, and stayed away from playing a more active role in promoting industrialisation (Young, 1973). Even after a local business interest group advocated stronger support and encouragement from the colonial state to promote the growth of secondary industries, the Northern Rhodesia government decided to go with the recommendation of a report produced by an expert commissioned to investigate the possibility of expanding secondary industries in the territory. Despite the strong critique from local politicians of the time, such as Roy Welensky, MP for Broken Hill, who in 1943 proposed the establishment of an Industrial Development Board similar to South Africa and Southern Rhodesia (ibid.:12), the colonial government ignored the suggestion until 1945 when it created the Advisory Committee on Industrial Development (ACID) following the recommendation from the commission inquiry’s report by Dr. W. J. Busschau. It has thus been observed: Left to itself, the colonial government showed no interest in pursuing policies that would promote the growth of manufacturing in Northern Rhodesia. It was the strong and constant from pressure the European Settlers that forced the government to appoint in 1945 an Advisory Committee on Industrial Development (ACID). (Bhagavan, 1978:11) The apparent reluctance of the colonial government to adopt an industrial strategy, through which the state could play an active role in supporting the growth of secondary industries in Northern Rhodesia, should be seen in the broader context of British colonial policy in Southern Africa. There are several factors that explain the rationale behind this lack of interest in promoting industrial development, to which we will come back later, but it is important to note that prior to the Second World War, the dominant British economic policy was based on liberal neoclassical theory, which avoided the view that the state should play an active role in the economy. Although, during the inter-war period, some of the strong tenets of neoclassical economic liberalism had started to crumble, like the Gold Standard and free trade which were abandoned in 1931 in the US and in 1933 in the UK, liberalism as an economic ideology still had popular support among politicians. It was not surprising that the British imperial government promoted the policies of free enterprise and free trade in the colonies, including Northern Rhodesia. Thus, although there were specific factors which inhibited the adoption of an active industrial policy, ideological reasons also played an important role. Settler politics and industrialisation in Southern Africa In the post–Second World War period a combination of factors added pressure on the colonial government to seriously start considering promoting industrial

Industrial policy in Northern Rhodesia 71 development in Northern Rhodesia. Settler-interest groups became uncomfortable with the way a regional pattern of industrialisation in Southern Africa was emerging. European settlers in Northern Rhodesia were particularly unhappy about the fact that manufacturing capacity in the region had been concentrated in South Africa and Southern Rhodesia, leaving Northern Rhodesia somewhat on the periphery (Roberts, 1976). Aware of this, critics of the liberal industrial policy which the Northern Rhodesia government had adopted became more vocal in highlighting the imbalance in industrial capabilities in Southern Africa. They complained about the dominance of their colleagues in Southern Rhodesia and South Africa, arguing that the current pattern of industrial development in the region disadvantaged them and their prospects for growth and development. They highlighted the unhealthy condition of the economy in Northern Rhodesia, reflected in the reliance on a single commodity for export, and they argued that policy should be adopted to promote the growth of secondary industries in the territory by emulating strategies adopted in their southern neighbours aimed at promoting industrial growth . In the Legislative Council debate in 1943, , one of the members argued that, When we consider, as has been suggested by Hon. Mover, how dependent we are on South Africa and Southern Rhodesia in Northern Rhodesia, and the policy of economic competition which is likely to follow as Hon. Mover has pointed out, we cannot but realise that it is our duty to do something similar to what they are doing and if we do not do it we may become a liability instead of an asset to the Empire. (cited in Busschau, 1945:41) It is interesting here to note that although the settlers were advocating industrial development, all this was to serve their interests first, and not those of Africans in Northern Rhodesia. Similarly, the strong industrial capabilities created in South Africa and Southern Rhodesia were tailored to meet the interests of settlers, in such a way that Africans were seen as instruments in the grand plan of promoting Europeans’ interests and well-being. In most instances, this was achieved through a policy that openly prevented Africans from competing with Europeans for jobs, business opportunities, and markets in the domestic economy (Chitonge, 2019). In this sense, it can be asserted that the colonial economy was created and structured to benefit and serve the interests of Europeans—both the settlers and those in Europe who owned businesses in Africa. In the extract just cited, we see nationalistic sentiments framed around the idea that Northern Rhodesia was too dependent on its southern neighbours. These sentiments became even stronger after independence when the Zambian government’s main focus was to cut ties with the white minority regimes in Southern Africa (Roberts, 1976). But the nationalistic sentiments provided a rallying point for mobilising support to put pressure on the colonial government to formulate and implement an industrial policy. As a result of realising the disadvantaged position Northern Rhodesia was in,

72 Industrial policy in Northern Rhodesia [t]he Settlers did not give up the fight. Their continued attack on government indifference resulted in the State creating an Industrial Loans Board in 1951, which learnt out about £1 million by 1960, chiefly to help set up metal engineering and building material industries. (Bhagavan, 1978:12) This point reinforces the one made earlier about the advantage of having a larger number of people who would make it difficult for the colonial and imperial governments to ignore their demands. The small number of settlers in Northern Rhodesia made it difficult to extract political leverage from London since the groups did not constitute a strong enough pressure group to attract the attention of politicians and policymakers in. This is perhaps more evident when we consider that in Southern Rhodesia the Tory government of Godfrey Huggins, in 1942, to the surprise of many, decided to take stronger state intervention in the Southern Rhodesian economy and nationalised the Iron and Steel Utility Company, the South African Cold Storage Company and the Triangle Sugar Estates (Kilby, 1975:482). In addition to nationalising some of the strategic industries, the British government at that time established new state enterprises, including the cotton spinning and other textile industries, to promote the growth of manufacturing in Southern Rhodesia. A local interest group of settlers was instrumental in pushing for this policy direction, although the Rhodesians’ motive for this action was advance their own interests. Interestingly, although the settlers in Northern Rhodesia adopted a position of contesting the dominance of South Africa and Southern Rhodesia, it has been noted that most of them—farmers, traders, and investors—came mainly from South Africa, and had the attitude that Northern Rhodesia was a place to make money but not to settle in. Most of them therefore adopted a makeshift approach with “one foot in Northern Rhodesia and the other in their country of origin” (Busschau, 1945:19). The reason for this, as mentioned in Chapter 2, was that most Europeans regarded the territory north of the Zambezi river as not suitable for European settlement for various reasons, including the prevalence of diseases. For example, in 1899, the British High Commissioner to South Africa, Lord Milner, is reported to have argued that “the Zambezi was the natural frontier for British Africa in the southern part of the continent; the country to the north should become a black dependency” (cited in Roberts, 1976:195). However, the debates in the Northern Rhodesia Legislative Council give the impression that the European settlers regarded Northern Rhodesia as their permanent place of residence, which is why they were pushing not only to reduce dependence on South Africa but also to promote long-term investment projects such as manufacturing. However, these may have been few in number compared to the settlers in South Africa and Southern Rhodesia. The colonial regional trade agreements and industrial policy The other factor that led to the shift in the colonial position on industrialisation in Northern Rhodesia was the development of trade agreements in the region. In

Industrial policy in Northern Rhodesia 73 1930, in a bid to improve free trade between South Africa and the two Rhodesias, a customs agreement was signed. Falling short of a customs union, the agreement’s main purpose was to promote free trade between the parties and to establish a common external tariff for non-parties to the agreement (Young, 1973). But in fact this agreement was not implemented successfully because in 1935 Southern Rhodesia decide to replace the customs agreement with a trade agreement which provided for preferential access of goods to each other’s markets. One of the reasons why the government in Southern Rhodesia decided to replace the customs agreement with a trade agreement is that they realised that “the existence of the Agreement hindered the development of the local manufacturing sector” (ibid.:11). Although Southern Rhodesia is said to have followed a free trade policy prompted by the British liberal approach to trade and was hesitant to impose protection tariffs on goods coming into the country (Kilby, 1975), later sentiments from business groups and politicians supported the view that protective measures were necessary to stimulate the growth of local manufacturing. For instance, an interim report from the Development Coordination Commission argued that the natural protection3 that the county enjoyed was not enough to promote the growth of local industries (Barber, 1961). In the case of Northern Rhodesia, the Customs Agreement of 1930 remained in force and the Union of South Africa had free and full access to the Northern Rhodesia market in all categories of manufactured products until the beginning of the Federation of Rhodesia and Nyasaland in 1953. The situation where South Africa had free access to markets in Northern Rhodesia created resentment among the local European settlers who, as we have seen, regarded this as domination by the Union of South Africa, and in return argued that this would have a negative impact on the development of secondary industries in Northern Rhodesia. This view was articulated by a member of the Industrial Development Board (IBD) during debates in the Legislative Council, who argued that Northern Rhodesia was too dependent on South Africa and Southern Rhodesia. This sentiment spilled over into British politics, with politicians there expressing unhappiness about the growing Afrikaner influence in both southern and northern Rhodesia. In fact, it was to counter the threat of the growing Afrikaner influence in the region that the British imperial government decided to create the Federation of Rhodesia and Nyasaland. This sentiment was expressed by a labour Party Minister who argued: We are faced in Central Africa with pressure by a country far stronger economically and industrially than any of the Central African territories, led by a militant Nationalist party with expansionist aims, anxious to strengthen its influence in the north. This pressure can be countered only by an equally firm policy of resistance to it both in the political and economic spheres—a policy which … in our view has little chance of succeeding unless we can establish a British bloc of territories in Central Africa knit together by constitutional ties. (cited in Pearce, 1984:87, emphasis in original)

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British political strategizing in Southern Africa is evident in this quotation, and it is apparent that the sentiment expressed reflects the British fear of losing of control over Southern Africa. The creation of the Federation in 1953 was aimed at countering the growing Afrikaner influence, in order to protect British interests in the region. In Northern Rhodesia, the nationalistic sentiment became even stronger when Zimbabwe replaced the customs agreement with a trade agreement. The progress in manufacturing made in Zimbabwe in the early 1940s provided a strong reason for the settlers in Northern Rhodesians to emulate Southern Rhodesia’s manufacturing and industrial growth strategies. However, the northern colony had little success in emulating its southern neighbours.

The settler efforts to industrialise Northern Rhodesia The growth of industrial capacity in South Africa and Southern Rhodesia during and after the Second World War sparked interest among settlers in Northern Rhodesia to promote the growth of secondary industries. They interpreted the development of manufacturing capabilities in their southern neighbours as a sign that they were lagging behind, and, as a result, they intensified calls for more state intervention to stimulate the growth of the industrial sector, particularly manufacturing. They argued that it was clear that the southern neighbours were determined to expand their industrial sectors and that without coordinated action and support from the government, Northern Rhodesia would be left behind with serious consequences on economic development and its role in the region (Young, 1973). The Broken Hill Labour Party Branch was very vocal in pushing for the colonial government to come up with measures to support industrialisation. In one of the submissions made to the British government, one of the branch members argued as follows: We are of the opinion that Government should make money available to assist private enterprise, but should private enterprise not be prepared to undertake these ventures, Government should, under their own auspices, do so. We are confident that once they are clearly established there would be no difficulty in the Government handing them over as public utilities. We appreciate this is a fundamental change in policy, but consider that it is a very necessary step. We would point out in support of our suggestion that the Government of Southern Rhodesia has already taken over the Sugar Refinery, Steel Works, Electricity Supply Commission etc., and it appears that there is every prospect of … Government taking over the Railways. (cited in Busschau, 1945:73) Clearly, the settlers in Northern Rhodesia understood well the importance of industrialisation and they were prepared to push the government to take active steps not only to support private sector initiatives but to establish some of the industries that the private sector was not willing or able to establish. We see a similar approach

Industrial policy in Northern Rhodesia 75 by the Zambian government after independence. As noted earlier, the colonial government, in line with British government policy, followed a liberal approach to industrialisation by limiting state participation in the economy. But in the case of a developing nation, it seemed inevitable, as the submission to the British government cited earlier highlighted, that the state had to play a crucial role in promoting industrialisation, even if this meant deviating from the liberal policy. The 1944 Secondary Industries Commission of Inquiry In the case of Northern Rhodesia, pressure from the settlers pushed the government to seek expert opinion on the potential of promoting the growth of secondary industries in the country. In 1944 the Northern Rhodesia government commissioned an inquiry to advise the government on all matters related to the development of new, and the improvement of existing, secondary industries in the country. This was a first move towards accepting the view that the government needed to do something, though the development of a full-blown industrial policy and plan of action had to wait until the newly elected African government took over in 1964. Unfortunately, the outcome of the inquiry and the recommendations made by the expert dampened the mood and enthusiasm about promoting industrialisation in Northern Rhodesia. The report noted that the prospect for the growth of secondary industries in Northern Rhodesia was weak. It is apparent that the author of the report was openly against the idea of the state playing an active role in the economy beyond imposing retaliatory tariffs on other countries. He argued: It is unfortunately true that in Northern Rhodesia many persons have been sold the idea that immediate future production of the territory could be greatly increased and that profitable industries capable of providing high wages and steady employment could come into being if only government would seriously and diligently embark on a policy of “encouraging” the creation of the industries. Alas, the fulfilment of many of these ideas requires much more than the wave of a wand, and many of the projects proposed may have been described by Shakespeare as “too rash, too unadvised, too sudden!”. (Busschau, 1945:28, emphasis in original) The report was also against the idea of learning from what the neighbours were doing, arguing that what was being done in the Union (South Africa after 1910) was risky and that there was no guarantee that the strong participation of the state in the economy would lead to any success (ibid.:41). The author of the report argues that “In the opinion of the writer it would be a grave mistake for Northern Rhodesia to assume that everything done by its southern neighbours was always either wise or inevitable, or both” (ibid.:42). Constraints to industrial growth in Northern Rhodesia Four major factors were highlighted in the Busschau report as the main reasons why the prospect of developing secondary industries in Northern Rhodesia

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seemed weak. These include the small size of the domestic market, low and unequally distributed income, low skills, and the impact of the “colour bar.” The merits of each of these factors will be discussed in a later section in the chapter; it suffices here to note that the report was based on the consideration of the economic dimensions alone, ignoring the political and social facets to industrialisation. A purely economic assessment that ignores other factors in the analysis of the benefits and costs of promoting secondary industries is likely to be woefully one-sided and therefore inadequate. As some of the critics of the report noted, political and social considerations can be equally important in deciding to invest in secondary industries; it is not just the economic factors that should have a bearing on such an important decision. Even within the economic argument on which the report solely based its findings, there is a well-known argument that linkages in the economy can be promoted in such a way that the growth of one strategic manufacturing activities can stimulate the growth of other economic activities by supplying inputs (backward linkage) or using the products of the identified strategic manufacturing activities as inputs (forward linkage, see Hirschman, 1958). Obviously, the author of the report was writing before the theories of industrial development emerged in the 1950s. For example, Hirschman’s (1958) forward and backward linkages and the balanced growth theories expounded by most development economist in the 1950s support the idea that positive externalities to a particular industry can have stimulating effects on a whole set of industries, including agriculture (Scitovsky, 1954).

Industrial policy instruments in Northern Rhodesia Although not much was achieved in terms of developing an industrial policy and strategy prior to independence, there were several attempts, as we have seen, aimed at promoting the growth of manufacturing industries, in particular. One of the earlier industrial policy instruments devised during colonial rule was the ACID, which was established in 1945 on the recommendation of the Busschau’s Commission of Inquiry. The Advisory Committee on Industrial Development The main objective of the ACID was to advise the government “on all matters relating to the establishment, development, improvement and efficient working of existing and potential industries in the territory” with special reference to location, licencing of industries, policy, training, and regulating of industrial activities (Busschau, 1945:10). The ACID issued three reports between 1946 and 1948 and, in the last report, it recommended that a more formal structure be established to provide advice to the government. Like the Busschau’s Commission of Inquiry report, the final ACID report did not find any strong reasons for embarking on promoting secondary industries, citing the low number of Europeans and the low wages among the majority of Africans in Northern Rhodesia. It was observed in the report that unless the number of Europeans

Industrial policy in Northern Rhodesia 77 increased to above 35,000, the prospect for the growth of the manufacturing sector remained weak. The General conclusion is that until the European population in Northern Rhodesia has increased to over 35,000 and the standard of living of African population is raised above present level, the internal market will remain too small to support manufacturing industries of a size to requires financial assistance from government. (cited in Young, 1973:15) The issue of improving the standards of living and wages for Africans was raised by the Busschau Inquiry which noted that the large wage disparity between the minority European workers and the majority Africans posed a great challenge to resolving the market size issue. Busschau (1945:20) attributed the wage gap to the difference in skills and productivity, which in turn was caused by the difference in educational opportunities between Europeans and Africans. The difference in educational opportunities is reflected in the fact that in 1944 the Northern Rhodesia government was spending an average of between £3 and £4 per year per capita for the Europeans, while a meagre 2 shillings per annum per capita was spent on Africans. Given the strong adherence to maintaining the wage gap between Africans and European settlers , the fundamental question of the size of the domestic market presented itself as a huge barrier to industrialisation. However, a serious IP has to consider policies that address the question of the income distribution, in both the medium- and long-term. Based on the recommendation of the ACID, the government decided to disband the committee and established a more formal structure to provide guidance and direction on matters of industrial development. This suggests that although the government did not adopt an aggressive IP, as its southern neighbours did, it kept alive the ideal of promoting industrial development in the territory. The Northern Rhodesia Industrial Loan Board The disbandment of the ACID led to the creation of the Northern Rhodesia Industrial Loan Board NRILB) in 1951, which was tasked with providing loans to private enterprises to promote the growth of industries, especially manufacturing. But the NRILB had limited funds to allocate and its impact on the industrial sector remained quite weak, although several small manufacturing firms were set up, including the Chilanga Cement factory in 1949. In the effort to promote industrial growth in the territory, a Committee on Industrial Development (CID), pegged at ministerial department, was established in 1959. Its main task, among other things, was to look after the interterritorial trade arrangements. As noted earlier, settlers in Northern Rhodesia felt that they got a raw deal in terms of how they interacted with South Africa and Southern Rhodesia, and, therefore, the CID was created to take care of the interests of the territory in matters of trade within the region. But this, too, achieved little in terms of expanding manufacturing

78 Industrial policy in Northern Rhodesia production capabilities in Northern Rhodesia. Part of the problem at this time was the politics of the Federation which added another layer of complexity to the industrial policy dynamics in Northern Rhodesia (see Barber, 1961). The imbalance in the way industries developed in the region became a big talking point, with the settlers in Northern Rhodesia arguing that the customs union created by the Federation government was just a continuation of the same unbalanced policy which disadvantaged Northern Rhodesia and Nyasaland (ibid.). The Northern Rhodesia Industrial Development Corporation (IDC) A major initiative towards creating a proactive industrial policy in Northern Rhodesia was the establishment of the Northern Rhodesia Industrial Development Corporation which took over the functions of the NRILB in 1960. The creation of the IDC was a measure adopted to emulate industrial structures and strategies in South Africa which had established the Industrial Development Cooperation in the early 1940s and Zimbabwe’s Industrial Development Commission shortly after South Africa. But the work of the IDC was overshadowed by the politics of the Federation government such that by 1963 little progress had been made in promoting industrial growth. It is reported that on the eve of Zambia’s independence, the IDC had only made 46 investments, disbursing only a total of just over £600,000 (Young, 1973:21). The IDC was later transformed into a mega-corporation after independence—the Industrial Development Corporation (INDECO), which is discussed in Chapter 4.

Barriers to industrialisation in Northern Rhodesia Apart from the policy-related issues which negatively affected industrial development in Northern Rhodesia, as we have seen, several factors constrained the growth and development of the sector in the territory. Size of the domestic market As noted earlier, during the Great Depression (1929–1933), the devastating effects of the collapse of copper prices on the world markets on the economy and society made the Northern Rhodesia government think of alternative economic activities which could cushion the impact of mineral price shocks. The obvious candidate was the promotion of the growth of secondary industries. But this alternative faced many challenges. One of the commonly cited challenges that negatively affected industrial growth, particularly manufacturing, outside of the mining sector, is the size of the domestic market. The argument on the size of the domestic market was that the purchasing power among residents in Northern Rhodesia was too small to support the growth of manufacturing. This was raised in Busschau’s (1945) inquiry report which argued: the prospect of a large local market in Northern Rhodesia for secondary industries are but meagre. With the smallness of the Europeans population,

Industrial policy in Northern Rhodesia 79 and the low earning power of the African population, the development of secondary industries can have but limited expansion at present. In the light of such considerations the view expressed by many persons … that ‘the development of secondary industry in Northern Rhodesia must wait upon such a much greater development of primary industry’ is a wholly sensible one. (Busschau, 1945:21, emphasis in original) Considerations of the size of the domestic market are crucial in any industrial policy, indeed in any development strategy. Even in countries that adopt exportorientated industrialisation, the size of the domestic market is crucial, especially at the beginning of the industrialisation process (see Kaldor, 1966). Some analysts have even suggested that the export-oriented development approach for developing countries is problematic because of the difficulty in breaking into domestic markets of industrialised economies, suggesting that great emphasis should now be placed on stimulating the growth of domestic demand (Mayer, 2013). The basic idea is that for production to be sustained and to grow, producers have to find a market for their produce. If domestic demand is not adequate to absorb what is produced locally, production has to be cut to match the existing demand, unless there is access to markets outside of the territory, that is, export. But as we shall see later, penetrating export markets of developed economies is more difficult for less industrialised countries due to the stiff competition they have to face against producers enjoying a great deal of advantages, ranging from betterdeveloped infrastructure, more advanced technology, a sizeable pool of skilled workers, and, perhaps more importantly, accumulated experience through learning to manufacture. Thus, the concern about market size in Northern Rhodesia was indeed a valid one at that time given the circumstances in the territory. The approach recommended, as alluded to earlier was to wait until income among Africans, who constituted the majority of the population (see Chapter 2), had risen to boost the purchasing power in the territory. However, the issue of the size of the domestic market was related to many other issues in the context of Northern Rhodesia at that time. The size of the domestic market in Northern Rhodesia at that time was directly related to the structure of the economy, particularly the way national income was distributed. This was largely defined by a sharp dualism that existed in many aspects of society, and this worsened the dual wage system (Robinson, 1933; Mhone, 1982). Baldwin (1966) and Barber (1961) both identified the strong dualistic wage structures as the main problem hindering not just the growth of manufacturing but economic development and the transformation of society as a whole. Effective consumer demand has always been heavily concentrated with the European population. And this distribution of purchasing power has not been overwhelmingly favourable to expansion of local manufacturing industry. By and large, the consumption habits of Europeans are biased towards preference for imports. The taste to which they have been educated are those of

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It was not just the skewed distribution of income towards the minority European settlers which was problematic, but the expenditure patterns in favour of imported manufactured products posed a big challenge to the growth of locally manufactured products. We see a similar structural problem in independent Zambia constraining the growth of the manufacturing sector, this time not because of the Europeans but because of the elite Zambians’ preference for imported consumer goods (Siedman, 1974; Fincham, 1980). In the context of Northern Rhodesia, the dual wage system based on racial discrimination, which is a typical colonial economy feature, constrained the potential growth of the manufacturing sector. The dual wage structure To explain the impact of the domestic market size on industrial development, it is important to focus on the dual wage system during colonial days. In Northern Rhodesia, like in many other colonies, the Europeans established a two-tier wage system: a high-wage structure for Europeans and an extremely low-wage regime for Africans (Roberts, 1976). The justification for this was that labour productivity among Africans was very low, and this was attributed to the strong and widespread belief among Europeans that African workers were “irresponsible and unreliable, lazy and inefficient” (Barber, 1961:195). These beliefs and attitudes were strong among European employers and politicians alike, for a long time, especially during the 1930s and 1940s, when the copper industry emerged in Northern Rhodesia as a dominant economic sector. Such views and attitudes persisted even after the productivity and efficiency of Africans significantly improved to equal the level of Europeans, especially in the mining sector, as Mhone (1982) has demonstrated in the case of copper mining in Zambia. As Barber (1961:195) explains Whatever the explanation for these observed characteristics of African labour in the early stages of European contact with Central Africa, they have imprinted a set of stereotypes on settlers’ minds—stereotypes which still tend to dominate their thinking about the capabilities of indigenous peoples. These perceptions were used to justify the dual wage system whereby an African worker, even in cases where he or she was doing the same kind of work as a European, was paid far less than the European (see Rodney, 1972). In the case of the copper industry in Northern Rhodesia, although the gap between the average wage of Europeans and Africans narrowed significantly, it remained scandalously large even during the 1960s. For example, although the wage gap between an African and a European miner declined from a ratio of 1:28 in 1937, it remained high at 1:11 in 1960 (see Table 3.1).

Industrial policy in Northern Rhodesia 81 Table 3.1 Average earnings of Europeans and Africans (£/year) African

1937 1940 1949 1950 1955 1956 1957 1958 1959 1960

European

Average gross earnings

Average net earnings

Average gross earnings

20 24 52 61 134 166 189 200 218 258

21 17 25 28 52 61 69 71 76 89

564 606 1,056 1,068 1,943 2,295 1,910 1,699 1,868 2,160

Ratio of African to Average net European earnings real earnings

European employees as % of waged labour

581 588 708 693 1,023 1,171 936 809 881 995

9.1 9.5 11.8 11.9 16.5 15.7 15.6 17.7 17.9 17.6

28 35 28 25 20 19 14 11 12 11

Source: Author based on data from Baldwin (1966:90).

When we look at the wage structure for Europeans and Africans, the dualism is more pronounced, with Africans, on average, earning less than a tenth of what an average European earned in 1960. The average European wage from the 1950s to the 1960s stabilised at around 15 times what the average African doing the same job earned. Laziness and low productivity were not the only justifications for wage differentials between the two groups of workers. It was argued that to attract European workers, mainly from South Africa and in some cases from the UK, Northern Rhodesia employers had to offer a wage that was much higher than what these workers would earn if they stayed at home. It has thus been argued that “the market rate for Europeans was determined by alternative opportunities abroad, whereas that for African labour was set by wage rates in the Katanga and Southern Rhodesia” (Baldwin, 1966:83). Not only that, but the higher wage paid to Europeans was justified on the grounds that the living conditions in Northern Rhodesia were harder than in South Africa and the UK, and this required some kind of hardship living allowance for Europeans. But in addition, it was necessary to pay Europeans even more than they had been earning in order to induce them to migrate to Northern Rhodesia. Malaria, Blackwater fever, the appearance of an occasional lion, as well as rudimentary medical, educational and recreational facilities and the like, were disadvantages to living in the Copperbelt that could only be offset by a substantial payment above the going wage rate in the more developed countries. (Ibid.:83–84)

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Here, the understanding was that the indigenous African did not find these conditions tough to live in and therefore there was no need to pay the same wages for the same work. The opportunity cost incurred by a European for choosing to work in Northern Rhodesia was estimated to be higher as a result of what were perceived to be harsher living conditions in Northern Rhodesia. However, if the Europeans who decided to migrate to Northern Rhodesia from South Africa or the UK did this because they were forced by circumstances, particularly the inability to find work and business opportunities in their countries of origin (Mhone, 1982), then their opportunity costs were actually much lower than the wages they were paid. Some analysts have acknowledged that productivity among African workers was lower compared to Europeans at the beginning, particularly because the work in the mines was new to Africans (see Mhone, 1982). However, with time, Africans adapted and learned quickly, such that their efficiency and productivity improved rapidly. By the 1930s, reports from the mining companies showed 100 per cent increase in efficiency (Baldwin, 1966). But even if the efficiency of Africans greatly improved over time, this did not translate into equalisation of wages. The dual wage structure was sustained on the grounds that Europeans were doing more skilled work compared to Africans and therefore they could not be paid the same wages. The question that arises is whether Africans could do the same skilled work as their fellow Europeans. In the politics of the colour-bar labour practices common in settler communities across Africa, it was deeply engrained in the settlers’ thinking that an African could not perform the skilled duties that Europeans did. Much of this had nothing to do with what Africans could or could not do; it was a purely racist attitude that restricted African workers to manual work only. As it has been observed, the colour bar had nothing to do with capabilities and efficiency; it was mainly because Europeans felt threatened by Africans, that is why they advocated a policy that would get rid of the competition from Africans in high-paying jobs (Mhone, 1982; Busschau, 1945). As early as the 1940s, some analysts had concluded that the wage gap in the mining sector between Africans and Europeans was artificially exaggerated; that there were no economic reasons to justify the gap: It was for example argued that, “Although the efficiency of African labour is admittedly low, it is certainly not so low, over a considerable range of employments, as the ratio of European to native wages would seem to indicate” (Henry, 1946:105). This large wage differential affected the economy on the demand side, in terms of weaker domestic demand as a result of low purchasing power for the majority of the population. The purchasing power constraint becomes even more acute when one takes into account the fact that only about 13 per cent of Africans in 1960 were in wage employment (see Table 2.6). Further, the weak domestic demand situation was worsened by the fact that the Europeans in Northern Rhodesia, even at the height of European immigration into the territory, accounted for less than 3 per cent of the population (see Table 2.1). In other words, the majority of the population had no purchasing power and did not participate in the money economy; they were excluded from the modern economy. This is another type of dualism that has its origin in the colonial economy and has persisted to the present day.

Industrial policy in Northern Rhodesia 83 Even if we take the total population of wage labour in the territory at that time, Europeans consistently accounted for less than 15 per cent. In 1961, for instance, the European share in wage labour employment was only 12 per cent, and their ratio in the total labour force was only 1.5 per cent (see Table 2.6). Thus, while the dual wage system served the white supremacist ideology, it hurt the economy badly by creating an unequal distribution of income and wealth which hindered further economic growth and expansion, not just of the industrial sector, but of other sectors too. When labour markets and the distribution of income are distorted, they constrain the internal momentum for growth in an economy and this has been well illustrated in the case of Zambia (Fortman, 1971:191). Again, this economic structure made sense if we agree that the colonial economy and the logic behind it were deliberately aimed at serving the interests of Europeans. Therefore, even if the economic structure created had serious weaknesses, it fulfilled the primary goal—namely benefiting the minority European population. Busschau (1945:23) makes the observation that if the wages among African workers had been similar to Europeans’ wages, Northern Rhodesia would have increased its purchasing power by 20 times: “The local market would have the spending power of 1,400 00 Europeans instead of that of about 20,000 Europeans and 1,380,000 Africans.” In fact, the 20,000 Europeans in Northern Rhodesia during the 1940s had more purchasing power than the 1.3 million Africans put together. However, it would not have been possible to pay and sustain European wages for the rest of the population; the most possible thing would have been to reduce the European wages so that the larger population could have had more decent wages and purchasing power. Europeans’ spending patterns As noted earlier, the size of the domestic market in Northern Rhodesia was affected not just by the small number of Europeans working there and the extremely low wages for African workers, but also by the spending patterns of the few Europeans, as Barber (1961) has highlighted. Henry (1946:101) also observed that since most of the Europeans working in Northern Rhodesia were recruited from South Africa, they detested “the prospect of permanent residence in a country which appears to be primarily destined for the native.” Busschau (1945) raised a similar point, stating that most Europeans in Northern Rhodesia had one foot in the territory and another in their country of origin. The net effect of this attitude, especially among miners, was that they did not spend the large share of their income in the local economy (ibid.). The size of the local market was further limited by the prevalent practice of expatriation of profits from Northern Rhodesia through profit taking, insurance premium, and the taxation from the imperial government, as highlighted in Chapter 2. During colonial rule, the colonial government was effectively subjected to paying tax to the imperial government, a situation which further reduced purchasing power in the local economy. In a British Labour Party policy document published in 1943 the concern with regard to how taxation and mineral royalties in Northern Rhodesia were handled was raised: “Whereas in

84 Industrial policy in Northern Rhodesia Northern Rhodesia, there is capitalistic exploitation of minerals or other sources of wealth, the taxes on profit should go to the local administration, instead of the Imperial revenue” (cited in Henry, 1946:111). All these factors resulted in the shrinking of purchasing power in the domestic economy and had significant restrictive effects on the economy. This analysis points to the need to raise the income levels of Africans, who were not just the majority but also spent almost their entire earnings in the local economy. An industrial development strategy would have sought to address this constraint in the economy to boost the prospects for industrial development. For our purposes here, this arrangement also shows the extroverted nature of the colonial economy, reflected in the fact that both production and the larger portion of consumption were externally oriented.

Addressing the constraints Although the constraint of the small size of the domestic market was a real one in terms of promoting the growth of secondary industries, the remedies proposed actually did not address the key problem. The proposal that the development of secondary industries should wait until there was a large European population or extensive primary industries was misguided. It blocked the energies for stimulating growth in manufacturing and other industries. The policy decision to wait served to worsen the constraint on expanding industrial capacity in Northern Rhodesia. This in turn deepened the dependence on South Africa and Southern Rhodesia in terms of manufactured products, both inputs and consumer goods. In terms of competition, it is clear that South Africa and Southern Rhodesia were the main competitors in Northern Rhodesia. This is noticeable when we look at the manufactured products imported from the two countries. We see that the bulk of imports into Northern Rhodesia came from South Africa (with the largest share prior to the Federation) and Southern Rhodesia (with the larger share in many commodities after the Federation, see Table 3.2). Imports from South Africa dominated in both 1945 and 1953 but declined in 1964 except for oils which increased. As for Southern Rhodesia, it had the largest share of imports into Northern Rhodesia including food stuffs, beverages, and mineral glassware since 1945. While Southern Rhodesia supplied most of the simple manufactures like processed foodstuff, beverages, tobacco, textiles, non-metallic minerals etc., South Africa and the UK were clearly dominant in bringing in sophisticated intermediate goods and producer goods (light and heavy chemicals, light and heavy machinery transport and communication equipment, etc.) (Bhagavan, 1978:11) The total imports of Northern Rhodesia from Sothern Rhodesia grew significantly after 1953, overtaking the share of imports from South Africa (see Table 3.2).

Industrial policy in Northern Rhodesia 85 Table 3.2 Northern Rhodesia imports (1945–1964) per cent Imports Agricultural goods Food stuffs Portable beverage Textiles and fibre Metals and manufacture Minerals and glassware Oil, paints, and varnishes Chemicals and fertilizer Leather and rubber Wood manufactures Paper and stationery All other articles Total

From South Africa

From Southern Rhodesia

1945

1953

1964

1945

1953

1964

81.9 22.4 54.8 7.5 20.7 16.4 21.2 33.7 83.4 15.2 28.9 64.2 25.8

89.9 21.4 48.3 26.6 25.2 27.3 20.3 29.4 77.1 23.4 36.5 59.5 29.1

24.4

11.1 51.2 38.3 12.5 6.1 67.2 15.4 14.5 6.2 31 37.2

7.4 26.4 25.2 11 6.4 57 13.3 21.1 7.7 21.5 15.4 5.7 14.8

44.5

4.8 5.3 34.8

7.8 20.7

20.8

72.1 66.1 35.5

32.9 39.9

Source: Author based on data from World Bank (1964).

This growth is not only because of the Federation, but it also reflects the growing manufacturing capacity in Southern Rhodesia relative to South Africa, particularly in the food processing and textile industries (Barber, 1961). By the time of the Federation of Rhodesia and Nyasaland, the industrial sector in Southern Rhodesia was well-developed, being the second-largest contributor to total output after agriculture.4 When the Federation was established, the trade regime tilted in favour of Southern Rhodesia against South Africa, such that Southern Rhodesia by 1964 accounted for 40 per cent of the total manufacturing imports into Northern Rhodesia while South Africa had only half of that ( see Table 3.2). The dominance of South Africa and Southern Rhodesia even in food products is evident. This suffocated the chances of Northern Rhodesia developing manufacturing capabilities even in food processing. In other words, the decision taken by the colonial government failed to contribute to addressing the structural constraints and challenges in the economy, and, in this case, promoting the diversification of the economy from being a copper mono-economy which was set up in the early 1920s.

Status of industrial development in Southern Africa In the 1957/8 census of industrial production, a total of 1,253 manufacturing establishments was reported and more than two thirds of these establishment were in Southern Rhodesia. As for South Africa, the manufacturing sector started to grow rapidly in the 1920s, using the accumulated capital from the windfall revenue generated from mining activities in the earlier decades of the nineteenth century (Frankel, 1938). By the 1940s, the manufacturing sector had grown into a strong,

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viable sector, accounting for more than 22 per cent of total output, ahead of both mining and agriculture (Young, 1973). The well-developed manufacturing sectors in both South Africa and Southern Rhodesia constituted strong competition for potential local manufacturers in Northern Rhodesia, given that both countries had free access to the market in their northern neighbour. The competitive advantage that South Africa and Southern Rhodesia had over Northern Rhodesia producers was due to several factors, including well-developed infrastructure, sophisticated support from the state in terms of industrial development incentives and protective measures, a relatively large pool of diverse skills, and an adequate and cheaper source of energy. In a sense, the two southern neighbours adopted an aggressive industrial approach, emphasising the importance of state action to overcome market failures, the importance of export to expand the manufacturing capacity, and the importance of staying competitive even by artificial means such as protection. On the other hand, a coordinated battery of effective policy decisions is what was lacking in Northern Rhodesia, where industrial policy took a timid posture, leaving the important decision about what set of industrial activities to prioritise, which sectors to promote in view of the long-term development of the economy, to private enterprise. The irony of this is that private enterprise itself, as we have seen, was underdeveloped, and mostly unwilling to invest in the local economy beyond the small manufacturing ventures, citing uncertainty in the mining industry around which the economy was built (Busschau, 1945). On the whole, there were several factors which contributed to the low industrial development in Northern Rhodesia, some of which are briefly discussed below. Lack of access to the sea One of the factors which contributed to the low development of secondary industries in Northern Rhodesia was the geographical location of the country, particularly, being a landlocked country. The problem of being landlocked was further exacerbated by the poor transport infrastructure, which made freight rates comparatively high, creating a cost disadvantage for prospective industrialists (Busschau, 1945). With regard to promoting secondary industries, the argument was that because of the distances to the sea, it would cost more to bring in inputs, most of which had to be imported, and also to take the finished products to market, since the local market was small, as noted earlier. What this meant was that a manufacturer located in South Africa had a cost advantage regarding transport. What complicated the Northern Rhodesia position was not just the long distance to the sea, but also that inputs and finished products had to cross the borders of several neighbouring countries before they could be shipped into and out of the country. This was particularly true in the case of inputs, which were sourced from South Africa and Southern Rhodesia, with limited supply from the UK and other countries (Young, 1973). The lack of access to the coast proved a major challenge even in post-colonial Zambia, particularly when the h Southern Rhodesia border was closed when Ian Smith implemented a Unilateral Declaration of Independence

Industrial policy in Northern Rhodesia 87 (UDI) in 1965. Roberts (1976) has noted that the lack of access to the sea imposed a huge cost and acted as a barrier to economic development in Zambia. However, it can be argued that for the purposes of promoting the growth of secondary industries, the transport cost argument was exaggerated because by the time Northern Rhodesia was considering developing its industrial sector, the country was connected to the south by road and by rail to the east (through Beira, Mozambique) and west (through Lobito Bay Angola).5 Though it is not possible to estimate the cost of transporting inputs from South Africa and Southern Rhodesia at that time, it could be argued that the local manufacturer could have had the advantage over the foreign manufactures if any form of protection had been offered to the local manufacturer. Even without protection through tariffs, the local manufacturers would have had greater knowledge of the local market and that would have given them an advantage. Furthermore, there are many landlocked countries, including Southern Rhodesia itself, that managed to overcome the initial disadvantage and created significant manufacturing capacity. What was lacking in the case of Northern Rhodesia was what has been referred to in the literature as a True Industrial Policy (TIPs), described figuratively as actions similar to breaking the “oil spell” (Cherif and Hasanov, 2019:6). The key ingredient of the TIP is a strong state that provides not only support but the direction and unflinching commitment to industrial development. But as we have seen, the colonial state seemed unconvinced that it had to do more than just debate the pros and cons of promoting the growth of secondary industries. Indeed, the key to transforming and diversifying the Northern Rhodesia economy lay in taking bold decisions and action through state and statutory bodies. A successful IP has to overcome all the odds, and there are many examples in the story of global industrialisation. The failure to take bold decisions resulted in sustaining vulnerable economic conditions and structure, which often created double economic dependence: importing even food products from neighbours and also relying on one commodity for foreign exchange. Low skills, poor infrastructure, and strong competition Apart from the small size of the market and being landlocked, it was also argued that the small pool of skilled labour (mainly Europeans) weakened the prospects of developing secondary industries in Northern Rhodesia. The issue of low-skilled labour was tied to the idea that because of its unfavourable climatic condition for European settlement Northern Rhodesia attracted only a small pool of Europeans, and most of them were sojourning in the territory, with no inclination to permanent settlement; and since there was a strong belief that only Europeans had the capacity to do skilled work, it was then concluded that as long as the European population was small, the pool of skilled labour required for secondary industries would be small (Busschau, 1945). Although there was some optimism that, with time, a sizeable European population would be persuaded to settle in the territory, the dominant view was that the existing skills pool at that time was not sufficient to support the growth of secondary industries (ibid.). But other analysts have

88 Industrial policy in Northern Rhodesia contested this view, pointing out that the skills of Africans, though initially low due to the neglected education of Africans, were improving fast (Baldwin, 1966). In terms of an effective industrial strategy, training of an adequate and wellprepared work force with the required skills needed to meet the labour demands should be one of the central pillars of an IP. There is no country in the world that starts out with the correct labour mix in the economy; this is something that should be built over time and the “right mix” does not stay the same for long, especially now when technological changes in manufacturing are occurring rapidly (Stiglitz, 2018). If the colonial government had been serious about industrial development in Northern Rhodesia, it should have put more effort into training the local population to acquire the requisite skills and proficiencies. However, such measures would have gone against the colonial ideology and economic logic. Similarly, the poor condition of infrastructure, while presenting a formidable disadvantage to the growth of secondary industries in Northern Rhodesia, should have been a key component of any serious industrial strategy. Even if the country did not have the required sources of power to drive industrialisation forward, this should have been part of the long-term plan, to be addressed over time. For sure, Northern Rhodesia’s infrastructure during the 1930s and 1940s was unreliable, in terms of energy (electricity), water supply, roads, and commercial facilities, but no country starts at full capacity; production should have begun, with the intention of expanding as conditions improved. In terms of rail transport, there was only one line from Livingstone to the border with Congo, and this was the main line of transport. For electricity supply, several potential sites for generation of hydroelectric power were identified, but the development of these did not start until the late 1950s, with the Kariba hydroelectric project completed in the early 1960s, while the Kafue Gorge Hydro Power Station was only embarked on after independence. The huge demand for energy from the mines pushed the colonial government to invest in the generation of electricity. The investment in infrastructure was compounded by the fact that development of economic and social infrastructure requires huge capital outlay, and this delayed the implementation of some of the projects.

Outcome of industrial policy in Northern Rhodesia The results of the very subdued industrial policy which the Northern Rhodesia government took are visible. The development of the industrial sector outside of the copper mining enclave was weak and uncoordinated until after independence when the newly independent government adopted an aggressive industrial policy which led to the growth of other industrial activities including manufacturing, as we shall see in the next chapter. Although, by the mid-1950s, 284 manufacturing establishments were reported to have been operating in Northern Rhodesia, they were mainly small and concentrated on the processing of agriculture produce such as food, beverages, tobacco, and textiles. The only major manufacturing industries created by 1950 were a sawmill industry, producing wood products, mainly timber, for the South African railway industry, and the cement factory at

Industrial policy in Northern Rhodesia 89 Chilanga, which was positioned to supply cement for the construction activities in the mining sector (Barber, 1961). Although the Busschau (1945) report had explored a number of potential manufacturing activities, such as the production of paper from local grass, leather products, clothing and textiles, advanced wood products, plastics, essential oils, furniture, glass, beer brewing, and bicycle assembling, none of these potential manufacturing ventures was explored further. Between 1953 and 1963, the only significant industrial establishments in Northern Rhodesia were a sugar refinery factory in Ndola, a brewery in Kitwe, and a wheat-flour milling factory in Kabwe (Bhagavan, 1978:12). A 1964 World Bank Report on the economy of Northern Rhodesia struggled to list industrial enterprises in the territory. The report acknowledges that apart from mining activities, little industrial progress had been made: Manufacturing industry, located on the Copperbelt and at Lusaka, Broken Hill and Livingstone, is still on relatively small scale. Including service industries, it employs 19,000 persons, about 7 per cent of the total labour force, and contributes £13 million or barely 6 per cent of the gross domestic product. Its products are almost exclusively for the domestic market and consist essentially in processed foods, construction materials, and engineering shop at Ndola, sawmills at Livingstone and grain mills. (World Bank, 1964:12) This description captures the status of the manufacturing sector on the eve of independence, and it highlights the fact that little progress was made to develop the manufacturing sector as a significant sector in the economy. If we look at the manufacturing industry profile of 1947, it is apparent that little was done to develop this sector. As noted earlier, there are several reasons why the manufacturing industry in Northern Rhodesia did not grow to constitute a significant part of the economy. One of the most important constraints that should be emphasised is the laissez-faire attitude adopted by the colonial government, which, in the long run, failed to create an atmosphere where industrial activities could thrive Barber (1961) attributed the low industrial capacity, particularly manufacturing, to the lack of an active policy that could coordinate and consolidate the various activities of the private and state enterprises. Similarly, Young (1973:10) attributed the lack of industrial development in Northern Rhodesia to the failure by the government of the day to incentivise the growth of manufacturing firms: “Thus, in the absence of government intervention designed to create an artificially attractive situation for new industries, there was little incentive for such industries to become established.” However, this state of affairs has to be seen in the context of the dominant features of a colonial economy, as discussed in Chapter 1. First, the colonial economy was a makeshift economy, designed to serve the interests of the imperial government and the minority settler population. Thus, its logic was never rooted in the interests of the majority of the local population, and where there were small

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settler populations, there was no long-term plan. It is not by mistake that South Africa and Southern Rhodesia managed by the 1950s and 1960s to develop the industrial sector to levels that were relatively high. The large population of settlers were seeking to serve their own interests, sometimes against the wishes of the imperial government, especially in cases where the number of settlers was much larger and could not politically be ignored (Kilby, 1975). Although the local European settlers in Northern Rhodesia tried to emulate their fellow settlers in Southern Rhodesia and South Africa, their efforts did not result in the establishment of a vibrant manufacturing sector, for the simple reason that the territory had little bargaining power with the imperial government or with its regional neighbours (Barber, 1961). As alluded to, Northern Rhodesia maintained the Customs Agreement from the 1930s up to the time of the Federation 25 years later, even it was clear that it was disadvantaged in this arrangement. Southern Rhodesia, which had stronger bargaining power, by 1942 managed to disentangle itself from this arrangement which was designed to benefit South Africa. We see the imbalanced bargaining power playing out later, even after the end of colonial rule in Northern Rhodesia. One would argue, therefore, that the structures created during colonial rule have reproduced the same economic dynamic in the region, and it is now incumbent upon African leaders to deconstruct these structures, which are still imbued with the colonial logic. The other aspect of the colonial economy that is magnificently manifested in the analysis of the industrial policy in Northern Rhodesia is that of dualism in many aspects, including wage and settlement structures. Strong elements of dualism, as noted earlier militate against long-term economic growth and the diversification of the economy, especially when the different sectors of the economy are incoherent. In the Northern Rhodesia case, we have seen evidence of disarticulation in the failure to bring the majority of people into the mainstream economy. The challenges of inclusivity and overcoming dualism have been perpetuated through the structures set up during colonial rule. It is interesting to note that in Zambia since the copper economy was established during the 1920s, formal wage employment has never gone beyond the 20 per cent mark, a fact that points to the failure by subsequent governments to transform the colonial economy. Countries which have managed to overcome this colonial social engineering have done it by creating a thriving industrial sector. The existence of dualism might have served the interests of the colonial settlers and the imperial government, but it clearly does not work in the interests of the African governments that took over from colonial regimes in Africa.

Notes 1 These were representatives of the European settlers in Northern Rhodesia. A formal Legislative Council was established only when the British government took over the administration of Northern Rhodesia from the BSA in 1924 (Gann, 1964). This is why these representatives were called “unofficial members” of the Legislative Council (Young, 1973).

Industrial policy in Northern Rhodesia 91 2 Roberts (1976:231) reports that in 1970 the price of copper on the global market averaged £748 per ton, but this dropped to £444 in 1971 and to £428 in 1972. In 1974, the price shot up to £1,400 per ton in April, but declined to just £500 per ton in the second half of 1974. It is this volatility which makes an economy dependent entirely on the export of this commodity extremely unstable and vulnerable. 3 This is a form of protection a country enjoys as a result of its natural or geographical location. In the case of Southern Rhodesia, it was the extra cost of transporting the goods to the landlocked country that provided the natural protection to local manufacturers. But this mechanism did not provide any significant protection, specifically because the local manufacturer incurred similar costs in transporting inputs into the country. 4 Some analysts have even suggested that by the mid-1950s, manufacturing “was already the dominant sector, leaving mining and agriculture well behind” (Bhagavan, 1978:11). 5 Both routes by rail had to go through Southern Rhodesia and this is why, when the border was closed in 1966, it presented a huge hurdle for the newly independent Zambian government (see Young 1973).

References Austin, F. and Morton, J. (2018). “Patterns of Manufacturing Growth in Sub-Saharan Africa: From Colonization to the Present.” In K.H. O’Rourke and J.G. Williamson (eds.) The Spread of Modern Industry to the Periphery since 1871. London: Oxford University Press. 345–373. Baldwin, R. (1966). Economic Development and Export Growth: A Study of Northern Rhodesia, 1920–1960. Berkley: University of California Press. Barber, W. (1961). The Economy of British Central Africa: A Case Study of Economic Development in a Dualistic Society. London: Oxford University Press. Bhagavan, M. (1978). Zambia: Impact of Industrial Strategy on Regional Imbalance and Social Inequality. Research Report No. 44. Scandinavian Institute of African Studies, Uppsala. Busschau, W.J. (1945). Report on the Development of Secondary Industries in Northern Rhodesia. Lusaka: Government Printers. Chang, H.(2002). Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press. Cherif, R. and Hasanov, F. (2019). The Return of the Policy That Shall Not be Named: Principles of Industrial Policy. International Monetary Fund Working Paper No. WP/19/74. Chitonge, H. (2019). Industrialising Africa: Unlocking the Economic Potential of the Continent. New York: Peter Lang. Financial Times(2020). Glencore’s Zambia CEO Detained by Authorities. 16 April. https:/ /www.ft.com/content/94065290-58b5-4607-83c4-90a9eeb17187 Fincham, R. (1980). “Economic Dependence and the Development of Industry in Zambia.” Journal of Modern African Studies Vol. 18, No. 2, 297–313. Fortman, G.B. (1971). “Zambia’s Markets: Problems and Opportunities.” In C. Elliot (ed.) Constraints on the Economic Development of Zambia. London: Oxford University Press. 191–232. Frankel, S.H. 1938. Capital Investment in Africa. London: Oxford University Press. Gann, L.H. (1964). A History of Northern Rhodesia: Early Days to 1953. London: Chatto & Windus.

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Henry, J. (1946). “Some Aspects of The Economic Development of Northern Rhodesia.” South African Journal of Economics Vol. xiv, 100–116. Hirschman, A. (1958). The Strategy of Economic Development. New Haven: Yale University Press. Hulec, O. (1969). “Some Aspects of the 1930 Depression in Rhodesia.” Journal of Modern African Studies Vol. 7, No. 1, 95–105. Kaldor, N. (1966). Causes of the Slow Rate of Growth in the United Kingdom. Cambridge: Cambridge University Press. Kilby, P. (1975). “Manufacturing in Colonial Africa.” In L.H. Gann and P. Duignan (eds.) Colonialism in Africa, 1870–1960, Vol. 4, The Economics of Colonialism, 1870–1960. Cambridge: Cambridge University Press. 470–520. List, F. (1909). The National System of Political Economy. Translated from the original German edition published in 1841 by Sampson Lloyd. London: Longmans, Green, and Company. Mayer, J. (2013). Towards More Balanced Growth Strategies in Developing Countries: Issues Related to Market Size, Trade Balance and Purchasing Power. UNCTAD Discussion Paper No. 214. https://unctad.org/en/PublicationsLibrary/osgdp20134_en .pdf, accessed 12 December 2019. Mhone, G. (1982). The Political Economy of a Dual Labour Market in Africa: The Copper Industry and Dependence in Zambia, 1929–1969. East Brunswick: Associated University Press. Pearce, R. (1984). “The Colonial Office and the Planned Decolonisation in Africa.” African Affairs Vol. 83, No. 330, 77–93. Peemans, J. (1975). “Capital Accumulation in the Congo Under Colonialism: The Role of the State.” In P. Duignan and L.H. Gann (eds.) Colonialism in Africa1870-1960 (Volume 4: Economics of Colonialism). London: Cambridge University Press. 165–212. Roberts, Andrew (1976). A History of Zambia. London: Heinemann. Robinson, A.E. (1933). “The Economic Problem: Part Three.” In J.M. Davis (ed.) Modern Industry and the African. London: MacMillan. 131–226. Rodney, W. (1972). How Europe Underdeveloped Africa. Washington, DC: Howard University Press. Saggi, K. and Pack, H. (2006). “Is There a Case for Industrial Policy? A Critical Survey.” The World Bank Research Observe Vol. 21, No. 2, 267–297. Scitovsky, T. (1954). “Two Concepts of External Economies.” Journal of Political Economy Vol. 62, No. 2, 143–151. Siedman, A. (1974). “The Distorted Growth of Import Substitution Industry: The Zambian Case.” Journal of Modern African Studies Vol. 12, No. 4, 601–631. Stiglitz, J. (2018). From Manufacturing-led Export Growth to a Twenty-First Century Inclusive Growth Strategy. World Institute for Development Economics Research (WIDER) Working Paper No. 2018/176. United Nations Economic Commission for Africa (UNECA) (2016). Transformative Industrial Policy for Africa. Addis Ababa: Economic Commission for Africa. Wade, R. (1990). Governing the Markets: Economic Theory and the Role of Government in East Asian Industrialisation. Princeton: Princeton University Press. World Bank (1964). The Economy of Northern Rhodesia. Washington, DC: International Bank for Reconstruction and Development. Young, A. (1973). “Industrial Diversification in Zambia. New York: Praeger Publishers.

4

Industrial policy in Zambia

Introduction The previous chapter analysed industrial policy in Northern Rhodesia. In this chapter, the focus is on industrial strategy developed after Northern Rhodesia attained independence ( became Zambia) in October 1964. The focus of this chapter is on the industrial strategy adopted after independence to promote industrial development in the country and the industrial structure which resulted from these efforts. The focus in this chapter is particularly on manufacturing industries and how these changed over time. The chapter provides a detailed analysis of both the IP in Zambia and trends in the industrial sector, particularly manufacturing to Industrialisation challenges in Zambia are discussed in Chapter 8. The United National Independence Party (UNIP), which won the elections earlier in 1964, took over the government of the newly independent country towards the end of October the same year. Although Northern Rhodesia on the eve of independence had a relatively small proportion of non-African settlers (about 84,000, representing 3.1 per cent (see Table 2.1)), the settlers and foreign-owned companies controlled most of the economic activities. Therefore, like many newly independent African countries, although Zambia was politically independent, the economy was still under the control of the minority settler population, linked to a network of multinational companies such as the South African BSA and AngloAmerica Corporation (AAC). These entities wanted to continue with the same policy direction as had been the case during colonial rule. In this context, the newly independent Zambian government faced strong, but often passive, resistance to policy reforms which threatened the interests of foreign-owned and foreign-run enterprises. Resistance to reforms is captured in a speech given to the media by Zambia’s first president: when Zambia achieved independence all these foreign and resident expatriate businesses were operated by foreign and expatriate people … therefore, you will see that we had to cope with a business community foreign-owned and foreign managed. We spent a great deal of the time pleading with the business community … pointing out to them that it was in their best interest to

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Industrial policy in Zambia introduce Zambians into management jobs. We, of course, received plenty of promises but very little action. (Kaunda, 1968:296)

In order to assert its independence, the new leadership in Zambia had to embark on radical policy reforms to give the country a new direction and purpose. Several analysts have argued that the Zambian government at independence had no choice but to embark on a radical reform programme as a way to respond to the political economy challenges inherited from the colonial government (Faber and Porte, 1971; Young, 1973; Roberts, 1976; Burdette, 1984). The urgency to transform the economy and the country at large is palpable in all the major speeches by politicians as well as in official policy documents. In the case of Zambia, the need to transform the economic structure was justified on the grounds that the country had little modern industrial development outside of the mining sector, as we have seen in the previous chapter. As has been observed, both the company (BSA) and the colonial state that followed it “did little with Northern Rhodesia. Compared with Southern Rhodesia, its economic prospects seemed dim” (Roberts, 1976:175). The chapter’s main focus is on the measures implemented to promote industrial growth and whether these measures were successful in realising the objective of diversifying the economy by expanding the scope of secondary industrial activities in the country. It is argued in this chapter that Zambia’s experience of seeking to transform the colonial economy, while it has its own unique knots and hurdles, has many features in common with the experiences of other countries. For instance, most African countries, immediately after having dislodged colonial governments, vigorously embarked on the process of transforming the economy through state-led strategies. This is evident in the National Development Plans (NDPs), which most African countries formulated to promote economic growth and development (Chitonge, 2019). Similar to the Zambian experience, many African countries have struggled to transform the colonial economy, as is evident in the strong dependence on a few commodities for foreign exchange earnings (see Chapter 1).

The Zambian economy at independence As noted in the previous chapter, the economy that the Zambian government inherited in 1964 was visibly vulnerable because it was essentially a mono-commodity economy built around the copper mining industry. A close analysis of the policy directions taken in the years after independence shows that ambitious efforts were made and radical measures taken to transform the inherited colonial economic structure. The thrust of the reforms undertaken was on broadening and diversifying the economy’s production and export bases. The political leadership at the time of independence was well aware of the weaknesses of the economy inherited from the colonial government. These weaknesses become more apparent when the Zambian economy is placed in the regional political context. The First National Development Plan (FNDP), which

Industrial policy in Zambia 95 mapped out a strategy of how to address the disadvantages in the structure inherited from the colonial economy, captures the weaknesses in the economy: The structure which we inherited from the colonial era, resulted in many situation which have to be put right: an educational system which was so far below the requirements, that at the time of Independence only a handful of people had anything like sufficient training to enable them to take their place in the service of government; a transport system which is linked in a situation of subservience to Southern Africa and which has led to all the inconvenience and frustrating difficulties which have since been provoked by the unilateral declaration of independence of Rhodesia [UDI]; a system whereby all our supplies of petrol and oil came to us by the southern route as did coal for our mining industry; … and trade so organised that we seemed irrevocably linked to supplies from Southern Africa not only for raw materials but also for ordinary consumer goods of everyday life. (Republic of Zambia, 1966a:v) This summary of the challenges the country faced is confirmed by the analysis in Chapter 3 showing a heavy dependence of Northern Rhodesia on imports, including food stuffs, from Southern Rhodesia and South Africa (see Table 3.2). The FNDP, therefore, sought to find a workable strategy to address the weakness in the inherited economic structure, which was seen as a “major factor holding back the level of development in Zambia” (ibid.). It is important here to highlight some of the key features of the economy at independence. High levels of dualism It is widely believed that by the end of colonial rule in 1964, the Zambian economy was characterised by high levels of economic dualism manifested in a monoculture economic structure built around the mining enclave in a sea of subsistence farming (Baldwin, 1966; Siedman, 1974; Fincham, 1980; Mhone, 1982; World Bank, 1984b). A 1984 World Bank Report sums up the dominant features of the Zambian economy at independence, observing that the economy was still marked by high levels of dualism manifested in the traditional–modern sector and rural– urban cleavages: At Independence in 1964, the new government inherited a highly dualistic economy. It found a large, mainly foreign-owned, modern sector dominated by the copper industry and large-scale commercial agriculture. The rest of the economy largely consisted of rural smallholder s with few productive linkages to the modern sector. (World bank, 1984b:20) This structural feature of the Zambian economy at independence, which had its roots in the colonial political and economic set-up, has, to a large extent, persisted

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and continues to influence the Zambian society and economy even today. As illustrated later, various post-colonial governments in Zambia have attempted to transform this economic dualism but with little success. Dualism during the colonial period was not only restricted to the economic sphere, as noted in Chapter 1; it encompassed the whole social fabric from the labour market through to the property market and residential settings. African workers were not only paid a fraction of the wages paid to European settlers, but they were physically separated from Europeans in terms of residence and the economic ventures they could engage in (Roberts, 1976). This dualistic structure affected not only the size of the domestic market but also the internal economic growth dynamic, in both the agricultural and manufacturing sectors. As we have seen in the previous chapter, dualism, in its multiple facets, was partly a result of the need to maintain the racial dominance of European settlers. This point is articulated well in Guy Mhone’s (1982) book on the political economy of dualism in Zambia in which he argues that while at the beginning, dualism was a product of the existing economic and political factors, with time the features of dualism in the economy were artificially maintained to serve the interests of the dominant group, which at this time was the European settlers and their supporters. While this dualism initially began as the result of economic and autonomous factors, in time it came to be sustained by artificial factors reflecting the interests of the dominant groups. The conclusion is that the dual labour market had the effect of distorting the microeconomic relationships within the copper industry, thereby limiting the degree to which the industry could act as a leading sector in the Zambian economy. (Mhone, 1982:25) But the economic and social impact of sustaining a dualistic structure in the economy has been enormous and cumulative over the years. Aware of the dangers posed by the colonial economic structure, the Zambian government started to take steps towards diversifying the economy as the only way to reduce the dependence on copper and the vulnerability of the economy to external price shocks. Implementing an industrial strategy which promoted the growth of secondary industries, particularly manufacturing, was deemed an urgent matter. However, while the need to diversify the economy has been well acknowledged by the colonial government through successive Zambian governments after independence, diversifying the Zambian economy, and indeed most economies on the continent, has proved to be elusive. The dominance of the mining sector Although the Zambian economy has a different sectoral composition today, the country continues to depend overwhelmingly on the export of copper for foreign exchange earnings, as it has done in the past. In 2015, the mining (largely copper) industry accounted for 77 per cent of the total export value and a significant chunk

Industrial policy in Zambia 97 of government revenue (Republic of Zambia, 2017). This reflects the continuing dominance of the mining sector in the economy. But the continuing dominance of the mining industry in terms of foreign exchange earnings is an indication of the failure to radically transform the colonial economic structure, despite successive Zambian governments’ assertions of the need to do so (Kragelund et al., 2014:85). The current state of the Zambian economy is an indication that industrial policy has not been effectively utilised as a tool for transforming the economy as manifested in the low capacity in the manufacturing sector. Therefore, it can be argued that industrial policy has not realised the goal it was intended to in many aspects, including the spatial diversification of industrial activities, creation of mass employment, and reducing the dependence on copper. The economy is still highly vulnerable to external shocks emanating from copper price fluctuations, a situation that often leads to macroeconomic instability and weak socioeconomic development outcomes. The Zambian government, in its recent policy document, has conceded that the country has not yet achieved the economic diversification objective: The Zambian economy remains dependent on mining, with copper contributing approximately 77 percent of total export. Diversifying away from copper is essential for shielding the economy from effects of adverse commodity price fluctuations. Adverse movements in the international price of copper have a history of destabilising the economy as occurred in 2015 when the Zambian economy experienced three simultaneous shocks to domestic output (poor harvest, power crisis and sharply falling copper prices). (Republic of Zambia, 2017:50) Of the three shocks noted in this policy document, poor harvest and the electricity crisis were related to the drought which affected crop yield and water levels, resulting in the low capacity to generate electricity. However, the challenge resulting from the fluctuating price of copper is an old and recurrent one; by now, the country should have devised an effective plan to navigate its effects. What this suggests is that while the challenges associated with reliance on the export of a few commodities have been noted since colonial times, finding solutions to this challenge in Zambia has proved to be difficult. In the years following independence, the main task identified was the transformation of the economy inherited from the colonial regime. This is stated unequivocally in the FNDP: The main task of a Development Plan, especially that coming immediately after the independence of a former colony, is to examine critically the structures that have been inherited and to propose structural transformation which will tend to remove obstacles inherited from the previous administration. (Republic of Zambia, 1966a:1)

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This statement shows that the policymakers in Zambia were aware that the economic structure inherited needed to be transformed to address the challenges the country was facing at the time. Whether this awareness translated into some practical action is debatable, but if the contents of the FNDP in Zambia is anything to go by, there is evidence to suggest that concrete plans were laid out. For example, the FNDP lists a number of inherited structures that it sought to transform, including the structure that led to the “systematic draining of revenue from Northern Rhodesia,” the structure that led to the “concentration of industrial development in Southern Rhodesia,” the concentration of educational facilities towards European education, and the concentration of agricultural extension services on non-African farmers (ibid). Although the structural transformation agenda set out in the FNDP was broad, encompassing a wide range of activities and sectors, the diversification of the industrial base was at the top of the list. This is clear when we look at the objectives of the FNDP plan, which stated, its first objective as follows: “To diversify the economy so that the copper industry, is not the only main employer in the economy, and so that a greater proportion of the domestic demand is satisfied by domestic production from a large industrial base” (Republic of Zambia, 1966a:5). Fiscal vulnerability Other than the factors related to the dualistic nature of the colonial economy, the Zambian economy at independence was also characterised by a vulnerable fiscal situation. As highlighted earlier, the Zambian economy at independence relied heavily for both foreign currency and public revenue on the mining sector which was dominated by copper (Chapter 5). For example, as late as 1970, the three forms of tax originating from the mining sector (i.e., royalties, export tax, and income tax accounted for 70 per cent of public revenue (Republic of Zambia, 1966a:7). When the price of copper on the global market was high, there were no concerns around public revenue. But when the price of copper on the market fell, it really created huge challenges in terms of fiscal and macroeconomic stability. Sharp declines in the price of copper, as was the case in 1975, when the price fell by more than 40 per cent in just a couple of months, have had a devastating fiscal impact on the country (World Bank, 1984a:6). For example, as a result of a sharp decline in the price of copper between 1970 and 1971, the contribution of copper to government revenue fell from 52 to 36 per cent in just one year (see Figure 4.1). The decline in the contribution of copper to public revenue continued throughout the 1970s such that in 1976 the contribution of mining to public revenue was only 3 per cent and this declined further to −2 per cent in 1979 before it recovered to a meagre 6 per cent in 1980. Huge fluctuations in public revenue over short periods of times, as shown in Figure 4.1, can have destabilising effects on the fiscal situation as well as on macroeconomic stability, in a country that relies mainly on the export of a single commodity for foreign exchange earnings. The risks posed by this structure of

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Figure 4.1 Copper price and mining contribution to public revenue (1964–1980). Source: Zambia Mining Year Book (various years).

the economy were highlighted during the colonial rule, as we saw in Chapter 3. In this sense, Zambia’s capacity to trade with the rest of the world depended almost entirely on its production of one commodity—copper. Thus, the fortunes of Zambia were very largely at the mercy of world demand for copper, and this was far from being predictable. (Roberts, 1976:225) Operating under such an economic structure makes it difficult to plan for longterm development objectives, primarily because of the uncertainty in public revenue flows. Most importantly, in such circumstances, the current account comes under severe pressure when the price of and/or demand for copper falls. This weaknesses in the inherited economic structure became apparent just six years after independence, when the imbalance in the price of imports versus exports drastically affected the terms of trade (ToT),1 with the ToT index declining steadily from 100 in 1973 to less than 20 in 1982 and 1983(see Figure 4.2). As is evident in Figure 4.2, the declining ToT against Zambia was mainly due to the rising price of the country’s imports vis-à-vis the price of its exports, which actually increased between 1979 and 1983, except in 1982. The situation in Zambia was worsened by the fact that “while the copper prices were stagnating, import prices soared after 1973 in the wake of economic crises in leading industrial countries” (Meyns, 1984:9). This situation adversely affected the country’s purchasing power in terms of its capacity to pay for its imports. As a consequence, the country faced a declining ability to meet the cost of imports from its export earnings as reflected in the declining index of the purchasing power of its exports (see Figure 4.3).2 The economic challenges posed by the falling purchasing power of Zambia’s exports continued to haunt the economy, leading to the balance of payment crisis

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Figure 4.2 Trends in terms of trade for Zambia (1970–1983). Source: Author based on data from Menys (1984); Note: Data for 1981–1983 are from UNCTAD online databse (https://unctadstat.unctad.org/wds/TableViewer/tableView. aspx?ReportId=184185) accessed 22/05/2020.

Figure 4.3 Zambia’s Export Purchasing Power Index (1970–1983), 1970=100. Source: Author based on data from Tangri (1984); Note: Data for 1981–1983 are from UNCTAD online database (https://unctadstat.unctad.org/wds/TableViewer/ tableView.aspx?ReportId=184185) accessed 22/05/2020.

starting from the mid-1970s. As the debt crisis deepened during the early 1980s, the country was forced to seek balance of payment support from the IMF, and later the World Bank, forcing the country to accept the Structural Adjustment Programmes (SAPs). This situation was not only peculiar to Zambia; most African countries had similar experiences, largely because of the similar economic structures inherited from colonial times.

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Rationale for industrial policy in Zambia There are obviously several factors which inspired the policy reforms undertaken in Zambia immediately after independence other than the weaknesses in the economic structure inherited from colonial rule. While some of the reforms were driven by regional political dynamics rather than economic principles, what is clear is that the main task was recognised to be reducing the double dependence on copper and on the southern neighbours for manufactured goods. The rationale for this policy direction was that the growth of secondary industries would create productive employment to cater for a broader section of Zambian society, which at that time was predominantly engaged in subsistence activities in rural areas. Providing a wider base for wage employment entailed drawing a higher proportion of the population than before into the modern economy. It also entailed not only that the majority of people meaningfully participating and contributing to economic growth in the country but also that they contribute to growing and sustaining demand in the local economy through income earned from productive employment. This, as we have seen, would have begun to address the persistent problem of a small domestic market that had in the past stifled not only industrial development but also economic growth and diversification. Restructuring the economy along these lines was also justified by the national objective to overcome the gap in living conditions between urban and rural areas, which was largely neglected during the colonial period (Siedman, 1974). To achieve the stated goal of broadening the industrial base and expanding the production and demand for local products, some sort of an industrial strategy, in the broader sense of the term, was essential. It would be difficult to imagine a strategy that aims at expanding the industrial base and employment without an industrial policy of some sort. The economic diversification strategy could also have emphasised the expansion of the primary sector, mainly agriculture, forestry, and fisheries, but a more successful strategy would not ignore or sideline the industrial sector. This is particularly true during the 1960s when the industrial sector was seen to have the capacity to create mass employment and absorb the labour migrating from rural to urban areas. Reading through the NDPs, one gets the sense that policymakers in Zambia, at that time, had been influenced by some of the burgeoning development economics literature which emerged after the Second World War advocating the industrial sector as the engine of growth. The works of Rosenstein-Rodan (1943; 1957), Singer (1950), Nurkse, 1953), Arthur Lewis (1954), Scitovsky (1954), Kuznets (1955), Kaldor (1957), and Albert Hirschman(1958), would have persuaded some of the policymakers to take industrial development as the pillar of social and economic development.3 Most of these pioneers of development economics, particularly Singer (1950) and Hirschman (1958), made it clear that industrial growth not only brings about the broadening of the production base but that it induces changes in the entire society, including political organisation and social engagements. Kuznets (1955) goes even further to argue that when the industrial sector proper grows and matures, it is not only the economic structure that changes; its growth has a profound impact on the social and cultural institutions, including the way people think and relate to each other. This view has been reiterated in recent literature on industrialisation arguing that industrialisation leads to broader

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societal changes, including the way politics is organised. This is engendered through industrialisation’s ability to bring large groups of workers together who often form associations such as trade unions, which in turn have a huge influence not just on labour politics, but also on the broader body politic (Rodrik, 2015). In terms of the impact of the industrial sector, and manufacturing in particular, on economic growth, the popular view during the 1960s was that the manufacturing sector had the power to induce growth in other sectors such that it was regarded the engine of growth. It is the rate of growth of manufacturing production (together with ancillary activities of public utilities and construction) which is likely to exert a dominating influence on the overall rate of economic growth: partly on account of its influence on the rate of growth of productivity in the individual sector itself [the manufacturing sector], and partly also because it tends, indirectly, to raise the rate of productivity in other sectors. (Kaldor, 1957:112) Using the framework of backward and forward linkages to elaborate on the mechanics of economic growth in a developing economy, Hirschman illustrates the importance of the industrial sector by laying out the influence it exerts on other sectors, including agriculture: industrialisation has even proven to be a powerful stimulus to the development of agriculture. By providing a reliable market, processing industries originally based on imported agricultural materials such as cotton textiles and beer have stimulated in Colombia the domestic production of cotton and barley. (Hirschman, 1958:112) During the 1960s, when Zambia became independent, industrialisation was synonymous with economic development. The growth of secondary industries was seen as an antidote to underdevelopment. Addressing the double dependence challenge The rationale for embarking on strategies to promote industrialisation in Zambia lies in what I have referred to as the double dependence challenge: the overwhelming dependence on copper for export earnings, and the dependence on southern neighbours for manufactures. As shown in Chapter 3, South Africa and Southern Rhodesia accounted for over 63 per cent of Zambia’s manufactured products on the eve of independence. Given this level of dependence, and the political and economic context of mid-1960s in Southern Africa, it was not surprising that Zambia embarked on an aggressive mission to transform the colonial economic structure. Dependence on the southern neighbours was not only in terms of manufactures, but also transportation of imports and exports.

Industrial policy in Zambia 103 In particular, [Zambia] was heavily dependent on its links with [Southern] Rhodesia. All Zambia’s coal and coke came from Wankie. … Besides, Zambia was landlocked, and its main lines of access to the sea ran through Rhodesia. Its oil came up through Rhodesia from Beira, in Mozambique, while the Rhodesian railways carried Zambia’s copper out to Beira, via Bulawayo and Salisbury [Harare]. (Roberts, 1976:225) The urgency to reduce dependence on the southern neighbours was accentuated by the fact that both Southern Rhodesia and South Africa remained under minority white rule, a situation that created political tensions because of the support Zambia offered to the liberation struggle movements from both countries (ibid.). The situation worsened in 1965 when the Southern Rhodesia government announced the Unilateral Declaration of Independence (UDI). Factors behind economic structural reforms The UDI factor is repeatedly cited in the FNDP as one of the major reasons for embarking on the drive to diversify the economy. Creation of new industrials was seen as essential to realising the two-pronged objectives of reducing the country’s dependence on Southern Africa, and promoting spatial economic diversification, which meant taking development to rural areas, in order to reduce the concentration of economic activities along the line of rail. This is clearly articulated in the FNDP which framed the vision of industrialisation in these terms: The problem in Zambia is firstly to create industries which will substitute locally produced products for many of those imported from Southern Africa, and secondly by physical diversification to create centres of economic activity away from the line of rail and thus contribute to the transformation of the stagnant rural sector. Industrialisation will make a growing contribution to the balance of payment position over the period … both by import substitution and by developing an export capacity in the new industries. (Republic of Zambia, 1966a:33) In this sense, the drive to industrialise Zambia clearly had both political and economic motives. The overriding political motive was to reduce the dependence on South Africa and Southern Rhodesia as a way of asserting Zambia’s independence. As Young (1973) and Chitonge (2019) have observed, the practical way of asserting independence in a newly independent former colony is to ensure that the country is in control of means of providing for its essential needs. The fact that the colonial economy in Zambia was set up as a satellite of the stronger, bigger, and better-developed economies to the south, always constrained the independence of both Northern Rhodesia and later Zambia. So, it was politically expedient to restructure the economy to assert the country’s independence (Fortman, 1971).

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The economic rationale for seeking to diversify the economy was primarily couched in terms of reducing dependence on the copper industry. Not only that it was also envisioned that a diversified economy with a broader production and export base would also strengthen the country’s macroeconomic position through the reduction of pressure on the current account as a result of foreign currency savings on imports of goods and services. The saving of foreign currency accrued by reducing the import bill by substituting imported goods with locally produced goods could then be used to acquire intermediate and capital goods needed to expand the industrial sector. Although this vision was clear from the beginning, it did not produce the intended results, as we have seen from the fact that the country still relies heavily on the export of minerals for foreign currency earnings. However, in terms of the vision to produce manufactured goods locally, tremendous progress was made during the first two decades of independence. Writing in the 1970s, Roberts (1976:235) observed that “the economy has been substantially diversified and the country now produces much of what it once had to import.” Other analysts also noted that progress was made in reducing the import bill on consumer goods (Fortman, 1971; Faber and Porte, 1971; Young, 1973, Fincham, 1980). However, the country continued to depend on imports, particularly inputs and capital goods (Siedman, 1974; Meyns, 1984).

Economic diversification in Zambia Spatial diversification In Zambia, the gap between urban and rural living conditions was recognised in the FNDP as an area directly connected to the dualistic approach to society adopted during colonial rule. After independence, it was understood that the ruralurban dualism constrained the spatial diversification of the economy. It is thus argued in the FNDP that The imbalance between rural and urban sectors aggravated by the concentration of economic activity, social and economic infrastructure along the ‘line of rail.’ The Mining and manufacturing activities are supplied by railway, but this concentration of activity has determined the location of all commercial activity in the same area. (Republic of Zambia, 1966a: 2) The idea of diversifying economic activities in Zambia was therefore not just about broadening economic activities; diversification also involved the spatial spread of industrial activities to overcome the colonial development pattern of concentrating economic activities along the line of rail. Spreading out economic activities, away from the line of rail, was understood to be the fastest and the most practical way to overcome the sharp imbalances in the living conditions between people in urban and rural areas. Given the colonial pattern of industrial activities which were concentrated along the line of rail, spreading economic activities to other parts of the country was a justifiable strategy. Spatial

Industrial policy in Zambia 105 diversification was pursued alongside the strategy of broadening the production and export base in the economy (Young 1973). The idea of spatial diversification of economic activities was clearly stated in the White Paper on Industrial Policy (WPIP) which was first published in October 1964, just before the official handover of government. The revised WPIP published in 1966 stated that “It is government policy to actively encourage, where practicable, the setting up of industries outside the main centres, so that the benefit of development may spread throughout the country” (Republic of Zambia, 1966b:1). This statement is an acknowledgement of the fact that the colonial development pattern was imbalanced, not just in terms of the concentration of activities around mining, but also in terms of the spatial spread of economic activities. The lack of spatial diversification of economic activities illustrates the opportunistic feature of the colonial economy, which focused on fragmented economic activities guided by where maximum accumulation could be secured (Chapter 1). It is this feature of the colonial economy which made it difficult for its activities to benefit Africans who were largely on the margins of these colonial enclaves. Therefore, it was not surprising that newly independent African states, in Zambia and other countries on the continent, had to urgently find a way to transform the colonial economy. In the specific post-colonial development context of Zambia, spatial diversification was an important consideration in the structural transformation of the economy given that a majority (80 per cent) of the population, at the time of independence, were living in rural areas away from the main urban centres which developed along the line of rail (World Bank, 1964). In this context, it was crucial that the restructuring of the economy by the state consider ways to enable the majority of people to participate in and contribute to the transformation of the economy to ensure that economic activities served the interests of the majority. In this sense, bringing the massive rural population into the ambit of the modern economy in Zambia was a critical economic and political strategy. The imperative to diversify was partly motivated by the urgent need to make sure that many Zambians participated meaningfully in the economy and contributed to the development goals set by the state. To achieve this goal, it was necessary to expand the tentacles of modern economic activities into rural areas where the majority of people lived and worked. Often, literature on the structural transformation of colonial economies focuses solely on broadening the production structure, ignoring the spatial dimensions of economic structural transformation (Chitonge, 2016). As noted earlier, apart from the WPIP, industrial policy in Zambia since independence has been part of the NDP. It is only recently that the country has developed a separate industrial policy (see chapter 8).4 Nevertheless, the country has been implementing industrial development strategies through a complex set of policies since the early days of independence. While there were intentions and efforts to industrialise the country during the colonial period, as highlighted in Chapter 3, emphatic implementation of industrial policy proper, undoubtedly, started after independence.

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Industrial strategy: incentives and direct participation approach At the beginning of the industrialisation drive, the Zambian government adopted a two-pronged approach to stimulate the growth of industrial activities and production. The two strategies adopted were the provision of a battery of incentives to private sector enterprises (the Incentive Strategy) to promote the establishment of new industries and the expansion of existing ones, and the direct involvement of the state in the establishment and operation of industrial enterprises (the Direct Participation Strategy). In the case of the directly participation strategy, the state initially participated in joint ventures with the private sector, in establishing new industrial enterprises. But later the state embarked on an aggressive plan to establish industrial enterprises solely owned by the state. During the early days after independence, the state adopted a liberal approach to industrial development, with the private sector seen as the main actor. But two years after independence, the state decided to take a more active role in promoting industrialisation without displacing the private sector. The two-pronged approach to industrial policy is outlined in the FNDP: The role of the Government is to provide encouragement and assistance to the private industrial sector and in certain cases, to undertake direct responsibilities in establishing new industries. The level of public investment foreseen over the period of the Development Plan itself constitutes a considerable incentive to industrial production. (Republic of Zambia, 1966a:33, emphasis added) Although the Northern Rhodesia government was urged to adopt both the incentive and the direct participation strategies, it avoided the latter strategy and focused on the incentive approach. In contrast to the colonial IP, the Zambian government adopted a more aggressive approach where the state’s role was not limited to that of assisting private sector enterprises; the government decided to directly participate in establishing new industries and firms in instances where the private sector was unwilling or unable to undertake the required investments. Even though this marked an improvement on the colonial industrial policy that avoided direct state participation in industrial ventures, the Zambian state’s involvement in the industrial sector before 1968 was still guided by a liberal industrial policy as noted earlier. This should not be surprising, given that the larger section of the bureaucracy in charge of policy-making and policy advice in the first few years after independence was made up of expatriates, mostly from Britain and international development agencies. But this situation changed radically in 1968 when the government launched the famous Mulungishi Reforms in which the president announced that the state would play a more active role, by seeking to establish new industrial ventures and also by acquiring majority shares or a controlling interest in existing industrial enterprises (Tangri, 1984). In the Mulungushi Speech, the president announced several measures tailored towards promoting greater participation of the state in the economy (Kaunda, 1968). This

Industrial policy in Zambia 107 in a sense marked the radicalisation of the state, drawing mainly from socialist and humanist ideology, which led to radical shifts in industrial policy and other areas of the economy. Perhaps one concrete indication of stronger state participation in the economy from 1966 is the growth of the state’s fixed capital formation. By the end of the FNDP period, government’s gross fixed capital formation trebled to about 355 million Kwacha, compared to what it was in 1965 (Republic of Zambia, 1972:5). The Second National Development Plan (SNDP) reported that the government had stepped up its role in the economy and contributed to diversification by establishing a series of manufacturing ventures in textile, sugar, cement, fertiliser, metal fabrication, explosives, glass manufacturing, and assembling bicycles and light vehicles (ibid.). Below we look at the incentive strategies in more detail. The incentive strategy The incentive strategy for industrial development in Zambia incorporated several related measures, most of which fell within the conservative side of conventional industrial policy. In the early days of implementing IP, the government adopted a selective industrial policy approach, targeting incentives and specific support at certain industries and firms. The selective aspect of IP in Zambia during the 1960s was clearly stated in the WPIP which argued that: The basic principle of government policy is to support selected industries which can make a net contribution to the development and diversification of the economy. It [government] will encourage, where practicable, industries that will contribute towards making the country self-supporting in consumer goods which are in more general demand thereby reducing imports and saving foreign exchange. (Republic of Zambia, 1966b) It is interesting here to note the language of “encouraging industries that contribute to reducing dependence” on imports. As noted above, the colonial government adopted a similar approach where the state’s role in industrial development was limited to encouraging the private sector to undertake the establishment of manufacturing ventures (Henry, 1946). The strategy of encouraging the private sector aligns with the idea that the state’s role in industrial development should be limited to providing incentives and not actively being involved in establishing industrial enterprises. Although in the cited WPIP statement the criteria for providing incentives and support to private industrial enterprises was not clearly defined, three key factors were considered for a firm could qualfy for support from the state . The first is that a firm’s contribution to diversification had to be clear and significant. Second, only firms that had revealed potential to contribute to reducing imports of consumer goods used by most Zambians were to be supported. Third, support from the state targeted firms that were involved in producing and exporting locally

108 Industrial policy in Zambia made products. There is no doubt that these are components of a selective IP, which focuses not necessarily on “picking winners,” as it were, but on identifying sectors, subsectors, and firms with the potential to contribute to the overall objectives behind IP, including the growth of export capacity. Whereas the outcomes of this strategy contributed little to transforming the economy, the nature of the incentives provided was aligned with the broader national goal of addressing the double dependence mentioned earlier. Certainly, the strategy to provide incentives to identified industries and firms was in sync with the overall national developmental objectives. For example, on producing goods which most Zambians were consuming, it has been observed that, in fact, most of the industries established after independence produced goods meant for the middle class in urban areas, including luxury goods (Fincham, 1980; Tangri, 1984). The battery of incentives provided varied from subsidised capital investment, protectionist strategies using tariffs and import quotas, to priority access to and allocation of foreign exchange. The specific components of the incentive strategy are discussed below. Fiscal incentive In terms of the actual incentives provided, it is important to note that the incentive structure and composition varied over time from 1966 until the mid-1980s when all government support was scrapped as SAPs kicked in. The first incentive instrument appeared in September 1965 when the Pioneer Industries Act (PIA) was enacted. The PIA was basically an instrument for providing tax relief to enterprises which established industrial ventures in the designated activities or product categories. The way the system worked was that an eligible company would apply for what was called a Pioneer Certificate, and, if successful, the company was entitled to a two-year tax relief, and if the investment on fixed capital was subsequently undertaken, the qualifying company would claim against profit tax. But there were serious challenges in the way this incentive programme was implemented, including delays in reviewing and approving applications, and strict approval criteria adopted by the authority responsible for the programme. As a result, only a few companies were successful in accessing support through this programme. For example, between 1966 and 1969, only a handful of industries managed to secure the Pioneer Certificates. “By the end of 1969, only three certificates had been granted, to Dunlop, Kafue Textiles, and metal Fabricators of Zambia” (Young, 1973:184–185). As such, the impact of this strategy was negligible, and the programme was scrapped at the end of 1969, replaced by the investment allowance scheme.5 Trade policy incentives Under this category of incentives came the conventional IP incentives in the form of protective tariffs, import licences, and quotas. Although the intention behind this programme was to protect local manufacturers from outside competition as

Industrial policy in Zambia 109 a way of promoting the growth of local industries, it has been observed that the structure of the trade regime was, in effect, no different from the colonial approach and as such offered little effective protection to the local industrial producers (ibid.). Contrary to this view, an economic report on Zambia by the World Bank observed that the trade regime in Zambia protected essential goods and imposed high tariffs on the import of luxury consumer goods such as refrigerators, processed and canned food, jewellery, electronics, clothing, and household goods (World Bank, 1984a). Like the fiscal incentive programme, there were a number of anomalies in this programme too. For example, agriculture equipment and iron and steel products did not attract duty, while industrial machinery and intermediate goods attracted import duty of between 5 and 20 per cent (ibid.: 23). Imposing a protective tariff on goods that were not produced in the country did not only make sense but in the case of capital goods this move might negatively affected the growth of industrial capacity. The tariffs and import quotas The tariff structure adopted in 1969 had a three-tier system: duty of 15 per cent on all non-essential goods widely used by the Zambian population; duty of 30 per cent for goods not widely used by the majority of the people; and duty of 50 per cent for luxury goods (Young, 1973:191). This tariff structure was reformed in 1983 in such a way that all essential goods came into the country basically duty free, but goods such as cars, furniture, and some electronic appliances attracted high import duty of up to100 per cent (World Bank, 1984a:23). Other than tariffs, import quotas and licences were also introduced as a form of incentive to protect local producer from outside competition. During the 1970s this mainly took the form of import licences which were issued to only a few companies such as Chilanga Cement, Zambia Sugar, National Milling, Metal Fabricators of Zambia (all of them parastatal corporations) (Young, 1973). Additional measures to incentivise local manufacturers included preferential procurement by the state and the state tender system, which favoured local over foreign suppliers. However, it has been argued that the Effective Protection Rate (EPR) from these incentives was insignificant such that the net protection afforded to local manufacturers in Zambia was small, and this is why the manufacturing sector failed to attract resources from either foreign or local investors (World Bank, 1984a:28). Consequently, investments in the manufacturing and other industrial sectors were mainly provided by the state through its statutory bodies, mainly the Industrial Development Corporation (INDECO). In terms of foreign exchange, the state adopted a liberal approach. Though foreign-owned companies were subjected to restricted access to credit (borrowing), they were not subjected to exchange controls, meaning that they could expatriate all profits and interest earned (Faber and Porte, 1971). The liberal approach was adopted to attract foreign direct investments (FDI), even if this was contrary to the policy of reducing the influence of foreign-controlled investments in the economy (Republic of Zambia, 1966a). However, this policy was tightened up in 1968

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when a 50 per cent restriction on the expatriation of profits and equity earnings was imposed. In the context of the dominant features of a colonial economy, the restrictions on profit repatriation constituted a significant move to reverse the colonial economic structure that allowed the free expatriation of money made in the colonies. The direct participation strategy: the role of INDECO A well-known industrial strategy in Zambia is the direct involvement of the state and state agencies in industrial development. This included several measures such as partial nationalisation of formerly privately owned industrial enterprises, the establishment of new industrial ventures, as well as the creation of holding companies to manage state investments. In terms of the industrial sector policy, the role of INDECO was quite central as a direct participation instrument (Faber and Porte, 1971; Tangri, 1984). Although INDECO started out during the colonial government as an industrial finance institution (IDC, see Chapter 3), and continued after independence, its role was dramatically altered after the Mulungushi Reforms in April of 1968. INDECO’s role changed from being a financier of industrial development projects to that of the coordinator and driver of industrial development in the country. Through INDECO, acquisition of controlling interests in existing industrial enterprises was undertaken, in addition to establishing new industrial ventures. INDECO, as a subsidiary of the parastatal holding company Zambian Industrial and Mining Corporation (ZIMCO, created in 1970), was mainly dedicated to fostering the growth of the manufacturing sector (Siedman, 1974). Much of the direct participation strategy of the industrial policy was implemented through the creation of parastatal companies managed by holding companies, such as INDECO. Parastatal holding companies One of the important mechanisms which allowed the state to directly participate in industrial development in Zambia prior to the introduction of SAPs was the creation of parastatal companies. As the name suggests, these were mostly joint companies, with the state often having either majority shares or controlling interests (see Tangri, 1984). These parastatal companies were created through special legislation by parliament and run through specific management boards, controlled by the state as a majority shareholder. The state appointed executive members of the boards. However, it has been argued that although the state appointed the senior members of the boards, this did not automatically translate into the state exercising control over the decisions made by these boards (Fincham, 1980:310). Meyns (1984) also argues that though the state was the major shareholder and appointed executive directors to manage these holding companies, partnering private sector players effectively controlled major decisions, especially in the early days. The dominance of the state in the industrial sector through its parastatal companies is evident from several indicators. From 1968, when the reforms in the

Industrial policy in Zambia 111 industrial sector were introduced, INDECO’s total net assets trebled from just K36 million to K108 million in just one year ( 1969 , Tangri, 1984:114). Within this period, INDECO acquired controlling stakes in 24 industrial companies, ranging from brewing companies, milling, confectionary, construction, and timber, to metal fabrication. In addition to these, INDECO, in the first two years of operation, initiated and established a number of industrial ventures including the clay industry in Kalulushi, the textile industry in Kabwe, the fruit and vegetable cannery factory in Mwininluga, Kafilonda explosives outside Kitwe, Mansa Batteries, a light motor assembly plant in Livingstone, and a glass factory in Kapiri Mposhi. By June 1971, INDECO had 40,649 employees, accounting for more than half of the total industrial sector work force (Young, 1973). By 1980, parastatal companies accounted for more than half of industrial sector employment and more than half of the manufacturing value added (MVA) (see Table 4.1). We see from Table 4.1 that INDECO as a parastatal company was overwhelmingly dominant in the food, beverage, and tobacco, chemicals, and non-metals subsectors in terms of both employment share and the share of value added. Interestingly, the overall share in MVA, and in employment, grew between 1972 and 1980, with employment growing faster than MVA, signalling that the productivity of labour was falling. This has been confirmed by reports which show that labour productivity in the manufacturing sector, particularly, fell steadily across all the subsectors of the industry from the late 1970s (World Bank, 1984a). Promoting rural industrial activities Policy strategies to incentivise industrial growth (private, public, and parastatal) were not limited to the creation of parastatal companies. Other measures were Table 4.1 Parastatal sector share in MVA and in employment by subsector (1972–1980) Percentage share of MVA

Percentage share of employment

1972 1975 1980 1972–80 1972 1975 1980 change Food, beverage, and tobacco Textile, apparel, and leather Wood and furniture Paper and printing Chemicals Non-metallic mineral products Basic metals Metal product Other manufacturing Total

−4.3

75.2

70.2 72

1.5

17.4 57.6

34 9.2 49 66.3

33.7 19.4 49.3 61.8

51.3 26.4 61.7 63.9

50.9 187.0 25.9 −3.6

48.5 12.6 58.6 45.7

42.4 31.9 60.6 57.7

44 47 71.5 59

−9.3 273.0 22.0 29.1

0 18.4 0 53.2

0 17.8 0 49.6

0 19.2 0 56.4

0.0 4.3 0.0 6.2

0 26.4 0 42.2

0 17 0 43.6

0 21.4 0 54.4

0.0 −18.9 0.0 28.9

3,940.0

Source: Author based on data from World Bank (1984a:9).

72

1972–80 change

73.9 75.9

5.4

26.9 17.7 40.7

51.3

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adopted, focusing on promoting small-scale and rural industrial activities, with direct state participation, especially after 1968. The Industrial Development Act (IDA) Act, which was enacted in 1977, provided for rural industrial activities. Industrial Development Act (IDA) The purpose of the IDA was to continue providing incentives to industrial enterprises, with a strong emphasis on regulating the sector. Apart from having an unclear set of objectives, the IDA was criticised for several shortcomings, including contradictions between different parts of the Act, having an ambiguous and wide range of objectives, and leaving large margins of discretion to implementing officials, a situation which introduced arbitrariness and corruption in the implementation of the programmes. One of the central shortcomings was that it was highly regulatory in tone, and it suffered “from a number of internal contradictions and shortcomings which [needed] to be removed if the Act [was] to make a positive contribution to further industrial development and to have a clear impact on investment decisions” (World bank, 1984a:72). Not only that, the compartmentalised approach to policy formulation and implementation, which is evident in the IDA was earlier noted to be the source of contradiction and conflict between different ministries (Siedman, 1974). Small Industrial Development Organisation (SIDO) To stimulate the growth of small-scale industries, the government established the Small Industrial Development Organisation (SIDO) in 1981. SIDO was started in recognition of the important role small-scale industries play in creating employment and spreading economic activities to small towns and growth centres. In this sense, SIDO was an industrial vehicle consistent with the broader vision of promoting spatial diversification and mass employment creation, both of which were central national development objectives outlined in the FNDP and subsequent development plans. One of the most important interventions that SIDO initiated was the introduction of the Industrial Extension Services (IES), akin to the extension services in agriculture. The IES provided under SIDO include specialised training through holding industrial workshops for small-scale businesses, assisting small enterprises with accessing finance through grants and subsidised loans, conducting feasibility studies on behalf of small businesses, procuring raw materials and machinery needed in the production process, and assessing and adapting technology to local conditions (World Bank, 1984a: 80–81). We find a similar approach in the current industrial policy, which has put a strong emphasis on Small and Medium Enterprises (SMEs) as job creators, although there is no systematic programme which provides consistent support and guidance, especially to the small informal manufacturers (see Chapter 8). Village Industrial Services Other than SIDO, the government also had a strategy to promote the growth of industrial activities in rural areas. The vehicle for achieving this was the Village

Industrial policy in Zambia 113 Industrial Services (VIS) which was seen as a complementary programme to SIDO but dedicated to serving small-scale enterprises and cottage industries in rural areas. It has been observed that although VIS was an appropriate model for promoting the growth of rural industries, it had many challenges, including the informal nature of the institution (it operated as a trust), limited funding, and lack of coordination (ibid.:82). While VIS was contemplated as an industrial development programme for rural areas, it has been observed that the main focus in rural areas was on increasing agricultural production, with much less on the industrial side of the development equation (ibid.). Mixed economy approach It is important here to emphasise that despite the strong adherence to socialist ideology that was often seen to be at odds with private enterprise (Fincham, 1980, Siedman, 1974; Young, 1973), the state’s direct participation strategy did not entail a complete takeover of private industrial enterprises. In most of these takeovers, the state acquired a majority, usually a 51 per cent, stake, with the other 49 per cent left in the hands of the private sector (Tangri, 1984). In other parastatals, the state did not have a 51 per cent state, though it had a controlling interest, meaning that the state was the major shareholder. It is for this reason that the Zambian economy after the 1968 reforms was widely referred to as a mixed economy in which the state had an active role to play without completely eliminating the private sector. In terms of industrial policy, the state could have adopted the policy of completely buying out the private sector, that is, by nationalisation, but it maintained the participation of private enterprises as a source of investment funds, although there was some ambiguity regarding the role of the private sector in the economy (Young, 1973).

Outcomes of the strategies The industrial strategies outlined in the preceding sections were implemented prior to the abandonment of industrial policy and state intervention in the mid1980s when SAPs where introduced.6 How effective these incentives were in promoting industrial growth is an important question to raise. Several analysts have argued that because of the ineffective way in which these incentives were provided, they practically offered little stimulus to the growth of local manufacturers (Young, 1973; Siedman, 1974; World Bank, 1984a). However, the design and rationale behind these strategies can be justified and do indicate that the state had seen the potential of these measures to contribute to industrial development. The World Bank (1984a) report, for instance, has been dismissive of these strategies as having provided little or no protection to local producers because they failed to play any significant role in contributing to state revenue. But tariffs as an instrument for promoting industrial growth are a common tool used by most (if not all) countries which have successfully industrialised (List, 1909; Amsden, 1989; Wade, 1990; Chang, 2002).

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Although it is difficult to attribute the reported growth in the industrial sector between 1965 and 1991 to these incentives, it is most likely that they played an important role in creating an environment where industrial growth could at least start to take root. It is also important to remember that these policies were only implemented for less than ten years, by the end of 1970s, due to the serious shortages of foreign currency when the price and demand for copper declined in the latter half of the 1970s, as earlier alluded to, most of these projects were operating at less than full capacity (Bates, 1981). Although there were serious challenges with the implementation of these strategies, including corruption and inefficiency of some of the officials involved (see Sardanis, 2014), had these measures been implemented for a longer period it is likely that they could have contributed significantly to the growth of the industrial sector in Zambia. Even so, significant progress was made, particularly in the manufacturing sector, as we shall see later. Overall, the industrial sector in Zambia expanded rapidly from 1965 up to the time when these strategies and policies were totally abandoned. The growth of the industrial sector in Zambia was acknowledged even by analysts who were critical of the policies adopted by the government. For example, a World Bank report sums up the status of the industrial sector in Zambia as follows: Zambia’s manufacturing sector is relatively large compared to other subSaharan countries, contributing US$600 million to GDP in 1982, and employing nearly 60,000 workers in the modern sector. The 18 percent share of manufacturing in Zambia’s GDP is higher than any other country (for which data are available) except Zimbabwe, and only Zimbabwe and Ivory Coast have higher per capita GDP originating from manufacturing. (World Bank, 1984a: 5) Although this rapid growth of the manufacturing sector since independence can be attributed to a number of factors, the active role taken by the state in terms of providing incentives and directly participating in the sector is one of the major factors. As Table 4.2 shows, the manufacturing sector experienced phenomenal growth in terms of MVA and employment from 1964 to 1980 as the five-year moving average growth rates indicate.

Table 4.2 Manufacturing employment, output, and MVA growth rates (1960–1980), per cent

Employment MVA (constant prices) MVA (current prices)

1960–65

1965–70

1970–74

1974–75

1975–80

11.2 13.3

11.4 13

5.6 9.1

3.3 −16.2

1.1 −0.4

17.6

12.6

8.3

−6.1

−5.7

Source: Author based on data from World Bank (1984a:9).

Industrial policy in Zambia 115 Between 1965 and 1974, the manufacturing sector was growing at an annual average rate of almost 12 per cent. These growth rates are comparable to the dramatic growth of the Chinese manufacturing sector during the late 1980s and 1990s. As a result of this rapid growth, it was reported in 1984 that the contribution of manufacturing to GDP has trebled since independence in 1964, when it was about 6 per cent. Manufacturing was the most dynamic component of GDP in the first decade of independence although it was too small to be able to offset the stagnation in other sectors. (World Bank, 1984a:5) Clearly, such high growth rates could not have been achieved without the active role played by the state it. This has been confirmed by analysts who see state intervention as a major factor in any story of rapid industrial growth anywhere in the world. “On the whole, the policy of intervention in the manufacturing sector adopted after Mulungushi [Reforms] appeared to pay off” (Young, 1973:202). The sectoral GDP trends between 1965 and 1980 point to strong growth during this period. For instance, , we see the manufacturing sector growing from just 6 per cent share of GDP in 1965 to almost 22 per cent in 1985 when the SAPs started (see Table 4.3). As we shall see later, Zambia has never seen this kind of growth in the industrial sector. The present share of manufacturing in GDP is only a third of the level recorded in 1985. By the end of the 1980s, the manufacturing sector accounted for more than two-thirds of the total valued added from the industrial sector. Strong manufacturing growth, but weak transformation However, there is another side of the story to the success of the interventions introduced in the late 1960s in Zambia. In terms of industrial development and the objectives set out at independence, the success of the manufacturing industry hides some of the failures and challenges of industrialisation in Zambia during this time. We discuss the challenges in more detail in Chapter 8; here it suffices Table 4.3 Composition of GDP by Sector (1965–1985) Million Kwacha in 1970 Constant Prices Share by sector (%) 1965

1970

1975

1980

1985 1965 1970 1975 1980 1985

Agriculture 97,4 132 157 303,9 343,8 13,7 10,2 10,7 14,9 16,5 Mining 291,8 462,2 427,9 205,2 185,8 41 35,8 29,2 10,1 8,9 Industry 94,3 225,2 345 525,1 570,8 13,5 17,4 23,5 25,8 27,5 Manufacturing 48 127,4 157,6 383,5 421,6 6,8 9,9 10,8 18,9 20,3 Services 179,6 343,9 377,8 615,7 556,1 25,3 26,7 25,8 30,3 26,8 Total 711,1 1290,7 1465,3 2033,4 2078,1 100 100 100 100 100 Source: Author based on recalculated National Accounts GDP Series data (CSO, 2015). Note: Percentage totals may not add up to 100 due to rounding off.

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to note that the success presented earlier did not result in the massive diversification of the economy in terms of expanding the export base or spatial spread of economic activities. Apart from the economy continuing to depend on mining for export earnings, the developed industries only affected the urban population, leaving the rural areas virtually untouched by these developments. This state of the economy in the 1980s has been attributed to the “failure to expand productive sectors outside of the mines, [a situation which) leaves the national economy precariously dependent on world copper sales” (Siedman, 1974:612). In this sense, the diversification project failed to deliver on the most crucial objective of transforming the colonial economy; namely, ensuring that the majority of people participate in and contribute to economic growth. In other words, the diversification drive of the 1960s and 1970s did not overcome the dualistic structure in the Zambian economy. With regard to industrial policy, it is also clear that there were signs of things not going well. As we can see from Table 4.2, while the productivity of workers was declining, employment kept going up. This is one of the indications that these corporations where not run efficiently, often because of political interference (World Bank, 1984b). Most of the parastatal corporations were running losses, which were absorbed by the state, and it was clear that this was unsustainable. It has been reported that the total “invisible loses” of INDECO amounted to more than 40 per cent of the corporation’s total assets in 1972 (Siedman, 1974:611). There were various other challenges which were precipitated by the foreign exchange crisis starting from 1976 when the price of copper sharply declined, as observed earlier. As in the past, the fortunes of the copper price on the world market largely determined the economic and social development fortunes for the country. Although there were other factors, such as inefficiency in the running of the corporations, the challenges around the implementation of the Import Substitution Industrialisation (ISI) strategy, and the prevalence of political interference, it was the overwhelming dependence on copper as a foreign exchange earner which heavily weighed on the economy during the 1980s, leading to the introduction of shock therapy by the World Bank and IMF. When copper prices collapsed from 1976 onwards, the foreign currency and debt crises emerged and threatened all other economic activities, including manufacturing which relied heavily on importation of inputs and machinery (Siedman, 1974; Fincham, 1980). Thus, while the industrial sector, particularly manufacturing, was growing, its future depended very much on foreign currency earned from the export of copper. Once the earnings from the export of copper declined, the industrial sector started to experience problems in procuring inputs and parts for maintenance of machinery (Bates, 1981). With falling copper prices and rising production costs in an environment where the terms of trade had shifted against Zambia’s main export—copper—the balance of payment problems became serious such that the government was left with no option but to approach international lenders (IMF and World Bank) for support, as it became too expensive to borrow from financial markets.

Industrial policy in Zambia 117

The abandonment of industrial policy: the SAP years When the World Bank and the IMF started to provide concessional loans and balance of payment support loans, respectively, they recommended a total abandonment of industrial policy. The policy advice which came from the World Bank and the IMF starting from the mid-1980s was exactly opposed to what had been implemented since the late 1960s. These institutions argued that the main problem in the Zambian economy was not that the copper prices fell amid the rising cost of producing copper, but that government intervention in the economy was the main problem. The proposed solution was to scale down the state from the commanding heights and allow market forces to play a bigger role in the allocation of resources and setting of prices, including interest rates, foreign exchange, etc. This view is clearly asserted in a report which was meant to diagnose the economic malaise of the African continent and propose strategies to address the crisis. Thus, a transformation needs to be made from import substitution to export activities. Experience in developing countries, such as Korea, Brazil and Colombia, shows that transformation from inward-looking policies for industrial development to outward-looking policies have been a critical element in industrial growth. Experience also show that such transformation is more successful if the government at the same time makes a transition from direct intervention and control to a system in which there is greater reliance on indirect instruments of economic policy and market forces. (World Bank, 1984b:36 emphasis added) Although import substitution strategies were seen as problematic because they acted contrary to free trade principles, the main thrust of the diagnosis and recommendation was that markets should be allowed to play the major role even in directing industrial development. For the World Bank and the IMF, industrial policy was frowned upon because it was seen as a window through which state intervention into economic activities of a country was encouraged. A recent analysis of the IMF and World Bank attitude towards industrial policy has observed that within these two institutions it was even forbidden to speak about industrial policy (Cherif and Hasanov, 2019). It was therefore not surprising that when these two institutions took over the policy space in Zambia starting from the 1983 (Simson, 1985), industrial policy was declared dead, buried six feet underground. It was not only industrial policy that was completely abandoned but development planning, which was considered dangerous for economic growth because it strangled the free and efficient operation of markets. This is why Zambia’s Third NDP (from 1979 to 1983) was never implemented. Although it is stated in the Third NDP that planning was to become the “principal means of promoting economic development of the country on socialist lines in conformity with our national philosophy of Humanism” (Republic of Zambia, 1979:iii), the policy that unfolded during the 1980s was completely opposed to this vision and intention. Zambia only returned to

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development planning in 2005 when the Fifth National Development Plan, within the framework of long-term development planning of Vision 2030, was formulated. Consequently, there is not much to analyse in terms of industrial policy in this period.

Current industrial policy The resumption of national planning raised the need for an industrial policy as an instrument for promoting industrial development in the country. Industrialising the country became an urgent item on the development agenda after the country went through what has been called the most extensive and ambitious privatisation exercise in the world (Afronet, 2001). In terms of industrialisation, it has been argued that privatisation led to massive deindustrialisation in Zambia (Lombe, 2018). For Zambia, the impact of privatisation as a result of the total abandonment of industrial policy is evident in the decline of industrial and manufacturing activities since the 1990s. Manufacturing share in total output has declined to only a fourth of the peak achieved in 1993 when privatisation began to be implemented (see Chapter 6). The privatisation of the parastatal corporations set up during the 1990s, though unavoidable, was done in a way that led to the total collapse of the manufacturing sector, leading to a situation where Zambia, by the beginning of the new millennium, was importing not only juices but toothpicks and toilet paper. This was a sentiment shared by most of the senior managers of manufacturing firms in the agro-processing subsector interviewed in 2016 and 2017 (IGC Interview, 2017). Revival of industrial policy Given the lack of export diversification in the economy, there have been renewed efforts to transform the structure of the economy, especially after the reintroduction of medium-term planning in the early 2000s (see MCTI, 2012, 2015). Recent development policy documents such as the National Industrialisation Policy (NIP),7 the Strategy Paper on Industrialisation and Job Creation (SIJC) and, more emphatically, the Seventh National Development Plan (7th NDP) have all identified a thriving manufacturing sector as the goal. The 7th NDP, reiterates the importance of diversification, arguing that strong industrial and manufacturing sectors should be the pillars of a diversified Zambian economy. The document argued that “broad-based and buoyant manufacturing and industrial base is key to building a strong export-oriented economy that can create resilience in the economy to both external and domestic shocks” (RoZ, 2017:50). In a bid to revive and build industrial capacity and capabilities, the government of Zambia drafted a National Industrial Policy (NIP) which was launched in 2018. This was the first time after the abandonment of industrial policy that an attempt to outline a strategy for industrial growth as a component of the national development and diversification strategy had been made. The newly launched NIP in Zambia has adopted a complementary approach where the state plays a

Industrial policy in Zambia 119 facilitating role in promoting industrial development by providing mainly regulatory support and other incentives to the private sector. As such, the NIP has emphasised the provision of incentives as its main policy thrust, and it has not given any indication of the intention on the part of the state to directly participate in establishing industrial enterprises, as was the case during the 1970s. In this strategy, it is the private sector which is expected to be the main driver of industrialisation in the country. The reasoning in the current IP is that government’s focus should be to “provide an enabling economic environment for the private sector to thrive” (Republic of Zambia, 2018). It is clear in the current policy that the strategy is to incentivise the private sector to drive the process of industrialisation. Thus, the key programme being implemented is the Private Sector Development programme, which is overseen by a statutory body established to promote the growth of investments in the economy—the Zambia Development Agency (ZDA). The other policy instrument being implemented to boost industrial growth is the creation of economic clusters which are called the Multi-Facility Economic Zones (MFEZ)—essentially an industrial cluster approach with the state providing both hardware and software incentives. MFEZs are seen as the main vehicle to incentivise the private sector by providing infrastructure and services in an integrated way that reduces the cost of doing business in the country. It has been acknowledged in the IP document that the industrial sector has not performed well in the past two decades and therefore the reason for formulating the current NIP is to accelerate the growth of the manufacturing sector; increase efficiency in utilization of natural resources; develop an industrial sector that is driven by strong partnerships that promote domestic innovation through academia, Research and Development (R&D), creation of business incubator, and have a strong emphasis on quality and standards. (Ibid.:9) To achieve this, six sectors have been identified as priority sectors, which will drive the industrialisation project. The six sectors are food processing, textiles and garments, engineering products, wood and wood products, leather and leather products, and gemstones (ibid.). The policy also emphasises promoting value addition through a local content strategy which is expected to strengthen linkages between different sectors in the economy. There is also a strong awareness in the policy document of the enlarged potential market that Zambia has access to through the regional trade groupings—the Common Market for Eastern and Southern Africa (COMESA) and the market of the regional economic community—Southern Africa Development Community (SADC). We discuss the strategic role of these expanding markets in the context of regional value chains and a frontier industrial policy (FIP) in Chapter 9. While the potential to access larger markets in the region is great, there are

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many challenges that the country needs to overcome to be able to compete at the regional level with big players such as South Africa, Kenya, and Egypt, who have relatively better industrial capacity and capabilities. We will come back to the issues around the challenges of industrialisation and manufacturing in particular in Chapter 8. Industrial policy in Zambia has gone through various phases, from total neglect during the colonial period to strong state-led industrialisation using the import substitution industrialisation (ISI) strategy, which was adopted immediately after independence. The third phase in the evolution of IP in Zambia is the time when the Structural Adjustment Programmes (SAPs) completely halted the implementation of any version of IP, starting from the mid-1980s. The fourth phase is the current efforts aimed at reviving industrial capacity in the country through the NIP. What is clear at this stage is that all these strategies have so far failed to transform the structures of the colonial economy which are still alive today. Transforming the colonial economic structure would require the Zambian government to adopt a radical approach which can reverse the logic of the colonial economy. I have argued in this book that a FIP is one instrument which can be used to undo the structures and logic of the colonial economy, not just in Zambia, in the continent as a whole (see Chapter 9).

Notes 1 This refers to the ratio of the value of exports to the value of imported goods. In other words, ToT refers to a country’s ability to pay for its imports from its export earnings. In a situation where the average price of imported goods and services is rising while the average price of export goods and services is stagnant or declining, the country experiences unfavourable ToT. 2 It is not surprising that Zambia had to apply to the IMF in 1976 to access its special drawing rights facility to support the current account. 3 There is a growing body of literature showing that the ability of the manufacturing sector to create jobs has steadily been declining since the 1980s such that the industrial sector is now peaking at wage employment levels way below the levels experienced by the early industrialisers, a phenomenon which has been referred to in the literature as premature de-industrialisation (Rodrik, 2015; Fellipe et al., 2017). 4 Although the country has been developing an Industrial Policy since 2006, it was only in 2016 that a Draft Policy was circulated by the Ministry of Trade and Industry (see Republic of Zambia, 2016). In the past, whatever form of industrial policy that existed was integrated into one policy document with the trade policy. 5 The investment allowance scheme provided a similar incentive to the Pioneer Certificate except that it was seen to be simpler, easy to implement, and was in line with the practice in other countries, particularly East Africa (see Young, 1973:185). 6 The first SAPs were introduced in January 1983 when the World Bank and the IMF admitted Zambia onto their debt restructuring programme which emphasised adopting market-oriented measures to stimulate growth rather than the state’s direct participation in the economy (see Simson, 1985). 7 The National Industrial Policy (draft) has identified six subsectors as drivers of industrialisation; and these are: (i) food processing, (ii) textiles and garments, (iii) engineering products, (iv) wood and wood products, (v) leather and leather products, and (vi) gemstones (MCTI, 2015:9). Four of the six subsectors are in agro-processing.

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References AFRONET-Zambia (2001). Deregulation and Denial of Human Rights: Submission to the Committee on Economic, Social and Cultural Right. Lusaka: AFRONET, RAID & CFBE. Amsden, A.H. (1989). Asia’s Next Giant: South Korea and Late Industrialization. New York: Oxford University Press. Bates, R. (1981). Markets and States in Tropical Africa: The Political Basis of Agricultural Policies. Berkeley: University of California Press. Baldwin, Robert (1966). Economic Development and Export Growth: A Study of Northern Rhodesia, 1920-1960. Berkley: University of California Press. Burdette, M. (1984). “Were the Copper Nationalisation Worth-while?” In K. Woldring (ed.) Beyond Political Independence: Zambia’s Development Predicament in the 1980s. Berlin: Mouton Publishers. 23–71. Central Statistics Office (CSO, 2015). Zambia in Figures: 1964–2014. Lusaka: CSO. Chang, H. (2002). “Kicking Away the Ladder: An Unofficial History of Capitalism Especially in Britain and the United States.” Challenge Vol. 45, No. 5, 63–97. Cherif, R. and Hasanov, F. (2019). The Return of the Policy That Shall not be Named: Principles of Industrial Policy. International Monetary Fund Working Paper No. WP/19/74. Chitonge, H. (2016). Zambia at 50: The Persisting Challenges of Economic Structural Transformation. Development Southern Africa, https://doi.org/10.1080/0376835X .2016.1231053 Chitonge, H. (2019). Industrialising Africa: Unlocking the Economic Potential of the Continent: New York: Peter Lang. Elliot, C. (1971). “Introduction” in C. Elliot(ed.) Constraints of the Economic and Development of Zambia. Nairobi: Oxford University Press. 1–19. Faber, M.I. and Porte, J.G. (1971). Towards Economic Independence: Papers on the Nationalisation of the Copper Industry in Zambia. London: Cambridge University Press. Felipe, J., Mehta, A. and Rhee, C. (2017). Manufacturing Matters … But It’s the Jobs That Counts. Asian Development Bank Paper Series No. 420. Fincham, R. (1980). “Economic Dependence and the Development of Industry in Zambia.” Journal of Modern African Studies Vol. 18, No. 2, 297–313. Fortman, de G.B. (1971). “Zambia’s Markets: Problems and Opportunities.” In C. Elliot(ed.) Constraints of the Economic and Development of Zambia. Nairobi: Oxford University Press. 191–232. Henry, J. (1946). “Some Aspects of The Economic Development of Northern Rhodesia.” South African Journal of Economics Vol. xiv, 100–116. Hirschman, A. (1958). The Strategy of Economic Development. New Heaven: Yale University Press. Kaldor, N. (1957). “A Model of Economic Growth.” Economic Journal Vol. 67, No. 268, 591–624. Kaunda, K. (1968). “Zambia’s Economic Reforms.” African Affairs Vol. 67, No. 269, 295–304. Kragelund, P. (2017). “The Making of Local Content Policies in Zambia’s Copper Sector: Institutional Impediments to Resource-led Development.” Resource Policy Vol. 51, 57–66. Kragelund, P., Hampwaye, G. and Jeppesen, S. (2014). Zambia Country Background Report. Kobenhavn: Copenhagen Business School.

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Kuznets, S. (1955). “Economic Growth and Income Inequality.” American Economic Review Vol. 45, No. 1, 1–28. Lewis, W.A. (1954). “Economic Development with Unlimited Supplies of Labour.” Manchester School Vol. 20, 139–191. List, F. (1909). The National System of Political Economy. Translated by S.S. Lloyd. London: Longmans, Green & Co. Lombe, W. (2018). Natural Resources, Structural Change and Industrial Development: Local Content in Zambia—A Faltering Experience? UN-University World Institute for Development Research (UNU-WIDER) Working Paper No. 2018/18. Meyns, P. (1984). “The Political Economy of Zambia.” In K. Woldring (ed.) Beyond Political Independence: Zambia’s Development Predicament in the 1980s. Berlin: Mouton Publishers. 7–22. Mhone, G. (1982). The Political Economy of a Dual Labour Market in Africa: The Copper Industry and Dependence in Zambia, 1929–1969. East Brunswick: Associated University Press. Nurkse, R. (1953). Problems of Capital Formation in Underdeveloped Countries. London: Basil Blackwell. Republic of Zambia (1966a). The First National Development Plan: 1966–1970. Lusaka: Office of the National Development and Planning. Republic of Zambia (1966b). Outline of the Government Industrial Policy. Lusaka: Ministry of Commerce and Industry. Republic of Zambia (ROZ) (1972). Second National Development Plan (SNDP). Lusaka: Ministry of Development Planning and National Guidance. Republic of Zambia (RoZ, 1966a). The First National Development Plan: 1966-1970. Lusaka: Office of the National Commission for Development Planning. Republic of Zambia (ROZ) (2017). Seventh National Development Plan 2017–2021. Lusaka: Ministry of Finance and National Planning. Republic of Zambia (RoZ, 2018). National Industrial Policy. Lusaka: Ministry of Commerce Trade and Industry. Republic of Zambia, (MCTI) (2012). Strategy Paper on Industrialisation and Job Creation (SPIJC). Lusaka: Technical Committee on Industrialisation and Job Creation, Ministry of Commerce, Trade and Industry. Republic of Zambia (MCTI) (2014). The 2011–2012 Manufacturing Sector Study (MSS) Report. Lusaka: Ministry of Commerce, Trade and Industry. Republic of Zambia (MCTI) (2015). First Draft National Industrial Policy. Lusaka: Ministry of Commerce, Trade and Industry. Roberts, Andrew (1976). A History of Zambia. London: Heinemann. Rodrik, D. (2015). Premature Deindustrialisation. National Bureau of Economic Research (NBER) Working Paper No. 20935. http://www.nber.org/papers/w20935, accessed 16/09/2017. Rosenstein-Rodan, N.P. (1943). “Problems of Industrialisation of Eastern and SouthEastern Europe.” Economic Journal Vol. 53, No. 210/211, 202–211. Rosenstein-Rodan, N.P. (1957). Notes on the Theory of the Big Push. Economic Development Programme Project C/57–25. Centre for International Studies. Cambridge: Massachusetts Institute of Technology. Sardanis, A. (2014). Zambia: The First 50 Years. London: I.B. Tauris. Scitovsky, T. (1954). “Two Concepts of External Economies.” Journal of Political Economy Vol. 62, No. 2, 143–151.

Industrial policy in Zambia 123 Siedman, A. (1974). “The Distorted Growth of Import Substitution Industry: The Zambian Case.” Journal of Modern African Studies Vol. 12, No. 4, 601–631. Simson, H. (1985). Zambia: A Country Study. Uppsala: Scandinavian Institute of African Studies. Singer, W.H. (1950). “The Distribution of Gains Between Investing and Borrowing Countries.” American Economic Review Vol. 40, No. 2, 473–485. Tangri, R. (1984). “Public Enterprise and Industrial Development: The Industrial Development Corporation of Zambia (INDECO).” In K. Woldring (ed.) Beyond Political Independence: Zambia’s Development Predicament in the 1980s. Berlin: Mouton Publishers. 95–112. United Nations Economic Commission for Africa (UNECA) (2016). Transformative Industrial Policy for Africa. Addis Ababa: Economic Commission for Africa. Wade, R. (1990). Governing Markets: Economic Theory and the Role of Government in East Asian Industrialisation. Princeton: Princeton University Press. World Bank (1964). The Economy of Northern Rhodesia. Washington, DC: International Bank for Reconstruction and Development. World Bank (1984a). Zambia: Industrial Policy and Performance (Report No. 4436-ZA). Washington, DC: The World Bank. World Bank (1984b). Zambia Country Economic Memorandum: Issues and Options for Economic Diversification (Report No. 50GC-ZA). Washington, DC: The World Bank. Young, Alistair (1973). Industrial Diversification in Zambia. New York: Praeger Publishers.

5

Mining and industrial development in Zambia

Introduction Mining has been a dominant economic activity in Zambia since the second decade of the twentieth century. Although the dominance of the mining industry in terms of its contribution to total value added declined sharply from 45 per cent in 1964 to less than 6 per cent in 1990, in recent years the industry’s share in GDP has recovered substantially, starting from 2003 reaching 15 per cent in 2018 (see Table 5.1). Even though the mining sector’s contribution to total output has substantially declined since independence, the sector remains an extremely important segment of the Zambian economy in terms of foreign exchange earnings and public revenue, as mentioned in Chapter 4. In 2017, for instance, the export of minerals (mainly copper and cobalt, excluding precious metals and minerals) accounted for close to 77 per cent of foreign exchange earnings, and constituted the largest single sector contribution to public revenue. In terms of industrial development, particularly manufacturing, the mining sector in Zambia has, from the early days, been a mixed blessing. On one side, it has played a central role in making available large resources for the country from the export of minerals to use for development (Baldwin, 1966), while on the other, the sector has, in a way, stifled the growth of other sectors, including manufacturing and agriculture (Larmer, 2010). This chapter looks at the mining sector in Zambia, focusing on how developments in this sector have related to other sectors in the economy, particularly industrial and manufacturing sectors. The chapter explores how the mining sector has featured in the industrial policy in Zambia at different times in the country’s history. As in many colonial economy contexts, the mining sector in Zambian has exhibited strong features of an enclave extractive sector, with weak linkages to the rest of the economy, except between the 1970s and 1990s when the state deliberately created stronger links with other sectors. Although the feature of enclavity was much more pronounced during the colonial period as one of the underlying features of a colonial economy, the sector has continued to manifest strong features of enclavity in various ways even today.

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Enclave theory Extractive industries in political economy traditions are usually analysed using enclave theory. Enclave theory has been applied to the analysis of development dynamics in colonised and post-colonial societies. The theory seeks to explain the lack of integration (internal coherence) in an economy, leading to a situation where certain sectors exist as islands with weak or no linkages to the rest of the economy, while on the other hand forging strong linkages with outside economies. In a fundamental sense, enclavity is a feature broadly associated with underdevelopment (Mhone, 2001), and it is predominantly associated with extractive activities such as mining, extraction of timber, rubber, oil, and other natural resources (Ake,1981). Enclave theory was developed during the 1950s when analysts were seeking to examine the structure and patterns of development trends in colonised and post-colonial territories. Singer (1950), for instance, observes that most of the productive facilities set up in underdeveloped countries by foreign investments were typically directed to the extraction of natural resources for export. As a result of being export oriented, extractive activities were operated as islands where natural resources were extracted for processing into intermediate and finished goods outside of the countries where they were produced. As such, these activities “never became part of the internal economic structure of these underdeveloped countries themselves” (Singer, 1950:475). As highlighted in Chapter 1, enclavity in the colonial economy is manifested in the common feature of lack of internal coherence. A timber company exploiting forest resources in the Congo had little or no connection with a mining company involved in the extraction of copper or gold in the same country. The two activities proceeded without any discernible linkages because they were only extracting natural resources for export to be processed outside of the country. In most cases, only “mandatory processing” was undertaken specifically to reduce the weight of commodities for easy and cheaper transportation or to reduce their perishability (Kilby, 1975:475). This often involved rudimentary processes restricted to activities of simply stripping natural resources. Examples include removing cotton seeds from harvested cotton (ginning), extraction of cocoa beans, cutting of timber into logs, etc. In other words, little value was added to the natural resource extracted from colonial economies, which is why these activities have weak or no connection to other economic activities in the domestic economy. Apart from the wages paid to labourers, these activities generated little multiplier effects in the economy through backward and forward linkages. But there have been analysts who have argued that extractives are not entirely bad; extraction of commodities can be used as a base for building sophisticated industrial capabilities (Morris et al., 2012). In this sense, extractives do present great opportunities and benefits to resource-rich economies.

Direct and indirect benefits of extractives The extraction of natural resources, in enclave theory is perceived to bring both direct and indirect benefits to the host country; it is not without benefit. Direct

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benefits include the income that workers receive, the markets created by the income generated through wages, and the fiscal revenue which accrues to the state (Rollins, 1956). Other direct benefits consist of the multiplier effects via linkages between the different sectors in the economy (where these occur), large capital inflow through investments, dividends paid to domestic owners of capital (if there are any), and increasing foreign exchange earned through export of natural resources (Kessel, 1971). Indirect benefits from extractive activities include the acquisition of new technology, building of infrastructure such as roads, railways, water systems, electricity, (all meant to facilitate the extractive ventures), acquisition of new skills, innovation, and creativity as people respond to the new opportunities created by extractive activities. For example, cocoa farmers may acquire skills and methods of production which contribute to improved productivity. In cases where extractives lead to the development of urban centres, there can be a change in attitude resulting from urbanisation as larger groups of people gather to provide labour to the new ventures. In the case of industrialisation, it has been noted that “A country’s endowment of natural resources … benefit its industrial development by providing domestic markets and investible funds for manufacturing industries, as well as materials for further transformation” (Balassa, 1980: 2). However, while these benefits and economic dynamics of extractive sectors accompany mineral and other natural resource extraction in developed countries, the benefits are never fully realised in a colonial or underdeveloped economy, as the Zambian case illustrates. If the experience described earlier were to apply to colonial economies, the Zambian economy today would be a diversified economy with a manufacturing industry intricately linked to the extraction and processing of copper. But the development of secondary industries connected to the copper industry has not occurred to a significant level; the bulk of the copper extracted from Zambia is largely exported in raw or semi-processed form, destined to be processed into intermediate and finished products outside the country (Makgetla et al., 2019). The economy is still battling to create spin-off manufacturing industries drawing on copper and other minerals. The general economic dynamics generated by enclavity in colonial or developing economies are captured in this excerpt: the most important manifestation of this lack of economic integration is that expenditure within the [host] country, aside from tax payment, tend to be limited to a rather small percentage of the value of output. Mining operations are capital-intensive, and therefore wage payments, the chief item of local expenditure, are less there than in mainline. The capital equipment used in the operations is almost certain to be purchased abroad, since it is unlikely to be produced in the underdeveloped areas. An extractive industry is likely to use relatively little of the crude materials produced in an economically backward area. … Resulting profits will, of course, be paid abroad, since the project is financed with foreign capital. (Rollins, 1956:258)

Mining and industrial development in Zambia 127 The quotation above highlights some of the common economic effects associated with extractive industries in developing countries even today. As we shall see in the case of the copper mining industry in Zambia, the sector’s integration with other sectors in the economy has been low, both during the colonial and the postcolonial periods. In both periods, huge capital outflow has been a major challenge, which often leaves the country with fewer resources for the development of other sectors through reinvestment. Singer (1950) goes further to argue that in an extractive sector where investments are made available through foreign capital, the “multiplier effects” of these investments take place not where the investment is physically or geographically located, but in countries where investments come from. In the case of Zambia, analysis of input and output tables which indicate the linkages between different sectors in the economy shows that the mining sector, even after independence, was weakly integrated with other sectors (Kessel, 1971). In his analysis of the mining sector in Zambia, Mhone (1982:26) argues that a highly industrialised mining sector using the most sophisticated technology exist is an enclave “surrounded by a stagnant rural economy.” Overall, the economic benefits associated with resource extraction in industrialised economies are absent in the colonial economy; reinvestment is rare and often small. Natural resource extractive activities have not induced the growth of a robust manufacturing industry across Africa. In Zambia, however, during the time when the state adopted the direct participation approach to industrialisation (from the late 1960s to the mid-1980s), the linkages between the mining sector and manufacturing and other sectors were much stronger, with several backward and forward linkages from the mining sector to the rest of the economy. Currently the mining sector only procures 4 per cent of locally made inputs (Kragelund, 2017:61). In view of this, there is strong opinion in Zambia that the exploitation of the county’s rich mineral resources has contributed little to its development (Lombe, 2018).

The mining industry in Zambia Mineral deposits in what is today known as the Copperbelt Province in Zambia had been known to local people living in the area for many centuries before the arrival of Europeans. It has been observed, for instance, that in most cases, the indigenous people had been engaging in the processing of copper to produce various articles, ornaments, and coin money for centuries before colonisation (Roberts, 1976; de Luna, 2016). When Europeans arrived, it was local people who guided them to sites where mineral ores were exploited.. In the older mines, European mineral explorers relied on information and guidance from the local people who had been working copper deposits for a long time (Sikamo et al., 2016). A study conducted in the early 1930s in Northern Rhodesia observed that by the time Europeans arrived, The existence of copper … [had] long been known. Copper has been mined for tools and for monetary purposes by the Natives beyond memory. … The

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Mining and industrial development in Zambia discovery of the mines by White Prospectors was in the majority of cases made easy by the existence of earlier Native Workings. The expeditions organised by Mr. Robert Williams, which traversed in 1899 the borderlands of Northern Rhodesia and Congo Free State … owed their finding at Kansanshi mine to the ancient workings shown to them by the old chief Kapiji Mpanga. Ancient workings were found also at Bwana Mukubwa and at Nkana in Northern Rhodesia and at Kambive and other places in Katanga. (Robinson, 1933:139)

As noted in this quotation, most mines were established on already existing sites exploited by local people. The exploitation of copper ores by local people prior to the arrival of European mineral prospectors was, however, on a small-scale due mainly to the fact that the demand for copper was low since local production at that time had not entered into the broader world market (Roberts, 1976). If there had been stronger demand for copper and its products, the local copper industry would have produced larger quantities even before the arrival of the Europeans. In West Africa, where the demand for gold was strong, production was organised on a larger scale for centuries before Europeans arrived (Duignan and Gann, 1975). The metal industry of indigenous people was completely wiped out when the European settlers introduced commercial exploitation and trading in copper manufactured products. Two main reasons which account for the disappearance of the indigenous copper industry were that the cost of producing at a larger scale was prohibitive, and also that the technology required to prospect and exploit the copper ores more profitably was not available to the local people (Baldwin, 1966). A slow start Even for the European settlers, large scale production of copper was only embarked on when the market for minerals grew at the beginning of the First World War. It has, for instance, been observed that the extension of the railway line from Broken Hill to the Congo Border, which was completed in 1909, had little impact in terms of stimulating increased production of copper on the Copperbelt (Baldwin, 1966). The first production of copper in Northern Rhodesia was at Kanshanshi in Solwezi and Bwana Mukubwa in Ndola in 1908, but both at a much smaller scale (Sikamo et al., 2016). Prior to the discovery of rich sulphide ores at Roan and Nkana mines, Europeans were sceptical about the prospect of commercial mining of copper in Northern Rhodesia (Frankel, 1938). Many European, American, and South African mineral prospectors were initially disappointed by the fact that what they had anticipated to be the “Second Rand,” turned out to have low potential for commercial exploitation, particularly because the sulphide ores found at Bwana Mukubwa had low copper content (Robinson, 1933). Although by 1903 the European mineral prospectors had already confirmed the existence of huge deposits of copper and other minerals, large-scale mining

Mining and industrial development in Zambia 129 did not commence immediately, mainly because the ores they initially found had low copper content which made it expensive to extract (Frankel, 1938). Apart from the poor quality of the ores discovered, the poor means of transportation available also contributed to the delayed in the commencement of the production of copper on a large scale. It should be remembered that the railway from the south was only extended to the zinc and lead mines in Broken Hill in 1906 and to the Congo Border in 1909. Although the production of copper began before the railway line was extended to the Copperbelt, mining was only on a small scale because of the difficulties in transporting the refined copper, which at that time could only be transported by carriers and sometimes by animal traction (Robinson, 1933). As soon the railway line was extended to the Congo border, production commenced at Bwana Mukubwa, starting with the establishment of a concentrator in 1912, which continued production until the end of the First World War (ibid.). However, it was the growing demand for copper induced by the armament race of the First World War which significantly stimulated great interest in exploring copper reserves in the territory and expanding investments in new mines (Roberts, 1976). The growth of the copper industry In terms of copper reserves, it was known that the Copperbelt region had huge deposits of copper. Early estimates suggested that known copper deposits in Northern Rhodesia and Katanga at that time accounted for more than one-third of the total world reserves, and Northern Rhodesia alone accounted for 28 per cent of global deposits. Robinson (1933:139) observes that the “reserves already calculated [were] sufficient to enable the territory to produce a quarter of a million tons annually for hundred years” (ibid.:139). While these huge deposits of copper ore had initially attracted settlers and international businesses houses from South Africa, London, and New York, production on a larger scale in Northern Rhodeisa was delayed at first because the known copper ore reserves were believed to have low copper content compared to reserves in Katanga, across the border. Before the commencement of the Roan and Nkana mines in the early 1930s, it was reported that the oxide ores at Bwana Mukubwa and Kansanshi were only yielding 3–5 per cent of copper, which was extremely low compared to the rich oxide ores in Katanga where copper yields ranged between 15 and 25 per cent (Henderson, 1972). Robinson (1933) observed that copper ore yielding 3 per cent was usually thrown away in Katanga as waste. It was partly for this reason that the Northern Rhodesia mines remained dormant until 1923when the “discovery of the sulphide ore bodies averaging 3 to 6 per cent or more of copper … made the Northern Rhodesia area commercially profitable” (ibid.:141). The higher price of copper obtained on the market at the end of the First World War further stimulated the BSA’s interest in conducting further exploration. Between 1918 and 1925, the BSA company granted many prospecting licences

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over large areas to prospecting companies (Frankel, 1938). Robinson (1933) explains the reason for the rising interest in the copper sector in Northern Rhodesia at that time: As a result of their work [prospecting companies] the discovery was made at the end of 1925 that, unlike the deposits in the Katanga which remained oxidised to the lowest depth mined, the deposits in Northern Rhodesia entered a sulphide zone at a depth of about one hundred feet. This discovery completely changed the outlook for Northern Rhodesia. Sulphide ores of 3 to 5 per cent of copper were enormously profitable, whereas oxide ores of similar grade were almost useless. The richest discoveries of [sulphide] ores were made in the Nkana Concession [present day Kitwe] and in the Rhodesian Congo Border Concession [Nchanga mine, present day Chingola]. (Robinson, 1933:142) The major difference between the oxide and the sulphide ores is that the latter could be fed directly into furnaces for smelting after crushing and concentrating processes, while the former had to be leached before the copper could be extracted. The technology at that time made the extraction of copper from oxide ores more expensive compared to extracting copper from sulphide ores. This is why the discovery of sulphide ores contributed immensely to the revitalisation of investment interests in Northern Rhodesia. The lower production costs associated with the sulphide ores implied higher profit margins for mining companies. Apart from that, Northern Rhodesia had an additional advantage of “cheap and increasingly efficient labour supply available” (Robinson, 1933:145).1 The other factor that contributed to growing interest in investing in copper mining in Northern Rhodesia in the early 1920s was the rising price of copper on the world market, mainly as a result of the expanding automotive and electrical industries in Europe and America, which relied on copper products as inputs. As one would expect, the combination of rich copper deposits, which could be extracted at lower cost, and the rising price of copper on the market, led to a surge of interest from many businesses houses in America and South Africa (surprisingly fewer from the UK). Baldwin (1966:32) argues that the “perfection of the floating process during the second decade also gave a boost to the entire industry.” As a result of increased investments, major development works had started at Roan Antelope, Mufulira, Nkana, and Nchanga by the late 1920s. Of all the older mines in Zambia, only one—Chibuluma mine—opened after independence. Several large-scale mining operations had started at the beginning of the 1930s, raising the production of copper from just about 1,000 tons in 1926 to over 138,000 long tons in 1934 (see Table 5.1). The evidence of strong interest in the Northern Rhodesia mining sector, particularly copper mining, is reflected in the massive increase in production shown in Table 5.1. As noted earlier, zinc, lead, and vanadium were mined at Broken Hill (Kabwe) and Bwana Mukubwa (Ndola) before the 1920s, but these were at a

Mining and industrial development in Zambia 131 Table 5.1 Copper production trends (1926–1960)

1926 1930 1934 1938 1939 1942 1946 1950 1954 1958 1959 1960

’000 tons

Growth (%)

1 6.3 138 213 216 247 182 276 379 374 539 579

530 2090 54 1 14 −26 52 37 −1 44 7

Source: Author based on data from Baldwin (1966:33).

much smaller scale compared to copper production during the early 1930s. In four years from 1926, production of copper rose more than five-fold, and in the next four years copper production rose by more than 20 times! These are phenomenal figures, when one considers that investments in activities like mining often take a long time to start and to scale up production. Mining investments The increase in the production of copper was preceded by massive investments in the copper mining industry in Northern Rhodesia. The first major investments were committed in just about five years, starting from 1926. Frankel (1938) reports that after the discovery of sulphide ores, nearly £25 million were invested in the copper industry in less than a decade. The growing importance of the mining industry in Northern Rhodesia is evident in the increase in the value of minerals exported, with the value of mineral exports rising from just over £200,000 in 1924 to £3.4 million in 1933, and to £5.6 million in 1936 (ibid.:210). As noted earlier, one of the benefits of having natural resources is that it can attract huge investments, but the question that one has to ask is: what do these investments achieve in the host country? This is a question which political economists explored in the context of colonial economies, with Singer (1950) and Rollins (1956) observing that instead of these investments creating multiplier effects in the host country (colony), it is the country from where the initial investments originated that benefits most. This partly explains why countries in Africa have been producing commodities for more than a century and yet remained poor, constantly in need of foreign investment. Unfortunately, this feature is still predominant in most African countries, suggesting that elements of the colonial economy are still alive today. We come back to this point in Chapter 9.

132 Mining and industrial development in Zambia Ownership of the copper mines To get a sense of the dynamics of the copper industry in Zambia in its initial stages, a brief outline of how the ownership of mines was structured is important. In Chapter 3, we observed that because the country’s mining rights were owned by the BSA, even after the country became a British protectorate in 1924, the colonial government had little control over the income generated from copper mining. Taxes were collected by the British government and royalties were paid to the BSA as the “owner” of the mineral rights. The net effect of this arrangement was that Northern Rhodesia ended up with few resources for development. It is therefore useful to understand that while the price dimension and its impact on the industry is something to consider, the ownership of the mines is also important in terms of understanding how the benefits from mining accrue to the different parties involved. In terms of ownership, it is helpful to distinguish between the ownership of the mineral rights (which at that time were entirely owned by the BSA) and the ownership of the mines (which were owned by different international corporations and their subsidiaries operating in Northern Rhodesia). To simplify the ownership structure of mines in Northern Rhodesia, we can talk of two major direct owners: the South African Anglo-American Corporation (AAC) and the American Metal Company (AMC). At the beginning of the copper mining take-off in Northern Rhodesia, there were the two major corporations that provided the finance for the large-scale investments in copper mining. The AAM corporation, which was founded in 1917 under the chairmanship of Ernest Oppenheimer, started to finance copper mining ventures in Northern Rhodesia in 1924 when it contributed to the refinancing of the reopened Bwana Mukubwa mine, and later the Mufulira and Nkana mines during the early 1930s. A holding company—Rhodesian Anglo American (RAA)—was formed in 1928, to manage all the AAM investments in the mining industry in Northern Rhodesia. The AMC also formed a holding company—Rhodesian Selection Trust (RST)—to manage its shares in in Roan Antelope, Mufulira, and Nchanga mines. It should be pointed out here that this description of ownership of mines is a simplified form of a much more complicated ownership structure captured in Figure 5.1. As Figure 5.1 shows, the investment structure in mining in Northern Rhodesia was quite complex, even at that time. Although there were two major mining holding companies, the investment came from several mother companies. One of the surprising things which emerges from the mining investment structure shown in Figure 5.1 is the small direct presence of British capital Although the BSA and Anglo-American Corporation had British investments in them, they were effectively South African companies registered in South Africa, though the former had its headquarters in London and was also registered on the London Stock Exchange (Roberts, 1984). There are suggestions that the small British stake in the mining industry in Northern Rhodesia can be attributed to the liberal commercial policy which underpinned colonial policy (Gifford and Louis, 1971). But as noted earlier, British firms might have had few direct investment stakes in Northern Rhodesia, but the British government benefited immensely as the centre

Mining and industrial development in Zambia 133

Figure 5.1 Mining investment structure in Northern Rhodesia. Source: Compiled by author.

of financial and capital markets, where most of the major corporations conducted their businesses. The small British investments in Northern Rhodesia should not be interpreted as meaning that the UK had nothing to do with this colony apart from controlling the colonial government; there was much more that “followed the flag.” Not only that, when the British realised that the Americans were about to control more than three-quarters of copper production in Northern Rhodesia, the UK government encouraged British firms to prevent American firms from acquiring the controlling shares in the Nchanga mines. Nine British companies, including the parastatal British Metal Corporation (BMC) together with Rio Tinto guaranteed the financing of the Nchanga mines to counter the American takeover (Roberts, 1984). The British were interested in the copper industry in Northern Rhodesia not only because it brought large amount of revenue to the state through the taxing of profits made by companies in the territory, but also because the British government sought to be self-reliant in non-ferrous metals and the discovery of large

134 Mining and industrial development in Zambia deposits of copper in Northern Rhodesia brightened up these prospects. When the BMC was completely taken over by the government in 1939, they made a deal to purchase all the copper from Northern Rhodesia as the armament race intensified as the Second World War loomed(ibid.). In terms of direct interest, it is evident that the copper mining industry in Zambia was dominated by South African and American capital. Mining benefits to Northern Rhodesia The significance of the mining industry ownership structure presented in Figure 5.1 is that it highlights the dynamics of capital flows. The fact that the industry was dominated by companies which had not been registered in Zambia means that the companies were controlled from outside the country, including how profits generated from these investments were used. In enclave theory this structure is viewed as disadvantaging the host country, mainly because the dividends, profits, and other forms of revenue accrue to the country from where capital originated (Rollins, 1956). Large amounts of money made in Northern Rhodesia were externalised to London and Johannesburg, a concern which colonial officials in Northern Rhodesia raised. The main concern was that in the case of the copper mining industry, this led to a situation where the colonial government in Zambia received little from the mining activities taking place in the country. Sir Alan Pim, who was asked to lead a commission of inquiry into the finances of Northern Rhodesia in 1938, reported that although the actual tax on mining operations in Northern Rhodesia was 25 per cent of taxable profit (which was among the highest in Africa at that time), the Northern Rhodesia government was not getting much of this money. There are two major reasons why Northern Rhodesia benefited little from the mining industry. The first is that the British South African Company, which claimed ownership of all mineral rights in Northern Rhodesia, was receiving royalties from mining activities, rather than the government. It is estimated that the royalties mining firms paid to the BSA between 1923 and 1940 amounted to twice what the colonial government received during that period in the form of tax (Baldwin, 1966; Roberts, 1984:352).2 If these revenues had gone to the government, it would have boosted the public purse and would have increased the resources available for development, including supporting industrial growth. As noted in Chapter 3, the settlers raised the question of mineral rights ownership, but the British government ignored the recommendation to consider reforming the ownership of mineral and land rights in Northern Rhodesia (see Henry, 1946; Ndulo, 1987). Representatives of the European settlers in Northern Rhodesia protested the mineral rights arrangement at that time, arguing that it was absurd to allow a company to own the mineral rights instead of the state. The issue of mineral rights in Zambia persisted until the compulsory “buy-back” of mineral rights from BSA by the Zambian government on the eve of independence, and this also involved protracted negotiations and threats of lawsuits from BSA (Faber and Potter, 1971; Ndulo, 1987).

Mining and industrial development in Zambia 135 The other dynamic revolved around the role of the British government in colonial affairs. Although it was claimed that the imperial government did not benefit from owning colonies (see Bauer, 1975), the British government received massive revenue through taxing companies that operated in its colonised territories. Between 1930 and 1940 alone it is reported that the British government received over £2.4 million from taxes paid by mining companies operating in Northern Rhodesia (Roberts, 1984:352). To avoid taxing the mining companies twice, there was an arrangement that the British government would collect tax and remit to the colonial government in Northern Rhodesia. But tax experts at the time estimated that the colonial government only received half of the tax from the imperial government, such that the Northern Rhodesia government, “was losing three-eighth of the revenue which it could have otherwise levied from the copper mines” (ibid.). Roberts (1976) also makes a similar observation, arguing that the Northern Rhodesia government only received 12.5 per cent instead of 15 per cent of the revenue from mining. The issue of revenue from mining flowing into state coffers has a been a perpetual problem in the country, as we show later in this chapter.

Mineral rights The issue of mineral rights should also not be confused with the acquisition of controlling interests in the mining and other industrial activities initiated by the Mulungushi and Matero Reforms in 1968 and 1969, respectively. In terms of ownership of the mineral rights, negotiations to change the ownership of mineral rights involved a protracted battle between the Northern Rhodesia government and the BSA, which claimed ownership since the signing of the Lochner Concession in 1889. “Buying back” mineral rights The battle for mineral rights in Northern Rhodesia intensified after the 1930s when it became clear that the BSA was receiving substantial amounts of money, in the form of royalties, from mining companies (Slinn, 1971). Estimates from the Northern Rhodesia government reported that, by the time of independence, the company had received a total of £70 million in royalties (ibid.). BSA received this money because it claimed perpetual ownership of the mineral rights by means of the concessions signed with various chiefs in the territory. The colonial government failed to claim ownership right back from the BSA. Negotiations to reclaim mineral rights in Northern Rhodesia gained momentum just before independence. In September 1964, the Government intensified negotiations to “buy” the mineral rights from the BSA company that “owned” the rights.3 In 1950, Roy Welensky who was a vociferous critic of the BSA, accused the British government of “giving away” Northern Rhodesia’s wealth, when he learnt that the BSA company, in 1948, received £2.24 million pound in royalties (Slinn, 1971:377). Through protracted and acrimonious negotiations, the Zambian government

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struck a deal with the BSA and undertook to pay the BSA a total sum of £2 million, while the British government also pledged to pay £2 million as compensation for the BSA to surrender mineral rights in Zambia (Faber and Potter, 1971; Sardanis, 2014:61–63).4 With the contract ceding mineral rights signed, the Zambian government was then entitled to receive the royalties from the mining companies which previously went to BSA, although the British government was reluctant to repudiate the BSA’s mineral ownership rights in Northern Rhodesia. However, when it was clear that Northern Rhodesia was to achieve independence, the British government had no choice but to facilitate the transfer of mineral rights from the BSA to the Zambian government. Otherwise, it would have been absurd for a sovereign state to continue handing over royalties to a foreign company (Henry, 1946). After independence, the state began to introduce reforms, starting with increasing royalties and taxes which mining companies had to pay, followed by the introduction of export tax. The most significant reforms came when the government decided to acquire 51 per cent (majority shares) in mining and related companies (Faber and Potter, 1971). The debate around royalties and taxes from the mining companies has continued to date, with the Zambian government frequently accusing mining companies of not remitting to the state a fair share of income from copper (see EITI, 2018). However, the mineral rights ownership issues were resolved in 1964. Cracks in the copper industry To understand the economic implications of the copper mining industry in Zambia, it is important to place the phenomenal rise of the mining industry, in a short period of time, in global context. As indicated earlier, one of the global factors which contributed to the rising interest in mining, particularly copper, was that the price of copper on the global market was rising following the growing demand as consumption increased during and after the First World War, up to the beginning of the Great Depression in 1929. The price of copper on the London Metal Exchange (LME) during the early 1920s was partly pushed up by an international mining cartel—Copper Export Inc, which was set up to prevent overproduction of copper as a means to stabilise the price and protect investors from the risks of falling profits (Roberts, 1976).5 The price of copper oscillated between £56 and £77 per ton in the period between 1921 and 1928, and rose further to £100 at the beginning of 1929, before it began to fall later that year and in subsequent years. Most of the business houses investing in the copper industry projected a steady rise in the price of copper; they did not foresee the effects of the Great Depression which impacted negatively on the demand for copper and, in turn, its price. The price of copper fell in 1930 from £72 per ton in February to £47 in November of the same year! The downward trend in the price of copper continued throughout 1931, dropping to £44 and eventually £27 per ton at the end of the year (Robinson, 1933:144). It was only from 1935 that the price of copper started

Mining and industrial development in Zambia 137 to recover, rising steadily in the following years. This rise has been attributed to pre–Second World War armament demands for copper, which is used in the manufacturing of bullets and other war equipment including cars and communication tools. The effects of a sharp decline in the price of copper on the global markets revealed cracks in the structure of the Northern Rhodesia economy. As argued in this book, this crack has proved to be difficult to fix; it continues to be a major challenge even today.

Copper price and production volume trends The production of copper in both Northern Rhodesia and Zambia has been strongly correlated to the price of the metal on the market. When the price of copper on international markets is high or expected to be high, we see massive investments committed to both exploration and the establishment of new mines, resulting in increased production. On the other hand, when the price of copper falls, it is not only investments in exploration which are scaled down, production is often cut, and in some cases completely halted, as was the case in 1931 at three of the four mines in Northern Rhodesia at that time. Volatility in the copper price not only impacts national income, but also investment decisions. In Zambia, the need to find alternative sources of revenue for the government to cushion the impact of the volatile price of copper was noted early on when the copper demand and price slumped as a result of the Great Depression (Hulec, 1969). The effects of the Great Depression were alluded to earlier in the chapter when we looked at the effects of declining prices on the nascent copper industry in Northern Rhodesia. Sharply falling prices led to the shutdown of all the new mining ventures, except two mines which operated at less than 30 per cent capacity. Development work on new mines was abandoned as it became clear that it would take too long for the price to recover. Although this was the first price shock the country experienced, it was not to be the last one; several similar price shocks have occurred over the years, sending shockwaves throughout the entire economy and society. The price of copper Volatility in the price of copper not only affects revenue, but the stability of the industry. For example, in 1996, global expenditure on mineral exploration was about US$5 billion, but this dropped to US$2 billion in the early 2000s, and then rose rapidly to reach US$21 billion dollars at the height of the commodity super cycle in 2012, before falling sharply to below US$7 billion in 2016 (Ericsson and Lof, 2019:231). Of course, other factors are taken into account to make copper price projections, and most of the time the future price is never certain; there is always an element of uncertainty. Figure 5.2 shows trends in the price of copper between 1954 and 1970. While prices rose steadily from 1960 onwards, they were volatile in the preceding half

138

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Figure 5.2 Trends in the price of copper and production volume (1954–1970). Source: Author based on data from Young (1973:75); Note: Production data from 1965 onwards from Third NDP.

decade. The question of how much influence the price has on the level of production is not easy to answer, given the lags in investment and the influence of futures markets (Ericsson and Lof, 2019). But there is no doubt that the anticipated price has a significant impact on the volume of copper produced globally. In the Zambian case, more than half of the movement in the volume of copper produced between 1954 and 1970 is explained by the price of copper, with a correlation coefficient (R2) of 0.5278. In the twentieth century, there was a steady rise of copper from 1911 until the outbreak of the First World War. After the war, prices rose steadily again before and after the Great Depression, starting from 1937. During the 1950s, prices rose steadily following the Korean War from 1955 and rose towards the end of the 1960s following the intensification of the Vietnam War in 1967 onwards. We see similar trends when we look at the price at which copper in Northern Rhodesia and Zambia has been sold. The trend has become even more difficult to predict because of highly speculative futures markets which influence investment decisions and projects. Ericsson and Lof (2019) observe that gold and other precious metals experience less price volatility due to the monopolistic structure of the market. The price of copper and other metals is highly volatile, for many reasons including the difficulty in matching supply with demand due to the constraints involved in raising and reducing production at short notice.6 As a result, the production of copper is highly sensitive to movements in the price of copper. The volatility of copper on the global market, together with the fact that Zambia depends on copper for over three-quarters of its foreign exchange earnings, reveals the vulnerability of the economic structure. The current debt crisis that has been reported in several media houses in Zambia at the beginning of 2020 (van Cauwenbergh, 2019; Smith, 2020) is only a reminder of the fragility

Mining and industrial development in Zambia 139 of the Zambian economy. Although the debt crisis that the country is currently facing has been attributed to reckless borrowing by the government, it is related to the fortunes of the copper industry which in 2015 saw prices falling by almost 60 per cent from the peak of the commodity super cycle in 2012 when the metal was fetching close to US$ 9,000 per ton, to below US$4,000 per ton in just four months (Sikamo et al., 2016). The need to address the economy’s dependence on mining was acknowledged early during colonial rule, in an inquiry commissioned to look into the possibility of expanding secondary industries. The inquiry warned not to take the challenge of diversifying the economy lightly: The problem for Northern Rhodesia Government of the instability of aggregate income and of aggregate employment in the Territory is, therefore, no simple one, and it must be concerned with development of new industries, primary or secondary, which may provide compensatory opportunities, if copper mining declines. … The difficulties that confront Government in this connection are extremely formidable. (Busschau, 1945:19) As noted in Chapter 4, subsequent governments in Zambia have been aware of the challenges that come with depending on the export of copper for foreign exchange earnings. Over the past decades, the falling price of copper not only dampens momentum in the economy but also affects employment, since the viability of other sectors relies on the foreign exchange earned from the export of copper to purchase inputs and capital goods. Therefore, the copper industry, even though it has a relatively small share in total output today, still determines the pulse rate of the economy.

The state and the mining industry The mining sector, being a strategic industry in Zambia, has always been a politically charged sector with reforms sometimes being influenced not by expected economic gains but by a combination of political and economic imperatives. For the state, there has always been the need to exercise more control over the benefits coming from the exploitation of mineral resources. After independence, the state resorted to regulating the sector as a way of ensuring that they received the rightful benefit from the mines. But with time, the government realised that regulation alone was not enough, especially in an environment which was dominated by companies owned and run by large foreign multinational corporations. Concerns about the dangers of foreign ownership of mining companies were expressed by the then President Kaunda’s speeches at both Mulungushi and Matero. Following these concerns, the major reforms in the structure of the mining industry were introduced in the 1970s with the creation of a parastatal holding company— Mining Development Corporation (MINDECO)—to oversee all mining activities in the country (Burdette, 1984). Table 5.2 shows the configuration of the mining sector (past and current) in terms of ownership of the mines.

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Table 5.2 Mine ownership structure and production (1928–2012) Owner

Mine

Year started

Type of mine

Infrastructure

Output ’000 tons

Roan Selection Trust

Luanshya

1928

Underground

Concentrator

116

Mufulira Chibuluma Chambeshi Kalengwa Nchanga Rhokana Bancroft Lumwana* Kansanshi*

1933 1955 1965 1969 1937 1931 1957 2006 2012

Underground Underground Underground Open cast Underground Underground Underground Open cast Open cast

Concentrator Concentrator Open cast Concentrator Open cast Open cast Open cast

188 29 27

AAC Barrick Gold First Quantum

242 106 50 262 261

Source: Compiled by author based on data from data from Sikamo et al. (2016:2) and Faber and Potter (1971:1); (ICMM, 2014). Note: *= figures for 2012.

From Table 5.2, it is apparent that there have been major shifts in the structure of the mining industry, including the location of production. In the old mining structure, production was dominated by four mines (Nchanga, Mufulira, Luanshya and Rhokana) which accounted for more than 80 per cent of production prior to the commencement of the “New Copperbelt.” While the old mining structure was predominantly underground, which pushes up the cost of production, recent mining are mostly open pit as companies seek to lower the cost of production (see Liebenthal and Cheelo, 2018: 6). The open pit mines are becoming common as a result of advanced technology. Reforms in the mining sector It is important to note here that the reforms introduced during the later 1960s did not eliminate the private sector from the mining industry; the reforms were initially seen as a way of promoting partnership between the state and the private sector in the mining industries. However, the state, by acquiring majority shares and/or controlling interests in many of the mining companies, became a stronger partner with the power to make and alter major decisions. But the private sector was still involved in the mining sector as shareholders and managers of certain operations. As noted in Chapter 4, acquisition of a majority share by the state did not translate automatically into direct and effective state control over the mines; the private sector, although not the overall decision maker, was influential because of the technical skill and information it possessed (Fincham, 1980). Several factors, ranging from poor management of the state-owned mining conglomerate—Zambia Consolidated Copper Mines (ZCCM)—to shortages of foreign currency and the low demand for copper on the world market during the

Mining and industrial development in Zambia 141 later 1970s and 80s, led to poor overall performance of the industry. Fundanga and Mwaba (1997) argue that political pressure to retain the poorly performing parastatals had a huge drain on public resources, which became unsustainable. The government was advised by the international lenders (mainly the IMF and World bank) to undertake structural reforms (Adam and Simpasa, 2010). Of these, it was the privatisation of the mines which was quite momentous. Privatisation of the mining industry The implementation of the structural reforms recommended by the World Bank and the IMF saw the unbundling of most of the state-owned enterprises (SOEs), most of which were eventually privatised during the first half of the 1990s. Ironically, the privatisation process was spearheaded by the coming to power of a former Trade Union Leader (Frederick Chiluba)7 who became the leader of the Movement for Multi-party Democracy (MMD). On coming to power, he embraced the principles of a free-market economy and vowed to liberalise the economy as a strategy to promote economic growth. The MMD’s commitment to promoting a free-market economy in Zambia was evident in his statement to a visiting team of donors in early 1992 when he told them in Lusaka that, “As far as the privatisation programme is concerned there is no sacred lamb. In other words, the government is committed to total privatisation of the parastatal sector” (Fundanga & Mwaba, 1997:8). While most parastatals (almost 400 SOEs, not just in the mining sector), were privatised by the mid-1990s, the mining conglomerate (ZCCM) proved to be difficult to privatise. There are several reasons why the privatisation of the mines proved difficult, including the complex nature of the mining industry which was dominated by several holding statutory companies, the low price and demand of copper on the global market and the desperate condition in which the Zambian economy found itself. These factors together contributed to the lack of interest among prospective investors in the mining industry (Adam and Simpasa, 2010). Lungu (2008) and Simutanyi (2008) further argue that the delay in the privatisation of the copper mines in Zambia was partly a result of the political sensitivities around mining, such that the government had to employ delaying tactics to avoid the backlash from the public. A former ZCCM senior manager, Francis Kaunda, is reported to have referred to the sale of the mines was like “selling the family silver” (Liebenthal and Cheelo, 2018:5). Some politicians expressed reservations on the privatisation of the mines, arguing that, Letting go of the mines was like giving sovereignty away. … Many of us resisted attempts to privatise the mines as doing so took away the only leverage government had over our important public resource and placed them in the hands of foreigners who would do as they pleased. (cited in Simutanyi, 2008:3) The negotiations which led to the sale of ZCCM were characterised by lack of transparency, leading to accusations by civil society groups that the process was

142 Mining and industrial development in Zambia riddled with corruption. They alleged that the copper mines had been sold for a song (Fraser and Lungu 2007). To facilitate the privatisation of parastatals, the government enacted the Privatisation Act (No. 21 of 1992), which provided for the creation of the Zambia Privatisation Agency (ZPA), a body solely responsible for managing the process. To reorganise the mining industry in particular, the state enacted the Mines and Minerals Act in 1995, which paved the way for the government to enter into what is known as Development Agreements (DAs) with private sector companies interested in buying and operating the potions of the unbundled ZCCM. Development Agreements (DAs) in the mining sector DAs were essentially legal contracts signed between the Zambian government and the successful companies which bought segments of the former ZCCM. By the end of 2000, Zambia had signed seven DAs with seven different companies which successfully negotiated the deals to buy the copper mines (Lungu, 2008:407). The companies that signed the DAs in 2000 include: the old mining giant Anglo-American, which acquired majority shares in Konkola Copper Mines (KCM); a UK-based consortium known as the Binani Group, which acquired an 85 per cent stake in the Luanshya Mine (Roan Antelope); the South African company Meterox, which bought controlling shares in Chibuluma mines; another South African company, Anglo Vaal which bought majority shares in Chambeshi Mine; a Canadian multinational corporation, First Quantum; and the Swiss commodity giant Glencore, which acquired Nkana and Mufulira together to form the Mopane Mining Company. Apart from these companies, there were new entrants, mainly the Chinese company, Non-Ferrous Metal Company (NFMC), which later acquired Chambeshi mine. The Zambia government maintained a minority share of between 10 and 20 per cent in all these ventures, through the Zambia Consolidated Copper Mines-Investment Holding (ZCCM-IH). These new mining agreements contained several clauses including the handling of the remaining government minority shares in the mining industry through a holding company—ZCCM-IH—the rate of tax and royalties, and also tax concessions. In general, the DAs contained generous incentives which reduced the tax revenue for the government, especially at the time when copper prices rose sharply, from 2003 up to 2015 when prices fell. The original DAs had locked the government of Zambia in an unfavourable mineral tax regime for between 15 and 20 years, with the government offering to subsidise electricity supplied to the mines (Liebenthal and Cheelo, 2018).8 Because the state was negotiating at a time when it was under pressure from donors to offload the mining assets, it ended up granting extremely generous investment incentives to the new mining companies (EITI, 2018; Lungu, 2008). With the singing of the DAs in the mining sector, the ownership of the mining industry changed from the state owning both the mineral rights and controlling shares to the current structure where the state only owns the mineral rights and a small proportion (between 10 and 20 per cent) of shares in the mining companies.

Mining and industrial development in Zambia 143 Renegotiation of mining contracts Controversies surrounding DAs have proved to be a perennial problem leading to the renegotiation and eventual cancellation of the DAs in 2008, which were replaced by new mining contracts with a new tax regime that increased the royalty tax from 0.6 to 3 per cent. A windfall tax was also introduced, and the generous tax incentives contained in the DAs were renegotiated and eventually reduced. However, this did not resolve the issue of tax revenue from the mining sector; further changes to the mineral tax regime were implemented in 2009, 2012, 2015, and 2016 (see Liebenthal and Cheelo, 2018), with the latest one being in 2019.9 While the contestation around mineral tax in Zambia has been attributed to the fact that “mining costs are notoriously hard for tax authorities to verify” (ibid.:7), there are other factors that contribute to the turbulence in the relation between mining companies and the Zambia govern regarding mineral tax. These include tax malpractices and dishonesty of mining companies, the lack of capacity of the tax authorities to ensure that a fair tax is paid, the volatility of the copper prices, which makes it difficult to implement simple tax regimes, and also the lack of appropriate data to allow a fair tax assessment. A high-level panel appointed by the African Union to look into the challenges of capital flight from Africa in 2015 reported that Zambia loses 9 per cent of its GDP through tax avoidance, mainly transfer pricing and misinvoicing, which is common among companies in the extractive sector (AU/UNECA, 2015).10 When information like this reaches government officials, they act on the fact that they are not getting enough from the exploitation of mineral and other natural resources in the country. It is therefore not surprising that the original DAs signed towards the end of the 1990s and early 2000s have been renegotiated six times in the last 20 years. The necessity to renegotiate the fiscal regimes around the mining companies is largely influenced by the price of copper. When the price of copper is high, the state tends to increase tax and other instruments in order to ensure that the country benefits from the windfall. The first time this happened after the privatisation of the mining industry was in 2007, when the government of Zambia revised the mining companies tax regime by raising corporate income tax (CIT) from 25 to 30 per cent and introduced the withholding tax of 15 per cent (ICMM, 2014). But the low copper prices resulting from the 2008/09 financial crisis forced the government to revise and scrap the windfall tax introduced in 2007. In 2012 when the price of copper was rising again, the government revised royalties upwards from 3 to 6 per cent for copper and cobalt, but this was revised again in 2015 when the price of copper declined to less than half of the peak reached in 2012 peak (EITI, 2018). It would seem that the Zambian government has been struggling to implement a steady fiscal regime for the mining industry. The country is yet to find a formula that would ensure that it receives maximum benefit from copper when the price rises, while at the same time avoid driving mining companies out of business when the price of copper falls.

144

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, Therefore, it is clear that the constant renegotiations of mineral tax regimes have been necessitated by several factors including the sharp rise of the copper price from 2003 to the peak of the commodity super cycle in 2012, and the opening of new mines, especially in the North-Western Province where the production of copper has increased dramatically since 2005 (ICMM, 2014). To come up with a stable mineral tax regime, the government has introduced several measures intended to monitor production and sales figures from the mines. To this effect, the Mineral Value Chain Monitoring Project (MVCMP), based at the Zambia Revenue Authorities, was launched at the beginning of 2015 to provide information that can enable the government to properly access the tax liabilities of mining companies. In addition to this, the Mineral Production Monitoring Support Project (MPMSP) and the Mineral Output Statistical System (MOSS) have been introduced to help generate information that can be used to arrive at fair tax liabilities for mining companies. Judging from these measures, it is evident that the stakes in the mining sector in Zambia are high and the state and the mining companies go to extreme lengths to protect their specific interests.

The new mining industrial structure In the new mining industrial structure, the sector is dominated by four large mining companies: Lumwana and Kansanshi in what is sometimes referred to as the “new” Copperbelt, and Konkola Copper Mines (KCM)11 and Mopane Copper Mines (MCM) in the old Copperbelt (see Table 5.3). In terms of ownership, First Quantum has the majority shares in Kansanshi, while ZCCM-IH holds 20.6 per cent of the shares. Another Canadian corporation—Barrick— which entirely owns and operates Lumwana Mining company, after acquiring the mine from Equinox Minerals in 2011, is now the biggest producer of copper Table 5.3 The new mine ownership and production structure (2015–2018) Mine Kansanshi Kalumbila Lumwana Konkola Mopane CNMC Luanshya NFCA Lubambe Chibuluma Sino Mentals Chambishi Metals Small-scale mines Total

Mine owner

Copper production (’000 tons) 2015

2016

710.9

250.8 190.9 116.2 84.4 44.9 43.2 27.7 18.03 10.2 7.1 27 5.9 770.6 826.33

First Quantum Meterox Barrick Gold Vedanta resources Glencore International NFC Africa Mining China Non-ferrous Metals African Rainbow Minerals Meterox China Nonferrous Metals Eurasian natural Resources

Source: Author based on data from ninth Zambia EITI (2018).

2017

2018 249.5 223.7 101.9 93.2 62.2 50.4 27.6 22 11.3 9.3 27 10.9 889

Mining and industrial development in Zambia 145 in Zambia, accounting for more than a quarter of the total copper production in 2018 (EITI, 2018). In terms of the current ownership structure of the mining industry, it is evident that the industry is still dominated by foreign companies from Canada, South Africa, Switzerland, and China. In this regard, there has been little change. As noted earlier, it has been a constant battle between the Zambian government and the copper mining companies when it comes to sharing the revenue generated from mining activities. For mining companies, every effort is made to externalise as much money made in Zambia as is possible through any means available including misinvoicing and outright tax evasion. While the ownership of the mining industry in Zambia has not changed much since colonial times, except for the three decades when the mining sector had strong state participation, we have seen significant shifts in the contribution of the mining sector to total output, declining from over 41 per cent of total output in 1965 to just 6.4 per cent for the best part of the 1990s and the early 2000s before rising to the current 15 per cent (see Figure 5.3). The decline in the mining industry’s share in GDP from the 1970s to the mid1980s can be attributed to the impressive growth of the industrial sector, particularly the manufacturing sector, which grew at an annual average rate of 11 per cent from 1965 to 1983 (see Chapter 4). As we have noted in Chapter 4, the mining industry, by the mid-1970s, had started to experience challenges due to the falling price and demand for copper on world markets, amid the rising costs of production. The impact of low prices and demand for copper was made worse during the 1980s and 1990s when lack of investment, due to shortage of foreign currency, led to the production of copper falling below half of the peak level reached in 1970 (see Table 5.3 and Figure 5.4). The production of copper, not surprisingly, started to rise from the early 2000s, with production recovering to the 1980s levels in 2010. By 2018, production reached almost 900,000 tons per year, which is higher than the peak volume

Figure 5.3 Share of mining in GDP, 1965–2018 (%). Source: Author based on data from CSO (2015, 2019).

146

Mining and industrial development in Zambia

Figure 5.4 Copper production index and volume (1980–2018) 2000=100. Source: Author based on data from CSO (2015, 2019).

produced in 1969 (see Figure 5.3). The government plan in 2008 was to expand production to over 1.5 million tons per year by 2018 (ZDA, 2014:3), but this was not realised due to the fall in the price of copper from the peak of £9,000 per ton in 2012 to just half of this at the beginning of 2016 (Kragelund, 2017:59). When one looks at the long-term trends in the production of copper in Zambia, it is apparent that the volume of copper produced is highly sensitive to the price of copper on the global market, as noted earlier in the chapter. In some instances, the fall in the price of copper automatically sets off a knee-jerk reaction among mining companies to cut or halt production. The dominance of copper In the discussion thus far, the focus has been on copper, yet Zambia produces other types of minerals. The reason for focusing on copper is that the mining industry in both Northern Rhodesia and Zambia has consistently been dominated by the production of copper in terms of volume and value produced (see Table 5.4) If we exclude coal and quarry mining, copper has been accounting for over 90 per cent of total mineral production since the 1970s, rising to 99 per cent in 2017 and 2018. A similar picture emerges when we consider the export value from the mining sector where copper has consistently accounted for over 90 per cent since the 1970s (except in 1980), with the other traditional minerals (zinc, lead, and cobalt) together accounting for less than 10 per cent. In recent years, other non-traditional minerals such as gold, gemstones, and quartz have been produced, though in very small amounts (see Table 5.5). Recently, there have been claims on various social media platforms that higher volumes of gold and other precious metals are not reported; they are smuggled out of the country in a cartel that involves mining company officials and politicians. So far, there has been no investigation to confirm these allegations. What is clear from the official data on mining is that the mining industry in its current form is dominated by the production of copper, which is also dominated

Mining and industrial development in Zambia 147 Table 5.4 Mineral production by volume (’000 tons) and value (Kwacha)

1970 1975 1980 1982 2017 2018

Cooper

Zinc

Lead

Cobalt

Total

Copper %

Coal

683.3 640.3 609.5 584.5 799.33 862

53.5 46.8 32.7 38.5 0.6

27.3 19.1 10 14.7 0.36

2.1 1.8 3.3 2.4 3.6 2.3

766.2 708 655.5 640.1 803.89 864.3

89.2 90.4 93.0 91.3 99.4 99.7

623.2 813.9 579.1 603.9 208.6 344.7

5.2 3.6 6.1 6

4.5 668 97.0 1.2 9.7 498.1 93.4 9.6 141.7 1120 85.3 17.5 45.3 795.7 90.1 22.3 (2017 and 2018 data from EITI (2018))

Value (Million Kwacha) 1970 648 10.3 1975 465.2 19.6 1980 955.4 16.8 1982 716.8 27.6

Source: Author based on data from World Bank, 1984, TNDP (1976) and EITI (2018).

Table 5.5 Gemstone production (kg)

Gold Emerald Amethyst Quartz

2017

2018

4,6 65,2 594,5 852

3,7 18,9 546,8 345,6

Source: Author based on data from EITI (2018).

by four major mining companies accounting for over 85 per cent of total copper production between 2017 and 2018 (see Table 5.3). The other five mining companies, together with the small-scale mines, account for less than 15 per cent of the copper produced. The shift to the North-West The other notable change is that the mining momentum has shifted to the NorthWestern Province. Since 2011, when the Canadian mining giant Barrick Gold acquired Lumwana mines, the North-West Province has dominated the production of copper in Zambia in terms of the volume of copper produced. The three NorthWestern Province mining companies (Lumwana, Kansanshi, and Kalumbila) accounted for two thirds of copper produced in 2018 while the old Copperbelt companies accounted for 30 per cent. It is the dominance of the North-Western copper companies that has earned the province the name of the “New Copperbelt” (Negi, 2010).

148

Mining and industrial development in Zambia

Employment in the mining sector The situation with employment in the mining industry is slightly different from that of the old mining industry. At independence, the mining industry accounted for about one-fifth of total formal employment in Zambia. This share declined but remained stable from the late 1960s up to the late 1980s. Employment levels in the mining sector remained stable even when the sector was experiencing serious financial-flow problems. With the coming on board of the private sector, the employment situation has changed in several ways. Since 2010, the mining industry’s share in total formal employment has been rising from the lowest level ever of 4 per cent in 2000 to the highest level ever of 22 per cent in 2018 (see Table 5.6). However, although employment share in the mining sector has been rising, it is important to note that the figures reported in Table 5.6 include contract workers who are usually on short-term contracts through subcontractors who supply materials and services to the mining sector (Fessehaie, 2012). Although the contract workers are reported in the labour force survey as formal workers, their conditions of service are different from those of the conventional mineworkers known in Zambia in the past. One of the key differences is that contract workers have short-term employment related to the term of contract that a contractor has with a mining company. Further the contract workers receive lower wages, since they are not directly employed by the mines though they are counted as workers in the mining sector. It is thus essential to distinguish employees in the mining sector who are directly employed by the mines from those working for mining company contractors. The new trend in the mining sector is towards “casualisation” of the work force through the mining companies outsourcing their services to local and international contractors and subcontractors. For instance, in 2012, Barrick Lumwana had 1,827 direct (formal) employees while 3,947 workers were employed by companies contracted by the mine (ICMM, 2014:33). The ratio of contract to directly employed workers for Kansanshi mine was even higher at 1 to 5, with just over 2,000 directly (formally) employed and over 10,000 employed through contractors (ibid.). The situation is slightly different for the older mines. For example, while Mopane Copper Mines also relies on workers through contracted companies, their ratio in 2012 was almost 1 to 1, with over 8,400 directly employed and 8,700 employed by contractors (ibid.). It is not clear what accounts for the difference between the older and the newer mines in terms of employment practices. It could be that since newer mines are open pit mines, they rely mostly on equipment and supply services procured through contractors. But the general trend is that the newer mines are seeking to cut labour costs through subcontracting which absolves the mining companies from taking responsibility for the contract workers. This is a big shift from the time when the copper mines were operated by ZCCM, when all workers working for different companies supplying material or services to the mines were considered as mine employees and given the same conditions as those

16.5 393.5

16.8

342.9

381.5

16.5

62.9

1980

362

14.2

51.3

1985

543.6

11.8

64

1990

484

-

-

1995

476

4.7

22.3

2000

495.8

6.3

31.2

2005

Source: Author based on data from Monthly Digest of Statistics (various years) World Bank (1984b), EITI Report (2018).

64.8

57.6

Mining employment 52.5 ’000s Share in total 19.9 employment (%) Total employment 263.3 ’000s

1975

1970

1965

Table 5.6 Formal employment in mining (1965–2018)

430

10.9

46.7

2010

318.4

18.3

58.3

2015

351.2

22.2

78.1

2018

Mining and industrial development in Zambia 149

150 Mining and industrial development in Zambia workers in the core mining activities. Employment trends in Zambia in general have shifted overwhelmingly to the informal sector which in 2014 accounted for almost 90 per cent of total employment (Chansa et al., 2019:2). Nevertheless, according to the Central Statistical Office (CSO) labour force survey (2017), the mining industry has the highest ratio of formal employment when compared to other sectors. In 2016, more than 89 per cent of employees in the mining sector were in formal employment, with only about 11 per cent in informal employment (see EITI, 2018:30). In terms of gender, as one would expect, employment in the mining industry has been male dominated, with close to 94 per cent of employees being male in 2016 (ibid.). Traditionally, the mining sector has been a male dominated one from the early days of mining in the country (Henderson, 1972).

Mining share in total output Overall, we see that while the role of the mining industry in terms of foreign currency earnings has remained largely the same, its share in total output has declined since the mid-1970s, though its share in this started to rise again since 2005. Even though we see a similar trend in the agriculture sector, which reported the lowest share in total output in 2018, the mining industry’s contribution has significantly changed over time (see Table 5.7). While the contribution of the mining industry to total output has been rising since 2005, it is still relatively low when compared to the share in the 1970s when mining had a dominant share in the country’s GDP. For the mining industry, the decline in the industry’s share in total output is not only because other sectors, such as services, have been growing steadily, but production declined mainly due to lack of investment and exploration (Adam and Simpasa, 2010). Even if the contribution of the mining industry to GDP has been falling over the years, its contribution to foreign exchange earnings and government revenue has remained high, even during the 1990s when production dropped to less than a quarter of total capacity. In 2016, the contribution of mining to public revenue was estimated at 26 per cent, and the sector was still the largest single contributor to government revenue (EITI, 2018:29). As noted earlier in this chapter, the mining sector contributes almost 80 per cent of total foreign currency earnings in the country. When we combine these facts, what emerges is that while the Zambian economy has grown in other sectors, particularly services, most of the growth has taken place in the non-tradeable sectors which contribute little to foreign currency earnings. In this regard, the country has not succeeded in reducing its dependency on copper for foreign exchange earnings, which has remained dominated by mineral exports, particularly copper. As we have seen, because income from mining is subject to sudden changes in response to the prices of commodities on the world markets, the mining sector has also been a source of crises in the economy. This is because the sector has remained the main foreign currency earner. But to reduce the country’s dependence on the export of copper, the economy has to increase the export of

{

13.70 54.40 41.0 6.80 31.80

17.60 44.40 35.80 11.90 38.31

1970 17.94 41.20 29.20 17.10 41.40

1975 17.51 38.63 10.10 18.40 43.81

1980 19.80 38.13 8.90 23.30 41.09

1985 21.7 29.3 6.6 25.0 44.9

1990 28.0 18.3 6.2 17.0 44.1

1995 23.8 14.7 6.4 9.8 51.7

2000

16.4 21.7 7.9 9.6 52.4

2005

9.4 24.7 12.9 7.6 58.3

2010

7.3 22.2 12.7 8.1 62.3

2015

2.7 15.4 15.1 7.7 59.1

2018

}

Source: Author based on data from CSO (2015, 2019). Note: Figures for manufacturing are included as part of the broader industrial sector; There have been changes in the way sectors have been classified over time, and this has affected the sectoral share in GDP, though the major trends are clear over time.

Agriculture Industry Mining Manufacturing Services

1965

Table 5.7 Mining share in GDP (1965–2018), per cent

Mining and industrial development in Zambia 151

152

Mining and industrial development in Zambia

Figure 5.5 Share of non-traditional exports (NTEs) in total export and in traditional exports (TEs) (2008–2018) (%). Source: Author based on data from UNCTAD database.

non-traditional export (NTEs) goods and services. These have not grown in recent years (see Figure 5.5), suggesting that the economy is largely producing for the local market. While the share of NTEs in total export increased from 2011, constituting over a third of total exports in 2013, the share fell sharply in 2014, levelling at about 30 per cent since then. The copper industry linkages to other industries The Zambian economy has often been described as a copper enclave economy with weak backward linkages to other sectors (Rollins, 1956; Baldwin, 1966; Mhone, 1982), and the strategies to strengthen the linkages with other sectors have not yielded much so far. Although progress was made during the period when the state had direct control of the mines by creating subsidiary companies that provided most of the supplies to the mines, the privatisation of the mines disrupted the earlier progress such that the linkages between the mining industry and other sectors have weakened (Fessehaie, 2012; Lombe, 2018). The main concern in the current structure of the mining value chain is that the backward linkages that supply materials and services to the mining industry are overwhelmingly relying on imported inputs, a situation that suggests that local industries are capturing little value in the copper value chain (Kragelund, 2017). This is an area where policy has failed to yield tangible results. Although the policy measures have been outlined to promote deeper and broader value addition in the mining industry, these have not been implemented (World Bank, 2018; Makgetla et al., 2019). The major challenge in the Zambian case is that the other industries that emerged, especially during the time when mines were run by the state, depended

Mining and industrial development in Zambia 153 solely on supply from the domestic copper mining value chain (Fessehaie, 2012). The sizeable growth of the industrial sector, including manufacturing recorded during the 1970s and the first parts of the 1980s, was a result of the state implementing policies that stimulated the growth of local industries which supplied material and services to the mining sector. But when the mining sector started to experience problems and production radically declined in 1990s, the industries that relied on mining could not sustain production because they were not able to break into international markets. Current estimates suggest that the mining sector imports 96 per cent of the inputs it uses, with only 4 per cent of the inputs produced locally (Kragelund, 2017:61). Another study that looked at the mining value chain confirmed this, arguing that most of the suppliers in the mining value chain in Zambia (including local Zambians— the briefcase businessmen) are supplying imported material, with little value added locally (Fessehaie, 2012). According to the World Bank (2018:50), this scenario is making it difficult for local producers to add value and create employment, such that “mineral extractive growth did not deliver as much to socioeconomic development as expected.” To overcome these challenges, the country must envision a strategy that can lead to expanding value added activities outside of the mining industry. Implementing this vision requires a transformative IP such as FIP.

Notes 1 Prior to the commencement of large-scale mining, the labour force in Zambia was employed in mining activities in the Congo, Southern Rhodesia, and a smaller number in South African mines (Young, 1973). Roberts (1976) estimates that prior to the 1930s up to 50,000 were working in Southern Rhodesia and over 30,000 worked in the mines in Congo on a migrant labour system. All these workers were available when production in Northern Rhodesia expanded from 1926. 2 The BSA claimed that the royalties compensated them for the losses incurred when they administered the territory under the Charter from 1890 to 1924 when the colonial government was established. 3 The BSA claimed it owned mineral rights in Northern Rhodesia on the basis of the Lochner Concession signed between Paramount Chief Lewanika and a BSA company representative Frank Lochner, and the Certificate of Claim signed with paramount Chief Mpezeni and the Lamba chiefs in what is today the Copperbelt (see Slinn, 1971). 4 The BSA at first demanded that the Northern Rhodesia government should pay £35 million in 1962 to buy the mineral rights. Several negotiations to transfer the mining rights broke down, and in 1964 the BSA, represented by its chairperson, Paul EmrysEvans, and the Chairman of Anglo-American Corporation, Harry Oppenheimer, were forced to accept the £2 million offered by the government plus another £2 million from the British Government (see Sardanis, 2014:61–63). 5 The copper cartel collapsed in 1933 due to the failure to reach an agreement on the allocation of production quotas. The Northern Rhodesian producers revolted and pulled out of the network, but started their own network which later collapsed in 1939 (see Baldwin, 1966:34) 6 It has been estimated that it takes about three to five years to increase production due to lags in investment (see Ericsson and Lof, 2019). 7 Some analysts wonder if Chiluba was a genuine trade unionist, given his enthusiastic embrace of free-market economic principles when he came to power, while other analysts argues that he had no option but to comply with the dictates of the international

154

8 9

10 11

Mining and industrial development in Zambia

financial institutions (IFIs), given that the economy was on its knees by that time, with double-digit inflation, shortages of foreign currency, and an unsustainably high current account deficit (Simutanyi, 2008). The subsidisation of electricity supplied to the mines has been a contentious issue because the mines consume half of the electricity produced in Zambia. The controversy around the mining industry has largely revolved around the tax regime, and this is fuelled by the strong public view that the mining companies are not contributing enough to the national coffers and the development of Zambia (EITI, 2018). A study by the United National Conference on Trade and Development (UNCTAD) found that US$5.6 billion of copper exports from Zambia (mainly to mainly Switzerland and China) were under-invoiced (Liebenthal and Cheelo, 2018:7). The North West now accounts for more than two-thirds of the total copper production in Zambia, with the two mines accounting for 67 per cent of total production in 2018 (see Table 5.3).

References Adam, C. and Simpasa, A. (2010). “The Economics of the Copper Price Boom in Zambia.” In A. Fraser and M. Larmer (eds.) Zambia, Mining and Neoliberalism: Boom and Bust on the Globalised Copperbelt. New York: Palgrave McMillan. 59–90. Ake, C. (1981). A Political Economy of Africa. Essex: Longman AU/UNECA (African Union/United Nations Economic Commission for Africa). (2015). Illicit Financial Flows: A Report of the High-Level Panel on Illicit Financial Flows from Africa. Addis Ababa: AU/ECA Balassa, B. (1980). The Process of Industrial Development and Alternative Development Strategies. Essays in International Finance, No. 141. Princeton University, New Jersey. 1–42. Baldwin, R. (1966). Economic Development and Export Growth: A Study of Northern Rhodesia, 1920–1960. Berkley: University of California Press. Bauer, P.T. (1975). “British Colonial Africa: Economic Retrospect and Aftermath.” In P. Duignan and L.H. Gann (eds.) Colonialism in Africa: The Economics of Colonialism, 1870–1960, Vol. 4. Cambridge: Cambridge University Press. 632–654. Burdette, M. (1984). “Were the Copper Nationalisations Worth-while?.” In K. Woldring (ed.) Beyond Political Independence: Zambia’s Development Predicament in the 1980s. Berlin: Mouton Publishers. 23–71. Busschau, W.J. (1945). Report on the Development of Secondary Industries in Northern Rhodesia. Lusaka: Government Printers. Central Statistics Office (CSO) (2015). Zambia in Numbers: 1964 to 2014. Lusaka: CSO. Central Statistical Office (2019). Personal Communication (Excel file of Industrial Production 2019). February 17, 2020. Chansa, F., Mubanga, N., Mudenda, D. and Ndulo, M. (2019). “Industrial Growth and Policy in Zambia: Lessons from South Korea.” African Journal of Economic Review Vol. VII, No. 2, 1–25. de Luna, K. (2016). Collecting Food, Cultivating People: Subsistence and Society in Central Africa. New Heaven: Yale University Press. Ericsson, M. and Lof, O. (2019). “Mining Contribution to National Economies Between 1996 and 2016.” Mineral Economics Vol. 32, No. 3, 223–250. Extractive Industry Transparent Initiative (EITI) (2018). Ninth Zambia EITI Report. Lusaka: EITI.

Mining and industrial development in Zambia 155 Faber, M.L. and Potter, J.G. (1971). Towards Economic Independence: Papers on the Nationalisation of the Copper Industry in Zambia. Cambridge: Cambridge University Press. Fessehaie, J. (2012). “What Determines the Breadth and Depth of Zambia’s Backward Linkages to Copper Mining? The Role of Public Policy and Value Chain Dynamics.” Resource Policy Vol. 37, 443–451. Fincham, R. (1980). “Economic Dependence and the Development of Industry in Zambia.” Journal of Modern African Studies Vol. 18, No. 2, 297–313. Frankel, S.H. 1938. Capital Investment in Africa. London: Oxford University Press. Fraser, A. and Lungu, J. (2007). For Whom the Windfalls? Winners and Losers in the Privatisation of Zambia’s Copper Mines. Lusaka: Catholic Centre for Justice and Development and Peace (CCJDP and Civil Society Trade Network Zambia (CSTNZ). Fundanga, C. and Mwaba, A. (1997). Privatization of Public Enterprises in Zambia: An Evaluation of Policies, Procedures and Experiences. Economic Research Papers No. 35. Tunis: African Development Bank. Gifford, P. and Louis, R.W.M. (1971). “Introduction.” In P. Gifford and W.M.R. Louis(eds.) France and Britain in Africa: Imperil Rivalry and Colonial Rule. New Haven: Yale University Press. xv–xix. Henderson, I. (1972). Labour and Politics in Northern Rhodesia: A Study in the Limits of Colonial Power. Unpublished PHD Dissertation. University of Edinburgh, Edinburgh. Henry, J. (1946). “Some Aspects of The Economic Development of Northern Rhodesia.” South African Journal of Economics Vol. xiv, 100–116. Hulec, Otakar (1969). “Some Aspects of the 1930 Depression in Rhodesia.” Journal of Modern African Studies, Vol.7, No. 1, 95–105. International Council on Mining and Metals (ICMM) (2014). Enhancing Mining’s Contribution to the Zambian Economy and Society. Lusaka: Chamber of Mines/ICMM. Kessel, N. (1971). “Mining and the Factors Constraining Economic Development.” In C. Elliot(ed.) Constraints on the Economic Development of Zambia. London: Oxford University Press. 257–268. Kilby, P. (1975). “Manufacturing in Colonial Africa.” In L.H. Gann and P. Duignan (eds.) Colonialism in Africa, 1870–1960, Vol. 4, The Economics of Colonialism, 1870–1960. Cambridge: Cambridge University Press. 470–520. Kragelund, P. (2017). “The Making of Local Content Policies in Zambia’ Copper Sector: Institutional Impediments to Resource-led Development.” Resource Policy Vol. 51, 57–66. Larmer, M. (2010). “Historical Perspectives on Zambia’s Mining Boom and Busts.” In A. Fraser and M. Larmer (eds.) Zambia, Mining and Neoliberalism: Boom and Bust on the Globalised Copperbelt. New York: Palgrave McMillan. 31–58. Liebenthal, R. and Cheelo, C. (2018). Understanding the Implications of the BoomBust Cycle of Global Copper Prices for Natural Resources, Structural Change, and Industrial Development in Zambia. WIDER Working Paper No. 2018/166. Lombe, W. (2018). Natural Resources, Structural Change and Industrial Development: Local Content in Zambia—A Faltering Experience? UN-University World Institute for Development Research (UNU-WIDER) Working Paper No. 2018/18. Lungu, J. (2008). “Copper Mining Agreements in Zambia: Regeneration or Law Reform?” Review of African Political Economy Vol. 35, No. 117, 403–415. Makgetla, N., S. Levine and S. Mtanga (2019). Moving up the Copper Value Chain in Southern Africa. World Institute for Development Economics Research (WIDER) Working Paper No. 2019/52.

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Mhone, Guy (1982). The Political Economy of a Dual Labour Market in Africa: The Copper Industry and Dependence in Zambia, 1929-1969. East Brunswick: Associated University Press. Mhone, G. (2001). Enclavity and Constrained Labour Absorptive Capacity in Southern African Economies. A paper prepared for the discussion at the UNRISD on The Need to Rethinking Development Economics, September 7–8. Cape Town South Africa. Morris, M., Kaplinsky, R. and Kaplan, D. (2012). One Thing Leads to Another: Promoting Industrialisation by Making the Most of the Commodity Boom in Sub-Saharan Africa. Lulu.com. Ndulo, M. (1987). Mining Rights in Zambia. Lusaka: Kenneth Kaunda Foundation. Negi, R. (2010). “The Mining Boom, Capital and Chiefs in the New Copperbelt,” in A. Fraser and M. Larmer(eds.) Zambia, Mining and Neoliberalism: Boom and Bust on the Globalised Copperbelt. New York: Palgrave McMillan, 209–236. Roberts, D.A. (1984). “Notes Towards a Financial History of Copper Mining in Northern Rhodesia.” Canadian Journal of African Studies Vol. 16, No. 2, 347–359. Roberts, Andrew (1976). A History of Zambia. London: Heinemann. Robinson, A.E. (1933). The Economic Problem: Part Three.” In J.M. Davis (ed.). Modern Industry and the African. London: MacMillan. 131–226. Rollins, C.(1956). “Mineral Development and Economic Growth.” Social Research Vol. 23, No. 3, 253–280. Sardanis, A. (2014). Zambia: The First 50 Years. London: I.B. Tauris. Sikamo, J.A. Mwanza, A. and Mweemba, C. (2016). “Copper Mining in Zambia-History and Future.” Journal of Southern Africa Institute of Mining and Metallurgy Vol. 116, 1–6. Simutanyi, N. (2008). Copper Mining in Zambia: The Developmental Legacy of Privatisation. Institute for Security Studies (ISS) Working Paper No. 165. Johannesburg. Singer, W.H. (1950). “The Distribution of Gains Between Investing and Borrowing Countries.” American Economic Review Vol. 40, No. 2, 473–485. Slinn, P. (1971). “Commercial Concession and Politics During the Colonial Period: The Role of the British South African Company in Northern Rhodesia 1890–1964.” African Affairs Vol. 70, No. 281, 365–384. Smith, E. (2020). “Zambia’s Spiralling Debt Offers Glimpse into the Future of Chinese Loan Financing in Africa.” CBNC Economic News. https://www.cnbc.com/2020/01 /14/zambias-spiraling-debt-and-the-future-of-chinese-loan-financing-in-africa.html, accessed 21/04/2020. Van Cauwenbergh, L. (2019). A Crisis Emerged in 2015 and Incited Gradual Downgrades of Credendo’s Political Risk Classifications. https://www.credendo.com/country-news/ zambia-moving-towards-another-debt-crisis, accessed 17 April 2020. World Bank (2018). Republic of Zambia: Systematic Country Diagnostic. Report No. 124032-ZM. Young, A. (1973). Industrial Diversification in Zambia. New York: Praeger Publishers. Zambia Development Agency(ZDA) (2014). Mining Sector Profile. Lusaka: ZDA.

6

The manufacturing sector in Zambia

Introduction The size and the make-up of a manufacturing sector have traditionally been seen as important indicators of a country’s ability to transform the structure of its economy. In the context of a colonial economy, the scope and structure of the manufacturing sector reflect how far a country has gone in reversing the colonial economic logic. For instance, colonial economic logic operated on the basis that most manufactured products should come from the imperial centres, while colonies should supply raw materials to the centres. Building a wide range of manufacturing capabilities is a vital step in the efforts to invert the colonial economic structures and the logic which supports them. In other words, economies where the manufacturing sector has remained largely underdeveloped, with a narrow base and low capabilities, display features of a colonial economy. This chapter looks at the manufacturing sector in Zambia. The chapter focuses on analysing trends in the sector to illustrate whether the strategies devised to transform the structure of the economy have succeeded or failed to realise this objective. The chapter focuses on the manufacturing sector to highlight the progress made in transforming the colonial economic structure, since the status of the manufacturing sector is an important indicator of this transformation. The chapter shows that while the manufacturing sector grew steadily from 1964 to the mid-1980s, growing at an average annual rate of 11 per cent per year, this growth was disrupted by the turbulent years of the 1980s, and the sector has not recovered to the levels it reached at its peak in the early 1990s. As noted in Chapter 4, structural transformation of the Zambian economy was a key objective of the post-independence broader economic development policy. Since independence in 1964, the manufacturing sector in Zambia has been consistently seen as pivotal to the country’s development process, and different measures have been implemented at various times to promote the growth of this sector. The centrality of industrial development, mainly the manufacturing sector, has been recognised in a recently launched National Industrial Policy (NIP) which describes the manufacturing sector as “the core of its development agenda”

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(RoZ, 2018). This chapter first outlines the components of the industrial sector in general, and then discusses trends in the manufacturing sector. Using different indicators to assess trends in the manufacturing sector over time, the chapter shows that the sector has remained weak, particularly after the privatisation of parastatal companies during the second half of the 1990s. Although there have been efforts to revive the sector in the last decade, it has not yet recovered in terms of its share in total employment and total output to the levels reached before privatisation. Of concern, regarding the current trends in the manufacturing sector, is the fact that the sector has not broadened its base; it is still dominated by the processing of natural resources, mainly food stuffs and other agricultural materials, and the processing of copper into semi-finished products. As indicated in Chapter 5, the mining sector still accounts for more than three-quarters of export earnings in the country. Ultimately, the country’s potential for industrial growth is, as illustrated in Chapter 9, intricately intertwined with the industrialisation of the continent, which will provide a platform for growth by tapping into regional and continental markets. It is highly unlikely that Zambia can industrialise alone, and policy must begin to take this into account.

An overview of the manufacturing sector in Zambia As in many other developing countries, the growth of the manufacturing sector in Zambia has been an important component of the broader development agenda. In the early days following independence, the manufacturing sector was identified as a strategic sector for two main reasons. First, the manufacturing sector was pivotal to achieving the objective of reducing dependence on imports from South Africa and Southern Rhodesia. Second, the manufacturing sector was also key in the objective of diversifying both the production base and the spatial (physical) location of industrial activities which were concentrated along the line of rail (see Chapter 4). As argued in Chapter 2, it was not just in Zambia where manufacturing was seen as crucial to promoting and sustaining economic growth; the colonial government of Northern Rhodesia also tried to stimulate the growth of secondary industries to reduce the risks associated with the mining industry. Although some efforts to develop the manufacturing sector began during the colonial period, little was achieved in respect of the growth of the manufacturing sector (Young, 1973). In 1993, just before the beginning of the privatisation of the parastatal companies, the manufacturing sector’s contribution to total output is reported to have peaked at 27 per cent (see Figure 6.1).1 This level of manufacturing value added, if sustained over a longer period, would have contributed to building industrial capabilities in the country and ultimately to the much-needed diversification of the economy. Higher levels of manufacturing value added is also a sign of an economy transitioning from lowto middle-income status. What matters, though, is not just the high share of the manufacturing sector in GDP, but also the spread (the type) of manufacturing activities, especially products for export.

The manufacturing sector in Zambia 159

Figure 6.1 Manufacturing share in GDP (1965–2018), per cent. Source: Author based on data from CSO (2015, 2019).

Manufacturing sector performance In the Zambian case, however, the higher levels of manufacturing share in GDP during the 1980s and 1990s could partly be attributed to the falling contribution of the mining sector, which continued to decline over this period until the early 2000s (see Chapter 5). Apart from that, there were three major weaknesses in the sector during this time. First, as noted in Chapter 4, the manufacturing sector continued to rely heavily on imported inputs even in the processing of food stuffs. Heavy reliance on imported inputs exposed the sector to foreign exchange risks, especially because the sector was largely producing for the domestic market, thereby earning little forex apart from the sale of semi-manufactured copper products. Second, and related to the first, the sector was heavily concentrated in the processing of natural resources where value addition is usually low (UNIDO, 2016). In this case, the manufacturing production base was still narrow, with few medium- and high-tech products. Third, the sector was recording falling total factor productivity, signalling inefficiencies in factor utilisation (Karmiloff, 1989; Szirmai et al., 2002). If we focus on growth in the sector, there were clear signs of a sector struggling to keep afloat, especially between 1974 and 1979, when the sector declined at an average rate of −6 per cent per year. However, the sector recovered from 1979 to 1984, growing at an average annual rate of 6 per cent. Labour productivity started to decline steadily around 1984 and sharply after 1992 onwards, while employment during this time grew steadily, rising from over 55,000 in 1984 to over 77,000 in 1990 (Szirmai et al., 2002). Fundanga and Mwaba (1997) argue that keeping the same labour force at the time when parastatal companies were experiencing declining production and huge loses, was sustained due to political interference in the running of these enterprises. Szirmai et al. (2002) have attributed the stagnation and eventual decline of the manufacturing sector in Zambia to the strong influence that the mining sector had on manufacturing in terms of both the

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supplies to the mining sector and the foreign exchange needed to purchase inputs and capital goods in the sector. Overall, the manufacturing sector in Zambia performed better during the time when the state played an active role in the sector. The influence of the mining sector in the manufacturing sector has always been strong, given that the country continued to depend on imported inputs, such that even by 1991, the country was still importing 60 per cent of inputs for manufacturing (ibid.). This, in a sense, is a strong indication of the challenges the country faced, and also the urgent need to diversify the structure of the economy, with regard to the make-up of the export basket. It is therefore critical to assess manufacturing sector performance in terms of its contribution to the objective of transforming and diversifying the economy. As illustrated later in Figure 6.1, the manufacturing sector share in GDP in Zambia declined from a peak of about 27 per cent in 1993 to 7.7 per cent in 2018. While the low manufacturing share in GDP in recent years can be attributed to the rising share of mining, a transforming economy is marked by a resiliently growing manufacturing sector, especially during the early stages of structural change. The declining share of the manufacturing sector in GDP is a worrying trend, particularly when one considers that the sector’s share in GDP has been declining since 2000. The emphasis in this chapter is on how policy has contributed to the observed performance in the manufacturing sector over the years. But before discussing the sector in detail, it is important to provide a background to why the manufacturing sector in particular is widely cherished as key to economic structural transformation.

The role of manufacturing in economic development Manufacturing activities have been a critical component of all industrialised economies. There are several factors which make the manufacturing sector strategically important in the development process, especially in developing countries, which are constantly seeking to improve the living standards of the majority of people. Some of the reasons why the manufacturing sector is widely perceived as the engine of growth include the fact that most manufacturing activities for economies at the early stages of development tend to be labour intensive. In this context, manufacturing activities, have the potential to absorb large portions of the labour force, even today, when there are signs of premature deindustrialisation (Felipe et al., 2017; Tregenna, 2016)..It is the manufacturing sector’s capacity to create large numbers of low- and semi-skilled job opportunities which makes it attractive to many low-income countries.2 Further, manufacturing activities often act as a conduit for the transfer and absorption not only of embodied technology but of skills as well. It has also been argued that the terms of trade for manufactured products tend to be more stable and therefore contribute to stabilising the current account and the exchange rate of a country (Singer, 1950). As we saw in Chapter 4, the terms of trade for commodities tend to deteriorate over time. In the Zambian example, the relative value of export to imports (manufactured products) sharply declined from being at par in

The manufacturing sector in Zambia 161 1970 to only 26 per cent in 1984 (see Figure 4.2).3 A well-developed manufacturing sector would smooth out the terms of trade over time. The other reason why manufacturing is seen as a strategic sector in the economic structural transformation of a country is its ability to pull other sectors along through backward and forward linkages. Not only that, growth in the manufacturing sector not only leads to technology transfer and increased productivity; it also leads to improved levels of savings and fixed capital formation in the economy and a broader transformation of society. This insight was articulated early in the 1950s when it was observed that: the most important contribution of an industry is not its immediate product (as is per force assumed by economists and statisticians) and not even it effects on other industries and immediate social benefit …, but perhaps even further its effects on the general level of education, skill, way of life, inventiveness, habit, store of technology, creation of demand etc. And this is perhaps precisely the reason why manufacturing industries are so universally desired by underdeveloped countries; namely, that they provide the growing points for increased technical knowledge, urban education, the dynamism and resilience that goes with urban civilisation, as well as the direct Marshallian external economies. (Singer, 1950:476) Since the First European Industrial Revolution (FEIR) in England, industrial growth, and manufacturing in particular, has been seen to induce a momentum that goes beyond economic growth; it transforms entire societies, as Singer highlights. Kuznets (1966) also makes a similar observation that growth of the manufacturing sector transforms not just the economy but the entire society, including public attitudes and the way people think. Although there are emerging questions about the ability of the manufacturing sector to create employment and transform societies (Rodrik, 2015; Felipe et al., 2017), the manufacturing sector has been perceived widely as the engine of growth, such that industrialisation is often used synonymously with development: Throughout the history of capitalism, the manufacturing sector has been seen as the engine of economic development. Very few countries have developed their economies without developing a strong manufacturing base—so much so that the term ‘industrialised country’ and ‘developed country’ are often used interchangeably. (UNECA, 2016) When one looks at the history of industrial development it becomes apparent that while there has been no country that has developed without strong and sustained growth of the industrial sector, it is also true that countries that have low industrial development have often remained poor. It is from this angle that manufacturing activities have been given special attention among not just policymakers and

162 The manufacturing sector in Zambia scholars, but politicians as well. In countries where the development of the manufacturing sector has remained low, there is a general desire to stimulate the growth of manufacturing activities. As indicated in Chapter 1, even developed countries which were referred to as post-industrial countries are not earnestly seeking to revive industrial activities (Aiginger and Rodrik, 2020). Components of the manufacturing sector The manufacturing sector is a complex and diverse sector even in less industrialised countries like Zambia. According to the International Standard Industrial Classification of all economic activities, Revision 4 (ISIC, Rev. 4), the manufacturing sector is divided into 24 divisions (at two-digit level), 69 groups (at three-digit level), and 136 classes (at four-digit level). These different categories are used to classify similar economic activities, with the larger (aggregated classification), groups, representing the principle economic activity which covers different but related activities (DESA, 2008). For example, under Division 10, which covers the manufacture of food products, manufacturing activities in this category are further divided into eight different activities, such as processing and preservation of meat, processing and preservation of fish, vegetables, manufacture of grain products, and manufacture of animal feed. Table 6.1 provides a list of the 24 divisions that make up the manufacturing sector under ISIC Rev. 4. As is evident from Table 6.1, the manufacturing sector covers a wide range of activities, from the simple process of sorting and crushing of agricultural products to more complex activities such as the manufacture of optical and medical precision instruments. ISIC Rev. 4 classifies activities from Division 10–19 and 31 as low-tech activities, while activities in Divisions 20–25 are classified as mediumtech activities, with Divisions 26–30 classified as constituting high-tech activities. Division 32 is composed of activities employing both medium- and high-tech manufacturing processes. The dominance of low levels of technology used in the manufacturing sector largely correlates with the level of industrialisation and value addition (UNIDO, 1980). In highly industrialised economies, the larger component of the manufacturing industry originates from the medium- and high-tech activities, especially those involving the manufacture of sophisticated equipment used in medical operations and precision measurement equipment. On the other hand, less industrialised economies are characterised by a high concentration of manufacturing activities within the low-tech segments, and it is widely believed that the level of industrial development is reflected in the ability to employ medium- and high-tech processes in the manufacturing sector. Not surprising, it is in the medium- and high-tech segments of the manufacturing sector where value addition and productivity are highest (Newfarmer et al., 2018). This is one of the reasons why industrialised countries have significantly higher MVA per capita and report significantly higher factor productivity, especially of labour (McMillan and Rodrik, 2011). In less industrialised countries, such as Zambia, the bulk of the manufacturing sector is dominated by low tech, mainly

The manufacturing sector in Zambia 163 Table 6.1 Components of the manufacturing sector under ISIC Rev. 4 ICSIC code Description of economic activity (division)

Technology group

10 11 12 13 14 15 16 17 18 19 20 21

Low-tech Low-tech Low-tech Low-tech Low-tech Low-tech Low-tech Low-tech Low-tech Medium-tech High-tech Medium-tech

22 23 24 25 26 27 28 29 30 31 32 33

Manufacture of food products Manufacture of beverages Manufacture of tobacco products Manufacture of textiles Manufacture of wearing apparel Manufacture of leather and related products Manufacture of wood and wood products Manufacture of paper and paper products Printing and reproduction of recorded media Manufacture of coke and refined petroleum Manufacture of chemical and chemical products Manufacture of pharmaceutical, medicinal, and botanical products Manufacture of rubber and plastic products Manufacture of non-metallic and mineral products Manufacture of basic metals Manufacture of fabricated metal products Manufacture of computer, electronic, and optical products Manufacture of electrical equipment Manufacture of machinery and equipment Manufacture of motor vehicles and trailers, semi-trailer Manufacture of transport equipment Manufacture of furniture Other manufacturing Repair and installation of machinery and equipment

Medium-tech Medium-tech Medium-tech Medium-tech High-tech High-tech High-tech High-tech High-tech Low-tech Medium- and high-tech Medium-tech

Source: DESA (2008:47–51, 216).

processing of natural resources, with relatively low value addition and low total factor productivity (UNIDO, 2016).

Manufacturing sector trends in Zambia The dominance of resource-based manufacturing As illustrated later, in the case of Zambia a large portion of manufacturing activities are natural resource–based, dominated by the processing of food and other agricultural products such as timber and other forest products. Only a small section of the manufacturing sector employs medium-tech manufacturing processes. It is estimated that in 2010, only 13 per cent of manufacturing output in Zambia involved medium- to high-tech manufacturing activities (CSO/MCTI, 2014:71). This is not surprising, given the dominance of natural resource–based

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manufacturing in the country, as is evident by a high share of the food, beverage, and tobacco (FBT) cluster which has consistently accounted for almost two-fifths of the manufacturing value added on average, from the early 1995 (see Tables 6.5 and 6.6). The dominance of low and medium tech in the manufacturing sector in Zambia explains the low levels of MVA per capita in the economy. The concentration of manufacturing activities in the low-tech segments reflects the challenge for low income countries to enter high value-added segments of global value chains. Employing medium- and high-tech processes in the manufacturing activities enables a country to move from the low to high value-added segments of global value chains. Making this transition is a big challenge for many less industrialised countries. Transitioning from low- to medium- and high-tech manufacturing today requires implementing an aggressive industrial policy consistently over a medium- to long-term horizon. It requires being acutely aware that the use of high tech in manufacturing activities is something that can be achieved by radically changing the current configuration of a country’s comparative advantage (Chitonge, 2019). Manufacturing share in total output Commercial manufacturing activities in Zambia can be traced back to colonial days when rudimentary manufacturing ventures emerged. As we have seen in Chapter 3, the manufacturing sector in Zambia has always been overshadowed by the mining sector which, from the beginning, was set as the foundation of the economy. During the first decade after independence, the manufacturing sector grew rapidly from an extremely low base, recording an average growth rate of 18 per cent per year between 1965 and 1970. MVA share in GDP rose to over 25 per cent by the early 1990s before privatisation began (Figure 6.1). As shown earlier, after privatisation, the sector has struggled to recover in terms of its contribution to total output and employment. Even if in absolute terms the manufacturing sector generates more value added today than in 1993, its share in total output has consistently declined since the 1990s, when the privatisation of parastatal companies was implemented vigorously (Munakaampe et al., 1999). Although the manufacturing sector was affected by the economic crisis experienced in the country from the 1980s onwards, as the shortages of foreign exchange worsened (Szirmai et al., 2002) the sector continued to grow until the sale of parastatal companies, which included manufacturing enterprises. If we look at trends in the manufacturing sector since independence, one thing that is apparent is that the sector recorded steady growth from 1965 up to the time when the parastatal sector reforms were introduced during the 1990s (Kaunga, 1993). What this suggests is that the strongest and longest growth of the manufacturing sector in Zambia coincided with the time when the state was actively participating in the sector, both by establishing state-owned and -run manufacturing enterprises and through active policy intervention that promoted the growth of industry by providing incentives to the private sector (see Chapter 4). Although

The manufacturing sector in Zambia 165 growth during this period was not smooth and even (there were periods when value added in the sector declined), the average trend is that of a sector steadily growing. It has been argued that the rapid growth of the manufacturing sector during the period when parastatal companies dominated the sector could be attributed to a set of strategies which emphasised local content policy, stressing the use of local raw materials in the production of intermediate and final goods, even in the mining sector (Lombe, 2018). From this angle, it can be argued that the growth of the manufacturing sector was partly sustained by the strategy of promoting stronger supply linkages between mining and the manufacturing sector. The fact that the state was active in both the mining and the manufacturing sectors made is easier to establish and strengthen these linkages. However, the linkages can be nurtured even if the state is not directly involved in running these enterprises. Mining’s relation with manufacturing As already noted, the mining sector had a dual influence on the manufacturing sector: first, by making available the foreign exchange required to procure capital and intermediate goods needed for manufacturing since the bulk of the manufacturing products were for domestic consumption, meaning that the sector earned little foreign exchange (Fincham, 1980); second, the mining sector provided the market for the manufactured products as inputs and supplies (Fortman, 1971; Szirmai et al., 2002; Lombe, 2018). Although the linkages between the mining sector and the rest of the economy in Zambia, including manufacturing, are perceived in the literature to be characterised by strong tendencies of enclavity (see Baldwin, 1966; Mhone, 1982), the creation of parastatal companies in both sectors helped to strengthen these linkages. In some sense, this worked out as a matter of state departments procuring services or inputs from another state entity. While that arrangement became problematic in terms of promoting efficiency in the system, it helped strengthen the linkages in the economy as a whole. In the case of the manufacturing sector, the creation of parastatal companies and their subsidiaries helped to promote and strengthen the linkages between mining and the manufacturing sector. Recent studies in the context of privatised mining and manufacturing enterprises show that the linkages have become weaker, especially in the current arrangement when the mining sector has largely relied on foreign supplies of intermediate goods and services (Kragelund, 2017; Fessehaie, 2012).Weaker linkages between the manufacturing and the mining sectors have contributed to declining capacity and performance in the sector. The satellite manufacturing industries, which were offshoots of the mining industry such as the metal fabrication which acquired the copper concentrate for making various products, disappeared during the 1990s. Similarly, industries which provided supplies to the mining sector (for example, explosives used in blasting) were wiped out, leaving the sector to rely on import of supplies. This situation has weakened both the backward and forward linkages between mining and other sectors including manufacturing (World Bank, 2018).

166 The manufacturing sector in Zambia Parastatals in the manufacturing sector As noted in Chapter 4, after the Mulungushi and Matero reforms, parastatal companies dominated the economic landscape in Zambia, including the manufacturing sector. In general, the creation of parastatal companies (state-owned or -controlled companies) was part of the national objective to promote the growth of secondary industries in the effort to reduce dependence on Southern Rhodesia and South Africa. Creation of parastatals in the manufacturing sector was also seen as a strategy to achieve diversification of the economy in terms of both broadening the economic base beyond the mining sector and spatially spreading out economic activities. The importance of the manufacturing sector was not just in terms of its contribution to GPD, but the creation of employment as well. For instance, by the end of the 1980s the manufacturing sector accounted for 80 per cent of the non-mining industrial production (Szirmai et al., 2002), and 50 per cent of formal employment outside of the mining sector State-owned manufacturing ventures were established specifically to mobilise and coordinate large investments in order to promote the growth of manufacturing activities in areas where the private sector was unable or unwilling to invest. Manufacturing parastatals also offered the state the opportunity to control the pace and direction of economic development. One area where this was visible was in the efforts made to reduce rural–urban disparities by setting up factories in rural areas away from the line of rail. Examples include the cannery factory in Mwinilunga, the battery factory in Mansa, the bicycle assembly plant in Chipata, etc. Since the private sector enterprises were not keen on including Zambians in management positions in most businesses (See Kaunda, 1968), the creation of parastatal was also envisioned as a means of promoting the participation of Zambians in the economy as business owners and as senior managers of some of the state-owned enterprises. Parastatals were also seen at that time as a strategic mechanism for reducing the outflow of capital through profit expatriation which was a dominant feature of foreignowned companies (ibid.). The strategy adopted in Zambia was not complete nationalisation of private enterprises as noted in Chapter 4; it involved the state acquiring the majority or controlling shares in private enterprises (Sardanis, 2014).4 The structure of parastatal companies evolved over time, with changes introduced gradually during the 1970s to adjust to the changing circumstances. The approach was that the state created holding companies in the major sectors of the economy, and these companies were responsible for overseeing the activities of the subsidiary companies. Four sub–holding companies were created in each of the major sectors: Zambia Consolidated Copper Mines (ZCCM), to oversee the mining sector; the Industrial Development Corporation (INDECO) to oversee the development of the industrial sector; National Hotels Development Corporation (NHDC), which was responsible for overseeing activities in the tourism and hospitality industry; and the National Import and Export Corporation (NIEC), which had the

The manufacturing sector in Zambia 167 responsibility of managing the companies in the trading and distribution sector—services (Kaunga, 1993). All four sub–-holding companies where in turn managed by the mother parastatal company—the Zambia Industrial and Mining Corporation (ZIMCO). The manufacturing sector holding company—INDECO In the manufacturing sector, the reforms centred around the reorganisation of the role of INDECO from being chiefly an industrial financier to an active driver and coordinator of industrial enterprises throughout the country. A World Bank (1984) report argues that the intention behind the reorganisation of the role and work of INDECO towards the end of the 1960s and early 1970s was to complement the private sector, particularly by establishing industries avoided by the private sector. While this was clear at the beginning, the strategies adopted later suggest that the state was actually intending to play a more active role in the economy, including directing the activities of the private sectors towards its set objectives. This is clear when one looks at the role of INDECO during the 1970s and the number of manufacturing ventures established. As has been observed, the role of the state in the manufacturing sector was not only limited to the subsidiary companies under INEDCO; the state created a number of small manufacturing firms which were not under ZIMCO (Tangri, 1984). Examples include the Dairy Produce Board, Mulungushi Textiles Limited, and the Makeni Clothing Manufacturing Limited, which were created though Acts of Parliament and managed through boards of directors (Kaunga, 1993). At the time when parastatal companies were privatised, the manufacturing sector had a wide array of subsidiary companies operating in several fields ranging from crushing stones to canneries and baking companies. ZIMCO subsidiaries include the Crushed Stone Sales Limited, Kapiri Glass Products Limited, Zambezi Sawmills Limited, Mwinilunga Canneries, Zambia Steel and Building Supplies Limited, Supa Banking Company Limited, Zambia Ceramics Limited, Consolidated Tyre Services Limited, Monarch Zambia Limited, INDECO Milling Limited, Mansa Batteries, Zambia Metal Fabrication Limited, Livingstone Motors Assembly, Chipata Assemblies of Zambia, etc. Thus, the manufacturing sector was relatively broad, producing a variety of manufactured products mainly supplying the domestic market. A wide range of products such as rubber linings, seals and couplings, wire ropes, roof bolts, rock drills, conveyor idlers and pulleys, valves, explosives, fuses, detonators, tyres, V-belts, mill balls, etc. were manufactured in the country (Lombe, 2018:5). Although the sustainability of these enterprises was always in question due to their heavy reliance on state subsidies and other support mechanisms (Fundanga and Mwaba, 1997), the manufacturing sector in Zambia was quite advanced compared with other African countries (Szirmai et al., 2002; World Bank, 1984; Bates, 1981). It is therefore not surprising that the manufacturing sector grew steadily, and at its peak in 1993, contributed 27 per cent to total output. However, as noted earlier, the sector had several structural problems, characterised by heavy

168

The manufacturing sector in Zambia

dependence on the fortunes of the mining sector. The economic crisis epitomised by the shortage of foreign currency during the 1980s made it difficult to sustain manufacturing production in the country. Production capacity utilisation rose from 43 per cent in the mid-1970s to 70 per cent during the 1980s (Karmiloff, 1989:13), and started to decline thereafter. Weaknesses of the manufacturing sector: the ISI factor One of the major weaknesses of the manufacturing sector in Zambia during the 1980s and 1990s was its continued reliance on importation of intermediate goods, which made the sector vulnerable to foreign exchange risks. Lack of foreign currency negatively impacted on industrial production, resulting in slowing down the rate of growth from the average of 11 per cent during the 1970s to just 3 per cent during the first half of the 1980s (World Bank, 1984:6). Other than the foreign exchange constraint, it appears as though the strategy for industrial development at the time attempted to do too much at once. In other words, the industrial strategy pursued failed to identify strategic sectors to drive the process of industrialisation; there was a failure to implement selective industrial policy. Chansa et al. (2019) have also highlighted this, arguing that the government failed to focus on strategic sectors one at a time. They site political interference from the ruling party in the running of parastatals, worsening terms of trade during the 1970s, and heavy reliance on imported inputs. Other analysts point to structural weaknesses in the import substitution industrialisation (ISI) strategy which the government adopted from the early days: Zambia’s industrialisation policy since independence has not led to the emergence of a new structure of production as could possibly have been the case if it had been centred around the concept of strategic basic industries using appropriate technology and catering for the consumption needs of the majority of the people. Instead it has followed the classic import-substitution pattern. (Tangri, 1984:117) While many new manufacturing ventures were established through the state taking an active role in the sector, the issue of the viability of the enterprises established was often overlooked. The ability of the sector to stand on its own without leaning heavily on the mining sector for foreign exchange was not adequately factored into the long-term planning. At the time when these enterprises were being set up, the assumption was that the favourable conditions surrounding the mining industry would continue. As it turned out, the mining sector started to experience serious challenges after the first oil shock, from 1973 onwards. While some analysts attribute the weaknesses in the manufacturing sector to the ISI strategy (Tangri, 1984; Siedman, 1974), there were other structural problems which emanated from the way the economy was set up.

The manufacturing sector in Zambia 169 For instance, low levels of and stagnating formal employment meant that the demand for locally manufactured goods was not increasing to sustain the dynamism initiated in the sector. The other structural weakness is the dominance of mining products in the export basket. Although it could be argued that the manufacturing sector should have increased the non-traditional export content in the basket if the country had pursued an export-oriented strategy, entering the export market for industries at an early stage of development, as was the case in Zambia, was always a less practical option. Most industrial strategies rely on the growth of domestic demand for manufactures before breaking into the export market (see Kaldor, 1966). In this regard, the manufacturing of food stuffs and other products used by the majority of the people was the most feasible option. But in the Zambian case this option had limited prospects because of the fact that the large majority of the people were in informal economic activities, mainly subsistence agriculture with low purchasing power. These structural weaknesses are related to the failure to transform the colonial economy. Because of its inherent weaknesses, the manufacturing sector could not stand on its own in terms of entering export markets to expand its scope. As a result, the worsening fortunes of the mining sector impacted negatively on manufacturing, as in the rest of the economy, starting from the 1980s. If strategic subsectors had been initially identified and targeted to tap into domestic demand, this could have reduced the dependence of the manufacturing sector on mining. Nonetheless, the strategies pursued immediately after independence led to the growth of the manufacturing sector in Zambia, though much of the manufacturing capabilities developed during that period were lost during privatisation, and efforts to revive the sector have not achieved much so far. As the following section illustrates, a relatively sophisticated manufacturing sector emerged in Zambia, predominantly in the natural resource processing segments of the sector, though much of the momentum was lost during the privatisation of parastatal companies.

Trends in the manufacturing sector in Zambia As already alluded to, the manufacturing sector in Zambia has gone through phases of rapid expansion during the first decade of independence, followed by slow growth and stagnation during the 1980s and declining manufacturing activities since the 1990s. Although the manufacturing sector has started to recover in the last couple of years, value added in the sector in only a third of what it was at the peak in the early 1990s. When we look at the performance of the manufacturing sector over different periods, we see that growth varied in the different periods (see Table 6.2). If we divide the period between 1965 and 2018 into five-year periods, it is evident that the worst periods for the sector were 1991–1995 and 1976–1980. For the period 1991–1995, the manufacturing sector was declining at an average rate of 17 per cent per year. If we look at the coefficient of variation in the tenyear moving average sample, it is also clear that there is greater variability in the

170

The manufacturing sector in Zambia

Table 6.2 Manufacturing five- and ten-year average growth rates (1965–2018) Five-year average growth Ten-year average growth Standard rates rates deviation

Coefficient of variation

1965–69 1970–75 1976–80 1981–85 1991–95 1996–1998 1999–2005 2006–2010 2011–2018

38.529509 194.39393 321.6574 −189.51753 30.676507 32.939407

18.1 6.5 0,5 3.0 –17.5 3.1 5.1 3.3 6.0

1970−79 1980–89 1990–99 2000–2010 2011–2018

4.0 2.2 −7.4 5.1 6.0

6.965883 7.745867 7.095799 13.99422 1.567291 1.964012

Source: Author based on data from CSO (2015, 2019).

two decades from 1980 to 2000 in terms of growth rates (see Table 6.2), singling greater growth erratic-ism during this time compared to other periods. The sector recorded the strongest growth in the first five years of independence between 1964 and 1969 when it was expanding at an impressive average rate of 18 per cent per year. This rapid growth in the sector should be understood in the context of the urgency to transform the Zambian economy by the leadership of the day in its bid to address the double dependency challenge manifested in the overwhelming dependence on copper for export earnings and dependence on the southern neighbours for manufactured products. Further, the sector grew faster because it was starting from a very low base. In the initial years of industrial development, the manufacturing sector tends to grow faster than other sectors. The slow-down in the period 1976–1980 can be attributed to the beginning of the foreign exchange crisis which was occasioned by the first oil shock of 1973 coupled with the declining price and production of copper after 1975. Similarly, the huge decline in manufacturing production during the first five years of the 1990s can be attributed to the effects of privatisation, which saw some of the manufacturing activities declining sharply while others stopped production as industrial ownership changed hands and the sector was being reorganised (Munakampe et al., 1999; Lombe, 2018). Sluggish recovery The sector has been recovering slowly from the effects of the 1990s foreign currency crisis and privatisation, though the momentum has not been sustained, as reflected in the further decline reported in later years. The overall performance of the sector is summarised in the ten-year average growth rates which also point to a similar trend, suggesting that the worst decades were 1980–1989 and 1990–1999 (see Table 6.2). This is confirmed in the coefficients of variation which indicate

The manufacturing sector in Zambia 171 greater variability for these two decades with the latter reporting wider dispersion in average growth rates. The first two decades of the twenty-first century show steady growth, as indicated by the lower coefficient of variation.

Manufacturing value added per capita When analysing the manufacturing sector, one of the critical indicators often used is the MVA per capita which gives an indication of the country’s ability to produce manufacture goods (UNIDO, 2016). The MVA per capita indicator also reflects a country’s level of industrialisation and is expressed in per capita terms to take into account population size. To get a sense of how the manufacturing sector in Zambia has performed, we compare the county’s MVA per capita with other countries in Africa over a period of time (1990 to 2018). The first point that is apparent from Table 6.3 is the low levels of MVA per capita for most African countries, including Zambia. The low level of MVA per capita for African countries becomes evident when we consider figures for industrialised countries such as Germany with MVA per capita of US$7,655, Switzerland with MVA per capita of US$10,147, and Singapore with US$9,700 in 2013 (ibid.:203). The highest MVA per capita in the sample of African countries in Table 6.3 has consistently been reported in Mauritius and Swaziland, both with MVA per capita above the US$1,000 since 2000. In the case of Zambia, MVA per capita has consistently been below half of the average for the sampled countries in Africa since the 1990s. What is worrying is that MVA per capita for Zambia only grew by 15.8 per cent in almost 30 years (from 1990 to 2018), representing a meagre 0.9 per cent growth per year on average. Although there has been sustained growth since 2000, the growth has been largely subdued. The less than 1 per cent average annual growth rate in Zambia for almost three decades is extremely low compared to fast-growing countries such as Ethiopia, Uganda, Angola, Mozambique, Nigeria, Morocco, and Egypt, which recorded an average annual MVA per capita growth rate of over 5 per cent over the same period. The low levels of MVA per capita in Zambia and other African countries are a sign of the challenges that these countries face in the manufacturing sector, and broadly in economic development. Low levels of MVA per capita are indicative of the failure of countries to transition from low value-added to high value-added activities (Chitonge, 2019), and this has constrained their ability to transform these economies to create conditions for sustained economic growth and development. The manufacturing sector, because of its ability to act as a conduit for technological catch-up and broad-based improvements in productivity, remains a crucial sector with the potential to contribute not only to the transformation of African economies but to reducing poverty and inequality. Therefore, the sluggish growth in the manufacturing sector should be a concern which requires an urgent but collective approach by African countries if progress is to be realised. We come back to this point in Chapter 9.

102.58 125.85 215.28 215.26 125.85 215.28 208.08 10.03 222.26 132.39 123.61 33.24 711.37 283.48 17.53 448.95 113.85 2.15 907.32 952.94 39.18 388.61 18.74 113.40 151.95 235.17

61.25 137.19 229.39 155.82 137.19 229.39 232.30 7.07 220.32 68.97 119.76 33.56 858,47 294.26 13.51 455.81 94.49 1.10 815.67 973.95 36.08 462.05 29.48 86.62 133.23 235.48

1995

72.93 156.58 314.22 175.75 156.58 314.22 314.63 7.54 301.39 76.69 104.74 27.95 1,072.43 317.25 27.89 426.84 84.20 1.33 847.88 951.55 37.30 574.72 42.83 91.89 113.00 264.49

2000 97.23 143.27 274.40 186.68 143.27 274.40 336.92 8.31 345.22 84.18 107.66 26.26 1,045.23 344.30 47.75 539.92 113.17 1.90 924.12 900.42 36.96 620.86 49.13 105.80 77.52 273.39

2005

Source: Author based on UNIDO’s INDSTA data (website).

Angola Benin Botswana Cameroon Chad Côte d'Ivoire Egypt Ethiopia Gabon Ghana Kenya Malawi Mauritius Morocco Mozambique Namibia Nigeria Rwanda South Africa Sudan Swaziland Togo Tunisia Uganda Zambia Zimbabwe Average

1990 160.52 104.71 405.33 189.38 104.71 405.33 410.89 11.69 376.27 83.86 108.88 45.47 1,135.40 448.43 43.89 647.78 150.15 2.25 949.79 153.84 1198.06 40.15 684.30 54.70 110.89 78.72 311.75

2010 240.28 99.76 451.39 204.55 99.76 451.39 392.69 14.63 384.24 95.27 110.01 43.06 1,162.46 448.27 42.29 612.22 190.25 2.44 972.47 142.56 1,236.24 45.57 664.23 53.58 121.10 90.40 321.97

2012

Table 6.3 MVA per capita selected African countries (in constant 2010 US$) 1990–2018

258.72 108.75 471.89 208.34 108.75 471.89 406.04 21.83 391.49 89.67 113.95 46.41 1,233.10 518.36 45.14 568.74 241.88 2.76 941.40 149.78 1,267.94 58.25 658.47 56.08 132.10 79.67 332.75

2015 261.87 110.14 485.98 212.64 110.14 485.98 425.18 29.50 414.14 92.25 117.79 46.33 1,276.42 543.03 45.40 620.83 223.25 3.05 912.49 140.71 1,320.11 63.54 672.34 56.77 131.28 73.17 341.32

2018 155.3 −12.5 125.7 −1.2 −12.5 125.7 104.3 194.0 86.3 −30.3 −4.7 39.4 79.4 91.6 159.0 38.3 96.1 42.1 0.6 −8.5 38.5 62.2 73.0 202.9 15.8 −51.8 61.87

8.6 −0.7 7.0 −0.1 −0.7 7.0 5.8 10.8 4.8 −1.7 −0.3 2.2 4.4 5.1 8.8 2.1 5.3 2.3 0.0 −0.5 2.1 3.5 4.1 11.3 0.9 −2.9 3.44

Change % Average annual 1990–2018 Change %

172 The manufacturing sector in Zambia

The manufacturing sector in Zambia 173

The composition of the manufacturing sector in Zambia The composition of the manufacturing sector in Zambia reflects the different phases which the sector has undergone since independence, although the basic features have remained largely unchanged. The most dominant feature of the manufacturing sector in Zambia has been the food, beverage, and tobacco (FBT) cluster, which has consistently remained the largest single subsector, sometimes accounting for close to two-thirds of MVA. Trends have varied over time though. For instance, the FTB subsector accounted for about half of total manufacturing output in 1965, but this dropped to 30 per cent in 1980s due to steady growth in other manufacturing subsectors, mainly chemical and chemical products, basic metals and metal products, and textiles (see Table 6.4). If we look at the period from 1965 to 1999, the share of FBT in MVA declined initially but grew in the second half of the 1990s. However, the growth of the FBT component of the manufacturing sector during this period is a result of the fact that production in other subsectors declined, leading to lower contribution to MVA. However, the FBT has consistently been the single largest subsector of the manufacturing sector, accounting for an average of 42 per cent over this period. This has remained so in the first two decades of the 2000s as shown in Table 6.5. Dominance of food processing The dominance of food processing in manufacturing is a basic feature of economies at their early stages of industrialisation (see Chitonge, 2019). The explanation for this is that economies at an early or low stage of industrialisation usually have low income per capita, with the majority of people having just enough to buy food. In some cases, up to 80 per cent of income is spent on basic needs, mainly food. Demand for the non-food components of the manufacturing sector at this stage tends to be low within the domestic market, and accessing export markets is often a challenge for local manufacturers at this stage due to stiff competition from producers located in advanced economies. Syrquin and Chenery’s (1989) crosscountry study that examined trends in the composition of manufacturing sector confirms this pattern of the manufacturing sector for countries at early stages of industrial development. This phenomenon is explained in terms of the composition of final demand in the economy as a function of income. As income rises, the proportion going to food drops and the demand for non-food manufactures rises. This is the first level of the Kaldorian industrial production adjustment trajectory. At the second level of industrial growth, rising demand for manufactures stimulates domestic production of most imported manufactures, thereby resulting in the growth of the non-food component in the manufacturing sector (Kaldor, 1966). It has been argued that this transformation in final demand is one of the most uniform features of the process of development. On average, the share of private consumption in GDP declines with the level of income, as the share of investment rises and the

46.1 9.9 3.7 3.4 14.7 5.3 16.6 0.2 100

3.9 3.8 8.7 19.1 0.4 100

1970

49.9 8.9 5.3

Source: Based on Data from CSO (2015).

Food, beverage, and tobacco Textiles, apparel, and leather Wood, wood products, and furniture Paper and printing Chemical and chemical products Non-metallic mineral products Basic metals and metal products Other manufacturing

1965

5.5 20.2 5 23.6 0.5 100

27.4 12.5 5.2

1975

Table 6.4 Manufacturing GDP by subsector (1965–1999), per cent

4.7 18.8 5.9 21.5 0.3 100

30 16.2 2.5

1980

3.7 9.9 8.3 20.5 14.3 100

29.1 10.1 4.04

1985

7.2 13.2 4.9 10.5 11.7 100

35.7 13.9 3.02

1990

2.1 7.4 2 0.8 4.6 100

64.4 10 8.5

1995

2.9 6.1 1.7 0.5 2.3 100

61 17.7 7.6

1999

4.2 11.8 5.2 14.1 4.3 100

42.95 12.4 5.0

Average

174 The manufacturing sector in Zambia

61.3 14.6 7.8 2.9 8.8 2.1 0.4 2 100

59.3 17.4 7.3

2.9 8.3 1.8 0.5 2.5 100

2005

3.3 6.1 9 25.7 12.1 100

38.5 4 2.3

2010

Source: Based on data from CSO (National accounts, 2005, 2015, 2019).

Food, beverage, and tobacco Textiles, apparel, and leather Wood, wood products, and furniture Paper and printing Chemical and chemical products Non-metallic mineral products Basic metals and metal products Fabricated metal products

2000

Table 6.5 Manufacturing GDP by subsector (2000–2018), per cent

1.8 10.1 12.5 28.5 12.2 100.1

32.1 1.1 1.8

2015

1.5 9.3 14.6 26.6 10 100

35.3 1 1.7

2016

1.7 8.7 13.5 28.9 10.1 100

34.6 1.1 1.4

2017

1 7.4 11.7 28.1 10 100

38.9 1.3 1.6

2018

2.2 8.4 9.3 19.8 8.4 100.1

42.9 5.8 3.4

Average

The manufacturing sector in Zambia 175

176

The manufacturing sector in Zambia trade deficit declines. Food consumption [share] drops by about 20 percentage points, while non-food consumption goes up. (Syrquin and Chenery, 1989:154)

What this suggests is that the persistently large composition of the FBT in the manufacturing sector in Zambia over the last six decades implies that the transformation observed in industrialised countries has not yet occurred. Other African countries exhibit similar structures of MVA, with the FBT component accounting for the largest share of the sector. Even in countries with relatively advanced manufacturing sectors such as South Africa, Morocco, Kenya, and Mauritius, the food processing sector accounts for a large share in the manufacturing sector (see ACET, 2017). In South Africa, for instance, while the agro-processing sector accounted for over 30 per cent of MVA, the food processing subsector consistently accounted for over 40 per cent of the agro-processing sector (DAFF, 2012: 5). From the available data, it is clear that the manufacturing sector in Zambia has not transitioned from the first stage where manufacturing is dominated by the processing of food; the sector has not transitioned to a stage where production is dominated by the manufacture of consumer goods, as Tables 6.5 and 6.6 illustrate. Although the composition of FBT in gross manufacturing value added has somewhat declined from the levels reached in 2000, it has remained high at almost 40 per cent in 2018 (see Table 6.5). This suggests that the larger share of final demand is constituted by food products. The other reason for the dominance of the FTB subsector in the manufacturing sector of economies at low levels of industrialisation is that food processing does not require sophisticated technology, which not only demands skilled labour but also high capital investment. However, in economies where the food subsector remains the largest over a long period of time, this is a signal of the failure to transition from low to high value-added and low- to high-tech manufacturing (Chenery et al., 1986). In the period from 2000 to 2018, we see the revival of several manufacturing subsectors. This is not surprising since the other segments of the sector, mainly the basic metals, and metal and non-metallic products cluster, relies heavily on inputs from mining, which started to grow from 2003 onwards. As production in other subsectors of the manufacturing sector expanded, this reduced the overall contribution of FBT to MVA, although the FBT still remained the largest single subsector. Impact of privatisation on the manufacturing sector In general, the decline in output and share in MVA for most clusters in the sector can be attributed to the privatisation of the parastatal companies, was vigorously implemented by the newly elected MMD government immediately after coming to power in late 1991 (Fundanga and Mwaba, 1997). The speedy privatisation of parastatal companies not only halted production in the manufacturing sector, it also led to the abandonment of some manufacturing activities which could not attract investors. Examples of manufacturing industries that never recovered

The manufacturing sector in Zambia 177 after privatisation include the Zambia Clay industries, the fruit cannery factory in Mwinilunga, the batteries factory in Mansa, and the crushed stones factory in Lusaka. We see significant decline in output and share of several subsectors, including basic metals and metal products, and chemicals and chemical products, between 1980 and 2005, with output share dropping to less than half of the levels reached before privatisation. However, some subsectors remained stable during the 1980s, especially textile and non-metallic minerals despite the economic crisis the country experienced, starting from the mid-1980s. It is interesting to note that some divisions within the manufacturing sector experienced robust growth during the 1990s, particularly wood and wood products, and furniture, which saw a threefold growth at the time when activities in the other subsectors were declining. One of the reasons for the massive growth in this sector could be that as people were retrenched from the formal sector employment following the privatisation of parastatals, many of them went into informal sector business activities such as the sale of various wood products including timber, furniture, and other wood products. The expansion of local markets during the 1990s, like Buseko in Lusaka where wood and wood products are some of the major items sold, supports this view. During this period, Zambia experienced a massive rise in the number of people making wooden and metallic products which are sold in local markets and alongside major roads in the big cities and towns all over the country. This is confirmed by data showing that formal manufacturing activities in Zambia accounts for less than 25 per cent, suggesting that more than three-quarters of manufacturing activities are conducted in the informal sector (CSO, 2019). In terms of the contribution of manufacturing to total employment, Chansa et al. (2019:5) report that this declined from 14 per cent in the second half of the 1980s to 8 per cent in 2014. The decline in the manufacturing sector becomes more evident when we look at the index of manufacturing production in the period 1964 to 1998 (see Figure 6.2).

Figure 6.2 Manufacturing Production Index 1964–1998 (1990=100). Sources: Author based on data from CSO (2015).

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Long-term picture of manufacturing production When we look at manufacturing production over the long term, we see production steadily rising from the 1960s through the 1970s and 1980s and sharply declining during the 1990s. It is important to point out that the five-year moving average data presented in Figure 6.2 do not reflect the fall in production during the 1970s and the mid-1980s when the impact of the foreign currency crisis filtered into the economy (Karmiloff, 1989; see also Table 6.2). Manufacturing production started to decline during the early 1990s and sharply thereafter, declining to less than 40 per cent of what it was at its peak in 1990. However, manufacturing sector production started to improve during the second half of the 1990s and trends show a steady rise in production throughout the 2000s right up to the present (see Figure 6.3). Interestingly, manufacturing production doubled in volume between 2000 and 2014. But production declined in 2015 and 2016, rebounding slightly in 2017 and 2018. While manufacturing production rose steadily throughout the first two decades of the new millennium, the share of the sector in GDP has been declining. This is partly because of the declining total factor productivity, particularly labour productivity, in the sector, as noted earlier. The Manufacturing Sector Report 2014 shows a sharp decline in the productivity of labour in the manufacturing sector in the five years from 2006 to 2010 (CSO, 2014:53–56). The other reason for the decline in the share of manufacturing in GDP is the growth of the mining sector, whose share in GDP rose from below 4 per cent in 1995 to over 12 per cent in 2010, rising to 15 per cent in 2018. In addition, the rise in the share of the services sector also contributed to the decline in the manufacturing share in total output. Thus, whilst production volumes were increasing, they were growing at a lower rate compared to growth in other sectors, including mining and construction (Lombe, 2018). Chansa et al. (2019) also report similar

Figure 6.3 Manufacturing Production Index 2000–2019 (2000=1000). Sources: Author based on data from CSO (2019).

The manufacturing sector in Zambia 179

Figure 6.4 Manufacturing share in industrial output (1994–2018). per cent. Source: Author based on data from CSO (2015, 2019).

trends in MVA share in GDP, which sharply declined in the 1990s and stabilised at less than 10 per cent throughout the last two decades. The manufacturing sector’s contribution to total industrial output has remained low despite the steady growth recorded between 2000 and 2010. What is worrying, however, is that growth in the sector seems to have been declining since 2011, and it has stayed low over the last decade (see Figure 6.4). The declining contribution of manufacturing to total industrial output is partly accounted for by the growth in other sectors during this period, particularly the construction sector. It is evident from Figure 6.4 that while the share of manufacturing in total output for the industrial sector was close to 50 per cent during the 1990s, the sector’s share dropped consistently over the years to less than 40 per cent, where it has stabilised. Although the manufacturing sector is one of the subsectors of the industrial sector, it was the largest subsector in the years prior to 1990, and its decline contributed significantly to the falling industrial share in GDP. Manufacturing and construction The other way to look at trends in the manufacturing sector is to compare growth between the major sectors in the industrial cluster. If we compare the growth rates in manufacturing to that of the construction sector, it is clear that the construction sector started to grow faster than the manufacturing sector from the early 2000s (see Table 6.6). On average, the construction sector grew at more than three times the average growth rate of the manufacturing sector between 2000 and 2010. As a result of these higher growth rates during this period, the construction sector overtook the manufacturing sector to become the largest sector in the industrial cluster by 2010 (see Figure 6.5).

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Table 6.6 Growth rates in manufacturing and construction sectors (2000–2015), per cent Year

Manufacturing

Construction

Year

Manufacturing

Construction

2000 2001 2002 2003 2004 2005 Average

3.6 4.2 5.7 7.6 4.7 2.9 4.8

6.5 11.5 17.4 21.6 20.5 21.2 16.5

2010 2011 2012 2013 2014 2015 Average

10.6 4.8 6.2 6.5 5.4 6.7 6.7

2.1 0.6 −3.5 10.6 18 5.56 5.6

Source: Based on data from CSO (National accounts, 2005, 2015, 2019).

Figure 6.5 Share of manufacturing and construction in total industrial output (1994–2018), per cent. Source: Author based on data from CSO (2015, 2019).

While the construction sector has continued to expand relatively faster, the manufacturing sector’s growth has been slower, remaining subdued since 2010 (see Table 6.6). For instance, while the average annual growth in value added for the construction industry between 2000 and 2005 was over 16 per cent, the annual growth rate for the manufacturing sector was only 3 per cent. One of the main reasons for the robust growth of the construction sector is the growth in demand from the recovering mining sector, starting from 2003 when mining activities started to rebound (UNDP, 2016:43). If we consider the period from 1994 to 2018, the average annual growth rate for the manufacturing subsector was roughly −4, against the annual average growth of 11 per cent for the construction subsector. The manufacturing sector growth rates caught up with the construction sector in later years mainly because of the sharp decline experienced in the latter between 2010 and 2013 (see Table 6.5). For the manufacturing sector, although the average growth rates for the period 1995 to 2011 are almost the same as the average growth rates for the period 2011 to 2018, the worrying factor is that growth in the sector seems to be stagnating.

The manufacturing sector in Zambia 181

Composition of the manufacturing sector In order to analyse the structure and performance of the manufacturing sector in Zambia, a disaggregated profile of the various components of the sector, including trends over time, is presented in this section. Up to this point, we have been looking at trends in the manufacturing sector as a whole.. In terms of the composition of the manufacturing sector, the sector is dominated by the FBT cluster, which on average accounted for 42 per cent of manufacturing output (see Tables 6.4 and 6.5). In 1995 the FBT accounted for close to two-thirds of the sector’s total output. This could be attributed to the declining production in other subsectors of the manufacturing sector, mainly basic metals, chemicals and chemical products, and paper and paper products, which had declined significantly by 1995. The decline in these sectors is a result of restructuring following the privatisation of most state-owned manufacturing enterprises during the first half of the 1990s (Kaunga, 1993; Szirmai et al., 2002). One of the important points to highlight from the structure of the manufacturing sector reflected in Tables 6.4 and 6.5 is that the larger share of the manufacturing output is concentrated in the production of food and beverages. Concentration of manufacturing activities in the food production subsector is not unusual for economies at the early stages of industrial development (UNIDO, 1980). But if this structure of the manufacturing sector persists over two or three decades it is an indication that the economy has failed to transition from resource-based, low valued-added manufacturing to medium- and hightech activities. The obvious implication of this is that productivity remains low and, with it, income and employment in the sector. The other point to note in this regard is that the other subsectors in the manufacturing sector, particularly basic metals, which had been a second major component of the sector, had almost collapsed by 1995, accounting for less than 1 per cent of manufacturing value added. What is even more worrying here is that all three subsectors in the medium-tech category (chemicals, metals, and non-metallic) sharply declined after 1990, suggesting that productivity and value added had dramatically fallen in the manufacturing sector as a whole. This is confirmed by trends in labour productivity in the manufacturing sector as a whole, which halved between 1990 and 1995 (see Szirmai et al., 2002:7). The decline in chemical and chemical products, basic metals, non-metallic and mineral products was largely related to the decline in the mining sector during the 1990s, when mining activities in the country dropped to the lowest levels. The low activities in the mining sector negatively impacted on the performance of these manufacturing subsectors which rely on the mining sector for inputs, especially in the case of chemical and chemical products. Low activities in the mining industry affected both the acquisition of inputs (which come from the mines) and the demand for chemicals (which largely relies on supplying the mining industry). In addition to chemicals, basic metals and fabricated metal products also source inputs from the mining sector. In this sense, the manufacturing sector in Zambia exhibited the double dependence on the mining sector by relying on the sector for foreign currency earning as well as the sourcing of inputs and the supply

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of finished products (ibid.:3). Although the sector started to recover during the first decade of the 2000s, the basic structure of the manufacturing sector has, to an extent, remained the same. The food and beverage subsector has continued to dominate the sector although its share in manufacturing value added has slightly declined starting from 2010 (see Table 6.5). What is interesting is that the three subsectors in the medium-tech category (i.e., basic metals, fabricated metals, non-metallic and mineral products) recovered quite quickly in the 2000s, especially the basic metals and metal fabrication, which almost disappeared during the 1990s. This dramatic recovery can be attributed to the upsurge of momentum reported in the mining sector starting from early 2000, as noted earlier. We have also seen an almost total collapse of the textile industry as well as that of wood and wood products which, during the 1990s, used to make up a significantly large portion of the manufacturing sector. This has been attributed to the rise in imports of clothing and wood products from China and of second-hand clothes from Europe and other developed countries (CSO, 2014; UNDP, 2016). When we look at the structure of the manufacturing sector since independence, it is apparent that the sector has had some high-tech activities, such as manufacture of machinery, electronics, precision instruments, etc. especially before privatisation. Although the sector has in recent years recorded a steady recovery of manufacturing activities in the medium-tech category, the bulk of the output in the sector is located in the low-tech activities with low value added. The bulk of the high-tech capacity developed during the 1970s and 1980s has been lost. Performance of manufacturing subsectors Looking at the data for the various subsectors of the manufacturing sector there is strong evidence that the sector is steadily recovering from the slump of the 1990s. If we look at the manufacturing production index by subsector, the recovery of the sector is evident, with most sectors doubling their production volume over the past 15 years (see Table 6.7). Although production in the textile and leather industry has almost collapsed, significant improvement has been reported in all the other sectors, especially the non-metallic and mineral products subsector which increased production fourfold between 2000 and 2019. This subsector has been buoyed up by massive investments in the cement and lime industry, especially with the opening up of the sector to other actors such as Dangote Cement, which has boosted production in the last decade. There seems to be less momentum in the fabricated metals and metal products subsector, which only started to grow in the last five years, and the growth has been slow. This could be attributed to the fact that the subsector is still recovering from the low investment experienced in the 1990s and the competition coming from outside the country. Overall, although the manufacturing sector still remains predominantly a low-tech sector, mostly concentrated in the processing of natural resources, including food, there is great potential in the Zambian economy,

100 112.6 122 129.4 136.9 143.7 154.9 166.6 171.6 180.3 193.6 211.5 226.5 240.9 251.3 254.4 255.6 259.3 268.9 244.4

100 68 72.2 74.5 73.1 69.5 65.9 53 40.6 32.5 14 6.4 6.6 7.5 5 3.3 3.1 4.2 5.4 5.8

100 123 132.3 147.3 153.5 159 161.1 167 187.2 192.1 217.7 231 240.8 237.2 240.2 247.9 245.6 241.6 240.3 275.3

Source: Based on data from CSO (National accounts, 2019).

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

100 69.7 71.2 77.1 79.1 87.3 87.2 87.8 113.5 119.8 147 174.1 198.7 220.3 223.7 213.5 226.2 239.1 238.2 235.7

100 67.9 73.8 79.6 85 90.8 91.2 95 101.3 100.7 103.5 110.9 122.1 133.7 140.3 162.1 171.2 179.4 185.6 208

Food, beverages, Textile, clothing, Wood and Paper and Chemical and and tobacco and leather wood products paper products rubber

Table 6.7 Manufacturing index of production Volume by sector 2000–2019 (2000 = 100)

100 106.7 108.5 124.5 142.5 156 149.2 142.2 149.3 166.2 187.8 234.7 253.8 258.2 276.9 306.5 368.9 415.1 430.4 432.2

Non-metallic minerals 100 56.6 59 67.9 70 67.2 68.4 65.1 80.1 76.2 74.7 74 84.4 89.6 102.9 112.5 110.9 115.5 121 149.5

Basic metals

100 95.4 71 84.1 88.2 92.6 95.5 103 100.4 90.5 102.1 119.1 105 110.6 112.6 115.8 111 103 104.4 104.7

Fabricated metals

The manufacturing sector in Zambia 183

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The manufacturing sector in Zambia

given its vast mineral resources. With appropriate policy direction, it is possible to move into medium- and high-tech manufacturing, building on existing mineral resources. It has been suggested that in the medium term, the country could promote activities in the medium-tech segment of the copper value chain by tapping into regional value chains (Mekgatha et al., 2019). One of the challenges that has been prevalent throughout the history of Zambia is the double dependence on copper as the main export earner and the main consumer of most non-food manufacturing products. With this heavy reliance on copper export, when there is a slump in the global price of copper this usually tends to have a huge negative impact on the rest of the economy and on Zambian society at large. This is why it is imperative to transform the structure of the Zambian economy to reduce dependence on the export of copper for foreign exchange earnings. Employment in the manufacturing sector In terms of employment trends in the sector, available data suggest that levels of employment in the manufacturing sector rose steadily at independence from about 20,000 workers to above 75,000 employees in the late 1980s, and remained fairly constant around this level until the 1990s, when the sector started to shed jobs. Employment remained depressed until around 2005, when growth in the sector was reported. There were two periods between 1975 and 1979 and 1993 and 2004 when employment levels dipped below the 50,000 mark (see Figure 6.6). It is also interesting to note the rise in employment levels in the manufacturing sector from 1979 to about 1981 and again from 1983 to 1984. The interesting thing about these two periods is that this is the time when the country started to experience foreign currency shortages leading to the introduction of SAPs by the World Bank and IMF during the first half of the 1980s (Simson, 1985). One of the reasons given for this rise in employment in the manufacturing sector during these two periods it that employment was artificially sustained in the state-owned enterprises due to political pressure. It has been suggested that the parastatals

Figure 6.6 Manufacturing employment (1965–2018). Source: Author based on data from CSO (2015, 2019).

The manufacturing sector in Zambia 185 sustained employment levels even if these manufacturing firms were not making full utilisation of the facilities due to the shortage of foreign exchange (World Bank, 1984). For example, it has been reported that in 1983 the average capacity utilisation in the manufacturing sector was only 53 per cent (ibid.). Installed capacity utilisation in the manufacturing sector has remained low at an average of 56 per cent, even in 2014, though there are huge variations between the different subsectors, with the tobacco processing and casting of iron and steel enterprises reporting 88 and 73 per cent capacity utilisation respectively(CSO, 2014:50). It has been observed that “although assets per worker continued to rise for several years, the relative movements of factors and output in the whole manufacturing sector suggest drop in productivity of both labour and capital” (Karmiloff, 1989:18). As a result of falling labour productivity, total factor productivity fell in most subsectors of the manufacturing sector. Despite this, employment in the sectors remained constant, rising in some years, as we have seen, suggesting that there was little consideration given to the viability of the enterprises in the long run. Analysts have attributed this to political pressure to keep employment at the same level to avoid public outcry as a result of retrenchments (Fundanga and Mwaba, 1997; Chansa et al., 2019). A World Bank report (1984) notes that by 1980 the public/parastatal sector accounted for 56 per cent of total manufacturing GDP and 54 per cent of the sector’s employment. The report also argues that the maintenance of high employment was politically sustained, even when economic activities could not justify this: The relative importance of the employment objective for the public/parastatal manufacturing sector is evident in the rapid growth of its labour force during 1970–74 at 10 per cent per annum, or 5 times as fast as its real output growth, while private sector employment and output grew at nearly the same rate, about 9 per cent. As a result, labour productivity has declined more rapidly in the public/parastatal sector than in the private sector. (World Bank, 1984:55) There are indications that e mployment in the public sector at the time when the state was running a large section of the manufacturing sector were artificially maintained. Recent trends in the sector suggest that employment slowly recovered, rising sharply from 2005 until 2012, when employment levels stabilised at around 220,000, though recording a slight decline in 2018. However, the overall picture is that manufacturing in Zambia has been a small section of total employment (see Figure 6.7), account for an average of about 5 percent of total employment between 2000 and 2014 (CSO, 2014) . While manufacturing share in total employment in 1965 was about 10 per cent, it drastically fell to less than 5 percent in 1990 and stayed below 4 per cent until 2010, when the share of manufacturing in total employment rose sharply, reaching a high of 8 per cent (see Figure 6.7). This level of manufacturing employment in Zambia is a reflection of the lack of industrial growth, given that

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The manufacturing sector in Zambia

Figure 6.7 Share of manufacturing in total employment (1965–2018). Table 6.8 Formal and informal manufacturing employment (2005–2018)

2005 2008 2012 2017 2018

Formal (No.) %

Informal (No.) %

Total

18,870 55,559 55,364 92,294 79,276

36,629 103,635 166,382 141,427 159,770

55,499 159,194 221,746 233,721 239,046

34 34.9 25 39.5 33.2

66 65.1 75 60.5 66.8

Source: Based on data from CSO (2005, 2008, 2014, 2018 LFS), ILO (2019).

the employment share of highly industrialised countries such as Germany, the US, and Britain, peaked around 30 per cent during the 1980s (UNIDO, 2016). Even though the phenomenon of premature deindustrialisation is reportedly lowering the level at which manufacturing employment peaks (Rodrick, 2015; Felipe et al., 2017), in recently industrialising countries like Taiwan, China, South Korea, and Hong Kong, the share of manufacturing averaged about 25 per cent. The low levels of manufacturing employment we have seen in Zambia and on the rest of the continent are an indication of lack of sustained industrial growth (see Chitonge, 2019). The recent upsurge in employment in the manufacturing sector has been attributed to the fact that the low cost of labour in Zambia has led to the substitution of machinery and equipment for labour in most of the manufacturing establishments (CSO, 2014:55). However, it is also important to note that the larger share of this employment (as, indeed, in the rest of the economy, is informal employment (see Chansa et al., 2019). For example, in 2005 and 2008 the share of formal employment in the manufacturing sector was only 34 per cent and this figure fell to 25 per cent in 2012 (see Table 6.8).

The manufacturing sector in Zambia 187 The dominance of informal employment in the manufacturing sector was reported early in the 1980s, even when parastatal companies dominated the sector. A UNIDO report noted that in Lusaka alone there were more than 30,000 informal sector manufacturing firms, which was “considerably more than the firms covered by the industrial Census” (cited in World Bank, 1984:82). Informal employment in the manufacturing sector, as shown in Table 6.8, has even increased due to the fact that the formal manufacturing sector has not fully recovered since the 1990s when privatisation started. This has left most people to engage in self-employed manufacturing activities which tend to be predominantly informal in nature. As noted earlier, the prevalence of informal manufacturing is manifested in the diverse range of locally manufactured products on sale along the main roads, especially in major cities and towns in Zambia and other African countries. This is certainly an indication that informal manufacturing ventures are a large component of the manufacturing sector in Zambia, and policy should begin to look at these ventures and explore possible pathways of promoting industrial growth by upgrading some of these ventures to produce high-quality products. At the moment, the approach of most governments in Africa, including Zambia, has been to wait for the big multinational companies to open up mega factories (see Chitonge, 2019). But most of the big multinational companies are directing their investments into extraction of natural resources with relatively little investment committed to manufacturing. For instance, out of the total of US$1.9 billion dollars of FDI reported in 2013 in Zambia, over US$1.3 billion went into mining accounting for over 72 per cent of the total FDI, while only US$444 million went into manufacturing (ZDA, 2015). The amount of investment from local informal manufacturers, though not known, is likely to be much higher than this, suggesting that African states need to change their approach to informal manufacturing.

Manufacturing export dynamics In analysing the manufacturing sector in Zambia, it is important to look at what happens to the sector’s output. In this analysis, the focus is on the domestic and foreign trade in the sector. Trade in this regard refers to both domestic and international. The sourcing of inputs (intermediate and capital goods) should also be part of the manufacturing sector trade analysis. In this regard, it is important to note that the manufacturing sector in Zambia has traditionally been dominated by domestic consumption, with an agonisingly small portion entering the export markets, particularly basic metals products in recent years. In 2015 the non-traditional exports products which dominated the manufacturing sector included engineering products, processed foods, and chemicals (see ZDA, 2015: 24), though the share of manufacturing export in total export was less than 16 per cent. During the 1980s, it was observed that export in the manufacturing sector accounted for only 1 per cent of total output, rising to only 2 per cent in the 1980s (Karmiloff, 1989:12). The larger portion of manufactured products in Zambia is consumed locally on the domestic market, and this is not surprising given that the manufacturing sector

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The manufacturing sector in Zambia

is dominated by the processing of food and other natural resources. Although market access for Zambia’s manufactured products has significantly improved with the commencement of various regional trade agreements, including SADC FTA, COMESA, and now the Africa Continental Free Trade Agreement (ACFTA), the volume of manufactured export has remained low, and it has been cited as a major concern of government (RoZ, 2017). Even if the volume of trade in manufactured goods has grown steadily between 2006 and 2010 from US$5,000 million to US$1 billion in 2010, the levels of export have remained low for manufactures (CSO, 2014). Available data show that in 2010 almost 80 per cent of the manufactured export went into the SADC region, mainly DRC, South Africa, Zimbabwe, and Malawi, with only 20 per cent exported to the rest of the world. The top ten products from the manufacturing sector in Zambia include copper cathodes, articles of cobalt, cement, maize, raw sugar, refined copper wire, wheat and wheat flour, bulk sulphuric acid, cut flowers, tobacco, and sunflower seeds. In 2019, the export structure for manufactured products in Zambia remained little unchanged with copper manufactured products still dominating the export basket, accounting for over 84 per cent of total export (CSO, 2020). Although copper-based manufacturing has been growing, it has been reported that there is heavy concentration in the low value-added activities, particularly copper wire. Given this, it is essential that there is a deliberate policy to expand the export basket through the growth of non-traditional export (NTEs) commodities. The recent growth of export in cement and sulphuric acid is a positive sign indicating that there is potential to expand and diversify the content of the export basket, especially of manufactured products. While the share of NTEs in total export rose steadily, peaking at 35 per cent in 2013, this declined to below 25 per cent in 2014 and has largely remained at that level up to 2018 (see Figure 5.5) As noted earlier, the composition of NTEs is growing due to the growing export of sugar, cement, and tourism. The fall in the share of NTEs in total exports could be a result of the scrapping of sugar exports to the EU in 2014. But this structure of export shows the need to diversify the basket by promoting the growth of other export products. This would help overcome the challenge in the manufacturing sector of double dependence on copper. Diversification would also make a huge contribution to sustained growth in income and reduction in the levels of poverty and inequality which have been rising. As illustrated in this chapter, the Zambian economy has not succeeded in transforming the manufacturing sector to be the engine of growth. The structure of the manufacturing sector has remained concentrated largely on natural resource processing using low tech, with a relatively small portion of GDP originating from the medium- and high-tech activities. This manufacturing production structure has constrained the economy’s ability to diversify both the production base and the content of the export basket. Consequently, the country’s dependence on copper for foreign currency earnings has continued, partly reflected in the low content of the manufacturing sector in total export which in 2019 roughly accounted for just below 11 per cent.

The manufacturing sector in Zambia 189 There has been a lot of interest in developing the agriculture sector to boost the agro-processing industry in Zambia, which is widely believed to have significant comparative advantage when compared to other countries in Southern Africa. The next chapter looks at the agro-processing sector and highlights some of the linkages.

Notes 1 The higher share of manufacturing in total output was largely a result of the decline in the contribution of other sectors, particularly mining, which faced rising production costs against the consistently depressed prices on the global market (see Karmiloff, 1989). 2 The employment elasticity of the manufacturing sector has been reported to have declined such that manufacturing share in total employment is peaking at lower levels of manufacturing value added compared to the experience of early industrialisers— a situation that has been referred to as premature deindustrialisation (Rodrik, 2015; Tregenna, 2016). 3 What this decline in the purchasing power of Zambia’s exports entails is that if in 1970 Zambia was using one ton of copper to pay for a water pump from Germany, in 1983, it needed to sell four tons to pay for one water pump (assuming that the price of the German pump remained the same over this period)! 4 In the Mulungushi reforms announced in April 1968, the government asked 26 industrial firms to sell 51 per cent of their stakes to the government, and all of them agreed except for one company that refused (see Burdette, 1977). The mining sector was not included in these reforms. The reforms in the mining sector came in the Matero reforms in 1969.

References African Centre for Economic Transformation (ACET) (2017). African Transformation Report 2017: Agriculture, Powering Africa’s Economic Transformation. Accra: ACET. Aiginger, K. and Rodrik, D. (2020). “Rebirth of Industrial Policy and an Agenda for the Twentieth Century.” Journal of Industry, Competition and Trade, Vol. 20, No.4. 189–204. Baldwin, R. (1966). Economic Development and Export Growth: A Study of Northern Rhodesia, 1920–1960. Berkley: University of California Press. Bates, R. (1981). Markets and States in Tropical Africa: The Political Basis for Agricultural Policies. Berkeley: University of California Press. Burdette, M. (1977). “Nationalisation in Zambia: A Critique of Bargaining Theory.” Canadian Journal of African Studies Vol. 11, No. 3. 471–496. Central Statistics Office (CSO). (2005). 2005 Labour Force Survey. Lusaka: CSO. Central Statistics Office (CSO). (2008). 200 Labour Force Survey. Lusaka: CSO. Central Statistical Office (CSO) (2014). Manufacturing Sector Report 2011–2012. Lusaka: Ministry of Commerce, Trade and Industry. Central Statistical Office (CSO) (2019). Personal Communication (Excel File of Industrial Production 2019). February 17. Central Statistics Office (CSO) (2015). Zambia in Numbers: 1964 to 2014. Lusaka: CSO. Central Statistical Office(CSO) (2020). The Monthly, Vol. 202 (January 2020). Lusaka: CSO.

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Chansa, F., Mubanga, N. and Mudenda, D. and Ndulo, M. (2019). “Industrial Growth and Policy in Zambia: Lessons from South Korea.” African Journal of Economic Review Vol. VII, No. 2, 1–25. Chenery, H., Robinson, S. and Syrquim, M. (1986). Industrialisation and Growth: A Comparative Study. Washington, DC: World Bank. Chitonge, H. (2019). Industrialising Africa: Unlocking the Economic Potential of the Continent. New York: Peter Lang. Department of Agriculture, Forestry and Fisheries (DAFF) (2012). Economic Profile of the Agro-processing Industry in South Africa. Pretoria: DAFF. Department of Economic and Social Affairs (DESA) (2008). International Industrial Standard Classification of All Economic Activities, Revision 4. New York: United Nations Department of Economic and Social Affairs. Felipe, J., Mehta, A. and Rhee, C. (2017). Manufacturing Matters … But It’s the Jobs That Counts. Asian Development Bank Paper Series No. 420. Fessehaie, J. (2012). “What Determines the Breadth and Depth of Zambia’s Backward Linkages to Copper Mining? The Role of Public Policy and Value Chain Dynamics.” Resource Policy Vol. 37, 443–451. Fincham, R. (1980). “Economic Dependence and the Development of Industry in Zambia.” Journal of Modern African Studies Vol. 18, No. 2, 297–313. Fortman, de G.B. (1971). “Zambia’s Markets: Problems and Opportunities.” In C. Elliot (ed.) Constraints of the Economic and Development of Zambia. Nairobi: Oxford University Press. 191–232. Fundanga, C. and Mwaba, A. (1997). Privatization of Public Enterprises in Zambia: An Evaluation of Policies, Procedures and Experiences. Economic Research Papers No. 35. Tunis: African Development Bank. International Labour Organisation (ILO) (2017). World Employment Social Outlook 2017. Geneva: ILO. Kaldor, N. (1966). Causes of the Slow Rate of Growth in the United Kingdom. Cambridge: Cambridge University Press. Karmiloff, I. (1989). Industrialisation in Sub-Saharan Africa: Country Case Study— Zambia. Overseas Development Institute (ODI) Working paper No. 26, London. Kaunda, K. (1968). “Zambia’s Economic Reforms.” African Affairs Vol. 67, No. 269, 295–304. Kaunga, E. (1993). “Privatization in Zambia.” In V.V. Ramanadham (ed.) Privatisation a Global Perspective. London: Routlegde. 270–207. Kragelund, P. (2017). “The Making of Local Content Policies in Zambia’ Copper Sector: Institutional Impediments to Resource-led Development.” Resource Policy Vol. 51, 57–66. Kuznets, S. (1966). Modern Economic Growth: Rate Structure and Spread. New Haven: Yale University Press. Lombe, W. (2018). Natural Resources, Structural Change and Industrial Development: Local Content in Zambia—A Faltering Experience? UN-University World Institute for Development Research (UNU-WIDER) Working Paper No. 2018/18. Makgetla, N., Levine, S. and Mtanga, S. (2019). Moving up the Copper Value Chain in Southern Africa. World Institute for Development Economics Research (WIDER) Working Paper No. 2019/52. McMillan, M. and Rodrik, D. (2011). Globalisation, Structural Change and Productivity Growth. National Bureau of Economic Research (NBER) Working Paper No. 17143.

The manufacturing sector in Zambia 191 Mhone, G. (1982). The Political Economy of a Dual Labour Market in Africa. The Copper Industry and Dependency in Zambia. London: Associated University Press. Munakampe, G.M., Wamukwamba, C. and Mwenda, H. (1999). An Overview of the Performance of the Manufacturing Industry in Zambia (1964–1997). A paper presented at the Engineering Registration Board of Zambia, August 27–28. Taj Pamodzi Hotel, Lusaka. Newfarmer, R., Page, J. and Finn, T. (2018). “Industries Without Smokestacks and Structural Transformation in Africa: Overview.” In R. Newfarmer, J. Page and T. Finn (eds.) Industries Without Smokestacks: Industrialisation in Africa Reconsidered. London: Oxford University Press. 1–25. Republic of Zambia (RoZ) (2017) Seventh National Development Plan. Lusaka: GRZ. Republic of Zambia (RoZ) (2018). National Industrial Policy. Lusaka: Ministry of Commerce Trade and Industry (MCTI). Rodrik, D. (2015). Premature Deindustrialisation. National Bureau of Economic Research (NBER) Working Paper No. 20935. http://www.nber.org/papers/w20935, accessed 16/09/2017. Sardanis, A. (2014). Zambia: The First 50 Years. London: I.B. Tauris. Siedman, A. (1974). “The Distorted Growth of Import Substitution Industry: The Zambian Case.” Journal of Modern African Studies Vol. 12, No. 4, 601–631. Simson, H. (1985). Zambia: A Country Study. Uppsala: Scandinavian Institute of African Studies. Singer, W.H. (1950). “The Distribution of Gains Between Investing and Borrowing Countries.” American Economic Review Vol. 40, No. 2, 473–485. Syrquin, M. and Chenery, H.B. (1989). “Three Decades of Industrialisation.” World Bank Economic Review Vol. 3, No. 2, 145–181. Szirmai, A., Yamfwa, F. and Lwamba, C. (2002). Zambia Manufacturing Performance in Comparative Perspective. Research Working Paper GD-53, Groningen Growth and Development Centre, Eindhoven University of Technology. Tangri, R. (1984). “Public Enterprise and Industrial Development: The Industrial Development Corporation of Zambia (INDECO).” In K. Woldring (ed.) Beyond Political Independence: Zambia’s Development Predicament in the 1980s. Berlin: Mouton Publisher. 113–128. Tregenna, F. (2016). “Characterising De-industrialisation: An Analysis of Changes in Manufacturing Employment and Output Internationally.” Cambridge Journal of Economics Vol. 33, No. 4, 433–466. United Nations Development Programme(UNDP). (2016). Zambia Human Development Report 2016. New York: UNDP. United Nations Economic Commission for Africa (UNECA) (2016). Transformative Industrial Policy for Africa. Addis Ababa: Economic Commission for Africa. United Nations Industrial Development Organisation (UNIDO) (1980). World Industry Since 1960: Progress and Prospects. Vienna: UNIDO. United Nations Industrial Development Organisation (UNIDO) (2016). Industrialisation in Africa and Least Developed Countries: Booting Growth, Creating Jobs, Promoting Inclusiveness and Sustainability. Vienna: UNIDO. United Nations Industrial Development Organization (UNIDO) (2016a). Industrial Development Report 2016: The Role of Technology and Innovation in Inclusive and Sustainable Industrial Development. Vienna: UNIDO. World Bank (1984). Zambia: Industrial Policy and Performance (Report No. 4436-ZA). Washington, DC: The World Bank.

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World Bank (2018). Republic of Zambia: Systematic Country Diagnostic. Report No. 124032-ZM. Young, A. (1973). Industrial Diversification in Zambia. New York: Praeger Publishers. Zambia Development Agency (ZDA) (2015). Foreign Direct Investment and Investor Perception in Zambia-2014: Fifty Years of Economic Transformation Through Investment. Lusaka: ZDA.

7

The agro-processing sector in the Zambian economy

Introduction The agro-processing sector has been recognised in Zambia’s recent industrial and development policies as one of the priority areas for promoting economic growth and diversification. The newly published National Industrial Policy (NIP) document has placed the agro-processing on top of the list of priority sectors in the country. Similarly, the Vision 2030 document listed agro-processing as a priority sector with great potential to contribute to economic growth and poverty reduction. Vision 2030, particularly, stresses the importance of this sector in the Zambian context, stating that “Agro-processing industries account for about 84 per cent of manufacturing output, and are more than five times larger than the next largest group, textiles and leather products (both of which rely on agricultural raw materials)” (RoZ, 2006:23). Other than being the largest component of the manufacturing sector in Zambia, the agro-processing sector is perceived to be a vital sector because of its strategic position in the economy, particularly its strong linkages to the agriculture sector where the majority of Zambians work. Given the importance attached to this sector in Zambia, this chapter examines the role of agro-processing sector in the economy, focusing on its contribution to the economic and other national objectives. The chapter highlights the potential of the sector to make a significant contribution to economic growth and the process of building manufacturing capabilities in the country. In the Zambian context, where a large section of the population is still engaged in small-scale and subsistence farming, the agro-processing sector has great potential to stimulate broad-based and inclusive growth. The chapter reviews trends in the sector and identifies some of the challenges which constrain the sector from realising its full potential. The chapter draws from data collected in a study conducted in 2016 and 2017 on the agro-processing sector in Zambia, focusing on the food and beverage cluster.1

Agro-processing and industrial development Analysts have long recognised the importance of agro-processing as a critical manufacturing activity in the early stages of economic development and

194 The Zambian agro-processing sector industrialisation (Adelman, 1984; Mundle, 1985; UNIDO, 2016). The importance of this sector in Africa lies in the fact that most economies on the continent are largely agrarian economies, with a large population still involved in subsistence agriculture. The Africa Centre for Economic Transformation report (ACET, 2017) highlights the crucial role agro-processing and agribusinesses can play not only in stimulating the growth of the agriculture sector, but also in inducing growth in productivity and the modernising of the sector. The 2017 ACET report argues that “Expansion of agro-processing will boost Africa’s move to industrialize, increasing employment and incomes, and reciprocally stimulating agricultural growth by creating new output markets and increasing farmers’ incomes, which they can invest in land or new inputs to improve productivity” (ibid., 123). In Zambia, as we have seen, policymakers as well as analysts strongly believe that the agro-processing and agri-business sector should be an important component of the industrial policy in the country (Chansa et al., 2019). The reason for singling out agro-processing is that the sector’s backward linkage to the agriculture sector is believed to have great potential to create markets for agricultural produce which in turn can stimulate increased production among the many small-scale and subsistence growers in the country, and on the continent at large. The multiplier effect that a flourishing agro-processing industry can have on the economy is thought to be significant. A thriving agro-processing sector through its sourcing of inputs from the agriculture sector can contribute significantly to reducing poverty and promoting broad-based economic transformation and the narrowing of income inequality. Therefore, its impact on the development of the country should be expected to be broader than just the growth of the economy. In addition, agro-processing industries can also stimulate the growth of secondary manufacturing activities through its forward intra-industry linkages which supply semi-processed agriculture products as input in secondary and more advanced manufacturing activities. In this sense, the agro-processing sector can also contribute to improving food security when the processing of food extends the life-span of different processed food products. Apart from extending the life span of food, food processing can also improve the taste and palatability of different types of food and increase the nutritional value and the diversity of food products in the country. As we have noted in Chapter 6, for economies at the early stages of industrialisation, processing of natural resources, including food and other agricultural products, acts the foundation for building sophisticated levels of manufacturing and industrial development. Agro-processing is often the first stage of the manufacturing learning curve and it is suitable for less industrialised economies because it does not require high levels of technology which tend to be more capital intensive. The importance of the agro-processing sector in the Zambian economy is easy to demonstrate. The multifaceted contribution the sector can make to the process of structural transformation and diversification of the economy is one of the reasons why it is treated as a strategic sector with immense potential. One of the greatest potentials the sector offers is its ability to stimulate growth in the agricultural sector through backward linkages. A thriving agro-processing

The Zambian agro-processing sector 195 sector can create demand for agricultural produce which in turn can stimulate growth of productivity and income for people in the agricultural sector. Growing income in the agricultural sector can expand the market for manufactured products. It is, however, important here to note that agro-processing alone cannot be a magic bullet for all the challenges in the agricultural sector. A strategy that uses agro-processing as a key entry point in the process of industrial development and economic diversification must address the binding constraints in the agricultural sector for this strategy to succeed. There cannot be a thriving agro-processing sector when key constraints in the agriculture sector are not resolved.

The agriculture–manufacturing connection The role of agro-processing in promoting industrial development is often analysed within the agro- industrial framework. Models of economic growth which have adopted an agro-led industrialisation framework have emphasised the importance of the agro-processing segment of the manufacturing sector, especially at the early stages of industrial development. It has, for instance, been argued that an agroled industrialisation strategy can achieve many objectives, including the creation of mass employment, the stabilisation of foreign exchange, and the reduction of exposure to external risks in the economy: The proposed strategy is simultaneously a growth programme, an employment programme since agriculture is considerably more labour intensive than even labour-intensive manufacturing, a basic needs, food security and income distribution programme, and an industrialization programme. It also constitutes a foreign exchange-saving programme by reducing the need for food imports which, in the 1970s … accounted for an average of 13% of total LDC imports. Finally, the proposed strategy is also a risk-reducing programme. (Adelman, 1984: 938) Although few less-industrialised countries have successfully implemented an agro-led industrial strategy, this strategy has potential to achieve multiple goals as highlighted in this quotation. This is why the agro-processing sector remains attractive to many developing countries in Africa (ACET, 2017). In countries such as Zambia where the agriculture sector provides employment to almost 70 per cent of the population, the potential of an agro-led industrialisation is huge, although its realisation requires coordination of policies in the agricultural, manufacturing, and trade sectors. Given Zambia’s abundant natural resources and relatively cheap labour, it is not surprising that “the sector has continued to receive attention [from] the government through increased budget support aimed at increasing agricultural productivity to ensure food security, income generation, creation of employment opportunities and poverty reduction” (ZDA, 2014).

196

The Zambian agro-processing sector

Composition of the agro-processing sector The agro-processing cluster of industrial activities is part of the manufacturing sector in the International Standard Industrial Classification (ISIC) system. As it might be evident, the sector is quite diverse, involving a wide range of activities, from the simple processes of sorting out products to complex manufacturing activities such as the production of rubber and wood products. It is important to note that there are different definitions of the agro-processing subsector which in turn impact on what constitutes this segment of the manufacturing sector. Some definitions focus on the processing of food and beverages, and, as such, limit agroprocessing to only the production of food, beverages, and tobacco. For example, the South African Industrial Policy Action Plan (IPAP) 2016/17 to 2018-19 (DTI, 2016) restricts agro-processing to the processing of food and beverages. Other definitions adopt a wider approach such as that agro-processing includes a wide range of activities, for example, the processing of wood and rubber into finished products, and the making of paper and paper products. A broader approach to agro-processing defines the sector to include any activity which involves the transformation of products from the agricultural, forestry, and fisheries sector into finished or intermediate goods. This is a definition adopted by ISIC, and this is the definition this chapter has used. According to this definition, agro-processing is quite a complex cluster of manufacturing activities which consists of 11 out of the 24 divisions of the manufacturing sector, as Table 7.1 shows. The agro-processing cluster involves a wide range of manufacturing activities most of which use low-tech manufacturing processes (see Table 7.1). Although sometimes the boundary between agriculture and agro-processing is not that clear, especially in integrated clusters such as the wine and the fruit industry where some or most of the processing and packaging of farm products takes place within the farm precinct, agro-processing as a segment of the manufacturing sector refers to activities that add value to agriculture produce whether within or outside of Table 7.1 Components of the agro-processing industry ICSIC code Description of economic activity (division)

Technology group

10 11 12 13 14 15 16 17 18 22 31

Low-tech Low-tech Low-tech Low-tech Low-tech Low-tech Low-tech Low-tech Low-tech Medium-tech Low-tech

Manufacture of food products Manufacture of beverages Manufacture of tobacco products Manufacture of textiles Manufacture of wearing apparel Manufacture of leather and related products Manufacture of wood and wood products Manufacture of paper and paper products Printing and reproduction of recorded media Manufacture of rubber and plastic products Manufacture of furniture

Source: Author based on ISIC Rev. 4 (DESA, 2008).

The Zambian agro-processing sector 197 the farm gate. Thus, some of the manufacturing activities carried out under the broader agro-processing industries include basic activities such as sorting and packaging of food products (e.g., fruit), and preservation of food stuffs such as meat, fruits, fish, vegetables, fats, and oils. Other activities include the extraction of oils from agricultural products, the milling of grains (wheat, maize, burley, soya beans, etc.), production of sugar from sugar cane, and confectionery activities including baking and the manufacture of chocolate. There are other agro-processing activities which are classified under manufacturing, like the production of beverages (juices, beer, wines, spirits, etc.), the processing of cotton into fibres, and the manufacturing of wearing apparel of various kinds, the processing of raw wood into wood products including furniture, wooden containers, building materials, the production of paper and related products. Agro-processing also includes the manufacture of leather and related products such as footwear, leather bags, leather seats, etc. Therefore, when one looks at all the activities classified under agro-processing, it becomes apparent that this segment of the manufacturing sector encompasses a wide range of activities, some of which involve complex manufacturing activities, like the manufacturing of rubber products and furniture. One thing that is evident in Table 7.1 is that the majority of agro-processing activities fall into the low-tech category. Labour demands in agro-processing The use of low technology in the sector is one of the reasons why the sector is widely believed to have the potential to contribute significantly to the objective of employment creation in less industrialised countries where levels of productive employment tend to be low (ILO, 2017). Compared to sectors that employ sophisticated technology (high-tech), for example the manufacture of precision equipment, the agro-processing industries use relatively higher units of labour for each unit of capital, such that the labour demand for the sector tends to be relatively higher. For example, in South Africa the aggregate labour coefficient for the agro-processing sector in 2016 was estimated to be 0.18 with a labour– capital ratio of 1:5.5 (see ITAC, 2016). Agro-processing activities which use low technology tend to be more labour intensive and this is why they are often seen as having the potential to contribute to creating employment. Not only that, low tech activities do not require high capital outlay to start production. This means that the barriers to entry for small- and medium-scale enterprises is low, and the participation of small-sized enterprises can contribute to employment creation. It has been observed that for the continent as a whole, agro-processing is dominated by artisanal and semi-artisanal firms using simple tools and technology. Estimates suggest that, apart from South Africa, which tends to have medium- and large-scale agro-processing firms, about 75 per cent of agro-processing entities in sub-Saharan Africa are artisanal and semi-artisanal firms (ACET, 2017:124). Examples of agro-processing industries with high labour intensity include food production, textiles, and leather due to the heavy reliance on unskilled labour

198

The Zambian agro-processing sector

often required to carry out manual tasks not suited for machines. It is this feature that makes agro-processing attractive to less industrialised countries which face the challenge of creating productive employment at rates that match the growth of the labour force. However, the dominance of small firms, (often) informal agro-processors, is one of the reasons for the poor quality of jobs in agro-processing industries. For instance, in Zambia it has been reported that the quality of employment created in these industries is poor because the majority of workers are in informal employment, which accounts for over 60 per cent of total employment in the manufacturing sector (see Chapter 6). Nonetheless, the potential for the sector to create a large number of productive jobs is believed to be high if the sector is adequately assisted to improve productivity and the quality of products (ZDA, 2014).

A profile of the agro-processing sector in Zambia The agro-processing sector in Zambia is largely dominated by the FBT division, which has consistently accounted for a larger share of industries in this cluster, as is the case with the broader manufacturing sector (see Chapter 6). This is clear when we look at the agro-processing cluster’s contribution to MVA, which has consistently been the largest since independence (see Table 7.2). If we look at the period from 1964 to 2018, agro-processing contributed an average of over 60 per cent to the manufacturing GDP. The agro-processing sector’s contribution to manufacturing value added remained above 50 per cent during the 1970s and 1980s, climbing to a high of almost 90 per cent towards the end of the 1990s and early 2000s. This confirms the view that Zambia deindustrialised during the 1990s, with the country’s manufacturing sector reduced to producing food only. The large share of the agro-processing sector in total manufacturing output during the 1990s is attributed to the decline in the other subsectors of the manufacturing sector (see Chapter 6; Szirmai et al., 2002). The privatisation of the parastatal companies during the first half of the 1990s, the uncertainty, and lack of investment in the manufacturing sector, led to a sharp decline in some of the subsectors, particularly basic metals, chemical and chemical products, and nonmetallic minerals. Not only that, the performance of the manufacturing sector as a whole is highly sensitive to what is the dynamics in the mining sector, which during this period experienced a sharp decline. One of the reasons for the resilience of the agro-processing subsector during the 1990s is that most of the enterprises in the sector were not receiving direct subsidies from the state (Karmiloff, 1989) which means that they were commercially viable after the subsidies were withdrawn. This is confirmed by the fact that most of the subsectors in the agro-processing cluster, especially food manufacturing and textile, wearing apparel, and wood products remained resilient even after privatisation (Szirmai et al., 2002). Not only that, a number of agro-processing industries were joint ventures between the state and the private sector, and because of this, it was easy for the private partners to buy out the state’s stake during privatisation. Some of the examples of agro-processing enterprises which survived privatisation

17.1 50.6 8.7

63.1

7.5

1975

11.9

1970

Source: Based on data from CSO (national accounts, 2019).

Manufacturing share in 6.8 GDP Agro-processing share in 68 manufacturing Agro-processing share 4.6 in GDP

1965

9.8

53.4

18.4

1980

10.9

46.9

23.3

1985

15.0

59.8

25

1990

23.0

85

27

1995

Table 7.2 Agro-processing share in manufacturing and total GDP (1965–2018), per cent

8.5

86.9

9.8

2000

8.3

86.6

9.6

2005

3.6

48.1

7.6

2010

3.0

36.8

8.1

2015

3,3

42.8

7.7

2018

The Zambian agro-processing sector 199

200

The Zambian agro-processing sector

include Zambia Seed Company, National Milling Corporation Limited, Hybrid Poultry Farm, Zambia Sugar Company, and Speciality Foods Limited (see Sutton and Langmead, 2013). Further, as noted earlier, agro-processing firms did not require huge capital outlay to restructure them, thus the privatisation process in most of these enterprises was quicker, resulting in less disruption of production. The new owners were keen to start production immediately. The quicker transition during privatisation reduced lags in production and the uncertainty which characterised other industries, especially mining, during this time (Szirmai et al., 2002). It was sectors linked to the mining sector, where huge capital investments were required to reinvest in order to ramp up production, which encountered delays in being privatised. As noted in Chapter 5, the political sensitivities around the privatisation of mines and companies that were supplying inputs and services to the mines led to delays, and this affected the other manufacturing subsectors which relied on mining for inputs or sale of their products. The mining industry provides inputs used in the chemical and chemical products as well as the basic metal and metals fabrication such that these subsectors of the manufacturing sector have always been sensitive to what happens in the mining sector (Lombe, 2018). Trends in the agro-processing cluster If we look at trends in the agro-processing cluster, we see that apart from the fact that the cluster was dominated by the FBT industries, there were some subsectors that were doing well in the period 1964 to 1999, but declined sharply from the 1990s onwards. A notable example is the textile industry, which in the period from 1964 to 1999 contributed about 12 per cent to manufacturing output, while in the period from 2000 to 2018, its contribution dropped to less than half of this (see Table 7.3). The steady decline of the textile industry has been attributed mainly to competition as a result of the inflow of cheap Chinese clothing and other textile products. The other factor is the influx of second-hand clothes into Zambia from advanced economies. The paper and paper products industry also experienced steady decline in value added and this trend has continued up to the present. Overall, while the agro-processing cluster’s contribution to manufacturing output has consistently been the largest since independence, its share has been declining especially from 2010 when it fell to below the 50 per cent level (see Table 7.3). A disaggregated analysis of the agro-processing sector shows that the sector has been growing in the last decade although its share in total manufacture output has been falling gradually (see Table 7.4). One of the reasons for this is that other subsectors of the manufacturing sector, particularly fabricated metals and basic metal products, recovered sharply as production in the mining sector, on which these subsectors depend for inputs, increased during this time (see Chapter 6). The recovery of other subsectors of the manufacturing sectors led to a reduction in the contribution of the agro-processing cluster as whole, averaging 54 per cent between 2000 and 2018, compared to the average of 64 per cent in the period

2005 61.3 14.6 7.8 2.9 86.6

2000 59.3 17.4 7.3 2.9 86.9

Food. beverage, and tobacco Textiles, apparel, and leather Wood, wood products, and furniture Paper and printing Total

Source: Based on data from CSO (national accounts, 2019).

46.1 9.9 3.7 3.4 63.1

49.9 8.9 5.3 3.9 68.0

1970

Food, beverage, and tobacco Textiles. apparel, and leather Wood, wood products, and furniture Paper and printing Total

1965

2010 38.5 4 2.3 3.3 48.1

27.4 12.5 5.2 5.5 50.6

1975

Table 7.3 Agro-processing value added by sector (1965–2018), per cent

2015 32.1 1.1 1.8 1.8 36.8

30 16.2 2.5 4.7 53.4

1980

2016 35.3 1 1.7 1.5 39.5

29.1 10.1 4.04 3.7 46.9

1985

2017 34.6 1.1 1.4 1.7 38.8

35.7 13.9 3.02 7.2 59.8

1990

2018 38.9 1.3 1.6 1 42.8

64.4 10 8.5 2.1 85.0

1995

61 17.7 7.6 2.9 89.2

1999

Average 42.9 5.8 3.4 2.2 54.2

43.0 12.4 5.0 4.2 64.5

Average

The Zambian agro-processing sector 201

2011 211.5 6.4 231 174.1

2010 193.6 14 217.7 147

Food, beverage, and tobacco Textile, clothing, and leather Wood and wood products Paper and paper products

Source: Based on data from CSO (National Accounts, 2019).

112.6 68 123 69.7

100 100 100 100

2001

Food, beverage and tobacco Textile, clothing, and leather Wood and wood products Paper and paper products

2000

2012 226.5 6.6 240.8 198.7

122 72.2 132.3 71.2

2002

Table 7.4 Agro-processing production index 2000–2018 (2000 = 100)

2013 240.9 7.5 237.2 220.3

129.4 74.5 147.3 77.1

2003

2014 251.3 5 240.2 223.7

136.9 73.1 153.5 79.1

2004

2015 254.4 3.3 247.9 213.5

143.7 69.5 159 87.3

2005

2016 255.6 3.1 245.6 226.2

154.9 65.9 161.1 87.2

2006

2017 259.3 4.2 241.6 239.1

166.6 53 167 87.8

2007

2018 268.9 5.4 240.3 238.2

171.6 40.6 187.2 113.5

2008

2019 244.4 5.8 275.3 235.7

180.3 32.5 192.1 119.8

2009

202 The Zambian agro-processing sector

The Zambian agro-processing sector 203 between 1965 and 1999. The strong recovery of the other subsectors of the manufacturing sector is evident from 2005 onwards when the share of the agro-processing sector started to decline quite significantly, dropping to less than half of its share in manufacturing output in 2010. This is partly attributed to strong growth in the construction sector starting from 2003, and the momentum in the sector has continued to the present, as noted in Chapter 6. Although supplies to the mining sector from local manufacturing firms have dramatically declined after the privatisation of the mining sector (Kragelund, 2017; Fessehaie, 2012), activities in the mining sector still influence production in the manufacturing sector which rely on mining for inputs and the market for final products. The steady growth of the construction sector, for instance, has been boosted by growing demand for residential and commercial property as the urban population in Zambia grows. Not only that, the construction sector has also been boosted by the growing demand from the mining sector due to the establishment of new mines and expansion of older mines after 2003 (EITI, 2018). Waning momentum in textile, wood, and wood products The decline in the contribution of the agro-processing cluster to total manufacturing output is not only as a result of the recovery in the other subsectors of the manufacturing sector. Most of the subsectors in this cluster, particularly textile, wood, and wood products have experienced a dramatic drop in their contributions. The textile subsector has reported dramatic decline in value added from 2010 onwards, with value added dropping to less than 1 per cent of manufacturing output from 2015 onwards (see Table 7.3). Similarly, the wood and wood products share in manufacturing output declined substantially in the first two decades of the new millennium, dropping to below a third of its earlier level by 2010. While this decline in most of the subsectors in the agro-processing cluster is an indication of the declining momentum in the cluster, it can also be an indication that there is potential for this cluster to grow and contribute to creating employment, export earnings, and economic growth. The overall picture of the agro-processing cluster is that the share of cluster in both GDP and manufacturing output has consistently declined from its peak in 1995 (see Figure 7.1). The contribution of the agro-processing sector to GDP dropped from a high of almost 23 per cent in 1995 to an average of about 3.5 in 2010, where it has stabilised. Although one of the reasons for this sharp decline, as noted earlier, is a result of the rebound of growth in other manufacturing subsectors, the agroprocessing has been facing many challenges which some of the managers of the agro-processing firms interviewed in 2016 and 2017 highlighted, including lack of access to markets, inadequate and intermittent supply of electricity, challenges in the agriculture supply chain on which the sector relies, high borrowing costs, as well as competition from imported agro-processed products (IGC interviews, 2017). Thus, although the demand for processed foods has been rising in Zambia, particularly in urban areas (Paremoer, 2018), there are many factors

204

The Zambian agro-processing sector

Figure 7.1 Share of agro-processing in GDP (1965-2018) (%). Source: Author based on data from CSO (2015, 2019).

which constrain the growth of the agro-processing subsector, preventing it from contributing significantly to economic growth and structural transformation as envisioned in policy. We come back to some of these factors later in the chapter and in Chapter 8. New momentum in the agro-processing sector When we look at the agro-processing cluster as whole, it is apparent that while the textile sector has completely collapsed, the other sectors have sustained steady growth, including the paper and paper products subsector which had experienced a dip during the first eight years of the 2000s (see Table 7.3). If we look at the production index for the agro-processing cluster, it is apparent that some subsectors have been growing steadily since 2000 while others have recovered well, except the textile industry which has completely collapsed (see Table 7.4). Apart from the textile subsector, all the other subsectors recovered well, producing on average 2.5 times of what they were producing in 2000. Part of the momentum in the sector has been attributed to the growing urban population and the rising average income in the country, both of which contribute to increasing demand for processed foods and other manufactured agro-products (Paremoer, 2018). Available data suggest that there is recovery in the agro-processing sector since 2015, and if this trend continues, agro-processing can contribute significantly to diversification and promotion of broad-based poverty reduction as envisioned by the government in various policy documents. What is more interesting is that while a large portion of the growing demand in Zambia for processed foods is increasingly being met by locally manufactured food products, the country still relies on imported foods stuffs in a range of products including beverages and spirits, animal and vegetable oils, cereal, milk and

The Zambian agro-processing sector 205 pastry products. Between 2007 and 2016, while the value of imports for animal and vegetable oils declined at an annual rate of 7 per cent per year, the value of imports in other food categories increased over the same period (ibid.:16). For example, the compound annual growth rate (CAGR) for fish and related foods was 32 per cent, for beverages and spirits was 25 per cent, and for cereal, pastry and milk products 13 per cent (ibid.). This signals that there is a growing market for these products in the country and that some of these products which are being imported can be produced local, especially in categories where Zambia has a revealed comparative advantage (ZDA, 2014).

The major components of agro-processing in Zambia The agro-processing cluster consists of four different subdivisions as shown in Table 7.1. We can divide these subsectors further into smaller categories to get a sense of the composition of the cluster and the products involved. It is beyond the scope of this chapter to give a detailed profile and analysis of trends and composition of each of the subsectors of the agro-processing cluster, only some of the subdivisions within the cluster are discussed in the chapter. In Zambia, the agro-processing sector can be analysed at disaggregated levels according to the major products which these industries manufacture. The biggest sector within this sub-cluster is the food processing cluster which accounts for the larger share of agro-processing value added, as observed earlier. After the food processing cluster, we have the beverage group of industries and then the tobacco industry, which is the smallest in terms of both value added and employment. The food processing cluster The food processing subsector consists of several branches of food industries, including the production of sugar and related products, manufacture of animal feed, production of coffee, dairy and related products, extraction of edible oils from animal fats, plant seeds and grain, and the manufacture of fish products, the production of meat and poultry products, milling of grain, processing of tea, cashew nuts, groundnuts, soya cakes, manufacture of cereal foods, and bakery and confectionery products. The food processing industry in Zambia is dominated by medium-sized firms which capture the largest production by volume, sales and market share in each of these subdivisions. For instance, the animal feed production is dominated by five major firms which account for more than 80 per cent of the total volume produced (Sutton and Langmead, 2013).2 Although the milling industry, especially of animal feed, is dominated by medium-sized firms in terms of output, there are a number of small and micro-size firms entering the market with the hope of expanding their production volumes to compete with the “big guys,” although their share in the sector’s total output is small.

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Milling industry In the IGC study on the agro-processing sector in Zambia conducted in 2016 and 2017, we interviewed several of the medium-sized as well as the small and microsized agro-processors, including maize millers. Maize milling is one of the largest segments of the food processing cluster in the agro-processing industry, with a diverse set of millers in terms of size and market share. Maize milling activities are common because maize meal (which the main product) is Zambia’s staple food. The milling of maize is carried out by a range of millers from the large commercial producers such as National Milling and Antelope Milling, to informal maize millers who operate on a small scale, usually producing maize meal for customers who bring their own maize for grinding. As one of the millers explained, the sector has a wide range of actors from the very small millers with a couple of workers to relatively large firms with more than 200 workers. The maize milling industry has grown substantially in terms of the number of players and installed capacity, and this has led to oversupply on the local market. The growth of the industry itself has been so robust. Many players have come into the milling industry and capacity is very high. So now, the commodity is into oversupply, there is more supply than there is demand, even if people eat nshima [maize meal porridge] every day, the mealie meal on the market is way too much. But the Congo market has brought a lot of relief because other millers have discovered Congo as their main market. So now with these millers taking their capacity to Congo, they are leaving some vacuum on the domestic market, and those are the ones that we are filling up now. Now, no matter how many tons of mealie meal we supply to Congo, there’s never a shortage on the Zambian local market. So that just shows you how much capacity the milling industry has. (IGC interviews, 2017) The milling industry is experiencing stiff competition in terms of the high number of participants in the sector. For the agro-processors in this industry, the main issue is around expanding access to regional markets, especially the DRC market as the cited respondent indicated. But there are constraints to expanding market access which are discussed later in the section on the challenges of the agroprocessing sector in Zambia. The other industries in the food processing cluster are largely dominated by small processors ranging from peanut butter producers producing at the back yard of houses and commercial properties, to medium confectionery bakeries and manufacturers of biscuits, chocolate products, sweets, etc. Most of these manufacturers are recent entrants in the market. They highlighted the fact that in the past they used to import food which they sold on the local market, but they have now decided to enter into the manufacturing of these products. Most of these manufacturers have continued to have a presence in the manufacturing as well as the retail segment of the food value chain.

The Zambian agro-processing sector 207

The beverages cluster The dairy industries The other important segment of the agro-processing sector in Zambia under the beverages division is the dairy industry, which includes milk and related products such as yogurt, cheese, butter, and dairy-based juices. The industry is dominated by one big company, Parmalat Zambia Limited, which purchases milk mainly from a limited number of commercial farmers, who supply over 70 per cent of the milk (Sutton and Langmead, 2013). The sector has great potential to grow, given the growing domestic demand which is only met by imported dairy products. The potential of this industry to grow is evident in the fact that imports of dairy products increased by 26 per cent per year between 2003 and 2013 (Fessehaie et al., 2015:25). On the challenges which dairy processors highlighted was the irregular supply and the spatially fragmented supply chain, especially among small-scale farmers. The other challenge which dairy processors highlighted is that most small-scale livestock farmers supply milk in small quantities, which increases the cost of sourcing milk in a context were farmers are scattered over large areas (IGC interviews, 2017). Improving the production and supply of milk logistics among small-scale farmers who are the majority (but not the biggest) suppliers in the dairy produce value chain can make a significant contribution to growing the industry, which in turn can contribute to meeting the growing domestic demand for dairy products. Alcoholic and non-alcoholic beverages The other industry in the beverage cluster of the agro-processing industries is the beverage industry, which is also dominated by a few large producers, alongside a large number of medium- and small-scale producers. In this subdivision, beverage production is divided into two: the alcoholic beverages (beer and spirits) and the non-alcoholic beverages (soft drinks, juices and bottled water). The production of alcoholic beverages is dominated by one large producer—Zambia Breweries and its subsidiary, National Breweries, which accounts for almost 90 per cent of the market share for clear and opaque beer. There are small and micro beer producers, especially in the opaque beer category, which include the homebrew brand of opaque beer. It has been reported that there were 40 producers in the opaque beer category (Sutton and Langmead, 2013), though most of these were producing without a licence (IGC interviews, 2017). In the non-alcoholic category there are a few large- and medium-scale producers who dominate the market. In the carbonated category, the industry is dominated by three international companies—Zambian Breweries (Coca-Cola, Fanta, etc.), California Beverages, and Varun Beverages, which is a subsidiary of PepsiCo International. The juice category is also dominated by medium-scale, mostly local firms, which make juice mainly from imported juice concentrates from South Africa. The dominant medium-sized enterprises in this category include Yaafico (which is well-known in Zambia and Malawi for the production of a maize-based

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drink called Maheu), DK Enterprise Limited, Lynx Zambia Limited, and Fruitful Company Limited (Sutton and Langmead, 2013). The food processing industry has a wide range of manufacturing activities which are carried out by a wide range of processing firms. Most of these companies produce for the local market, except for a few large enterprises which have now started exporting non-alcoholic drinks to neighbouring countries such as Zimbabwe, Malawi, Angola, Tanzania, and Uganda (IGC interviews, 2017). The tobacco industry In this component of the FBT cluster, the industry is organised and controlled by the Tobacco Association of Zambia which sorts, grades, packages, and sells tobacco on behalf of farmers. There are there major companies which process tobacco in Zambia: Alliance Zambia Limited which accounts for over 40 per cent of the market share, Zambia Leaf Tobacco Company with 19 per cent of market share, and Tombwe Processing with 13 per cent (Sutton and Langmead, 2013). Then we have the coffee value chain which is dominated by 11 larger producers who supply coffee beans to the Coffee Board of Zambia which sorts grades, packages, and sells on behalf of farmers. Most of the coffee produced is exported in raw form to South Africa, Europe, and a small amount to Japan for processing (ibid.). There is an opportunity to develop capacity to domesticate some sections of this value chain by embarking on various strategies to promote value addition activities in the industry (ZDA, 2015).

Textile, apparel, and garments industry This cluster of industries concentrates on the production of raw cotton. The textile value chain is a complex one with numerous value nodes from cotton production, ginning, spinning, weaving, garment manufacturing to retail outlets for textile products. In Zambia, one of the identified challenges in this industry is the gulf between cotton farmers and the cotton ginners (Global Development Solutions, 2007). As observed in Chapter 6, the textile industry in Zambia has almost been wiped out. The country used to have a vibrant textile industry, with over 140 companies employing more than 25,000 workers at the height of the industry during the early 1990s (Dhin, 2014). Currently, the industry has been affected largely by the imports of cheap textile products mainly from China and other Asian countries. This has been worsened by the unlimited importation of second-hand clothes from Europe and other industrialised countries (Sutton and Langmead, 2013). The decline in the textile industry is reflected in many aspects including a sharp decline in export earnings from US$27 million in 2005 to just US$1.9 million in 2010 (ibid.:84). The decline is also evident in the current number of people employed in the industry. In 2012, the textile industry had only 12 medium- and small-sized firms3 with only 1,500 workers, producing industrial protective clothing for the mining industry and other sectors, including school uniforms. When

The Zambian agro-processing sector 209 compared to what it used to be during the 1990s, the textile industry today is only a tiny fraction. Apart from the impact of cheap imports and second-hand clothes, the textile industry did not restructure adequately enough to withstand the competition from international producer, especially after the privatisation of parastatal enterprises. Identified challenges include the under-utilisation of ginning capacity, the absence of spinning facilities that can promote higher value addition in the value chain, the use of outdated technology in the processing of cotton, and poor logistical infrastructure leading to high transport costs (Dhin, 2014). As a result of these challenges in the value chain, cotton production has actually been declining from about 140 metric tons in 2013 to just above 100 metric tons in 2018 (Chapota and Chisanga 2018:28). Meanwhile, garments and other high value-added textile products are all imported into the country. The industry has great potential to contribute to stimulating cotton farming if some of the challenges identified here can be addressed. In terms of employment dynamics, the textile industry is important because it is often one of the most labour-intensive subsectors in the manufacturing industry. The shrinking of the textile industry in Zambia has contributed to the high level of unemployment in the country. Leather, wood and related products The leather industry in Zambia is small but with great potential to grow. However, it has not been performing well due to stiff competition from imported products. The industry is linked to livestock farming which produces hides used in the production of leather and leather products. In terms of size, the industry is relatively small, focusing mainly on producing leather material with no substantial valueadded activities. Only two medium-scale firms process leather for the production of leather products—Zamleather, a subsidiary of Zambeef, and Unity Garments Limited. In addition to these two, there are several other small leather processors which operate in the industry. Almost all the leather produced (80 per cent) is used to make industrial safety boots, military boots, school shoes, sandals, handbags, and belts (Dhin, 2014). It has been reported that while there were five leather tanneries in 2012 in the country, only one tannery was operating at full capacity (Sutton and Langmead, 2013). Growth in the sector is constrained by the relatively poor quality of the hides, irregular supply from farmers and abattoirs, outdated technology, low skills, and shortages of inputs such as chemicals used in the processing of hides (Dhin, 2014). Wood and wood products In the wood and wood product industry, there are two types of wood used in Zambia: soft wood, which mainly consists of two exotic species (Soft Pine and Eucalyptus), and the indigenous hard wood species, mainly mukwa, mubanga, mukula, and musamba. The softwood segment is dominated by the Zambia Forest and Forestry Corporation (ZAFFICO) which grows and regenerates softwood

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plantations. The bulk of the wood and wood products produced is supplied to the domestic markets which has grown significantly as a result of an increase in the construction industry (both residential and mining), which takes about 70 per cent of the wood produced in the country (Dhin, 2014). Only a small portion of the wood products is exported, mainly to Democratic Republic of Congo (DRC). Importation of softwood products has created strong competition for the local producers who face a series of challenges, including low productivity of labour, poor infrastructure, and high costs of borrowing. The sector has more than 600 formal firms, consisting of large-, medium-, and small-scale enterprises, and over 3000 informal establishments. A wide range of wood products are produced, including timber for railway sleepers, swan timber, poles, doors, door and window frames, particle boards, parquet tiles, and edgeglued panels. Most of these are products for the local market, though the export market to DRC and South Africa is growing. Given the growing demand locally and regionally, the government-owned ZAFFICO has been conducting feasibility studies to expand its softwood plantations in three provinces: Muchinga, Luapula, and Northern Provinces. Zambia’s endowment in land and indigenous forest resources including hardwood species gives the country an advantage in the region in terms of forests and the forestry products. Paper and paper products Other than these agro-processing industries, there is also the paper and paper products group of industries which falls under the agro-processing cluster. The paper and printing industries in Zambia have remained fairly stable, with recent momentum being driven by the growing packaging industry as other subsectors, including the food processing which uses a lot of paper for packaging, preservation, and for transportation purposes. As data on the agro-processing production index from 2000 indicate, the sector, after declining from 2000 until 2007, started to recover from 2008 onwards, with production volumes now having more than doubled since 2000 (see Table 7.4). Apart from the traditional agro-processing divisions discussed earlier, there are other emerging non-traditional agro-processing niches with the potential to become high value-added activities where Zambia has a clear advantage in the Southern Africa region. Some of the recently identified niche agro-processing activities in Zambia, with significant potential to grow, include soya bean products, which have grown quite rapidly over the years, the cashew nut industry, which is believed to have huge potential for growth in Western Province, the sweet potato industry, and small livestock and poultry products, particularly goats and quails which have been growing as a result of expanding markets in the Middle East (IGC interviews, 2017). Another emerging niche in the agro-processing sector is the malt value chain which is currently being developed by Zambia Breweries with its new malting plant commencing production in 2017. Initially Zambia used to import malt from other countries, mainly Zimbabwe. Rising costs of importing malt, which is the

The Zambian agro-processing sector 211 main ingredient in clear beer, forced Zambia Breweries to encourage local farmers to grow barley to be used in the production of malt. Currently, Zambia Breweries has a malting plant in the Lusaka South Multi Facility Economic Zone (MFEZ) with the capacity to produce 15,000 metric tons of malt per year (IGC interviews, 2017). There are other agro-processing industries which are developing as a result of the expanding regional trade within Southern Africa and in Africa broadly. The growing regional trade has increased the market for Zambia though the country needs to address some of the constraints in order to enable local firms to compete with regional producers.

Emerging opportunities in agro-processing The growth of the regional market that Zambia has access to through regional trade agreements provides an opportunity for the country to expand and diversify its manufacturing production and export base, especially in the agro-processing cluster. As will be argued in Chapter 9, a frontier industry policy can exploit these emerging opportunities in regional markets to promote industrial growth which is extremely difficult to achieve under the current global economic conditions. Expanding regional and continental markets offer the best option for transforming African economies by using these growing markets as a stepping-stone for building manufacturing capabilities. Exploiting these opportunities effectively would require an extremely innovative industrial policy which can identify and implement strategies in niche areas. In the case of Zambia, there is growing evidence showing that the expanding markets in the region are leading to growing investments in agriculture and the agro-processing sector. Many investors, including the Chinese, are attracted by the revealed comparative advantage Zambia enjoys in many areas of agriculture production due to its relatively abundant rainfall, abundant land for producing various kinds of agriculture products, and relatively cheap labour (ZDA, 2014). From this perspective, it can be argued that the agro-processing sector in Zambia has huge potential to contribute to creating the much-needed jobs in the formal sector and through self-employed entrepreneurs. As noted earlier, a thriving agro-processing sector can stimulate growth and improved productivity in the agricultural sector. Therefore, exploiting growing regional markets to stimulate growth in the agro-processing sector can trigger the growth of the broader industrial and agriculture sectors. Several factors combine to create these emerging opportunities in regional economies in Africa. In addition to the growing awareness of the importance of regional and continental markets, the rising incomes and growing urban populations are two crucial factors in all this. The anticipated growth of demand for food alone can provide a strong stimulus to drive structural transformation and industrialisation, pulling, along the way, people in rural areas who depend largely on small-scale and subsistence farming. The World Bank Estimates that SSA’s demand for food will increase by 60 per cent between 2015-30. In Zambia, food demand is expected to grow

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The Zambian agro-processing sector more than threefold in the next 15 years, to over US$25 billion.4 This offers prospects for agro-led industrialisation for Zambia. Linking small farmers to local and regional value chains is key. Infrastructure for such linkages should be developed. … Moreover, reforms to tackle policy inconsistency and high costs of cross-border trade are critical. (World Bank, 2018:4)

The role of agro-processing industries in stimulating industrialisation and the needed structural shifts in the Zambia economy cannot be overemphasised. As noted in Adelman’s (1984) Agriculture Demand-Led Industrialisation (ADLI) model mentioned at the beginning of this chapter, agro-processing in the context of less-industrialised countries offers a great opportunity to strategically induce growth and efficiency in the agriculture sector, while at the same time providing cheaper food and inputs for secondary manufacturing to stimulate the growth of industrial production more broadly. As noted earlier, for this strategy to bear tangible fruits, regional value chains (RVCs) are critical not only in terms of broadening access to markets, but also in terms of the ability to learn and transfer technology through learning from others in the region (Paremoer, 2018). It is extremely difficult for Zambia, or any other country in African, to build significant manufacturing capabilities outside of these regional value chains. Exploiting expanding regional markets creates an opportunity for countries in each of the regions to domesticate some of the value chains, starting with the agro-processing industries, as a strategy for building capacity to engage in high value-added activities beyond regional values chains. The starting point is to make sure that the regions and the continent at large can produce enough food to meet growing demand. Once this is achieved, the capabilities built and the experience learnt from food manufacturing can be used to venture into more sophisticated manufacturing. The learning process from interactions among actors in these RVCs can induce growth of productivity in agriculture which is crucial to structural transformation of most African economies. The recently released seventh National Development Plan (7NDP) in Zambia has identified regional market penetration by securing access to export markets in the Southern and Eastern Africa regions as one of the strategies for promoting diversification, resilience in the economy, job creation, inclusive growth, and poverty reduction (RoZ, 2017). Achieving this goal would require that Zambian firms stay competitive at home and in regional markets. An aggressive and innovative strategy to overcome some of the major constraints which make local producers less competitive would be a prerequisite. It is here where industrial and trade policies become either vital enablers or barriers in the process of industrial growth. As Chitonge (2016) argues, for genuine economic structural transformation to occur in Zambia, and in the African continent broadly, there has to be a significant improvement in productivity in the agricultural sector where the majority of people work. A thriving agro-processing sector can exert a pulling force on the agricultural sector to stimulate growth in production and productivity.

The Zambian agro-processing sector 213 But for the agro-processing sector to play this role more effectively, there are a number of constraints which have to be addressed in an integrated way, both in agriculture and in the broader manufacturing sector, through policy reforms and carefully selected batteries of incentives. Following is a brief discussion of some of the challenges that prevent the agro-processing sector in Zambia from realising its full potential. Some of these challenges are common to many African countries.

Challenges in the agro-processing sector in Zambia Strengthening inter- and intra-sectoral linkages As noted earlier, the agro-processing sector cannot thrive alone; it needs an efficiently functioning agricultural sector which supplies inputs in adequate quantities and of appropriate quality. On the downstream side of the agro-processing value chains, access to domestic and regional markets for intermediate and final products is crucial, as indicated in the previous section. Seen from this angle, agro-value chains can be conceptualised as integrated systems, with the agroprocessing sector situated in a strategic position, pulling supplies from agriculture and supplying inputs and finished goods into secondary manufacturing and the services sector. It is this strategic location of the agro-processing cluster which gives it elevated importance in the broader industrial and diversification strategies, not only in Zambia, but in most African countries (ACET, 2017). For this system to work in a way that makes a significant contribution to the economy, all the linked nodes, including agro-processing, must function efficiently to avoid creating bottlenecks in the system. The best way to think about this is in terms of inter- and intra-sectoral linkages, which emphasises the point that what happens in one sector or node of a value chain impacts on the outcome of the entire chain and the economy broadly (Morris et al., 2012; Morris and Staritz,2019; Chitonge and Kabinga, 2019). For Zambia to effectively exploit its agro-processing comparative advantage in regional markets, it is crucial to ensure that the sectors which feed into these value chains and nodes are functioning optimally. This requires that most of the binding constraints in the system are adequately and continuously addressed. It is not enough to respond to the challenges in the agro-processing sector alone because it is a priority sector; that will have little impact on the overall economic and social outcomes. Poorly performing agriculture or secondary manufacturing industries can constrain the agro-processing sector and vice versa. In Zambia, there are many such constraints which have been identified in policy documents ( MCTI, 2015; RoZ, 2017) as well as in the now-growing literature on industrialisation and diversification in Zambia (Dinh, 2014; Resnick and Thurlow, 2014; Sutton and Langmead, 2013). Dihn (2013:19), for instance, argues that “Zambia has not fully exploited its latent comparative advantage in resource-based manufacturing industries”, a point that has been echoed by many analysts on Zambia (Fessehaie et al., 2015; UNDP, 2016; Paremoer, 2018, World Bank, 2018; Chitonge and Kabinga, 2019).

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Cross cutting constraints in agro-processing A recent World Bank review of the Zambian economy acknowledges that the country has huge potential and opportunities in increasing production of processed food and other manufacturing products for the growing regional markets, but this potential is constrained by several factors, including lack of appropriate reforms in the agriculture sector, low productivity in general, lack of skills, and an increasingly unstable macroeconomic environment due to the growing debt burden (World Bank, 2018). There are some constraints which are specific to particular industries in the agro-processing cluster, but the cross-cutting ones mentioned by managers of agro-processing firms include poor infrastructure, a small and narrow skills pool, irregular supply of energy, weak policy environment (particularly lack of coordination), weak inter-sectoral linkages, and an inefficient production system.5 The following sections highlight some of the challenges, as they relate specifically to the food and beverage industries in Zambia. Irregular electricity supply One of the most common challenges mentioned by all firm managers interviewed in our study, including the larger firms, was the irregular supply of electricity (load shedding). As one would expect, the interruption of electricity supply impacted negatively on production especially in the manufacturing sector where production depends heavily on operating machines that use electricity. All the respondents interviewed, including policymakers and academics, reported that load shedding of electricity badly affected production and businesses in general, not just agro-processing. Small and medium agro-processing firms were the most affected because they had no means to procure alternative sources of energy such as generators, as one of the owners of a food processing company explains: Power cuts is a big challenge. When there is no power, we have to wait for the power to come back. We cannot work without power. We normally have two shifts, but when there is no power, workers just sit and wait for power to come back. (IGC interviews, 2017) This was re-echoed by the manager of a confectionery firm who observed that: Power is still a big problem for us. Every day at five o’clock [17:00hrs] electricity is cut, and it comes back at around ten to eleven [22.00 or 23:00hrs]. Some days there’s very little supply of electricity. Electricity goes and comes, just like that. We used to have two shifts, but now we don’t have the night shift because there’s no power. Sometimes electricity comes, sometimes not, and it is difficult for us to plan the shifts. We are just working one shift at the moment. (IGC interviews, 2017)

The Zambian agro-processing sector 215 Larger agro-processing firms managed to install generators to keep production going, when electricity supply was cut. Some large companies, especially in the mining sector, have negotiated with the Zambia Electricity Supply Corporation (ZESCO) and have signed Power Purchase Agreements (PPAs) which ensure that there is no interruption of electricity supply even when there is load shedding in the whole country. An official from the Manufacturing Association of Zambia explained that large companies with adequate resources were able to guarantee the supply of electricity by signing the PPAs: For the big guys [companies], they have a dedicated substation where electricity is never cut because they sign an agreement with ZESCO. Big companies sign power purchase agreements with ZESCO, and what happens is that ZESCO brings the whole 33kV line to your factory and it’s yours, dedicated to you. It cannot be switched off from the central point; no one else is on that line. So, they can switch off everyone else, but the dedicated line is not affected. The challenge we have is that most of the smaller or medium-scale manufacturing companies are connected to the power lines that are also supplying electricity to residential areas. So, when electricity supply in the residential areas is cut, these companies also have no electricity supply. Small companies cannot have a dedicated line because it requires huge investments to bring the line from the nearest substation to your plant, and the infrastructure needed can cost up to 1.5 million [US$] dollars. Now a smaller company cannot afford this. It’s the big ones who can afford that and this is what is saving some of the big firms. (IGC interviews, 2017) Some medium-sized companies managed to invest in stand-alone power generators, though they pointed out that this ultimately pushed up the cost of production and therefore reduced competitiveness in regional markets. A manager of a vertically integrated agro-processing firm who runs a feedlot, an abattoir, a meat cold chain, and butcheries in Zambia, explained how the power supply crisis impacted on competitiveness: If there’s not enough electricity supply from ZESCO we have to use generators, but that comes at a higher cost. We saw the power crisis as an opportunity to do better, so we have invested in our own generating capacity, fuel storage, and energy efficient machines, all the refrigeration is being replaced by energy efficient systems. Of course, this leads to higher production costs. But, from the company perspective, we’ve taken it as an opportunity; we know that this is going to be a problem for the next four or five years; it cannot be solved just overnight. We hope that we can improve our competitiveness, but that’s going to be hard. We want to be able to produce cheaper than our competitors. (IGC interviews, 2017) As this manger rightly predicted in 2016, the electricity crisis resurfaced in 2019 and 2020 when electricity supply was only available for 8 hours or less in a

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24-hour period. In such circumstances the biggest challenge most of the food processors highlighted was that it was not possible to know when electricity would be available. Even in cases where companies have invested in alternative supplies of energy, the high production costs associated with such measures undercut the competitiveness of local producers, as noted earlier. Staying competitive becomes a crucial issue in a strategy pursuing industrialisation through access to regional markets where other producers have access to a steady and possibly cheaper supply of electricity. In the Southern Africa region, although most countries such as South Africa, Swaziland, Zimbabwe, and Namibia have been experiencing load shedding in the last couple of years, it is hard to remain competitive when a firm has access to power for only three hours in a day. The problem is not only about the high costs of production, but also time lost during the production schedule. In the case of manufacturing which uses large machines such as milling machines, the challenge is even bigger because most of the machines need time to warm up before they can start production. As one of the managers from a confectionery company explains: For most of the operations in manufacturing, you don’t just switch on the machines and start producing; the machines have to warm up. The minimum warm-up time depends on the type of machines one is using. For steel production you need four to five hours of warm-up time before you do anything. For plastics, it is four hours. So, clearly if you have eight hours available, you then remove the four hours needed for machines to warm up, you are basically left with half a shift. So, you move away from doing three shifts to just half shift. (IGC interviews, 2017) As noted earlier, the challenge of electricity is a cross-cutting issue; it is not specific to agro-processing firms. The impact of irregular power supply on the agro-processing sector and other branches of manufacturing has been huge. If the agro-processing sector is to realise its full potential and contribute to the transformation of the Zambian economy, constant supply of electricity is one of the obvious constraints that needs to be adequately addressed. Policy inconsistencies Another challenge which respondents from the agro-processing firms in the food and beverage subsector highlighted is the challenge of policy inconsistencies. They pointed out that the policy inconsistencies are value-chain specific, though there are broad inconsistencies mainly between trade regulations and industrial policy. One of the common policy inconsistencies widely mentioned by respondents in the agro-processing cluster is the ban on the export of maize and maize products, even in years when the country has surplus maize. There were also inconsistencies mentioned around VAT and other tax incentive regulations, unpredictable subsidies on fuel, maize meal, etc. The other common inconsistency widely reported

The Zambian agro-processing sector 217 was in the application of quality standards in the assessment of imported manufactured goods. On the fuel subsidy programme, an owner of a small juice producing company explains the challenge around the fuel subsidy programme: I give you an example, the government has removed subsidies on fuel, but you don’t know when another guy comes in and puts it back, and this throws you off if you are in business. Look, if you want to take it out, take it out, be bold enough, so that the whole system stabilises. But what often happens is that today they remove subsidies, and before you know it, they bring them back again. (IGC interviews, 2017) Most of the agro-processing firm managers and owners we interviewed explained that lack of policy consistency affects medium- and long-term planning for their businesses. An unstable subsidy programme can be disruptive in any business environment where investors and entrepreneurs make decisions assuming that the current conditions will hold for some time. Removing and then suddenly reinstating subsidies affects not just plans but cash flows which can have a devastating impact, especially on small and medium-sized firms which dominate the food processing cluster in Zambia. A similar challenge was reported around the tax regime where firms complained about the lack of a stability: We’ve seen these inconsistencies in the tax policies and practices, they change every time like the gear of a car. But we want stability, we want consistency because our planning covers a long term; we don’t plan for one year, we plan for ten years plus. So, when we met with the Minister of Finance last year, our appeal was that let’s move away from this annual discussion of tax. Because we feel there is so much uncertainty. We want to discuss long-term tax plans so that we can concentrate on our long-term strategic thinking. (IGC interviews, 2017) A stable tax regime not only allows business owners to plan well, but it gives a signal to investors that they are in a fairly stable business environment. Uncertainty in business is a risk factor which many business owners and investors consider in their investment planning models. As one of the respondents has highlighted above, negotiating how much tax you pay every month or year is destabilising, and this can reduce the attractiveness of a sector or country. The maize export ban The other policy challenge which many food processors, particularly millers, in Zambia have identified as a source of inconsistency is the regulation around the export of maize and maize products. The policy to ban the export of maize in Zambia is meant to ensure that there are enough maize and related products in

218 The Zambian agro-processing sector the country, because maize is Zambia’s stable food. But what most milling firms complained about was that government imposed a maize export ban at the time when a country had a 150 per cent maize surplus. Most millers interviewed raised this as a policy inconsistency in a country that seeks to grow the agriculture and agro-processing sectors by expanding into regional markets. A study that profiled manufacturing enterprises in Zambia in 2012, including agro-processing firms, also reported that several manufacturers complained about the inconsistencies between industrial policy which seeks to expand manufacturing and industrial production, and the trade policy that inhibits the export of locally produced manufactures, including food and other agricultural products. The study gives an example of a miller who complained about the ban on maize bran export during the dry season when the country had excess supply of maize bran (Sutton and Langmead, 2013). In our study, one of the millers we interviewed admitted that even if it is understandable to impose a ban on the export of maize and maize meal, it is unnecessary to impose a ban on maize bran because the country produces way more than what the domestic market can absorb: You know the requirement [total demand] for maize bran in Zambia is far less than what we produce. You find that we have a lot of maize bran which sometimes goes to waste. So, we rely more on these individuals that buy and export. If there’s a ban on the export of maize bran, then we get stranded with large stocks of bran, it goes to waste which is not good for business, especially because the market for maize bran in the region is huge. (IGC interviews, 2017) We could not get comments from the Ministry of Agriculture on the rationale behind the ban on maize bran. We could also not confirm whether Zambia had surplus maize bran, as most of the millers we interviewed reported. The bigger issue, though, is to understand how policy balances the different interests which emerge in an industry and in a sector. In an environment where different policies are wellcoordinated, the major role of policy is to balance the various interests which often pull in different directions. If there is weak policy coordination, inconsistencies emerge and make it difficult to realise the set policy goals. This is why it is important for policymakers to have a good understanding of specific sectors or value chains in order to avoid inconsistencies which can be detrimental to national goals. Policy inconsistency between politicians and policy implementers is also a major factor in the failure to implement outlined strategies aimed at boosting industrialisation. In order to boost agro-processing industries in Zambia, creating an environment where inconsistences are reduced or eliminated will be a key milestone. A stable policy milieu helps to create an environment where producers have some degree of certainty that policy won’t change overnight, as one respondent explains: Consistency in policies can make a big difference in this sector. Inconsistencies make it difficult for us to plan and grow. For instance,

The Zambian agro-processing sector 219 we can’t access the export market because of the ban on export of maize products. The export market is one of the key outlets for the agro-processing sector and the potential for growth there is massive. But because of the inconsistencies in the policy, a lot of farmers have stopped growing maize; they have gone into soya beans because it is less political and less complicated. (IGC interviews, 2017) If the agro-processing sector is recognised as a priority sector in the Zambian economy, other policies, including the trade policy, need to ensure that they support this sector to grow and allow it to contribute to the national industrial objectives. The sector cannot grow if the state is sending inconsistent signals to producers. The government should be in the forefront of demonstrating that it takes the growth of the sector seriously by making sure that the environment in which processors operate enables them to grow. Implementing an industrial policy which can contribute successfully to industrial development in the twentyfirst century will require an agile state with the ability to coordinate the different activities which contribute to industrial growth. A fragmented policy environment makes it hard to deliver industrial development in the current tough global manufacturing context. Government procurement policy Some of the agro-processors raised the issue of inconsistencies in government procurement policy in Zambia as a sign that the government is not serious about industrial development. Local manufacturers complained about government procurement systems, noting that the current procurement practices are inconsistent with the policy to promote the growth of local manufacturing capacity. They noted that while the Zambian government is encouraging the growth of local manufacturing, including agro-processing industries, its procurement practice undermines this policy. An example given to illustrate this was the fact that the government is importing some of the goods that are manufactured locally. I give you a case of government itself importing nurses’ uniforms. They don’t even publish tenders for safety shoes for the police and army, yet we have companies here that can produce these things. Hospital linen, it’s a white piece of cloth, how can you allow people to import the cloth, it’s so simple to produce. If you go to Ndola Broadway area, there are four textile companies there, these are companies that were established in the early 1970s. But they have covered their machines in plastics because they’ve no business. Imagine a company with over 200 machines covered in plastic because they don’t have business, and yet government is importing things that these firms can make from outside, and they say we are committed to industrialisation in Zambia. It’s also about payments; when government is importing, they pay

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The Zambian agro-processing sector 30 per cent in advance and 70 per cent on delivery, when they buying from a local company it takes even a year without paying anything. (IGC interviews, 2017)

Such policy inconsistencies have certainly contributed to the shrinking of the textile industry in Zambia which has been almost wiped out, as illustrated in Chapter 6. There are obviously many factors that account for this, but if the government procurement practices reported by manufacturers are true, it has played a part in the demise of the textile industry in Zambia. Most importantly, this procurement story is another indication that there is weak coordination between government departments. In a well-coordinated policy environment, the government procurement department has to be kept abreast of the industrial policy direction and strategy to avoid the absurd situation where an industrial policy seeking to promote the growth of local industries is undermined by a procurement policy that ignores locally produced goods. It is difficult for industrialisation to succeed in an environment where there is this level of policy fragmentation. Unstable macro-economic environment As with the irregular supply of electricity, all the agro-processing firms cited the rapid depreciation of the kwacha (Zambia’s local currency) as one of the challenges they faced.6 Currency volatility introduces uncertainty and the associated risks which most firms seek to avoid. The main challenge in this regard is that when the local currency depreciates sharply, it becomes too expensive to import inputs. For example, in 2015 the local currency lost more than 50 per cent of its value in a short period of time, with a dollar–kwacha exchange rate jumping from K9 to K14 (kwacha) in two months (World Bank, 2018). One of the manufacturers explained that his capital stock was reduced to less than half as a result of the depreciation in the kwacha. He observed that while the cost of importing inputs went up as the kwacha depreciated, the domestic market did not adjust prices of locally produced goods accordingly, resulting in local businesses failing to break, even leading to many food processors having to stop producing. Undoubtedly, an unstable macro-economic environment has destabilising effects on local firms, especially in the context of Zambia where manufacturers rely heavily on imported inputs, including intermediate and capital goods. But this story in Zambia is linked to the structure of the economy as we have noted in earlier chapters, such that the exchange rate of the local currency is strongly determined by the price of copper on the global market since the export of copper is the main foreign exchange earner. The depreciation of the kwacha in 2015 was a result of the drastic fall of the price of copper from over US$9,000 per ton to below US$4,000 per ton in less than four months (see Chapter 5). Therefore, creating a stable macro-economic environment can only be achieved when there is successful structural transformation in the economy. The growth of the industrial sector, as we have seen, should be part of the solution to this challenge.

The Zambian agro-processing sector 221 High interest rates Related to the volatility in the local currency is the challenge of high interest rates which make local producers less competitive, in both local and regional markets. One food processor argued that if manufacturers in South Africa are borrowing at the rate of between 9 and 11 per cent interest, while manufacturers in Zambia are borrowing at 32–38 per cent, it is hard to compete favourably in regional markets. High interest rates were cited by most agro-processors in our study as a binding constraint because it makes the cost of borrowing very high, which in turn makes Zambian manufacturers less competitive in regional markets. While interest rates are not the only factor that determines a firm’s competitiveness, high borrowing costs in Zambia often cancel out all the other competitive advantages that local producers might have (see Dhin, 2014). We also found that high interest rates had induced some kind of informal network of lending and borrowing, especially among Zambians of Asian origin. Out of the eight Zambians of Asian origin we interviewed, only one reported that he initially borrowed from the bank to start his business. The rest indicated that they borrowed from a relative or friend or business partner to start or expand the business. In one instance, a juice manufacturer reported that borrowing from the bank is against his religious belief: We are not allowed to get loans from banks because they accumulate interest, and this is against our religious belief. If I need money, I go to my Uncle and ask him to give me some money, and I make an undertaking to pay him back the money over three years. (IGC interviews, 2017) Generally, access to capital, both fixed and operating capital, was reported as a major challenge that makes it difficult to start or expend businesses. Skills shortages Another major challenge which was reported in the food and beverage cluster, especially among millers, confectioners, brewers, and those engaged in the production of juices, is the lack of skilled personnel. This is a perennial challenge which has been reported in many studies (Global Development Solutions, 2007; Mudenda, 2009; Sutton and Langmead, 2013; Dihn, 2013; CSO, 2014; World Bank, 2018). In the food processing cluster, manufacturers explained that it is difficult to find trained machine operators and food technologists (food scientists). They argued that a shortage of skilled labour is negatively affecting the growth of the agro-processing industry. The current shortage of skills was attributed to the fact that the manufacturing sector in Zambia had almost disappeared after the privatisation of parastatal companies during the 1990s. Talking about food processing, you do not find food technologists, at all, in Zambia, because the last time you had an industry was maybe in the 1980s and

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The Zambian agro-processing sector therefore the workers were trained to handle the equipment from the 1950s or 1960s. Modern equipment has changed, technology has changed and therefore there’s no point in actually hiring a Zambian Food Technologist. My own production manager is from Zimbabwe, I could not find a food processing technologist able to operate the modern equipment here in Zambia. So, one of our biggest issues in Zambia right now is skills, though we have tons of universities skilling in the wrong way.

Dhin’s (2014) study, which focused on light manufacturing industries, also highlighted the problem of lack of skills in various branches of the manufacturing sector. The shortage of skills is some sort of a paradox given that Zambia has high levels of unemployment with a large pool of unemployed graduates. Ultimately the issue is around skills-mismatching, which an innovative industrial policy should be able to address. As the previous quotation suggests, most people do not have the skills to handle modern food technology equipment, given that the country relied on importing processed food after privatisation.7 Therefore, training of food technologists and manufacturing machinists should be part of the strategy that takes the agro-processing as a driver of industrialisation in Zambia. Interestingly, training and building of technical and professional skills has been identified as one of the priority areas in the seventh NDP (RoZ, 2017), noting that the current shortage of certain skills will negatively impact on the efforts aimed at building a strong manufacturing base needed to build a diversified economy in Zambia. To get a good sense of the levels and types of skills needed to support the growing manufacturing industry, broadly, it is essential to audit the pool of existing skills to identify where the gaps are and establish relevant programmes through technical and vocational colleges to close the skills gap. It will be difficult to build a competitive manufacturing sector without appropriate and adequate skills. Some of the challenges identified speak to the broader constraints experienced in transforming the Zambian economy. Diversifying this economy would require implementing an industrial policy consistently while at the same time addressing some of the noted constraints.

Notes 1 This study was commissioned by the International Growth Centre (IGC) at the London School of Economics (LSE). 2 The big five in the industry are Novatek, which is a subsidiary of Zambeef with an estimated market share of 30 per cent, Africa Feeds (a division of Tiger Foods), National Milling, which together with Africa Feeds accounts for 20 per cent market share each, Nutri Feed, and Simba Milling. 3 Some of the surviving textile firms include Caress Lingerie, Amalgamated Dress Zambia Limited, Central Clothing Factory Limited, City Clothing Factory, Kay’s Textile, Mukuba Textile, and Zamleather (see Sutton and Langmead, 2013). 4 This is close to Zambia’s current GDP of about US$27 billion in 2020.

The Zambian agro-processing sector 223 5 The interviews covered a wide range of agro-processing firms from the micro, small, medium, and large firms in the food and beverage cluster. The interviews were conducted in 2016 and 2017. 6 This was in the context of 2015 and 2016 when the Kwacha lost 50 per cent of its value in just two weeks between August and September of 2015. Much of this volatility originated from the sharp decline of the price of copper on the global markets from a high of almost US$9,000 per ton in January 2015 to less than half by May 2015. 7 The data presented earlier in the chapter suggest that although the food and beverage sector declined during the 1990s, its decline was less than in other sectors of the manufacturing sector such as basic metals and non-metallic minerals.

References Adelman, I. (1984). “Beyond Export Led Growth.” World Development Vol. 12, No. 9, 937–949. African Centre for Economic Transformation (ACET) (2017). African Transformation Report 2017: Agriculture, Powering Africa’s Economic Transformation. Accra: ACET. Central Statistical Office (CSO) (2014). Manufacturing Sector Report 2011–2012. Lusaka: Ministry of Commerce, Trade and Industry. Central Statistics Office (CSO) (2015). Zambia in Numbers: 1964 to 2014. Lusaka: CSO. Central Statistical Office (CSO) (2019). Personal Communication (Excel File of Industrial Production 2019). February 17. Chansa, F., Mubanga, N., Mudenda, D. and Ndulo, M. (2019). “Industrial Growth and Policy in Zambia: Lessons from South Korea.” African Journal of Economic Review Vol. VII, No.2, 1–25. Chapota, A. and Chisanga, B. (2018). Zambia Agriculture Status Report 2018. Lusaka: IAPRI. Chitonge, H. (2016). Zambia at 50: The Persisting Challenges of Economic Structural Transformation. Development Southern Africa, https://doi.org/10.1080/0376835X .2016.1231053 Chitonge, H. and Kabinga, M. (2019). Assessing Intersectoral Linkages in the Zambian Economy: The Case of Agroprocessing. IGC Policy Brief 40402. https://www.the igc.org/wp-content/uploads/2020/01/Chitonge-and-Kabinga-2019-policy-brief.pdf, accessed 12 February 2020. Department of Economic and Social Affairs (DESA) (2008). International Industrial Standard Classification of All Economic Activities, Revision 4. New York: United Nations Department of Economic and Social Affairs Department of Trade and Industry (DTI) (2016). Industrial Policy Action Plan 2016/172018/19. Pretoria: DTI. Dhin, H. (2014). Light Manufacturing in Zambia: Job Creation and Prosperity in a Resource-Based Economy. Washington, DC: World Bank. Extractive Industry Transparent Initiative (EITI) (2018). Ninth Zambia EITI Report. Lusaka: EITI. Fessehaie, J. (2012). “What Determines the Breadth and Depth of Zambia’s Backward Linkages to Copper Mining? The Role of Public Policy and Value Chain Dynamics.” Resource Policy Vol. 37, 443–451. Fessehaie, J., des Nair, R., Ncube, P. and Roberts, S. (2015). Growth Promotion through Industrial Strategies: A Study of Zambia. Centre for Competition, Regulation and Economic Development (CCRED) Working Paper 6, University of Johannesburg.

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Global Development Solutions (2007). Integrated Value Chain Analysis of Strategic Sectors in Zambia. A report prepared for the Ministry of Tourism, Environment and Natural Resources and Ministry of Commerce Trade and Industry, Lusaka. International Labour Organisation (ILO) (2017). World Employment Social Outlook 2017. Geneva: ILO International Growth Centre interviews in Lusaka (IGC) (2017). Transcribed interviews conducted in Lusaka in 2016 and 2017. International Trade Administration of South Africa (ITAC) (2016). Agro-Processing Markets and Related Trade Trends: Opportunities and Challenges for South Africa. Johannesburg: ITAC. Karmiloff, I. (1989). Industrialisation in Sub-Saharan Africa: Country Case Study— Zambia. Overseas Development Institute (ODI) Working paper No. 26, London. Kragelund, P. (2017). “The Making of Local Content Policies in Zambia’ Copper Sector: Institutional Impediments to Resource-led Development.” Resource Policy Vol. 51, 57–66. Lombe, W. (2018). Natural Resources, Structural Change and Industrial Development: Local Content in Zambia—A Faltering Experience? UN-University World Institute for Development Research (UNU-WIDER) Working Paper No. 2018/18. Morris, M., Kaplinsky, R. and Kaplan, D. (2012). One Thing Leads to Another: Promoting Industrialisation by Making the Most of the Commodity Boom in Sub-Saharan Africa. Cape Town: University of Cape Town. Morris, M. and Staritz, C. (2019). “Industrialisation Path and Industrial Policy for Developing Countries in Global Value Chains.” In S. Ponte, G. Gereffi and G. RajReichert(eds.) Handbook of Global Value Chains. Cheltenham: Edward Elgar. 507–520. Mudenda, Dale (2009). “Industrial Policy Thematic Working Group: Trade and Industrialisaton Policies Experienced from Zambia.” Trade and Industrial Strategies(TIPS) Working Paper 8/9. Mundle, S. (1985). “The Agrarian Barrier to Industrial Growth.” Journal of Development Studies Vol. 22, No.1, 49–80. Paremoer, T. (2018). Regional Value Chains: Exploring Linkages and Opportunities in the Agroprocessing Sector Across Five SADC Countries. Centre for Competition Regulation and Economic Development (CCRED) Working Paper No. 4/2018. Republic of Zambia (GRZ) (2018). Vision 2030: A Prosperous Middle-Income Nation by 2030. Lusaka: Ministry of Finance and National Planning. Republic of Zambia (MCTI) (2015). First Draft National Industrial Policy. Lusaka: Ministry of Commerce, Trade and Industry. Republic of Zambia (RoZ) (2006). Fifth National Development Plan. Lusaka: GRZ. Republic of Zambia (RoZ) (2017) National Industrial Policy. Lusaka: Ministry of Commerce Trade and Industry. Sutton, J. and Langmead, G. (2013). An Enterprise Map of Zambia. London: International Growth Centre (IC). Resnick, D. and Thurlow, J, (2014) “The Political Economy of Zambia’s Recovery: Structural Change without Transformation.” International Food Policy Research Institute (IFPRI) Discussion Paper 01320. Szirmai, A., Yamfwa, F. and Lwamba, C. (2002). Zambia Manufacturing Performance in Comparative Perspective. Research Working Paper GD-53, Groningen Growth and Development Centre, Eindhoven University of Technology.

The Zambian agro-processing sector 225 United Nations Industrial Development Organisation (UNIDO) (2016). Industrialisation in Africa and Least Developed Countries: Booting Growth, Creating Jobs, Promoting Inclusiveness and Sustainability. Vienna: UNIDO. United Nations Conference on Trade and Development (UNCTAD) (2019). State of Commodity Dependence 2019. Geneva: UNCTAD. United Nations Development Programme (UNDP) (2016). Zambia Human Development Report 2016. New York: UNDP. World Bank (2018). An Agro-Led Structural Transformation: 11th Zambia Economic Brief. Washington, DC: The World Bank. Zambia Development Agency (ZDA) (2014). Agro-processing Sector Profile. Lusaka: ZDA. Zambia Development Agency (ZDA) (2015). Foreign Direct Investment and Investor Perception in Zambia-2014: Fifty Years of Economic Transformation Through Investment. Lusaka: ZDA.

8

Industrial policy and the challenges of economic structural transformation in Zambia

Introduction It is apparent from the analysis of the Zambian economy presented in the preceding chapters that, in its early days, the economy was built around the mining sector, mainly copper. As highlighted in Chapters 3 and 4, the colonial government was aware of the weaknesses of this economic structure and expressed the desire to transform the structure of this economy by promoting the growth of secondary industries. From the early 1930s when the price of copper slumped on the world market because of the Great Depression, and the newly established copper industry in Northern Rhodesia was decimated, the colonial government understood the challenges inherent in the structure of the economy they had built. Although the need to diversify the production base in the economy was expressed by the European settlers in Northern Rhodesia, little was done to transform the structure of the economy for various reasons highlighted in Chapter 3. This was despite the fact that promoting the growth of secondary industries, particularly manufacturing, was recognised as an important way to transform the economy’s structure to build a stable and resilient economy. The weakness in the structure of the economy in Northern Rhodesia was highly visible when compared to the economic structure in South Africa and Southern Rhodesia where a relatively sophisticated level of industrial capacity had developed by the 1940s (Kilby, 1975). This motivated the European settlers in Northern Rhodesia to initiate policy which could promote the growth of secondary industries to emulate developments in South Africa and Southern Rhodesia. However, although the European settlers in Northern Rhodesia were trying to replicate the approach adopted in Southern Rhodesia and South Africa in terms of expanding the growth of the manufacturing sector, little industrial development had been achieved by the time of independence. In this chapter, we focus on some of the challenges of implementing a transformative industrial strategy in Zambia. The chapter brings together the analysis of the industrial sector and policy strategies discussed in earlier chapters to highlight the challenges of implementing a successful transformative IP that can contribute to diversifying the Zambian economy. Since the economy still exhibits strong features of a colonial economy structured around the extraction of minerals

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deposits, the successive Zambian governments (including the current one) over the past six decades have been battling to find a workable formula to transform the economy. Given that transforming the economy is still a pressing national development issue, it is important to look at some of the challenges the country has encountered in the effort to transform the economy. In discussing these challenges, the chapter emphasises the role of industrial policy in promoting, not just diversification of the economy, but structural transformation of the economy and society at large. To situate this into the broader context, it is essential to outline the broader principles of IP and assess how these have or have not been applied in Zambia.

Zambia’s industrial development experience As we have seen in the preceding chapters, while the structure of the Zambian economy today is quite different from what it was at independence, it has still remained dependent on the export of minerals, predominantly copper, which accounts for more than 75 per cent in terms of both mineral tonnage and export value. The Seventh National Development Plan (7th NDP) 2017–2021 (RoZ, 2017), has acknowledged that the economy has remained dependent on the production and export of copper which accounted an overwhelming share of export earnings in 2018. In this sense, Zambia, like many African countries, has not succeeded in transforming the structure of the colonial economy. In reviewing the Zambian experience of industrial development, this chapter seeks to highlight some of the industrial policy weaknesses and strengths exhibited over the last half century to understand the opportunities and challenges of industrialisation in the country. It is argued in this and the next chapter that it is not just any type of IP that can achieve economic structural transformation. The current global economic conditions and structure of production requires what I have referred to as a Frontier Industrial Policy (FIP). One of the key features of a FIP is that it operates at the margins of industrial strategy, always adapting to the changing global economic environment; pushing the boundaries of industrial strategy to the limit. In the African context, a FIP today must be defined by its ability to use regional markets to promote learning and build industrial capacity. In order to successfully contribute to structural transformation in Africa today, a FIP must prioritise activities which consolidate the transition from low to high value added activities, broadbased growth, and sustainable development. In the case of Zambia and most African countries in general, a regional approach to structural transformation is likely to increase the chances of successfully transforming these economies. Industrialising alone for most countries in Africa will be highly unlikely, as the case has been in the past. We will come back to this point in Chapter 9, where more details about a regional industrial strategy are discussed.

What is Industrial Policy (IP)? While the term Industrial Policy (IP) is commonly used, it means different things to different people (Everett, 2003), and this is what has made the industrial

228 Economic structural transformation policy debate quite contentious. Although the literature on industrial policy is quite clear on what the goals of IP are, the debate about what constitutes IP has been ongoing and it is far from being resolved (UNECA, 2016). Rodrik (2008) argues that the debate on IP is not about whether the state should be involved in industrial development; it is often about how the state should be involved in a country’s industrial development process. Many analysts would agree with this view; the state has always been a central actor in industrial development of all countries which have been industrialised (List, 1909). In other words, there is wide agreement that the state has a role to play in the industrial development of a country, but there is no agreement on how the state should go about playing this role. But “because most of the discussion to date has focused on the whether question, the debate on industrial policy has reached diminishing returns and has become stale” (Rodrik, 2008:2, emphasis in original). Rodrik’s assertion here is a valid point to make, given that focusing on the “whether” question yields no new insights over time; it is the debates about “how” which can provide useful insights in the rapidly changing industrial production and technology world today. Spending energy on the question of whether the state should be involved in industrial development does not lead anywhere; it is the how question that can lead to generating innovative ways of inserting the state in industrial development activities. However, the state’s role in industrial development is often shaped by how one defines IP, and this is why it is important to be clear on what one understands IP to be. Competing views on IP While a formal definition of IP may be quite tricky, it is essential, as noted earlier, to demarcate the scope that one is operating in. What constitutes IP is determined by what one’s understanding of IP is. For instance, for many analysts, the deliberate lowering of a country’s exchange rate is sometimes considered to be a core component of IP, just as a production subsidy or other targeted incentives are. In this instance, analysts argue that IP “is not about industry per se” (ibid.); it is about taking strategies that promote growth and transformation in an economy. For other analysts, a selective approach to industrial development is seen as the defining feature of an IP. According to this view, the defining feature of an IP its ability to identify and direct action and support towards strategic sectors, subsectors, or even firms which are seen to have the potential to induce growth in other sectors and firms (see Lall, 2004). Analysts in this group often tend to restrict IP to activities within the conventional industrial sector, with a strong bias on manufacturing. There are other analysts who see state intervention to fix market failures, export orientation, and pursuit of “fierce competition” as the three key defining features of IP (see Cherif and Hasanov, 2019). Yet others understand IP as any strategy that seeks to integrate a country’s production structures into global value chains (Newfarmer et al., 2018). There are also analysts who see IP as essentially a set of “restructuring policies” which target dynamic sectors regardless of whether these are in manufacturing, agriculture, or services (Timmer et al., 2012).

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Clearly, what has “made the industrial policy debate particularly contentious is that there hasn’t been an agreement on what an industrial policy is. The most straightforward definition would be any policy that affects the evolution of industry; especially of the manufacturing sector…” (UNECA, 2016:28). The fact that there is no agreed definition of what IP is leaves the space open for diversity of views, as noted earlier. It can also be argued that what ultimately influences one’s understanding of and approach to IP is greatly determined by one’s ideological orientation, such that the debate about IP in the end is about what someone believes. For example, people who believe that state intervention is harmful to the economy would not define IP in terms of strong state intervention, while people who believe that market failures exist and cannot be fixed without state intervention often adopt an approach to IP that assigns a strong role to the state. In this sense, the debate about what IP is, is more ideological than many would admit. That discussions around IP are shaped by one’s ideological position should not be surprising, since IP is often at the centre of any development strategy, and this is an arena expected to generate different views and approaches. Therefore, the difference of views on what IP is should be expected. Pro-market views on IP What has made the IP debate even more contested, especially after the 1980s when the neoliberal counter-revolution1 consolidated its hold on mainstream economic policy, which led to questions about whether IP can be (and has been) an effective tool for economic transformation, economic growth, and diversification, is the emergence of a ideological iron curtain. At this level, the debate is often binarised into the pro-market and pro-state camps, though in more recent years there has been a wide acknowledgement that IP debates should be beyond the old and tired debate about whether the state or the market is better positioned to drive industrialisation (Cherif and Hasanov, 2019; UNECA, 2011). Rodrik’s (2008) point above also echoes this view. Aiginger and Rodrik (2020) argue that there has been a rediscovery of IP even in countries which relied on market mechanisms in the past, thus normalising IP. They attribute this growing interest in IP even in industrialised countries to the Chinese threat, which has led to the ensuing “trade wars”, since the 2008/09 financial crisis. However, even if there is little agreement about what exactly constitutes IP, there is some agreement that IP (whatever form it takes) does play an important role in the development of a country (Wade 2019). The importance of IP has always been affirmed and desired more in less industrialised countries seeking to catch up with developed countries (Singer, 1950). From this, it could be inferred that IP is a development tool more potent in underdeveloped countries, precisely because of the rampant market failures in these economies. To the extent that IP is used as an instrument for correcting market failures, its application entails a departure from orthodox economic principles (Cramer et al., 2020). While there seems to have been a wide consensus in later debates that industrial policy does play an important role in the economic development of less developed countries

230 Economic structural transformation (Chitonge, 2019), this consensus is still being questioned in some quarters. Those who question the efficacy of IP argue that there is no convincing evidence in support of the view that implementation of IP leads to positive economic and development outcomes (Pack and Saggi, 2006). Overall, in the IP debate, while few would content the view that IP has an important role to play in any development process, there are still raging debates around questions of what exactly constitutes IP and what can it deliver in terms of transformation and promoting sustained economic growth. Given that how one defines IP influences how one answers the questions of what IP can and cannot do, and whether it is effective or not, it is essential to state clearly what one understands the meaning of IP to be. Industrial strategy: a special case policy Broadly, IP is widely understood as a set of policy measures taken by the state to promote the growth of strategic sectors and subsectors in the economy. This is the definition I have adopted here. As one would expect, the nature and scope of these policies differ according to the prevailing economic and political circumstances. In other words, the content of what is regarded as IP in one country often differs substantially from other countries, just as a set of policy measures which constituted IP in the 1950 are not the same today. The underlying goal is clearly to promote the growth of important sectors in the economy. I have never come across an understanding of IP as something that is directed at preventing or stalling growth in the economy. In this regard, IP is often regarded as a special case of economic growth and development policy. It is a special case policy because it is targeted at what is believed to be strategic or priority sectors/subsectors and also because it is believed to have the power to unlock growth and diversification in the economy. A general strategy of economic development would have many and broader elements of policy, such as improving enrolment and retention in schools, promoting investment activities, training skilled labour, liberalising markets or nationalising certain segments of the economy, etc. Industrial policy, on the other hand is selective, focusing mainly on those activities which manifest great potential for generating sustained economic growth and structural change over time. In the broader development strategy, other policies are often understood to be connected to industrial policy. In this sense, IP is a “special case of the general arguments” on economic growth and development (Pack and Saggi, 2006:268). It is not special in the ordinary sense of the term; it is special in that it is meant to apply to sectors that are seen as central not just to the growth of other sectors but to achieving other social, political objectives in a country, as highlighted in Chapter 4, in the context of Zambia immediately after independence. This point was emphatically made by Hirschman (1958), who advocated for an approach to industrialisation that focuses on identifying sectors and subsectors with the greatest “power of dispersion,” that is, the ability to stimulate economic activities and growth in other sectors. In the case of Zambia, for instance, an IP should be able to identify strategic sectors that have the potential to stimulate growth in rest of the economy.

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In this sense, IP is a special case of the general economic development policy. Understood in this way, IP is generally broader than just fostering, developing, and adopting technology and innovation (Cherif and Hasanov, 2019:6). Industrial policy may have elements of promoting development or adoption of new technology and innovation (technology and innovation policy), but it should be much broader than that. More importantly, a good IP should be able to shape the direction other policies take so that there is alignment of all policies with the nationally identified objectives. Based on this understanding of IP, it is possible to identify some common principles shared by most IPs.

Principles of industrial policy In an effort to clarify what we understand IP to be, it is perhaps helpful to look at the common features widely believed to be central to industrial policy. Of course, such principles would be shaped by what meaning of IP a person adopts. To start with, it is essential to distinguish IP from industrialisation because the latter is an outcome of an outlined plan of action (IP strategy). This distinction is important, bearing in mind that the term “industrialisation” is often used synonymously with “development” (UNECA, 2016). Making a distinction between IP and industrialisation in this case would prevent confusing IP with development policy. As noted earlier, while IP is an integral element of a broader economic development policy, it is a separate field of action with a narrower mandate than broader development policy and strategy. If we approach IP as a set of strategies carefully selected to promote the growth of targeted sectors or subsectors with the aim of improving economic growth and changing the structure of the economy, there are four central principles which are crucial to this understanding of IP: selectivity; identification of national goals to which IP is expected to contribute to; altering or transforming the structure of the economy; and responding to market failures. The principle of selectivity Selectivity or targeting as an IP principle is derived from the understanding that certain sectors, subsectors, or firms are strategically placed in the economy, at a given time (strategic importance of sectors or firms change over time), such that their growth has the potential to stimulate economy-wide growth and societal change. When such segments of the economy or society are identified, IP is then deployed to help realise the potential in the selected sectors and firms. Selectivity is an important IP principle which guides policy action that “deliberately favours particular industries—or even firms—over others, against market signals, usually to enhance efficiency and to promote productivity growth for targeted industries…” (UNECA, 2016:28). Selectivity or a targeted approach in IP has, however, been contested, especially by analysts who argue for a general industrial policy (GIP) against a selective industrial policy (SIP). They argue that a selective approach to IP can lead to “unbalanced growth,” by creating multiple disequilibria in the economy. This

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debate surfaced during the 1950s when the new branch of development economics emerged. During that time the debate was framed in terms of balanced versus unbalanced growth strategies (see Krugman, 1992; Cramer et al., 2020). Sictovsky (1954) and Nurkse (1953), building on Rosenstein-Rodan’s (1943) idea of planned industrial development, the Big Push Theorem, explained the mechanics of balanced growth as necessary if policy is to avoid creating imbalances in the economy. They advocated for an approach that promoted similar rates of investments across sectors by making sure that policy attention and incentives were not concentrated in one or just a few sectors—leading to imbalances in the economy. Hirschman (1958) on the other hand argued for a selective approach whereby a few sectors with the potential to act as “engines of growth” are prioritised in such a way that their growth can pull and push other sectors to grow through backward and forward linkages. Although the debate about GIP vs. SIP has not been concluded, the practical field of IP implementation favours a more selective approach because of scarce resources in most developing countries, which make the IP take a default position by targeted interventions such that certain sectors or firms are prioritised over others. In countries where industrial policy has produced favourable outcomes, selective policy interventions have been the order of the day (see Amsden, 1989; Wade, 1990, Johnson, 1999). In East Asia, from Japan, South Korea to Taiwan and Indonesia, incentives were provided to selected firms that showed the appetite and potential to enter into export markets (Johnson, 1999; Cramer et al., 2020); not all sectors or firms received support from the industrial development programmes in these countries. Drawing from the experience of South Korea, Chansa et al. (2019) argue that during the first phase of industrialisation in South Korea, the government identified six labour intensive industries (plywood, textile, wigs, garments, footwear, and food processing)2 as drivers of industrial and economic growth. Resources were made available to provide incentives to identified industrial sectors on the basis of their performance against national objectives, targets, and prospects for contributing to the objectives of industrial development (Amsden, 1989). From a practical perspective, selectivity makes it possible to effectively monitor the outcomes of policy in order to change strategies if the anticipated results are not achieved. Interestingly, the mainstream development policy view on industrial policy has favoured the general approach such as devaluation of the local currency, promoting the acquisition of skills, and provision of other public goods, arguing that the selective approach introduces distortions and inefficiency in the economy. African countries implementing SAPs were advised not to take the selective route; a general approach was adopted in line with the neoliberal thinking which underpinned SAPs (Cramer et al., 2020). The transformative principle The other important feature of IP is derived from its potential to generate structural change in the economy (see Rodrik, 2008). This principle guides the selection of

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interventions believed to be central to achieving structural transformation in the economy. In this regard, the transformative principle of IP has a long-term horizon which guides the sequencing of interventions. This is critical because not all the desired interventions needed to promote industrialisation can be implemented at the same time; specific interventions have to be phased in while keeping the focus on the long-term overall objective. In this sense, industrial development, which is the long-term goal of industrial policy, is, in the conventional sense, understood as the transformation of the economy and society from agrarian to an industrial society, where industries, particularly manufacturing, become the dominant sector in the economy (Amsden, 1989). Because of this, IP is widely seen as a tool for promoting structural change in an economy, especially in economies with a large agrarian base. The transformative principle of IP is therefore based on the understanding that IP has the potential to support a country to transition from being a low-income (often agrarian-based economy) to a higher-income economy with a strong and vibrant industrial base. This is why it is important for IP to have a strong sense of what kind of structural change a country seeks to achieve at any given time. It is this strong sense of direction that enables policymakers to design and implement appropriate actions and programmes on a sustained basis. Without a good sense of what IP is expected to achieve, it is very easy for policy to lose focus and commitment from officials, and can easily be derailed.

Identification of national goals The third important principle of IP, which flows from the first two principles discussed above, is the selection of the national goals which IP is expected to contribute to. This principle provides the rationale for selecting areas of activity to which IP should direct its energy and weight. For instance, at the start of industrial development, it might be decided that the national gaol is to ensure that everyone in the country is food secure. If this is the identified goal, then the selection of the sectors or firms to target in an IP should be guided by this goal or set of goals. Industrial policy, like any other policy, should have the objective of contributing to some identified national goals. This element of IP brings in the state as an important actor in any industrial development programme. The importance of the state here is not that it gets rid of the private sector or markets, but that the state leads by identifying the national goals that IP is anticipated to contribute to. Second, the state should provide leadership to the different actors in the field of industrial development and guide them towards the set national goals. Here the main issue in the context of industrial policy is that “It is not the state against the market; rather ‘When the public takes the lead and is ambitious, not just facilitating or being meek, it can push the frontiers’” (cited in Cherif and Hasanov, 2019:7). The state’s main focus is to ensure that it keeps its “eye on the ball,” as it were. While it leaves large room for other actors, including private sector enterprises, to conduct their affairs freely, the state’s responsibility is to make sure that

234 Economic structural transformation whatever other actors are doing contributes to achieving the national goal(s). For example, if the identified national goal is to diversify the economy to broaden the export basket, the role of the state is to ensure that strategies are designed and implemented consistently, targeting activities in the economy with the potential to enlarge the export basket. This might entail providing guidance and encouragement to private enterprises to diversify their interests and businesses by assisting them to venture into new activities that have the potential to contribute to diversifying economic activities in the country. It might also imply that entirely new ventures are promoted as mechanisms for diversifying the economy. In this sense, IP is a practically oriented field, and often operates on the basis of trial and error (learning by doing) (Ainginger and Rodrik, 2020). A good example is the story of how the spin-off firms in South Korea embarked on a slow process of what is known as “vertical disintegration” in order to venture into new activities (Wade, 1990). Wade (1990) discussed an example of how the cement industry in South Korea was used, through domestic and international support from the US and investments from Japanese firms, as a stepping-stone for establishing complicated manufacturing activities. The example of the growth of the Hyundai Cement Company, which was producing cement but diversified into different activities including the automotive manufacturing, is instructive. It illustrates the role of spinoff companies in serving the national objective of expanding export earnings and diversifying the economy. In this way, companies can be incentivised to contribute to the realisation of national objectives through a carefully designed and implemented IP. The principle of addressing market failures This is a simple and commonly acknowledged principle of IP. The understanding behind the market failure principle is that markets do not always perform optimally; that there are certain things that markets cannot perform well. Because of this, IP is believed be one of the mechanisms designed to respond to market failures. In the early days of industrial policy, the active role of the state was encouraged particularly on the grounds that state action could address and respond to market failures, especially in developing countries where markets were thin or non-existent (Meier, 1984). However, elevating the state in this way has been criticised by analysts who observe that there are state failures just as there are market failures (Stiglitz, 1992). In the context of industrial policy, the state failure argument becomes relevant if the state is the only actor. In a strategy where the state is taking the lead among other actors, public policy interventions can respond to many market failures, while at the same time leaving other actors space to play their part in identifying and finding ways to address state failures. In this way, IP can be a tool through which both state and market failures could be simultaneously addressed. A wellformulated IP can be an effective way of addressing challenges in areas such as poor investment coordination which are not usually addressed by markets. On the one hand, state failures, including inefficient resource allocation, political

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interference, and capture of public investment, can be addressed by applying market principles. An industrial policy that is well designed should provide the mechanism for ensuring that all failures are addressed in the pursuit of national goals. Often this type of policy is associated with the developmental state (see Chang, 2010; Chitonge, 2019). In the next section, we discuss how these principles have played or failed to play a role in the industrialisation strategy adopted in Zambia since independence.

The challenges of transforming the economy in Zambia Transforming the structure of the Zambian economy is a challenge that successive governments have been battling with ever since independence. While the challenge of transforming the economy has always been attributed to the nature of the economic structure inherited from the colonial government, the post-colonial government in Zambia (and other African countries) has had six decades to transform the economy. Despite repeated statements on the need to diversify the economy and reduce dependence on the mining sector, little has been achieved in this regard, so far, as we have seen in the preceding chapters. The country still depends on the export of minerals, mainly copper, for more than three-quarters of its foreign exchange earnings today. Transformative IP: the missing link Much of the failure to transform the Zambian economy can be attributed to the lack of sustained implementation of a transformative industrial development policy. A Transformative Industrial Policy (TIP UNECA, 2016) implies sustained implementation of strategies designed to achieve structural change. This requires a long-term vision and commitment to IP. As argued in Chapter 4, in the first 15 years of independence, when an aggressive industrial strategy was implemented, significant progress was made in terms of diversification of the economy, but the momentum generated during this period was disrupted in the 1980s when industrial policy was completely abandoned. As a result, the growth of the industrial sector declined was reversed, with the manufacturing sector’s contribution to total output shrinking to only a third of its peak before the commencement of SAPs (Chapter 6). In addition to this, even at the time when the industrial sector, including manufacturing, was expanding, the strategy adopted favoured an inward-looking (ISI) approach, which contributed little to changing the composition of the country’s export (Chansa et al., 2019). This is why the country has made limited progress in reducing the dominance of copper in the export basket. A successful TIP should emphasise strategies aimed at transforming the structural constraints in the economy in order to alter the sectoral composition of value added and gradually the dominance of a single sector. Achieving this is much more difficult today, given the complex nature of the current global manufacturing value chains and production structure (see Morris and Staritz, 2019). However, there are new opportunities

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opening up with the increase in regional trade agreements which can be a game changer for Zambia and many African countries. In the case of the Zambian experience, industrial production, in general, experienced the fastest expansion during the first five years of independence—1964–1969. Even if industrial production between 1954 and 1963 grew at an annual rate of 11 per cent per annum, the scope of manufacturing products was very limited compared to the 1964 to 1969 period when manufacturing sector growth was at a record high of 22 per cent per annum, with a much wider range of manufacturing of products being introduced in the first five years of independence (Faber, 1971). In this sense, the effort to diversify the economic structure and export base is mostly evident during this period. But this enthusiasm could not be sustained, for various reasons. This pattern has been observed in other African countries where frantic efforts were made to decolonise the economy immediately after independence, but the momentum was lost a few years down the line. In Zambia, for example, serious efforts were made to establish new industrial enterprises in the manufacturing sector, first by the private sector’s response to improving market conditions in the period 1964 to 1969, and thereafter by direct government participation (Chapter 4). It is important here to highlight elements of IP in Zambia, particularly the strategies adopted and why these contributed, or failed to contribute, to the objective of transforming and diversifying the structure of the economy. In order to systematically analyse the implementation of industrial strategy in Zambia, it is helpful to discuss the three distinct periods of industrial strategy separately: first, the period after independence, which was characterised by strong and direct participation of the state in all industrial sectors though various means; second, the period after privatisation, when IP was completely abandoned in favour of market-led industrialisation; third, the current period, when there are attempts to revive industrial development policy, which started around 2003.

State-led industrial strategies in Zambia—1964 to 1991 One of the main factors which contributed to the progress made in the implementation of industrial strategy immediately after independence in Zambia was the dissolution of the Federation of Rhodesia and Nyasaland (the Federation) in 1963. The end of the Federation accorded autonomy to Northern Rhodesia to design and implement reforms which previously had been dictated by the Federation government (see Barber, 1961). When the Federation government was dissolved in 1963, just a year before Zambia’s independence, “the Northern Rhodesia government recovered both the right to formulate its own industrial policy and the power to impose tariffs upon imports from [southern] Rhodesia” (Faber, 1971:301). In effect, genuine industrial policy in Zambia started when the government was able to design its own policy and strategies towards the identified national objectives. During the Federation, although the constituting member states of the Federation had some autonomy to design and implement their own economic policies, these were severely constrained by the structure of the federal government that favoured the territory with the highest number

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of European settlers who made decisions in their own interest. Different aspects of economic policy, from trade, industry, education, fiscal and monetary policies, were all geared towards serving the interests of Southern Rhodesia, mainly because of the larger number of European settlers who influenced the decisions of the federal government in their favour (Young, 1971). Industrial policy: a response to political circumstances When Zambia became independent, the independent state quickly grabbed the opportunity to design its own industrial strategy based on the two important national objectives shaped by the prevailing economic and the political circumstances of the time. The first recognised priority was reducing dependence on the southern neighbours (South Africa and Southern Rhodesia), both of which were under white minority rule. As noted in Chapter 3, the most important reason behind the move to reduce the country’s dependency on manufactured products from South Africa and Southern Rhodesia was more political then economic. In political terms, the two southern neighbours were still under colonial white minority rule, which was against the Zambian government’s political philosophy of a free Africa ruled by Africans (Roberts, 1976). Reliance on white minority governments made Zambia insecure in the sense that any confrontation would jeopardise the country’s source not only of finished consumer products but of the large share of intermediate and capital goods. In the case of Southern Rhodesia, this became a reality just a year after Ian Smith unilaterally declared independence from Britain in 1965. It was not just the supply of manufactured goods which was affected; the transport routes for supply of inputs and export of copper were all affected when relations between the two nations soured in 1966 to the point that Zambia had to find a new route to transport its exports and imports (Kunda, 1968a). In this sense, political factors motivated the IP and the strategies that Zambia adopted at that time. The strong emphasis on political factors meant that economic factors were overshadowed and in the long run the policy failed to address those basic economic constraints. While the national objectives were identified, the principles of selectivity, addressing market failures, and transformative aspects of the strategies were largely ignored. The second factor that influenced industrial policy decisions immediately after independence were a mixture of economic as well as social objectives. The economic objective focused on the old challenge of diversifying the production and economic structure to reduce dependence on mining, which was understood to be risky given the volatile nature of copper prices on global markets. This view was clearly articulated in the FNDP (RoZ, 1966). It is important to note here that while this refers to the need to structurally transform the economy, at this stage the concerns around diversification may not have taken centre stage given that the copper industry was doing very well, and global prices and demand were both tending upwards, as shown in Chapter 5. It was only after the 1969 copper price decline that concerns with sectoral diversification of the economy emerged strongly.

238 Economic structural transformation The urban bias What strongly guided IP in these early days was the need to deal with the dualistic nature of the economy, particularly the disparities between the rural and the urban populations; the former sector was completely neglected during colonial rule (ibid.:2). Industrial policy was seen as an important tool to contribute to achieving the national objective of addressing the rural–urban imbalance in the standards and conditions of living. Establishing industries beyond the line of rail became a component of the strategy to diversify the economy and IP was to play an important role in this. Despite the efforts to take industrial development to rural areas during the 1960s, the development of rural industries did not go far, with only a few small industries established by INDECO outside of the line of rail (Young, 1973).3 In this regard, the strategy did not achieve the envisioned objective of spatially diversifying economic activities. Most of the industrial activities are still concentrated along the line of rail. The extent to which little progress was recorded in developing industries in rural areas where an overwhelming majority of the population lived during the 1960s reflects the inherent failure of IP to focus consistently on strategic issues. While the official policy articulated the need to develop rural areas, little was committed to rural development in terms of resources and political commitment (World Bank, 1984). Reading through the policy documents at that time, it is clear that the government leadership (particularly the president) was determined to prioritise rural development, but the implementation of these plans diverged from this vision, as evident in the fact that more resources were committed to the urban sector. This is a challenge that is not unique to Zambia; it is common in many African countries and is popularly referred to as the “urban bias” (Bates, 1981). In Zambia, industrial policy was relatively successful along the line of rail during the first decade of independence such that by the end of the state-led industrial strategy in 1990s, the manufacturing sector accounted for the second largest share of GDP after services (see Chapters 4 and 6). The strategy adopted at the beginning was to encourage the private sector to expand the production of existing products and also introduce new manufacturing products to take advantage of the favourable market conditions for manufacturing, which included the imposition of tariffs on manufactured goods from Southern Rhodesia (giving protection to local manufacturers). The second strategy focused on exploiting rising demand as a result of higher employment rates and wages (among Africans) because of the higher copper prices on the global market sustained by the Vietnam War (Faber, 1971). In the later years of implementing industrial policy, the principle of targeting strategic sectors was largely missing. Industrial policy sought to address all the development problems by substituting all imported goods with locally produced goods, without a strategic plan on how to sustain local manufacturing. The failure to concentrate on strategic sectors, with the potential to stimulate long-term growth of the industrial sector, contributed to the unsteadiness of the ISI strategy in the 1980s when the foreign currency crunch emerged.

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Zambianisation in industrial strategy To stimulate the growth of the industrial sector, the Zambian government adopted several measures, including increased spending on public investment projects, and the promotion of the policy of Zambianisation not only of jobs but of business enterprises as well. The strategy to Zambianise the economy was based on the understanding that most expatriates in the country were largely consuming imported goods from South Africa and Southern Rhodesia, spending relatively low portions of their wages on locally produced goods (Chapter 3). On the other hand, an overwhelmingly higher proportion of the indigenous Zambian population depended on locally manufactured products, but with little purchasing power. Therefore, one of the consequences of the strategy of Zambianisation was to shift the spending power significantly to the African population, because they were mainly consuming locally produced manufactured goods. It was hoped that this would contribute to the growth of demand for domestically manufacturing products and eventually sustain the sector. This, together with stepped-up government spending in construction and other sectors, meant that more indigenous people were employed and the “shift in the national income distribution towards African wages and salaries accentuated the demand for local manufactured products” (Faber, 1971:304). The expansion of the manufacturing sector at this time was reflected in the rapid growth of the various components of the sector, with food manufacturing growing by 71 per cent between 1964 and 1968, while the beverage and tobacco and the textile industries doubled production over the same period (ibid.:207). Massive growth in production was also recorded by the non-metallic and minerals sector, which grew by over 150 per cent over this period (ibid.). But the growing Zambian middle class shifted their consumption pattern in preference for imported goods, leading to a situation where the country continued to import consumer products for a small middle-class population that had a higher income (Burdette, 1977). It has also been argued that the local industries established during the 1970s concentrated on producing goods which most Zambians could not afford (Fincham, 1980). For example, the two car assembly plants for Fiat in Livingston and Peugeot in Ndola produced cars for a tiny section of the population, with no prospect of entering the export market. Thus, the sustainability of such industrial development projects was highly questionable, and did not make economic sense.

INDECO’s roles of in industrial development in Zambia The most important strategy during the state-led period in terms of industrial development was that of transforming INDECO from being a financier to a driver of industrialisation. In 1964, the government took full control of INEDCO by buying out the private sector partners, and in 1965 constituted a new management team and changed the organisation’s mandate. From this time on, INDECO was used primarily as a vehicle for the implementation of IP. As an industrial

240 Economic structural transformation strategy vehicle, INDECO after independence adopted a four-pronged approach to industrialisation. The first focused on encouraging the expansion of the existing production capacity and line of products, in order to respond to growing demand in the economy. The second approach focused on encouraging the entry of new manufacturing firms, in order to augment existing manufacturing capacity. The third approach was to encourage the establishment of new manufacturing firms producing new products which were currently being imported. The fourth strategy concentrated on encouraging exiting manufacturing firms to diversify their production lines into new products which were in demand (Faber, 1971). Here we see the state-owned INDECO not only playing a coordinating or facilitating role in industrial development but also identifying strategic clusters within the manufacturing sector as critical nodes in the broader national objective. Through INDECO, the Zambian government played a crucial role in implementing IP. Faber (1971) also notes the massive growth of INDECO and the manufacturing sector in general, and he attributes this growth to a number of factors including the booming copper prices on world markets, the active role of the government in implementing IP, and the government’s response to UDI, which added urgency to develop local manufacturing capabilities and capacities. Most importantly, the growth of INDECO can be attributed to the expanded mandate it received after being reconfigured. The success of INDECO has also been attributed to the calibre of people tasked to manage the affairs of the corporation. A committed team of civil servants is a crucial ingredient in any successful industrial strategy. It has been observed that It was not until the triumvirate of Mr. Justin Chimba, a strong political minister, Mr. Godwin Mutale as Permanent Secretary, and Mr. Andrew Sardanis as Chairman and Managing Director [that] INDECO became firmly established [and] industrial policy started to become articulate. And much of the incisiveness of action in industrial matters following 1965 is clearly owed to the success with which these three worked together (Faber, 1971:309) Sardanis (2014), in his book on Zambia, also speaks about a dedicated team appointed to run INDECO as an important factor in explaining the initial progress and momentum generated in promoting industrial growth in Zambia. A dedicated cadre of civil servants with a clear understanding of their roles and of national objectives is indispensable to the success of any IP (Wade, 1990). Assembling a team of highly dedicated senior officials should be a key consideration in the process of industrial development. Here we see a clear intent of the state, through its statutory body, seeking to steer the economy in a particular direction, with clearly identified national goals, which the industrial strategy was serving. By encouraging the private sector through various incentives, including the implementation of a tariff system that protected local manufacturers from external competition, the state was, in a sense, correcting some of the common market failures, particularly the failure to invest beyond the private return-to-investment calculations.

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In cases where the private sector was unable to mobilise large enough funds or was not willing to spend because of the poor prospect of returns, the state stepped in and established state-owned or state-controlled ventures in consideration of socially optimal outcomes. Examples of these types of investments include Nitrogen Chemicals of Zambia, established in Kafue Town in 1967, Kabwe Industries Fabrics (KIFCO) in Kabwe, African Farming Equipment, and Kafue Textiles of Zambia. What contributed to the success recorded during this period was not necessarily the fact that the state intervened in the economy; it was largely because the state knew what it wanted and what was needed to be done in order to realise its objectives. State–private sector relations in industrial development As indicated earlier, immediately after independence, the state pursued industrial policy in partnership with the private sector in both existing and new enterprises. Even after the Mulungushi Reforms in 1968, the state continued to promote the growth of the private sector as a partner in realising national developmental objectives. In most ventures, although the state had a controlling stake through INDECO, and later ZIMCO (see Chapter 4), the private sector was allowed to participate in these ventures such that even by the 1980s almost half of manufacturing value added was being generated from private sector owned enterprises (see World Bank, 1984). However, it is important to note that leading Zambian politicians were suspicious of the private sector actors and the partnership between the state and private sector had been characterised by tensions from the beginning. One of the reasons for uneasiness among state officials was that the majority of businesses, especially large enterprises, were owned by non-nationals, predominantly white South Africans, Britons, and white Rhodesians to a certain extent (Faber and Potter, 1971; Burdette, 1977; 1984). The dominance of foreign-owned enterprise was interpreted as carrying a high risk of de-investment in times of upheaval, leading to massive capital outflow. This concern was articulated in the Mulungushi Reforms Speech: Like most ex-colonial territories Zambia, on Independence, took over the reins of government but the economic sector remained entirely in the hands of non-citizens, particularly Europeans and Asians. Instead of the expatriate enterprise accepting their profits and at the same time ploughing as much as possible into development and re-development of their businesses, it became evident that they were obsessed with making hay while the sun shines, and expatriated increasingly large portions of their profits. (Kaunda, 1968a:iii) The evidence of the tendency to expatriate money made in Zambia is provided in the form of a table in the speech (in the Mulungushi Speech) that shows the profits made, the amount retained, and the amount expatriated in the form of dividends. The table shows that the amount of money expatriated from Zambia averaged 50 per cent in the 1960s, and increased to almost 75 per cent on average in later years (ibid.:iv).

242 Economic structural transformation The issue of capital flight which is raised in the cited quotation has been a major problem for the country not just during colonial rule but even now, when massive amounts are externalised through various forms of tax evasion including transfer pricing and misinvoicing, especially in the mining sector (Liebenthal and Cheelo, 2018). Capital flight, as indicated in Chapter 1, is a central feature of the colonial economy, and the fact that this phenomenon has continued is a sign of the persisting colonial economic structures in Zambia and many other countries in Africa. Expatriate business community The other cause of the state’s uneasiness with the private sector was the fact that most of these expatriate enterprise owners allegedly were not keen on employing Zambians in managerial positions; they were not keen on training them in the skill of running businesses. This was articulated by President Kenneth Kaunda in his response to the media on their comments regarding the economic reforms announced in 1968. All I need to say is that when Zambia achieved independence all these foreign and resident 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. On independence… you will see that we had to cope with a business community foreign-owned and foreign-managed. We spent a great deal of the time pleading with the business community and pointing out to them that it was in their best interest to introduce Zambians into management jobs (Kaunda, 1968b:269) This uneasiness with foreign ownership and management of enterprises was one of the reasons given for undertaking the reforms announced in Mulungushi in 1968 and Matero in 1969. However, this was not the only reason for embarking on these reforms. The reforms were also introduced to promote industrialisation in the country through direct state participation in establishing manufacturing enterprises, as observed earlier.

Assessing the industrialisation strategy in Zambia Although there are analysts who have been critical of the industrial strategy adopted after independence, especially the strong role of the state in the industrial sector (Siedman, 1974; World Bank, 1984; Karmiloff, 1989) there are also analysts who think that given the state of the Zambian economy at independence, it was inevitable that the state took a leading role in promoting industrialisation in the country. It has been argued that the industrial strategies implemented after independence paid off in many ways, including the rapid growth of industrial

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production and the building of a sizeable industrial capability (Young, 1973; Burdette, 1977). As illustrated in Chapter 6, the manufacturing sector in Zambia expanded steadily (except during the mid-1970s crisis and 1985) such that by the early 1990s the sector’s contribution to GDP was larger than mining and only second to the services sector (see Chapter 6). During the time when the state took an active role in implementing industrial strategy, industrial production had not just increased but diversified to an extent that the dependence on imports, especially of consumer goods, was significantly reduced by the 1980s (Karmiloff, 1989). A World Bank (1984) report on industrial performance in Zambia noted that the manufacturing sector in Zambia was relatively developed, ranking sixth in sub-Saharan Africa in terms of industrial output. The manufacturing sector was largely diversified, producing a wide range of consumer and intermediate goods, and some capital goods for the domestic markets (Bates, 1981), though the sector had not moved into high-tech manufacturing such as specialised equipment and electronics. Challenges in the manufacturing sector Although the sector had grown quite significantly by the 1990s, it had several fundamental weaknesses. One of the major structural weaknesses of the manufacturing sector during this time was that it remained heavily dependent on imports of intermediate goods (see Siedman, 1974; Fincham, 1980; Szirmai et al., 2002). The high levels of dependence on imported inputs left the sector vulnerable to foreign currency shocks since the sector was producing mainly for the domestic market; few manufactures entered into the export basket, which was still dominated by minerals, copper in particular. Fincham (1980) estimates that up to 90 per cent of inputs for processing of food and animal feed were imported. A recent study on the agro-processing sector in Zambia also found that the sector relies on imports of most ingredients used in the processing of food, including concentrates, yeast, meat preservatives, and confectionery sugars (Chitonge and Kabinga, 2020). Other studies which looked at the local content policy in the mining value chain found a similar trend where most of the supplies to the mining sector have extremely low value added from the local manufacturing; most of the supplies depend on imported inputs (Lombe, 2018; Kragelund, 2017; World Bank, 2018). Not only that, the export component of the manufacturing sector has remained heavily dependent on the performance of the mining sector, which exposes the sector to severe external shocks via volatility in the price of copper as illustrated in Chapter 6. In terms of analysing the performance of IP during this period, the principle of a selective approach was largely overlooked. This might have been justified during the time immediately after independence because there was literally little to select from; the country had to build all segments of the industrial sector from scratch. But after the basic structure was in place by the mid-1970s, a selective approach in implementing IP would have produced different results by targeting some of the sectors with greater export potential and with stronger linkages to the

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rest of the economy, particularly agriculture. It is not clear that this approach was adopted, given that the manufacturing sector failed to transition from production of mainly consumer goods for a small middle class to intermediate and capital goods, even by the end of the 1980s (Karmiloff, 1989). A selective industrial policy approach would have accorded the policymakers the chance to review the targets more rigorously in order to change the pool of subsectors and firms targeted to promote flexibility, which is a vital virtue in implementing IP. However, even with these weaknesses, the achievements of the state-led industrial strategy were significantly higher than any strategy implemented in the country so far. A cursory glance at the history of industrial development in Zambia reveals that during the state-led period significant progress was made to spatially and structurally diversify economic production. However, little success was recorded in terms of diversifying the export base and foreign currency earnings which have continued to be dominated by the mining sector (RoZ, 2018).

The market-led industrial strategy in Zambia The debt and foreign exchange crises that almost crippled economic activities in Zambia and other African countries during the 1980s paved the way for the entry of a different policy regime. The new policy direction, championed by the World Bank and the IMF as part of the effort to restructure struggling economies in Africa and elsewhere, emphasised giving a greater role to markets, with the role of the state reduced to that of creating an enabling environment for markets to function optimally. Consequently, since IP relies on the state to drive industrial development, it was seen as part of the problem and eventually abandoned. One of the reasons why the World Bank and IMF officials advised the country to abandoned IP is that they were convinced that this strategy introduced all sorts of inefficiencies and distortions in the economy. In the new policy regime, in the form of SAPs, emphasis was placed on markets to direct economic activities, including industrialisation. The recommendation was to allow all markets in goods, services, capital and financial services to function freely without any intervention from the state. Proponents of this view believed that this was the only way to correct the distortions introduced by the state intervention. In the watershed document that outlined the policy of structural adjustment in Africa and other developing countries, it was argued that these economies had to focus on three important policies: stabilisation, liberalisation, and privatisation (World Bank, 1981). Liberalisation of markets, particularly, was considered central to resolving the African crisis. The reason for this was that: Trade and exchange-rate policy is at the heart of the failure to provide adequate incentives for agriculture production and for export in much of Africa. Trade and exchange rate policies comprises policies on the official exchange rate, import duties, export taxes and subsidies, food prices, quantitative restrictions on imports, and exchange controls. (World Bank, 1981:24)

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The recommended prescription to fix the crisis in Zambia and other African countries was to allow the price mechanisms to create an “effective structure of incentives” in the economy (ibid.). In this framework, the price mechanism, through the operations of unhindered markets, is believed to allocate resources to the productive sectors in ways that promote efficiency and sustain growth in the economy. The crucial issue with regard to IP is that if the price incentive structure can allocate resources in an efficient manner, then there is no need for IP, since the markets, through the price mechanism, can do the job, and perhaps do it better. Not so long ago, within the World Banka and IMF circles, even the mention of the term “industrial policy” was regarded as a taboo topic that no one dared to utter (Cherif and Hasanov, 2019:7). Industrial strategies, as we have seen in the case of Zambia in the 1960s and 1970s, such as the role INDECO played in promoting industrial development, were perceived as harmful to the economy. The activities of INDECO, such as the identification of viable industrial development projects, seeking private sector partners, and establishing missing enterprises in crucial segments of the manufacturing sector, were all deemed unnecessary, since the market could do a better job. During the hey-days of market fundamentalism in the 1980s and 1990s, African governments were told to abandon the idea that the state can bring about industrialisation through selective industrial policy. They were instead advised to focus on formulating policies that promote the growth of the private sector, R&D, education, infrastructure, the easy way of doing business (Cramer et al., 2020). In this sense, the recommendation was that the country had to follow a standard growth policy. For instance, the Zambian government during this time was advised to focus on liberalising all markets, especially the foreign exchange markets instead of rationing foreign currency to certain firms or sectors, which was the common practice during the 1980s (Chansa et al., 2019). As noted in Chapters 4 and 6, the thrust of the SAPs programme in Zambia was for the privatisation of parastatal companies, including most of the enterprises in the manufacturing sector. One of the arguments advanced to support the view that state intervention creates distortions in the economy is that governments often lack the information required to implement policies optimally. For example, most states, it is argued, have no adequate information to implement an efficient subsidy programme targeted at certain firms or subsectors. Proponents of this view argue that in such situations, a general subsidy programme would be more effective than a targeted programme, facing huge information asymmetry (see Pack and Saggi, 2006). At the heart of this argument is the belief that the state, when allowed to intervene in the economy, introduced inefficiencies by distorting the normal operations of markets, and the best way to resolve this is to keep the state at bay, restricted to creating favourable conditions to allow markets to function optimally (Wade, 2019). On the basis of this view, it has been argued that “selective industrial policy is economically undesirable and harmful” (Lall, 2004:75). But as Rodrik (2008) has observed, the lack of information is not only peculiar to the state. Even if the state experiences huge information gaps, and therefore imperfections, this should not be the reason for dismissing the state from implementing industrial policy.

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Otherwise, the state would not be allowed to implement policy in any other area, since it faces the same challenges (ibid.). In recent times it seems as though mainstream economic policymakers have rediscovered the role of IP (Cramer et al., 2020). In a recent paper published by IMF staff, it has been observed that “standard growth policy prescriptions are not sufficient… and one cannot ignore the preeminent role of industrial policy…” (Cherif and Hasanov, 2019:5). The consequences of abandoning IP in Zambia The consequences of abandoning IP in Zambia are evident in the data presented in Chapters 4, 6, and 7, which have shown that manufacturing sector production declined sharply during the period following the liberalisation and privatisation of the economy. While there are many other factors which contributed to the sharp decline during the second half of the 1990s, the jettisoning of IP is an important factor. Following the liberalisation policy, in 1994 a draft industrial strategy paper was published, giving markets a greater role in driving industrialisation. Apart from being incoherent, the 1994 trade and industrial draft policy document reduced the role of the state in Zambia to that of creating a conducive environment for the private sector to take over the privatised industrial enterprises (Mudenda, 2009). In order to attract foreign direct investment (FDI) generous incentives, including 100 per cent expatriation of profits and VAT exemption on capital goods, were offered across sectors (Liebenthal and Cheelo, 2018). Following the abandonment of IP, industrialisation efforts became haphazard, since there were no identified national industrialisation goals; there were no mechanisms for identifying strategic sectors to prop up; no structures for addressing market failures which were rampant during the time of transition. The momentum created in the manufacturing sector during the state-led period of industrial strategy was largely erased and the country has struggled to recover its lost industrial capacity and capabilities. In the new millennium when IP was reactivated, it was like starting again from scratch. However, policy statements have started to highlight once again the urgent need to diversify the economy in order to overcome the challenges the country is facing. These calls have intensified at a time when copper prices and production has remained subdued.

Revived industrial policy When state-owned enterprises were privatised during the 1990s, there were strong expectations that the private sector would revive production and stimulate growth in the manufacturing sector and contribute to the diversification of the economy by promoting strong linkages in the sector (Chansa et al., 2019). The disappointing outcomes from privatisation, particularly in the manufacturing sector, forced government to reconsider its approach to industrialisation. In the early 2000s, with the revival of development planning through the Vision 2030 framework, the country decided to review the 1994 industrial policy to promote the growth

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of industries (RoZ, 2018). Although the government developed a Trade and Industrial Policy document in 1994, which put the private sector at the centre of the industrialisation project, little of this document was implemented in any significant way (Mudenda, 2009). Further, even though the state offered generous incentives to all investors, no significant investments went into the manufacturing sector. Some analysts have attributed the poor performance of the strategies aimed at attracting FDI to the ad hoc way incentives were provided (Chansa et al., 2019). As such the manufacturing sector remained largely depressed until around 2005 when some subsectors started to show signs of recovery. IP back on the development agenda To stimulate industrial growth, the government set up a National Economic Diversification Task Force (NEDTF) in 2002. Its mandate was to spearhead the diversification of the economy in terms of spatial concentration and reducing the dominance of the mining sector in exchange earnings (World Bank, 2003). These were the same objectives set in 1964—a clear sing then that diversification had remained a major concern. The NDETF identified several priority sectors seen as strategically important in promoting the diversification of the economy: these included tourism, agriculture, forestry, gemstones, horticulture, and agro-processing. Emphasis in the diversification strategy was on promoting the growth of non-traditional exports (NTEs) industries which were understood as goods and services other than copper and related products. In the early 2000s, the growth of NTEs was promoted through the work of the Export Board of Zambia (EBZ), whose main task was to assess the constraints in the growth of NTEs (ibid.). However, these initiatives did not lead to increased production in the manufacturing sector; instead, the sector continued to contract during the early 2000s. In 2005, the Ministry of Commerce, Trade, and Industry (MCTI) decided to revise the 1994 trade and industry draft policy document. The revised policy document emphasised the need to create an enabling environment to support the growth of the private sector in the utilisation of domestic resources to promote exports and diversify the foreign currency earning structure. Though the policy document did not identify any sectors to prioritise, its vision statement acknowledged that the main objective was to “To develop a competitive, export-led manufacturing sector that contributes 20 per cent to GDP by 2015” (cited in Mudenda, 2009:8). In this industrial strategy, the private sector was expected to play a significant role in promoting the growth of the industrial sector; the state’s main role was restricted to creating an enabling environment for private investments to grow (Mudenda, 2009). The Zambia Development Agency In order to promote the growth of private sector investment, which was at the heart of the revised trade and industry policy, the government decided in 2006 to

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merge the Export Board of Zambia, the Zambia Investment Centre (ZIC), the Small Enterprise Development Board (SEDB), the Zambia Export Processing Zone Authorities (ZEPZA), and the Zambia Privatisation Agency (ZPA) to create the Zambia Development Agency (ZDA). The ZDA was tasked with promoting trade and investment in the country (ZDA, 2014). Since its creation, the ZDA has been promoting the growth of private sector investments not just in the industrial sector but in all sectors of the economy, including tourism, agriculture, and services. The work of the ZDA is not limited to investment promotion; it includes facilitation of the growth of small and medium business enterprises, providing product quality development assistance, and promoting public and private sector partnership in investment and development ventures (RoZ, 2018). As its mandates stipulates, the ZDA has focused on leveraging private investments to promote the growth of industrial activities, and in 2012 it played an important role in formulating the Private Sector Development Reform Programme (PSDRP) which is dedicated to promoting the growth of the private sector in Zambia. In this sense, the ZDA is not an institution that is dedicated to the industrial sector growth and it is not the sole implementer of the revived IP. In a bid to address the growing challenge of low productivity and lack of formal jobs in the economy, a coalition of government officials, donors, and members of civil society groups came together in 2008 to chart a way to promote the revival of industrial production and competitiveness in the country. This was promoted by results from a survey which estimated that formal employment had decline to a mere 10 per cent of the labour force. The coalition put together a document titled “Jobs and prosperity: building Zambia’s competitiveness,” which attributed low formal employment levels in the country to lack of competitiveness among Zambia firms. Consequently, the strategy emphasised building competitiveness in firms, by promoting export-oriented activities. Copper, beef, dairy, and tourism industries were identified as activities with great potential to expand formal employment and promote productivity growth and improve competitiveness. The IDC: third generation INDECO? Several academics we interviewed in Lusaka during the IGC study, stated that the IP in Zambia has been problematic, and the main problem they noted was that, since independence, Zambia has not had a separate industrial policy dedicated to promoting the industrial sector. As noted in Chapter 4, Industrial development strategy from the 1960s to the 1980s was embedded the National Development Plans (NDP); there was no separate IP. The National Industrial and Trade Policy developed in 1994 and relaunched in 2010, did not specifically address industrial development challenges; it combined trade and industrial policies (IGC Interviews, 2017). Some of the MCTI officials we interviewed agreed that the existing policy situation at that time did not give sufficient weight to issues of industrialisation and reported that a process was underway to formulate a separate IP. In the industrial policy discussions after 2010, a recommendation to have a dedicated body that promote industrial development was made. Following this, the Industrial Development

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Corporation (IDC) was launched in 2014 with a mandate to pursue two main objectives. The first is to serve as the investment holding entity for the remaining StateOwned Enterprises (SOEs), and the second is to play a catalytic role in Zambia’s industrialisation (IDC, 2016). It is also stated that the IDC’s main aim is to promote partnerships with local and international private sector enterprises (Kaluba, n.d.). The third generation IDC is broadly an investment body(similar to the colonial IDC); it has a limited mandate in terms of promoting industrialisation in the country as was the case for INDECO after independence. While both the IDC and ZDA are statutory bodies that have a role to play in industrial development, for Zambia to successfully transform the existing structures of a colonial economy it would take more than just creating statutory bodies. As noted earlier, achieving significant industrialisation today requires an innovative policy, which I have referred to as frontier industrial policy. If things continue as they are, transforming the economy would undoubtedly remain elusive, as has been the case for the past six decades. National Industrial Policy In 2018, a separate National Industrial Policy was launched, and its focus is on promoting value addition in the country, promoting competitiveness among local firms, and efficient utilisation of natural resources (RoZ, 2018). The NIP identifies eight industrial sectors as priority sectors. These include agro-processing, textile, engineering products including mineral processing, wood, and wood products, leather and leather products, pharmaceuticals, and the blue economy. This is of course a new IP; it is yet to be seen what concrete strategies will be taken to promote industrial development and transformation of the economy broadly. Evidently, the current industrial development strategies in Zambia have adopted the partnership model, which emphasises some form of collaboration and division of labour between the state and the private sector. In this partnership approach to industrial development, the state’s role is restricted to that of encouraging the private sector through targeted incentives and by creating an environment favourable to the growth of the private sector. The stronger role played by the state in industrial development during the 1960s and 1970s has been discredited, with many policymakers adopting the view that the solution to industrialisation in Zambia lies in allowing the private sector to drive the growth of industries including manufacturing. This is largely being implemented through the Private Sector Development and Report Programme (PSDRP), which is managed by different state institutions including the ZDA and the MCTI. Making the case for FIP Experience from countries that have managed to industrialise suggest that facilitating and encouraging the growth of the private sector is not sufficient in the current global contex where states are playing much more proactive roles than simply encouraging the private sector (see Cherif and Hasanov, 2019). Even in situations

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where an IP adopts a strategy of partnership with the private sector, industrialisation today requires a much more sophisticated strategy to enable less industrialised countries transition from engaging predominantly in low to high value-added activities. This would require a more aggressive approach by the state than just creating a market friendly environment. As Amsden (1989b) has observed, it has become so hard for late industrialisers to break into the world of global manufacturing that most states are forced even to spy on behalf of firms operating in their territories just to gain an advantage over other nations. If IP is to be used as an instrument for structural transformation and diversification of the economy, the key principles of a frontier IP will have to be implemented consistently over time. This has been the challenge, not just for Zambia, but in many African countries where the colonial economic structures have persisted several decades after the end of colonialism. The agenda for transforming the structures of the colonial economy in Africa is discussed in the next chapter.

Notes 1 See Paul Krugman (1992) who argues that the counter-revolution “went too far” by brushing aside all the ideas economic growth and development developed during the 1950s. See also Wade (2019). 2 Interestingly, all of these fall under the agro-processing industry cluster. For the first phase of industrial development, it makes sense to focus on these industries. 3 Among the few rural industries established during the state-led industrial strategy are the milling factories in Mongu and Mansa, Mansa Batteries, the Mwinilunga cannery factor, the fisheries industries in Luapula and Northern provinces, the Chipata bicycle assembly plant, and the Kapiri Mposhi glass factory.

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Future Development Strategies. International Food Policy Research Institute (IFPRI). Thematic Research Note (No. 02). United Nations Economic Commission for Africa (UNECA) (2011). Economic Report on Africa 2011: Governing Development in Africa. Addis Ababa: ECA. United Nations Economic Commission on Africa (UNECA) (2016). Transformative Industrial Policy for Africa: Innovative Institutions, Effective Processes and Flexible Mechanisms. Addis Ababa: UNECA. Wade, R. (1990). Governing Markets: Economic Theory and the Role of Government in East Asian Industrialisation. Princeton: Princeton University Press. Wade, R. (2019). “Catchup and Constraints in the Twentieth and Twenty-First Centuries.” In A. Oqubay and K. Ohno(eds.) How Nations Learn: Technological Learning. Industrial Policy and Catchup. London. Oxford University Press. 15–37. World Bank (1981). Accelerated Development in Sub-Saharan Africa: An Agenda for Action (The Berg Report). New York: IBRD/World Bank. World Bank (1984). Zambia: Industrial Policy and Performance (Report No. 4436-ZA). Washington, DC: The World Bank. World Bank (2003). Zambia: The Challenge of Competitiveness and Diversification. Report No. 25388-ZA. Washington, DC: The World Bank. World Bank (2018). An Agro-Led Structural Transformation: 11the Zambia Economic Brief. Washington, DC: The World Bank. Young, A. (1973). Industrial Diversification in Zambia. New York: Praeger Publishers. Zambia Development Agency (ZDA) (2014). Foreign Private Investment and Investor Perceptions in Zambia-2014: Fifty (50) Years of Economic Transformation Through Investment. Lusaka: ZDA.

9

Transforming the colonial economy in Africa A Frontier Industrial Policy perspective

Introduction In the preceding chapters, we have looked at the industrial development experience in Zambia, including the dynamics of industrial policy in both colonial and post-colonial contexts. One thing that is apparent in the Zambian experience is that the country has been struggling to transform the structure of economy inherited from colonial rule. The evidence of this is that the Zambian economy continues to exhibit core features of a colonial economy, which are outlined in Chapter 1. Some of the typical characteristics of a colonial economy which are evident in the Zambian economy today include the dominance of raw materials in the export basket (mostly copper and related semi-finished products), lack of internal coherence within the economy, massive capital flight, and the persistence of dualism manifested by the large productivity gaps between different sectors, as well as the sharp rural–urban divide. This is not a phenomenon peculiar to Zambia; most African countries (if not all) exhibit similar features, suggesting that most these economies have not succeeded in transforming the economy set up by colonial regimes over a century ago. The need to transform the colonial economy in Africa goes beyond the economic objective of having diversified and internally coherent production structures; the colonial economy in Africa should be transformed primarily because it was not set up to benefit Africans. The post-colonial African economies need to be reoriented so that they are redirected to serving the interests of the majority of Africans. It is extremely difficult to ensure that the economic activities taking place in Africa (no matter how small) benefit the majority of Africans when the features of a colonial economy are still visibly dominant in most economies on the continent today. The failure to transform the colonial economy is one major reason which accounts for the fact that a richly endowed continent has remained the most impoverished on the planet; that African economies today benefit only less than 15 per cent of Africans, similar to the way the colonial economy operated before independence. This chapter looks at the role industrial policy can play in fostering the transformation of the colonial economy in Africa. The chapter picks up from the key argument made in Chapter 1 that the colonial economy in Africa was not constructed primarily to benefit Africans;

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therefore, for economic activities taking place in Africa to benefit the majority of Africans, the colonial economy has to be transformed. For this argument to be sustained, two important conditions need to be satisfied. First, it must be shown that the colonial economy was indeed not set up primarily to benefit Africans; and second, that the core features of a colonial economy are present in African economies today. Chapter 1 discussed both conditions, outlining the key features of a colonial economy in Africa, showing how these were meant to serve the interests of Europeans who settled in Africa and those with businesses on the continent. Chapter 1 also illustrated that core features of the colonial economy have not only survived in most African economies today but have continued to shape economic activities across the continent. The analysis of the Zambian experience has provided a concrete example of how both conditions are fulfilled. We have seen, for example, in the case of Northern Rhodesia, Southern Rhodesia, and South Africa, that whatever efforts were made during the colonial period, the main focus was the advancement of the interests of Europeans settlers and European owners of business and capital invested in these territories. If any of the colonial economic structures and activities benefited Africans, the benefits were incidental and unintended. This is a common experience one can find across the continent, whether we speak about a settler colony, a protectorate, or a mere sphere of influence; whether one is speaking about labour reserve, colonial trade, or concession economies (Amin, 1972). The underlying logic behind the economic structures and activities which sprang up on the continent was the same in form, substance, and effect. This is one of the reasons for referring to the colonial economy in Africa in the singular.

The need for an African tactical response The persistence of colonial economic structures in Africa today is therefore a strong reminder that current African economies do not entirely serve the interests of the majority of African people. For these economies to serve the interests of the majority of African people, they have to be fundamentally restructured such that Africans become the centre of all economic activities. Maintaining the colonial economic structures has perpetuated the situation where Africans benefit little from activities taking place on their land. It is argued in this chapter that it is partly because of the failure to restructure these economies over the past six decades that Africans have benefited little from economic activities that occur on the continent. It is the persistence of structures which were meant to drain wealth out of Africa that has led to a situation where the richest continent in terms of natural resources has ended up being the most impoverished on the planet. Many African leaders, particularly in the 1960s, were aware of the urgent need, and expressed a sincere desire, to transform the colonial economy, though little progress has been made over the past decades. It is argued in this book that industrial policy can be used as an instrument to help restructure African economies so that economic activities taking place in Africa benefit the majority of Africans.

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This does not mean that an IP is the magic bullet for the African development challenges. Similarly, this does not mean that any type of IP can achieve the necessary restructuring of African economies. For an IP to contribute to structural transformation in Africa, it has to be part of the broader strategy for development, and it has to go beyond the conventional IPs. In this chapter, the focus is on the collective dimension of an IP strategy, and it is this aspect that makes the IP strategy proposed here unique and a new way of promoting industrial growth in Africa. A collective approach to industrial development in Africa is an appropriate response to the current situation where most countries have struggled to transform and reorient their economies. There are two main reasons why a collective response makes sense in the current African context. First, a collective undertaking will constitute an act of reversing the balkanising impact of colonialism on Africa. In other words, responding to the challenges of transforming the colonial economy in Africa collectively will be a concrete act of decolonising—an act of decentring and reversing the colonial logic broadly. Second, in the current global configuration of industrial production and trade, it is highly unlikely that Malawi, Gambia, Senegal, South Africa, or Egypt would meaningfully industrialise and transform features of the colonial economy individually. This task will be insurmountable even for bigger economies like South Africa and Egypt, as it has been over the past decades. Having said this, it is important to acknowledge that a collective response to transforming the colonial economy in Africa is also not an easy strategy, mainly because of the practical challenge of getting African leaders to trust each other and work together consistently and in a committed manner, which is what is required to successfully restructure African economies through IP. But the option of African countries seeking to industrialise individually is even more difficult, with little chance of success, as the past experience has shown. The strong winds of pan-African sentiments which blew across the continent during the early days of independence, building on the momentum generated during the struggle for independence, have left little to show today. But that should not be the reason to give up; it is certainly worth trying a collective strategy again. This time it is worth trying while knowing that a collective approach may be the only feasible and quick way to decolonise African economies, though the task is, admittedly, enormous. The growing momentum around the African Continental Free Trade Area (ACFTA), if sustained, can be a rallying point for efforts to move beyond a collective trade regime to a collective industrial strategy, for one entails the other. Not only that, several Regional Economic Communities (RECs) have in fact formulated and are beginning to implement regional industrial policies (RIPs). We come back to this latter in the chapter. The existence of RIPs is an indication that African leaders are aware of the potential for transforming their economies through a collective strategy, as well as the challenges in this involves. The missing link in all this is to find practical ways of implementing these ideas consistently over time. The ideas are there and are widely accepted.

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The case for a Frontier Industrial Policy Admittedly, there are several ways of restructuring these economies to reorient them in such a way that Africans can derive the biggest share of the benefits from the exploitation of their natural and human resources. Few people would dispute the idea that African economies today need to undergo structural transformation to ensure that economic activities taking place on the continent benefit the African people in their respective countries (ACET, 2017). While there are several ways of achieving this, this chapter focuses on using a unique form of industrial policy as an instrument for transforming African economies. In proposing IP as a transformative instrument that can contribute to undoing the constraints of the colonial economy imposed on Africa, it must be emphasised that it is not any kind of IP that can achieve this objective; a special type of IP is needed to successfully accomplish the mammoth task of decentring the colonial economic structures and the underlying logic. I refer to this special IP as a Frontier Industrial Policy (FIP) to emphasise the fact that transforming the colonial economic structures in Africa will not be achieved by an ordinary IP; it will require an IP that pushes the frontiers of industrial strategising to its limits. It will require an IP that would do something uniquely African; a policy that would identify and act on the unique potentials that the continent possesses. After all, industrial strategy today is about doing something which other people are not doing (Morris and Staritz, 2019), or, at least, doing it differently. In this regard, efforts that seek to emulate what was done in East Asia or Germany or Japan are likely to reproduce the same economic structures which have impoverished the continent over the past 120 years (Evans, 2010). Implementing a FIP will require African policymaker and politician to think on the margins; to push the frontiers of industrial policy today so that Africa can become an originator of something new, new ideas, new ways of doing things, new ways of seeing the world. As Chitonge, (2019) has argued, so far, Africa has excelled in imitating what other people have done, and as such, it has always been a follower, and not at the forefront. A FIP will have to reverse this so that Africa can become a leader in the sphere of industrial thinking, production, and technology. Therefore, the key ingredient of FIP is, first and foremost, self-belief, which in Africa has been in short supply since the time of the slave trade (see Amin, 1972). Second, and related to the first point, is the strong belief that the current limits (frontiers) of industrial creativity and production can be stretched further. In the current situation where climate change and global warming are calling for new ways of thinking about production, consumption, and human-nature relations, there is an “open moment”1 on the horizon, and Africa can grab the moment. In this sense, FIP embraces the philosophy which Cramer and others (2020:4) call “possibilism,” signifying a strong bias towards hope, realistic optimism, and self-belief. But the field of industrial development, as argued in Chapter 8, is a practical field; one has to move beyond the psychological comfort zone of selfbelief, hope, and optimism, into the discomfort zone of trying out new ideas in new ways, in new fields. A FIP brings together psychological depth and dexterity,

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both of which are vital ingredients of industrial strategy with the potential to succeed in the twenty-first century.

Elements of a Frontier Industrial Policy A 2016 UNECA publication titled Transformative Industrial Policy for Africa makes a strong argument that IP can contribute significantly to the transformation of African economies by leveraging the productivity growth dynamic. Here I will draw from what Robert Wade (2019:15) calls “the old style development economists” to illustrate the economic rationale behind using IP as a tool to address the structural constraints in African economies. I choose to draw from the old school because the conditions that informed their theorising, models, and strategies of development are closer to the conditions in most parts of the continent today. Three conditions which were fundamental in the old school include strategies for allocation of investments for development, issues around missing markets and market failures (imperfect markets), and the idea that development essentially entails disrupting the existing equilibrium (Nurkse, 1953; Scitovsky 1954; Rosenstein-Rodan, 1957; Hirschman, 1958; Streeten, 1959). These ideas are important to the discussions around transforming economic structures in Africa today. One of the basic ideas that is central to the old school is that economic transformation is possible and can be achieved under certain conditions. This is crucial on a continent where structural transformation, as we have seen in the case of Zambia, has been an enduring challenge with little progress made in most countries. Before even discussing the technical stuff about the mechanics and ingredients of structural change in a developing economy, there must be the belief that change is possible and can be achieved. Once there is this conviction, the question of strategy is a matter of course, and this conviction can induce vitality in the vision to transform and reorient African economies. As Cramer et al. (2020) have argued, Africa needs to overcome the drowning noise of the impossibalists, who are ready to shoot down any ambitious project on the continent. Many would agree that it is this negative energy that holds back the forces which can engender progress in Africa. Contrary to the impossibalists, ideas from the old development economics school were deeply imbued with this strong conviction that development and industrialisation were possible. The strong optimism that characterised the early days of development economics has somehow been dampened by the failures of development and industrialisation projects in many parts of the world in such a way that confidence has been replaced by cynicism. It must be acknowledged that it is difficult to be optimistic at a time when some of the pioneers themselves have lost the deep conviction which they had (see Hirschman, 1981). But it is difficult to even think of anything positive in a situation where people have given up. It is therefore critical to overcome despair as a first positive step on the long journey of economic structural transformation in Africa.

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Altering the structure of specialisation One of the key ideas articulated by the pioneers of development economics that is central to FIP is the idea that with appropriate policies, countries can change their structure of specialisation based on static comparative advantage to create totally new areas of dynamic comparative advantage, especially with regard to manufacturing industries. Creation of new demand, changing the current technology being used, production of new stocks of knowledge, skills, and a different outlook towards life in general are the ingredients needed to create a new and dynamic comparative advantage; to push the frontier of industrial development outward. Industrial policy can play a critical role in reconfiguring existing static comparative advantage into something more dynamic and responsive to the changing structure of demand, not just in the domestic economy but globally. Industrial policy has the potential to generate the dynamism needed to transform a country’s investment and production structures, because it leaves room for policymakers to be ambitious. Like the virtue of conviction mentioned above, being ambitious can be the beginning not only of thinking big but of remaining resilient in the face of setbacks, which are unavoidable in any strategy of seeking to transform the existing economic structures. Peres and Primi (2019), drawing from their experience in Latin America, make an important observation that when it comes to being ambitious most countries in the region, especially big nations, struggle, often held back by the existing set of national capabilities and assets. A frontier industrial policy should be able to break the grip of commonplaceness in order to induce creative energies that seek to push the frontiers of ideas and established practice to their limits. Creativity and ambition are central features of FIP, which pushes the policymakers to think on the margins, not just in terms of the technology adaption, but also in terms of how to do something differently within the confines of the existing technology and set of skills. Frontier Industrial Policy focuses on stretching the boundaries of industrial development thinking and strategy, seeking to change the status quo with the aim of stimulating growth in economic activities. Thinking on the margins If seen from this angle, a FIP framework has the potential to help policymakers and politicians realise that to achieve sustained industrial growth, they have to go beyond doing the ordinary, the average. In other words, FIP as a transformative tool “contrasts with the standard approach in economics emphasising averages” (Cherif and Hasanov, 2019:6). FIP as a strategy for growth and development should be an ambitious instrument primarily because its vision adopts the gogetting outlook on things. As such, a FIP approach can help policymakers realise that that “Much of the real world is controlled as much by the tails distributions as by means of averages…, by exceptional not the common place; by the catastrophe, not the steady drip”(cited in ibid.). In a sense, FIP creates room for people to free themselves from “average thinking” because it focuses on stretching the

260 Transforming the colonial economy boundaries of what is possible in any given circumstance; it seeks to go beyond the ordinary or conventional thinking. The bias towards strong conviction is an important feature of FIP, especially for late industrialisers who are seeking to cut themselves some piece of the cake in a continuously tightening global manufacturing environment. For countries seeking to industrialise today, the spaces are tightening, as a result of some fundamental shifts occurring in the way not only trade is conducted but also in how production is organised (Newfarmer et al., 2018). In the current global manufacturing context, “the window of opportunity may now be narrower as mechanisation, roboticization, and digitalisation have overtaken much labour-intensive production, [such that] catching up on relevant skillsets becomes a daunting task calling for public-sector initiative” (Yeo et al., 2019:202). It is not just the narrowing of opportunities as a result of the gradually emerging Fourth Industrial Revolution (IR 4.0), which cuts the labour cost advantage by means of digitisation and roboticisation, but the fragmentation of global value chains poses a huge challenge to late industrialisers in Africa and other places (Newfarmer et al., 2018). To break into these global value chains a country must think and act on the frontiers of industrial strategy. Locating and establishing new niches in high value-added segments (which is what most countries in Africa need in order to transform the persisting colonial economic structure) of the global and regional value chains requires policymakers and other critical actors to “free themselves from average thinking”, to operate on the frontiers seeking to combine creativity and agility. Creativity in this case is not only limited to generating ideas; it extends to ways of innovatively solving practical problems, including the infrastructure constraints which continue to hinder industrial vitality in most African countries (UNCTAD, 2019a). An agile and ambitious state Implementing a successful FIP is unthinkable if the role of the state is restricted to that of facilitating the growth of the private sector. Transforming the colonial economic structures in Africa would require a much bigger role for the state than just incentivising the private sector; such strategies tend to encounter diminishing returns early in the process. Structural transformation of African economies will “not emerge spontaneously from the interplay of market forces, but [will require] concerted state interventions that not only ensure macroeconomic stability and provide infrastructure and utilities but also include [carefully designed strategies for industrial growth]” (Whitfield and Buur, 2014:126). In the current global economic climate marked by escalating “trade and technology wars” between the major industrial countries, the role of market forces is not only undermined but blunted when it comes to industrialisation. This is why industrialising today requires not only a capable but also a shrewd state that is willing even to commit espionage to foster and sustain industrial growth (Amsden, 1989). In other words, industrialisation today is only possible when there is active involvement of an agile and ambitious state or of a supranational entity at the regional level.

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The art of industrialisation today requires thick politics which underscore the interplay of the agency of the state and other actors, domestically and internationally. In this interface, the state, as noted in Chapter 8, provides the overarching national objective to which industrial policy efforts should be directed. This calls for unique strategies in which the state plays not only the role of facilitating private sector growth, but a variety of roles including championing measures that seek to coordinate the flow of investments and the growth of enterprises in strategic sectors (Lin and Monga, 2011). It is precisely because industrialising a country today has become such a daunting task that aggressive but agile states have become indispensable to the process (Chitonge, 2019). An aggressive state endeavours to create, through an ambitious IP, conditions for reconfiguring the existing structure of production and demand. In this sense, a successful FIP can help African countries transform the persisting structures of the colonial economy, including the lack of internal coherence, dominance of extractive industries, multiple dependences, capital flight, and debilitating dualism. This can be achieved by consistently applying the basic principles of IP, some of which are elaborated in Chapter 8. These include a selective approach to industrial development by identifying sectors, subsectors, or firms with the greatest “power of dispersion” to create not only strong linkages but also internal coherence and widespread spillover or multiplier effects (Hirschman, 1958). Taking deliberate and measured actions in the service of national goals should be used to help create a rallying point for all actors, including the private sector. Coordination is vital to overcome the structural constraints of dualism and extractivism which are dominant when there is no clearly identified national goals that policy seeks to achieve. Agility as a fundamental feature of FIP is essential to ensure that there is flexibility and the courage to regularly assess the performance of various interventions and change strategies and courses of action when the anticipated outcomes are not achieved. Apart from astuteness in tackling the challenges of industrial development today, being tactical and practical is something crucial for success. A tactician is someone who is acutely aware of his or her own strengths and weaknesses but strives to use both to gain an advantage over other players in the game or war. Some analysts attribute the success of industrialisation in some countries to some degree of luck (Cherif and Hasanov, 2019), but luck is not something one can control. Being tactical, on the other hand is something one can control by striving to marshal everything in one’s favour through legal means. In this case, this might involve acting against convention to come up with new ways of doing things. For African countries, this involves knowing fully the global as well as the local conditions and constraints. In terms of promoting industrial growth in Africa, being tactical includes being able to act collectively when this is appropriate. As noted earlier, it will be extremely difficult for African countries to build sufficient industrial capabilities individually to enable them break into high value-added segments of global value chains (GVCs). Acting together with other African countries at the regional or continental levels increases the chances of successfully building industrial capacity which will give Africa a good chance

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of transitioning into high value-added segments of GVCs. A collective approach to development is not something new in Africa; the Lagos Plan of Action (LPA), which African leaders put together in 1980s, frames its strategy in terms of what it calls “collective self-reliance,” which means to promote “endogenous and selfsustained Development” (OAU, 1980). Drawing on regional opportunities and existing capacity is one way of being tactical in the current context as far transforming the colonial economies in Africa is concerned.

The basis for a collective approach One of the big challenges any collective strategy in Africa must face is the fact that there is great variation in the type and size of African economies. This heterogeneity must be addressed to justify taking a collective approach. Africa has 55 individual countries today and these countries have different population sizes, natural resources, languages, ethnic groups, economic policies, and political systems. Nonetheless, there are also startling similarities, especially in terms of the economic structure, regardless of whether the imperial power was Portugal, Spain, France, or Britain. The fundamental economic structure that is common across the continent is that the economic activities in Africa during colonial times were (and are, largely, still) tailored to produce commodities. As shown in Chapter1, commodity dependence for export is one of the common features of most African countries which has persisted to the present. In the majority of countries, two or three commodities make up more than three-quarters of export revenue (see Table 1.2). It is, however, not surprising that the basic structure of most African economies has largely remained the same, characterised by heavy dependence on the export of commodities and concentrated in low value-added activities. Even in countries which have a significant level of export diversification, like South Africa, Mauritius, Kenya, Uganda, Namibia, and Senegal (see Table 1.2), commodities dominate the export basket even today, as was the case during colonial times. This feature of African economies is well known. The Berg Report, after admitting that African countries are different in terms of size of the land mass and population, argued that, There is, nonetheless, considerable homogeneity within the region. African economies are for the most part small in economic terms… They are specialized economies, most of them agricultural, dependent on the export of two or three primary commodities. Even in the mineral exporting countries, the bulk of the population-rarely less than 70 per cent-works in agriculture, and subsistence-oriented production. (World Bank, 1981:2) Often, South Africa and the five countries in North Africa are excluded from this analysis as being structurally different. But in terms of the colonial experience, the fundamental economic set-up has largely been the same and it has continued

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to dictate the subsequent economic dynamic. As noted in Chapter 1, South Africa, Algeria, and Morocco all continue to exhibit features of a colonial economy, especially with regard to distribution of wealth and income.2 The key point to make here is that the colonial project had the same intent and, not surprisingly, produced very similar outcomes even in significantly different regions or countries. Although there are regional differences in the way the dominant features of the colonial economy manifest today, the basic features have remained the same, as Samir Amin (1972) has illustrated. Colonial economic macro-regions of Africa In talking about the colonial economic structure, the similarities among African economies can be justified on the view that the colonial policy and the economic structures it engendered differed little regardless of the colonising nations (see Chapter 1). Here the framework developed by Samir Amin is quite useful in understanding the basic common structure of the colonial economy in Africa despite specific nuances in different regions. Amin (1972), after affirming the unity of what he calls “black Africa.,” divides the continent into three macro-regions based on the dominant economic features—the dominant relations of production. In what he calls “Africa of the labour reserve,” which refers to Southern and East Africa, the dominant feature of the colonial economy was the creation of a “labour reserve” meant to supply cheap labour to the mining as well as to the agricultural sector. This was largely achieved by depriving indigenous Africans of their means of survival—land (Peemans, 1975). Although this tactic was employed systematically in settler colonies such as South Africa, Zimbabwe, Algeria, Namibia, Kenya and Swaziland (Wolff, 1974), the same approach was used in non-settler colonies to induce labour supply whenever the need arose (Roberts, 1976). Exploitation of Africans during the colonial period was not limited to extraction of the continent’s rich natural resources; Africa’s labour was an important component of the colonial project and the economic structure that emerged. The labour question is of course central in any economic undertaking, and more central in an imperial/colonial setting. Peemans (1975) has elaborated on this in more detail regarding the exploitation of labour in the Congo Free State under King Leopold II of Belgium as well as the French companies after 1908. In the second macro-region which Amin (1972) calls “Africa of the colonialtype trade (the trade economy)”, the dominant economic feature that defined the region was peasant production of tropical agricultural products, which were sold to the colonial trading companies via intermediate agents. A dominant feature in this macro-region of the African colonial economy was the organization of a dominant trade monopoly, that of colonial import-export houses, and the pyramidal shape of the trade network they dominated, in which the Lebanese occupied the intermediate zones, and the former African traders were crushed and had to occupy subordinate positions. (Amin, 1972:115)

264 Transforming the colonial economy Although this economic structure did not directly exploit Africans, the hierarchical structure dominated and controlled by the colonial trading companies led to the same effect as in Africa of the labour reserves—exploitation of Africans in ways that made them benefit little from the activities taking place on their land (Rodney, 1972). In the third macro-region, which Amin calls “Africa of the Concession Owning Companies,” the colonial authorities, because of geographical factors, decided to give concessions (mainly plantation owning) to private companies “to get something out” of the colonies (Amin, 1972:117). Although Amin (1972) restricts this macro-region to central Africa, concession owning companies were a widespread feature in Africa during the early days of colonial rule. In Southern Africa, for instance, Cecil John Rhodes’ company (BSA) claimed ownership of the territory from the Limpopo up to the border with Congo. In the case of Northern Rhodesia, as we have seen, the BSA not only administered the territory on behalf of the British for over 35 years but also claimed ownership of the mineral rights in the entire territory until the even of Zambia’s independence. Similar concessions were made in different parts of Africa, including the trading companies in West Africa which were protected by their respective imperial governments. In outlining this, Amin (1972) is trying to emphasise the point that the colonial authorities structured these economic activities, primarily to benefit European settlers and owners of capital invested in Africa. That is a common feature of the colonial economy—its fruits were not geared to be enjoyed by Africans on whose land and sweat the wealth was created. The massive wealth amassed by Leopold II did little to lift the standard of living of the indigenous people of the Congo; the wealth amassed by Rhode’s BSA did not benefit the indigenous African people in South Africa or Rhodesia. The structures put in place were meant to extract Africa’s resources and exploit Africa’s labour for the benefit of the few Europeans living on the continent, and the business and political class in Europe. This feature was the same across the continent regardless of whether the dominant feature was reserve labour, concession owning companies, or colonial trade. Although the dynamics in each of the three regions differed, the fundamental logic is that the resulting structure was not meant to benefit the local people. Amin (1972:118) explains this arguing that, “In all three cases, then, the colonial system organized the society so that it produced on the best possible terms, from the viewpoint of the mother country, exports which provided only a very low and stagnating return to labour.” It is because the colonial economy across Africa was set up to benefit a few Europeans that these structures should be transformed to ensure that Africans derive maximum benefit from economic activities taking place on the continent. As noted earlier, IP can be used to achieve the goal of transforming and reorienting economies in Africa to ensure sustained and inclusive development. However, a unique industrial policy with the high ambition and the boldness to do things differently is needed. The FIP, as noted earlier, offers a framework for an ambitious and tactical approach to industrialisation in Africa. One of the key elements of the FIP in the context of industrialisation in Africa is the importance of a regional dimension.

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The regional dimension to the structural transformation agenda The rationale for a regional approach to industrialisation in Africa can be found in the common structure of African economies. As noted earlier, the current structure of global manufacturing production and trade makes it extremely difficult for African economies to transition from low to high value-added activities as individual countries. There are many reasons why a regional approach offers a better prospect of industrial development in African than an individual strategy. Preferential access to regional markets First of all, the industrial capabilities in most of these economies are still small, with little growth over time in most countries (Chitonge, 2019). Growing these capabilities requires capturing part of the highly competitive global markets by breaking into the high value-added segments of GVCs, which is difficult not just for individual African countries but for most developing countries (Morris and Staritz, 2019). A regional approach can assist African countries to build industrial capability and capacities by offering preferential access to regional market by developing regional value chains (RVCs). Regional markets, targeting specific RVCs, are less stringent in the enforcement of compliance with heal, saftey and phytosanitary standards, and as such, participants in RVCs face less stringent compliance rules. Countries in the region which would not be able to develop manufacturing capabilities under GVCs can use the RVCs as a launch pad for breaking into GVCs. Preferential liberalisation of trade among African countries can provide the opportunity for countries to capitalise in the less competitive regional markets (UNCTAD, 2019a). The end goal is to develop industrial capabilities drawing from the experience of operating in relatively friendly RVCs and less standardised regional markets. Enormous opportunities to build industrial capabilities exist when countries in a region can offer preferential sourcing of input, and intermediate and consumer goods. Peer learning One of the greatest rewards of a regional approach to industrial development is peer learning. Progress towards developing industrial capabilities and capacities vary across African countries, with some countries such as Ethiopia, Rwanda, Morocco, and Uganda having made significant progress in the past two decades. A regional industrial strategy can help those countries lagging behind to learn from countries that are making progress. It is easier for Tanzania to learn from Rwanda or Ethiopia and Morocco than it is to learn from South Korea or Singapore. The reason for this is that the context under which Singapore industrialised is very different from the conditions under which Tanzania and Zambia are seeking to industrialise and diversify their economies. As noted earlier, African countries face similar economic structural constraints, and when one country makes headway this can provide some conviction in the leaders of other countries that it is

266 Transforming the colonial economy possible to make progress towards industrial development. Peer learning, seen from this angle, is not the same as the “flying geese” model of industrialisation observed in Asian economies where industrial development is transmitted from the lead goose to the following geese (Kijoma, 2000). The emphasis here is on the collective approach. The peer learning feature of a regional approach to industrial development is based on creating belief at the regional level that countries can industrialise by learning from each other. In this case, the country that has made progress is part of the regional industrial strategy and can provide valuable motivation and inspiration to other members in the region. The progress made in one country can put pressure on other countries in the region to learn and make conceited efforts to catch up with countries that are making progress. Not only that, but being a member of a regional industrial strategy generates peer pressure to perform and not become an odd man out as it were. Moreover, a regional industrial strategy will have to be monitored by regional institutions that can push the sluggish members to implement the regionally agreed strategies for industrial development. That is not easy, but that is what will be required to make headway with regard to industrialising Africa. As illustrated later, three regional economic communities have already initiated Regional Industrial Policies (RIPs) and some are now at the stage of streamlining specific protocols such as preferential procurement from members of the REC, standardisation of quality assurance protocols, qualifications, and skills, etc. The Southern Africa Development Community (SADC) has made significant progress towards operationalising its RIP with the completion of the SADC protocol on industrial development in 2019, which seeks to ensure compliance and coherence in the implementation of the SADC Industrialisation Strategy and Roadmap (SADC, 2019). While no one should be under any illusion that the regional approach to industrial development will be easy, it can provide a push, through peer pressure and learning, for countries to believe that industrialisation is possible. Scale economies The other commonly cited benefit of a regional approach to industrialisation, not just in Africa but in other places, is that of exploiting economies of scale. The economies of scale argument in the African context covers many areas, including the enlargement of markets, resource mobilisation (public investments), more negotiating powers, regional infrastructure development, adoption and transfer of technology, skills pool, foreign direct investments (FDI), and the development of industrial capacity (Rodrik, 2018). The argument is that it is easier to mobilise funds at the larger scale for industrial development, including the upgrading and expansion of strategic infrastructure, than it would be if countries sought to do this individually (UNCTAD, 2019a). The market size argument is straight forward, and it is illustrated later in this chapter by looking at the potential market size for the different RECs.

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The advantage which many African countries have regarding market size is that most countries have a young population, with steadily growing urban populations and rising income. Rising levels of income in Africa can provide a strong stimulus to manufacturing growth, especially in food processing where the demand for processed food is rapidly growing in most urban centres (ACET, 2017). When these growing markets combine, they create larger markets which can be more attractive to investors than would be the case for individual domestic markets. In terms of industrialisation, economies of scale gains are possible when operating at a regional rather than a country level. It is easy to justify a large TV manufacturing plant in Botswana when there is guaranteed access to a larger market in the region or continent it would if the access to markets in the region are limited. A regional industrial strategy can capitalise on these economy-of-scale gains and use them to create competitive advantage. Creation of regional industrial projects such as development corridors, special economic zones, and communication projects are some of the ways through which industrialisation can be boosted through regional initiatives (see UNCTAD, 2019a). Developing RVCs A regional approach to industrial development is also beneficial to African countries because it enables the development of RVCs. One of the advantages of RVCs over GVCs in the case of Africa is that it is relatively easier to integrate into RVCs than in GVCs especially in the high value-added segments which are usually monopolised by lead countries in industrialised economies (Davies et al., 2018). Preferential access to regional markets can nurture the growth of RVCs between member countries. The growth of RVCs can strengthen backward and forward linkages within regional economies through preferential procurement policies that can induce and strengthen these linkages (Morris and Staritz, 2019). Linkages can be strengthened through the development of regional suppliers in the RVCs to replace international suppliers. Learning for local firms participating in the RVCs can provide opportunities for regional firms not only to upgrade but also to build capacity to integrate and compete in GVCs. In other words, the RVCs, because of their local orientation, can be useful learning instruments which regional firms can use to build capacity and competitive abilities. In this regard, there are massive opportunities in the agro-processing sector where local firms can capture the larger portions of the value chains. Morris and Staritz (2019) give an example of the Kenyan fresh food suppliers who moved downstream on the fresh food produce and vegetable value chain by sorting, grading, and bar coding these products before they were exported to the UK. By doing this, they captured a much higher share of the value chain compared to when they simply exported bulk, ungraded, unpacked fresh produce. These suppliers, if accorded access to bigger regional markets, can capture and domesticate the entire fresh produce value chain in the region. The 2019 UNCTAD Economic Development report presents a similar case study of the cotton value chain in Africa, illustrating that integrating the cotton value chains regionally can lead to

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retention of a higher share of the value generated within the region (UNCTAD, 2019a). The 2017 African Transformation Report also profiles several agro-based value chains which offer potential for African countries to capture higher value if they are regionally oriented (ACET, 2017). There are several other examples one can cite to show that there is an advantage in taking a regional approach to promoting industrial development. Domesticating high value-added segments of value chains Industrialisation at the regional level can also be enhanced through the domestication of some value chains within the regions, which is easier to do at a regional than at the country level. In a globalised world, one might argue that no single country or continent domesticates value chains, even the simplest ones involving the processing of food; all economic activities are deeply integrated with activities in several other countries. While it is true that value creation is more dispersed today than it was even two decades ago, the main problem with the way value is created in the global value chains today is that African economies only carry out activities where extremely low value is created (Rekiso, 2017). This means Africa captures less value from most of the productive activities taking place on the continent. This is a huge problem for African countries because they are predominantly involved in low value-added activities in most of the GVCs. To turn this around, African countries have to “domesticate” some of the high value addition activities. It is here where FIP can be a useful instrument for ensuring that there is change in the way production is structured in Africa. There is a greater prospect of domesticating some of the VCs at the regional level to ensure that more Africans can begin to engage in activities with higher value added. The default position which many African countries have adopted has been to go along with the current structure whereby most of the value chains originate from the African continent, and yet the continent only captures a tiny section of the value created in the entire chain. Just take, for an example, the cocoa value chain which generates over US$100 billion dollars each year. The African continent, which produces over 75 per cent of cocoa, captures only US$2 billion of this value per year (GBN, 2019; UNCTAD, 2019a)! Although there are some positive signs that the major cocoa producing countries (Ghana, Cote d’Ivoire, Cameroon, and Nigeria) are seeking to attract investment into downstream activities of the cocoa value chain, there is greater potential to capture a larger share of the cocoa value chain if there is more coordinated and integrated action among these countries. Sticking to the existing structure of the GVCs has not worked for the continent; it has perpetuated the impoverishment of Africa, which is an expected outcome of the continued existence of the colonial economy. But that can be changed, and African countries have to decide which segments of GVCs they can participate in. It is important to note that not all value chains can be domesticated at the regional level; some value chains, especially those involving high-tech manufacturing, are

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irredeemably global. But there are many value chains which can be easily domesticated at the regional or continental levels, starting with the food and other agroprocessing manufacturing such as cotton, leather, wood and furniture, paper and printing, rubber, etc. (ACET, 2014; UNCTAD, 2019a).

Challenges of industrialising today As we have seen, implementing IP today requires not only astuteness, but doing things differently; it requires acting on the frontiers of industrial policy strategy, seeking to do something different, differently. This is because the spaces for industrialising have really tightened such that “late industrialisers,” to use Alice Amsden’s (1989) phrase, will have to work extremely hard to secure a meaningful share in the high value-added activities of the dominant global value chains (GVCs). Currently, it is not that African counties such as Zambia are not participating in GVCs; all African countries are actually deeply integrated into global value chains, but predominantly in low value-added activities such as the export of unprocessed or semi-processed minerals, agricultural products, and fuels, as we have noted. According to recent estimates, Africa’s specialisation in the export of commodities has intensified in the wake of the commodity super cycle of the twenty-first century (UNCTAD, 2019b). But for African countries to transform the colonial economic structural constraints manifested in the overwhelming dependence on commodities, there is a need to reposition their activities from the traditional low value-added segments to medium and high value-added portions of the GVCs. It is making this shift which has been the major challenge in most African countries, and making this transition is getting harder and harder, to the point that it is more difficult for most African countries to individually reposition their economies so that they can overcome the structural impediment arising from the colonial project (Rekiso, 2017). There are several reasons why it is becoming extremely difficult for less industrialised countries to move into high value-added activities. Most of the factors have to do with the way global manufacturing production and trade are structured. Fragmentation of production The tightening up of industrialisation spaces for less industrialised countries today is a result of many factors, including the dominance of knowledge-based and technology-intensive activities in the global economy and industrial production (Yeo et al., 2019). This is worsened by the rising phenomenon of economic nationalism, which has led to the now raging “trade wars,” especially among the developed countries—mainly between the US and China. In waging these trade and technology wars, developed countries are doing everything they can to maintain their advantages in the global economy and value chains. This has made it difficult for less developed countries to break into the high valueadded manufacturing niches which are dominant and located in industrialised countries(Amsden, 2001).

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What has really squeezed the manufacturing space in the global economy is the phenomenon of the internationalisation of production which has led to the fragmentation of manufacturing activities, forcing firms to specialise in very specific segments of one or a few related value chains. The fragmentation of GVCs, while it brings a number of opportunities such as learning to catch up with lead firms, the investment attractiveness of countries with low labour costs, and creation of supplier networks (Newfarmer et al., 2018), makes industrialisation difficult in low-income countries, mainly because the control of these GVCs is firmly in the hands of a few transnational corporations (TNCs), usually located in industrialised countries. Davies et al. (2018) argue that while many firms from less industrialised countries participate in the GVCs, the distribution of income and power generated in these value chains is predominantly determined by who governs the VCs. These lead firms not only have extreme power in controlling who can participate in the supply networks, but, most fundamentally for African countries, the high value-added activities in these GVCs are tightly controlled, to the point of being monopolised, by the firms in industrialised countries. This leaves firms in Africa in the same structural configuration where they are largely engaged in the extraction of raw materials and processing of semi-finished intermediate goods to supply into GVCs. Manufacturing activities in most African countries have continued to be dominated by agricultural and mineral processing which on average captures only 10 per cent of the respective GVCs (SADC, 2015:v). In this sense, the New International Division of Labour (NIDL) has maintained the previous structure of value extraction and accumulation of capital (Chitonge, 2019). The fragmentation of GVCs which has now taken root in almost every manufacturing production chain (except for production of some food stuffs), has led to the concentration of power among a few lead firms based in developed countries, controlling and dictating what the subsidiary companies and their supply networks can and cannot produce. Even the manufacturing of a simple item such as a pin now involves processes that are split between different countries, ranging from sourcing the raw material to the actual distribution of the pin on global markets. The way GVCs are organised today manifests pervasive hierarchies of power which shape the way rents from these value chains are shared among the different stakeholders. Entities which govern the GVCs obtain the lion’s share of GVCs, while other actors are meant to contend with whatever rents they get (Davies, et al., 2018). The process of making a mobile phone today, f or example, involves the sourcing of components from more than 50 different countries. For instance, in the manufacturing of Apple products, the company has 200 suppliers located in more than 40 countries, ranging from the USA, Vietnam, Thailand, India, Brazil, to Russia (see Apple Inc., 2019). While this fragmentation of production appears as though it is creating opportunities for other countries to participate in the creation of sophisticated communication apparatus, the high value-added segments of these fragmented value chains are overwhelmingly concentrated in and controlled by a few firms located in industrialised countries (China, Germany, and

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the USA), leaving the less industrialised countries in segments where they capture smaller proportions of the value generated in the chain. Interestingly, on the list of suppliers to Apple there is no African country listed, even if we know that the chips supplied from Silicon Valley or Switzerland are made from raw coltan extracted from the DRC and aluminium from Burkina Faso, Mozambique and Guinea. Interestingly, the originators of these value chains in Africa are invisible, mainly because, although they supply crucial ingredients to these value chains, the value is negligible—hence the invisibility. Africa has to learn to change this, not by creating “trade walls” but by making the most of the continent’s natural resources (Morris et al., 2012). This can be achieved through innovative regional and continental strategies of value creation and integration into RVCs. The catching-up challenge With this structure of global production, it is not surprising that very few countries actually catch up (see Wade, 2019).3 While the fragmentation of global production has resulted in the restructuring of the international division of labour, this has not led to a significant reconfiguration of the processes of global wealth and capital accumulation (Starosta, 2016; Hutchinson, 2004). The new structure of global production has led to a situation where the low value-added activities have continued to be pushed to the less developed countries through outsourcing and subcontracting, resulting in an unchanged distribution of wealth and capital outside of East Asia. Most importantly, this configuration of global production has made it increasingly difficult for countries and firms in less developed regions to capture for themselves a significant share of the rents from GVCs. This is mainly because high value-added activities are tacitly reserved for highly industrialised economies, not because of the “right skills” and technological capacity, but often because of the power these states exercise at the global level. The outcome of this global economic power configuration has been that the less-developed countries continue to specialise in low value-added segment of GVCs because they are tactically outmanoeuvred to compete in the high value-added activities. It is this situation which has made the implementation of IPs in less industrialised regions of the world increasingly difficult, requiring that countries do something extraordinary to break into high value-added segments. For IP to successfully contribute to industrial development today, the adopted strategies will have to be able to challenge the current structure of global industrial power. In this sense, successful industrial policy going forward would have to be controlled by the “tail of the distribution” of industrial strategy; average distribution will not have a chance.

Frontier Industrial Policy: a regional approach One approach which African countries have recently realised would offer an alternative to conventional industrialisation strategies is the regional industrial strategy. This approach draws from the ideas of pan-Africanism which advocated for stronger African unity during the 1960s on the continent as a strategy for restructuring and transforming African societies, to increase the chances of successfully

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transforming the colonial economic structure. African integration and unity had both the political rationale, as a means to overcome the balkanisation of Africa, as well as an economic justification, to promote sustainable economic development (Nkrumah, 1963). However, these earlier efforts to promote unity produced few tangible results, leaving the colonial economic structures intact in most countries on the continent (UNECA, 2014). But, the combination of two factors—namely that the economies in Africa have not achieved significant positive structural transformation and the realisation that it is extremely difficult for individual African countries to transform due to the small size of the economies and domestic markets (Rekiso, 2017)—is forcing many African leaders to think about alternative approaches. The regional approach to industrialisation and structural transformation of African countries, though it has many challenges, offers better prospects than the individual country strategy. The current focus among African countries is on promoting regional integration to achieve significant industrial development of the continent. So far, three of the eight Regional Economic Communities (RECs) recognised by the African Union(AU)4 have formulated regional industrial policies and strategies aimed at creating competitive economies and environmentally friendly industrialisation that can contribute to improving the living standards of the people. The Economic Community of West African States (ECOWAS) was the first to formulate the regional industrial policy in 2010, this was followed by the East African Community in 2012, and the Southern African Development Community (SADC) in 2015. In all three regional industrialisation policies, there is a strong recognition that industrialisation has a better chance of succeeding at the regional level than at the country level. This is poignantly stated in the East African Community’s (EAC) regional industrial policy (RIP) which argues that: Experiences from the rest of the world indicate that the achievement of more vibrant and sustainable economic development is dependent on the level of industrialisation of a region. Cooperation at regional level is important since it encourages synergies, expands market reach and helps establish the necessary linkages required for successful industrialisation. (EAC, 2012) Similar views are echoed in the industrial policies and strategies for ECOWAS and SADC, both recognising that integrating individual economies creates better chances of industrialising and transforming their economies through the creation of common trade policies, common infrastructure, and learning from each other. The regional approach to industrialisation is strongly supported by most African leaders in the current situation where it has become increasingly difficult for late industrialisers to break through into high value-added industrial production segments. Drafters of these RIPs in East, Southern, and West Africa are aware of the challenges they face, but they still believe that attempting to industrialise as a group offers greater opportunity and increases the chances of succeeding in breaking into established GVCs. The SADC RIP argues that, “Entry into such

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industries will be difficult but there is enormous potential for SADC industry by exploiting a task manufacture approach and integrating into regional and global value chains” (SDAC, 2015:13). RIPs: Beyond Trade In the past, the emphasis has been on promoting regional and intra-Africa trade, but there is now a realisation that promoting trade alone is not enough to transform the colonial economy in Africa; it will require something more radical than just trade. “It should be clear that the development of Africa’s productive capacities requires much more than strategic trade integration. Trade policy, for instance, cannot be a substitute for bold industrial policies” (UNCTAD, 2019a :9). If the statements in the RIPs developed so far are anything to go by, it is becoming clear that the hype around the African Continental Free Trade Area (AfCFTA) will lead to nothing if countries are not able to produce goods that they can trade with each other. All three RIPs in Africa have identified clear goals which they want to achieve. For instance, in the West Africa RIP, the main objective is the diversification and widening of the production base in order to increase manufacturing valueadded from 6.7 per cent in 2010 to 20 per cent by 2030 (ECOWAS, 2010). In the case of the East Africa region, the target set in the industrial policy is to increase MVA from 8.9 per cent in 2012 to 25 per cent by 2032 (ECA, 2012), while in the Southern Africa region, the target is to double the region’s MVA average from 15 per cent in 2015 to 30 per cent by 2030 (SADC, 2015). There are other objectives and targets specified in these RIPs including expanding intra-regional trade, promotion of strategic regional industries to increase the value-added and the diversity of the export basket, and to increase value addition by creating regional value chains (RVCs). Implementing these strategies successfully requires the adoption of a FIP, and the elements of FIP outlined earlier in this chapter can help regions achieve industrial development. Regional integration and industrialisation There are many reasons put forward to justify a regional approach to industrial development in Africa, some of which have been briefly discussed earlier in the chapter. In general, the most common reason given for adopting regional integration as an instrument for promoting industrial growth includes that it enables countries to use resources efficiently (Viner, 1950). Other reasons include the reaping of dividends from scale economies as noted earlier, promoting change in the demand structure, better and faster absorption and development of technology, and increasing investment (Balassa, 1962). In the context of less industrialised countries, regional integration has been justified on the grounds that it addresses one of the major constraints in the development of the industrial sector in poor countries—the size of the domestic market (Matambalya, 2015; UNCTAD, 2019a). In the case of African countries, the small size of the domestic

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markets has been a binding constraint since colonial times, as illustrated in the case of Zambia. The challenge of market size in Africa has turned into a kind of vicious circle: small markets fail to attract investments because the local demand for products is low, while on the other hand, the small-scale manufacturing production that exists cannot compete effectively to expand the industrial sector. Thus, industrial growth in Africa has been constrained on both the supply and on the demand sides. Certainly, most of the domestic markets in most African are small, even the market for the entire continent are small compared to developed regions. But regional markets, even if they are still relatively small, offer better economies of scale and potential for growth in trade and industrialisation. For example, between 2015 and 2017, Africa’s total value of trade averaged US$760.5 billion compared to the average US$4 109.1 billion for Europe, US$ 5 139.6 billion for America, and US$6 801.5 billion for Asia (UNCTAD, 2019a:19). In terms of share in global trade, Africa’s share in global export was only 2.3 per cent in 2017, with the share of imports at only 2.7 per cent (AU, 2019:24). We see that the African market, even when combined, is small when compared to other continents, but the markets are even smaller in individual countries, making it difficult to provide momentum to build industrial capacity. Therefore, the idea behind industrialisation through regional integration is that the integrating regional economies can expand the size of the markets in the region and this would make the regions more attractive to investment as the market size increases. If we look at the market size for the three regions, there is no doubt that the size significantly increases with integration, compared to the size of markets in individual countries (see Appendix I). If we look at the trends in intra-regional trade, we see that trade within the RECs grew significantly between 2000 and 2010, but declined between 2010 and 2015, rebounding in the period from 2015 to 2019 (see Figure 9.1)

Figure 9.1 RECs’ five-year average merchandise trade growth rates (1992–2019). Source: Author based on data from UNCTAD (2019). Note: REC= Regional Economic Community.

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In terms of market size, these figures show that there is potential to increase trade within these regional blocks, and this can stimulate local production and building of manufacturing capacities. It has been reported that the bulk (45 per cent) of intra-Africa export is composed of manufactured products (UNCTAD, 2019:23). With deeper integration it is possible to expand the trade in manufactures in Africa to create room for the emergence of large-scale manufacturing on the continent. If we look at intra-regional trade trends, it is also clear that this has been increasing in the major RECs between 2014 and 2016. The interesting thing is that intra-Africa trade is occurring mainly within the RECs rather than between RECs. This makes it possible to explore some of the RVCs which can be domesticated by creating complementarity in the production structures for the regions. However, most of the RECs markets are small, as reflected in the size of total imports (see Table 9.1). CEN-SAD (the Community of Sahel–Saharan States), COMESA, and SADC reported the largest total value of imports between 2011 and 2017. The value of imports for ECOWAS, EAC, and IGAD (the Intergovernmental Authority on Development) were surprisingly low during this period. Nonetheless, these values of imports for the RECs suggest that intra-regional trade can be increased from the current 16 per cent because imports signal a potential for RECs to produce some of the goods being imported (Hirschman, 1958), especially if some of the RVCs are adequately developed. The crucial part of a regional approach to industrialisation is the structure and size of the market. In the case of the EAC, the market size in terms of population was around 200 million people in 2019 and this will increase to over 260 million by 2030 (see Appendix I). Even if only 10 per cent of this population has disposable income, that is a much bigger market than any of the individual countries can offer. An investor looking for investment opportunities would be more persuaded to commit investments to a 20 million compared to a 2 million people economy. There is a strong argument for an integrated approach to industrialisation, though this would only hold if there were stronger mechanisms and deeper Table 9.1 Imports by Regional Economic Communities (US$ billion)

AMU CEN-SAD COMESA EAC ECCAS ECOWAS IGAD SADC Total (Africa)

2011

2012

2013

2014

2015

2016

2017

Average

117.9 277.6 172.9 33.8 76.7 110.9 38.9 216.9 577.2

143.5 274.7 252.7 36.4 112.3 84.6 41.8 257.5 630.2

155.5 313.8 209.6 37.5 67.1 119.1 41.5 216.2 632.1

151.1 304.7 220.5 40.3 79.9 105.2 54.3 216.7 635.4

125.9 272.1 242.3 39.5 112.6 87.3 52.5 223.5 606.6

120.4 275.9 367.9 31.1 215.1 84.8 51 314.2 686.2

124.7 276.8 206.9 33.4 44.5 84.9 54.7 164.8 527.8

134.1 285.1 239.0 36.0 101.2 96.7 47.8 230.0 613.6

Source: Author based on data from African trade statistics (AU, 2019). Note: The totals for Africa are lower than the totals for RECs because many of the countries belong to more than one REC.

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levels of integration. The same is true in the case of GDP and GDP per capita, which is used to assess the potential buying power in an economy. A combined GDP of US$192 billion in 2019 for EAC is more attractive than any individual country’s GDP can offer. In the case of ECOWAS, the market size for an integrated approach is much larger, at 380 million people in 2019, and this is expected to grow to over half a billion by 2030 (see Appendix I). Although the majority of the population have low income in these regions, the combined buying power that arises from regional integration could trigger investment growth in the industrial sector as the size of the market expands. A total output of over US$600 billion for ECOWAS in 2019 is more attractive to investors than would be the case for individual countries. Even if there is no foreign investment, a combined GDP of this size increases the local capital available for investment which would be available if member countries pooled resources together. We see a similar situation in the SADC regions where there are many small countries with fewer than 5 million people (see Appendix I). These economies are too small to attract any significant capital for industrial development on their own. But a combined market size of 360 million people in 2019 for SADC—and this is expected to rise to 480 billion in 2030—is a significant population that can be attractive to investors. Likewise, a regional GDP of US$721 billion offers much more investment opportunity and capacity than any single country. Thus, though the incomes per capita for countries in these regions are low, when these are combined, they help to lower the constraints imposed by the small size of the domestic markets, including capital markets. The role of Regional Value Chains (RVCs) Other than the size of the market, regional integration can also contribute to industrialisation through creation of regional trade between member countries, promotion of learning from each other, creation of lock-in policy, harmonisation of the trade policy, and improvements of financial and non-financial institutional capacity, as highlighted earlier. Most importantly, regional integration can contribute more meaningfully to industrial development by cultivating Regional Value Chains, which can be used as stepping stones for integrating into GVCs (see UNCTAD, 2019a). This is important in the current context, where breaking into GVCs has increasingly become more difficult, as noted earlier. The development of RVCs is one way of domesticating the circuits of production and not only developing the capacity to compete at the global level but also securing a sizeable market share in the harsh global manufacturing environment where lead firms literally dictate what suppliers should do. Although the values of intra-regional trade are relatively low, some RECs such as COMESA and SADC trade more within the region than outside the RECs (see Figure 9.2) What is interesting, as shown in Figure 9.1, is that there are indications that intra-regional trade is growing in most RECs. This suggests the possibility of developing more RVCs to deepen trade and build industrial capabilities.

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Figure 9.2 Intra-Regional Economic Community (REC) trade in Africa (2010–2016). Source: Author based on data from UNCTAD (2019).

Building industrial capacities large enough to compete at the international level is much harder when small countries in Africa go it alone than when they collaborate and create regional capacities. It is such strategies which can contribute to bringing about significant transformation of the structures of these economies. For instance, the lack of internal coherence and the dominance of extractive sectors in most African economies can be addressed through the development and expansion of RVCs which can act as incubators for value addition and learning by doing for other firms in the region. Through a well-thought-out RIP the copper produced in the DRC and Zambia can be processed into finished and semi-finished goods by domesticating the copper RVC (see Makgetla et al., 2019). The same can be done for the cocoa produced in Ghana, Côte d’Ivoire, and Nigeria. There are several other value chains which the regions can identify, especially in the agro-processing sector where most of the countries’ manufacturing activities in these regions are concentrated at the moment (SADC, 2015; ACET, 2017). These strategies, if they are properly implemented, can help reorient African economies from being extremely extroverted to economies that are oriented towards satisfying the needs of the local society. It is in this sense that integrative efforts such as those being promoted through the African Continental Free Trade Agreement (AfCFTA) have the potential to contribute to overturning the surviving colonial economic structure on the continent. How much these initiatives will achieve is yet to be seen. More could be achieved if African leaders remained alive to the fact that industrial development is possible.

Is RIP mere talk? In the final analysis, one thing that is evident from these RIPs is that they set quite ambitious targets, if one considers the challenges that these regions face at country

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and regional levels when it comes to regional integration. Experience from past initiatives suggests that not much regional integration has been achieved, nor, later on, industrialisation at the regional level. Some analysts might dismiss such initiatives as mere talk, which African leaders are good at (Ayittey, 2005). While African leaders are known to be good at talking and producing documents, it has to be realised that achieving industrial development on the continent would require implementing not just trade protocols, but ambitious and innovative industrial development strategies. Indeed, past regional and continental industrial strategies such as the First Industrial Development Decade for Africa (IDDA I) and the Second Industrial Development Decade for Africa (IDDA II), in the 1980s and 1990s, and the Alliance for the Industrialisation of Africa (AIA) in the 1990s, and more recent initiatives: Accelerated Industrial Development for Africa (AIDA) and the African Agribusiness and Agro-processing Development Initiative (3ADI), have all yielded little in terms of industrial development (Chitonge, 2019:21–22). Indeed, Africa has had several collective initiatives to drive industrialisation but little to show in terms of the outcomes (Rekiso, 2017). But that is a reason to try something different. Even if past performance in terms of integrating the continent has been below expectation, that should not be used to dissuade African leaders from thinking and dreaming big. The choice is indeed for African leaders to see that they have a better chance to develop industrial capabilities through collective action than if they take an individual route. It is difficult to tell whether they are serious about adopting the regional approach to industrialisation, but if Africa is to have a chance of achieving this lofty goal, leaders have no option but to learn to work together more effectively at the regional level than the case has been in the past. Such a move on the continent would not only contribute to transforming the colonial economic structures but it would be a practical move to reverse the balkanisation of Africa which is still prevalent today and constitutes one of the most enduring colonial structures. In this sense, serious implementation of RIP will be a concrete act of decolonising the continent.

Notes 1 I have in mind here Christian Lund’s (1998) use of the term “open moment” in the context of land reform, where the struggle over land between different actors creates a fluid moment where rules that govern access to land are challenged and, in the process of adjusting the rules, anything can happen. The “open moment” is a moment of opportunity and possibilities. 2 This is not the place to go into the detailed debates about what constitutes Africa and whether we can define it as a single entity or a series of diverse “sub-continents” as some analysts have suggested (Hoogvelt et al., 1992). 3 A World Bank study in 2013 found that out of 101 countries categorised as middleincome countries in 1960, only 13 graduated to the high-income status, four were peripherals of Western Europe (Spain, Greece, Ireland, and Portugal), and the other four are tiny nations with small population (Equatorial Guinea, Mauritius, Puerto Rico, and Israel), and the remaining five are from the Asian Tigers (Taiwan, Hong Kong, Indonesia, and South Korea) together with Japan (see World Bank, 2013).

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4 The Eight RECs recognized by the African Union are: East African Community (EAC), Economic Community of Central African States (ECCAS), Common Market for market for Eastern and Southern Africa(COMESA), Arab Maghreb Union (AMU), Intergovernmental Authority on Development (IGAD), Community of Sahel-Saharan States(CEN-SAD). Southern African Development Community (SADC) and the Economic Community of West African States (ECOWAS). There are other regional economic grouping which are not recognized by the AU such as CEMAC, WAEMU and SANCU.

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Appendix

Appendix I EAC population GDP and GDP/capita Population (Million)

Gross Domestic Product

2019

GDP/Capita

2030

GDP (billion)

Economic Community of West African States (ECOWAS) Benin 11,8 15,6 916 10,5 Burkina Faso 20,3 26,9 716 14,1 Caebo verde 0,56 0,6 3593 1,9 Cote d’Ivoire 25,5 33,3 1921 47,9 Gambia 2,2 3,1 496 1,1 Ghana 30,1 37,3 2224 65,5 Guinea 13,4 16,3 732 9,6 Guinea Bissau 1,9 2,5 771 1,5 Liberia 4,9 6,5 490 2,4 Mali 19,7 27,5 901 17,2 Niger 23,2 34 453 10,1 Nigeria 200,9 264,1 2028 397,3 Senegal 16,7 22,1 1482 24,1 Siera Leon 7,9 9,7 496 3,8 Togo 8,1 10,5 1583 5,6 Total 387,16 510 612,6 Average 1229,90 40,84 Southern African Development Community (SADC) Angola 31,8 45,4 3776 116,2 Botswana 2,4 2,6 7978 14,1 DRC 86,7 124,3 565 47,4 Eswatini 1,4 1,7 3313 4,6 Lesotho 2,3 2,6 865 2 Malawi 19,7 25,6 375 7,2 Mauritius 1,3 1,3 11195 14,2 Madagascar 26,9 35,6 451 11,8 Mozambique 31,4 42,4 504 15,4 Namibia 2,6 3,1 5582 14,5 Seycheles 0,096 0,1 16681 1,6 South Africa 58 67,9 6414 368,1 Tanzania 60,9 83,7 998 58,9

284 Appendix

Zambia Zimbabwe Total Average Burundi Kenya Rwanda South Sudan Tanzania Uganda Total Average

Population (Million)

Gross Domestic Product

2019

2030

GDP/Capita

GDP (billion)

18,1 17,3 360,896

26,8 17,6 480,7

1356 1273

23,9 21,5 721,4 48,1

4088,40 East African Community (EAC) 11,6 17,2 275 52,2 67 176 12,8 16,6 761 13,3 17,9 308 60,9 83,7 998 45,7 61,6 657 196,5 264 32,75 44 529,16

Source: Data from African Statistical Year Book 2019, and UN Population.

3,1 87,9 9,5 3,9 58,9 29,1 192,4 32,1

Index

abandonment of industrial policy 117–118, 246 Africa of the colonial trade see macro-regions Africa of the Concession Owning Companies see macro-regions Africa of the labour reserve 263; see also macro-regions African agriculture production 44–45 African Continental Free Trade Area 273 African cosmology 35 African economies: origins 10–11; as satellites 11; structure of 1, 4 Africans benefit from colonial economy 5–9 Agriculture Demand-Led Industrialisation 212; see also agro-led industrialisation agro-led industrialisation 195 agro-processing activities 197; contribution to manufacturing value added 198–199; labour intensity of 197–198; subdivisions of 205 agro-processing sector 193; challenges of 213–216; importance of 193–195, 197–198; recovery of 204–205 Ake, Clade 11 Amin, Samir 263 assessment of industrialisation strategy in Zambia 242–244 ban on the export of maize 216 Bantu Botatwe 32, 35 battle for mineral rights 135–136; see also BSA company battle for mineral rights see mineral rights benefits of extractives 125–127 Berg Report 262 Berlin Conference 23–24 beverage cluster 207–209 big push theorem 232

Brailsford, H.N. 21 British mining stake in Northern Rhodesia 132–133 British vs French colonial policy 26–27 BSA company 46, 264; administration of Northern Rhodesia 38; mineral exploration 66 Bullock, Nathan 68 Busschau commission of inquiry 70, 75–77; report 75 Bwana Mukubwa mine 129 capital flight 242 capital outflow 17, 60 see also capital flight casualisation of work force 148–149 the catching-up challenge 271 challenges of industrialising today 269–271 Chamberlain Joseph 20 Chimba, Justin 240 civilising mission 23 collective approach to industrial development 256, 262–263 colonial economy 11; anatomy of 11–12; features of 11–16, 89–90, 124, 226, 254–255, 262–264; logic of 19, 68, 158, 255; macro-regions of 263; rationale of 7–8, 18 colonial Office 68–70 colonial project 9, 11–12; in Africa 18–22; and African interest 25–26; from African perspectives 25–27; diverse interests of 19; from European perspective 22–23; inner logic of 19 colonial regional trade agreements 73–74 colonial trading companies 264 colonialism as dehumanising for Africans 10 colonialism: critics of 20; enthusiasts of 20, and commercial interests 21–22

286

Index

colour-bar labour practices 82; see also dualistic wage structure commodity supper cycle 1, 15 commodity: -dependence 1–2; prices 1–2, 15, 136 construction sector 179–180, 203 contestation of mineral tax see renegotiation of mining contracts contract workers 148 copper production 48; rapid rise of 48; trend in 145–146 copper reserves in Zambia 129 customs agreement 73 dairy industries 207 debt crisis in Zambia 100, 138, 244 decolonise African economies 236, 256 definitions of agro-processing 196–197 Development Agreements see privatisation of the mining industry direct participation strategy 106, 110–111 disarticulation 12–13; see also lack of internal coherence division of labour 34–36 domestic market 79; size of 79–81, 84–85, 266–267, 274 dominance of copper 146–147 dominance of extractive activities 15–16, 58; see also features of the colonial economy dominance of food processing 162, 173–176, 181–183 double dependence challenge in 102–103, 170, 184 dual wage structure 80–84 dualism 95; high levels of 95–96; see also dual wage structure East African Community 272 economic activities of indigenous people 32–33, 35–38 Economic Community of West African States 272 Economic diversification in Zambia 104–105 economic dynamics of enclavity 126; see also features of the colonial economy Effects of copper price on copper production 67–68, 136–137 electricity crisis 215–216 employment in the mining sector 148–150 enclave theory 125–127; see also lack of internal coherence Ethnic industrial skills 35 European colonial powers 19

European mineral prospectors 128 Europeans employed in mining 48 exploitation of copper ores by local people 128 export concentration index 2, 27n2 export-oriented strategy 169 extractive industries 125; see also enclave theory Faldherbe, Louis 21 Federation of Rhodesia and Nyasaland 73, 136; politics of 78, 85 Ferry, Jules 20 first census of industrial production 50 first copper mine in Northern Rhodesia 47 fiscal incentive to industrialise see incentive strategy food beverage and tobacco 176, 198 food processing cluster 205–206 foreign exchange crisis 170; see also debt crisis forward and backward linkages 76, 102, 125; see also linkages fragmentation of production 269–271 fragmented policy environment 219–221 frontier industrial policy 6–7, 227, 258–262; regional dimension of 272; the role of the state in 260–262 fuel subsidy programme 217 general industrial policy 231 Glencore 142 global value chains 260; as hierarchies of power 270 government procurement policy 219–220 Grey, Edward 20 growth of the Zambian middle class 239 Hobson, John 21 holding companies 110–111, 139, 166; see also parastatal companies Huggins, Godfrey 72 hunter-gatherers 37 impact of privatisation 118, 198 import licences 108 import substitution industrialisation 168–169 incentive strategy 106–110 industrial development 157–158; role of the state in 228, 233–234, 245 Industrial Development Act 112; see also direct participation Industrial Development Corporation 167–168, 239–240

Index industrial extension services 112 Industrial policy: background 66–68; effects of European settlers on 69–70, 72; meaning of 228–230; in Northern Rhodesia 65–66; principles of 231–235; rediscovery of 229; settlers’ view on 67–68; as special case policy 230; as a tool for promoting structural transformation 233 industrial policy agenda 247–248; see also revival of industrial policy industrial strategy in Zambia 106–107 inherited colonial economic structure 94–95 integration of economic and social activities 37 International Missionary Council: Commission of inquiry 33, 42–43; interviews 41; report 39; study 34 intra-Africa trade 274–276 Kansanshi mine 129 Kaunda, Francis 141 Kaunda, Kenneth 241–242 lack of internal coherence 13–14, 104; see also enclave theory Lagos Plan of Action 262 leather industry 209 Leopold II 9, 21, 263 line of rail 104, 166, 238 linkages 12, 127, 152, 165, 267; see also forward and backward linkages local content policy 165, 243 Lord Milner 72 Lord Salisbury 20 Lozi Kingdom 35, 37 Lugard, Fredrick 20, 22 Lunda kingdom 37 Luxemburg, Rosa 33 macro-regions 263–264 making the most of Africa’s natural resources 270–271 mandatory processing 125 manufacturing employment 185–187 manufacturing sector 114; capacity utilisation in 184; challenges of 243–244; components of 162–163; disaggregated profile of 181–184; impact of privatisation on 176–177; importance of 49, 157–158, 160–161; influence of the mining on 160; informal employment in 187; labour productivity trends in 184–185; non-traditional

287

exports of 189–189; overview 158–159; rapid growth of 114–115; structure of 51–52; trends in 169, 171; weaknesses of 159, 168–169 manufacturing value added per capita 171–172 market failures 234–235 market fundamentalism 245 market-led industrial strategy 244–246 Matero Reforms 135, 165 mineral rights 125–128; buying back of 134; ownership of 135–137; see also BSA company mining 45; dominance of 52; effects of the Great Depression on 66, 78, 136, 226; as the pillar of the colonial economy 45–46; reliance on 98–99, 227 mining industry 140; new structure of 144–145; structure of 140 mining investments 131 mining value chain 153 mining’s relation with manufacturing 165; see also linkages mixed economy 113 Movement for Multiparty Democracy 141 Multi-Facility Economic Zones 119, 210 Mulungishi Reforms 106, 135, 165, 241 Mulungushi Speech 110; see also Mulungushi Reforms Mutale, Godwin 240 Mwata Kazembe Kingdom 37 National Breweries 207 National Industrial Policy 18–119, 249 natural economy 17, 33, 35 new Copperbelt 140 non-commodity dependence economies 1 Northern Rhodesia: African agriculture in 43–45; African earnings in 56–57; barriers to industrialisation in 78; census of industrial production in 85; constraints to industrial growth in 75–76; copper industry in 45–46; demographic profile of 38–41; European agriculture in 42–43; European population in 39–41; fear of Afrikaner influence in 73; first census 38; industrial policy instruments in 76–78; manufacturing sector in 49–51; mining benefits to 134–135; not a place for European settlement 40, 72; number of Africans in 39–40; outcome of industrial policy in 88; politics of industrial development in 68–72; settlers’ effort to industrialise 74; share of export value

288

Index

of copper in 48; structure of the colonial economy in 47–54 Northern Rhodesia economy 47; gross fixed capital formation in 57–58; importance of copper in 48; labour force composition in 54–55; pillar of 47–49; structural challenges of 58–61; structural weaknesses of 53; structure of output of 52–54 Northern Rhodesia Industrial Development Corporation 78 outcomes of industrial strategies in Zambia 113–115 ownership of mines 132–134 ownership of mining rights 132; mining royalties paid to 135 oxide ores 129–130 Paper industries 210 parastatal companies 110, 166–168; see also Holding companies partnership model 249 peer learning 265–266 perception of Africans by Europeans 33–34 Pim, Alan 134 Pioneer Certificate 108 policy inconsistencies 216–217 political motives for industrialisation in Zambia 103 Power Purchase Agreements 215 pre-colonial economic activities 32–35, 37 Preferential access to regional markets 267; see also regional value chains principles of Reciprocity and redistribution 36–37 priority sectors 119 Private Sector Development Programme 119, 248 privatisation of the mining industry 140–141 problem of being landlocked 86–87 productivity among African workers 82 rationale for industrial policy Zambia 101–102 regional approach to industrialisation 265–268, rationale for 273–275; see also regional Regional Industrial Policies 266, 272; see also regional approach regional markets: access to 206, 211–213; size of 274–275

regional value chains 119, 227, 265–268, 273; role in industrialisation 276–278 relations between Africans and European settlers 41 renegotiation of mining contracts 143–144 reversing the colonial logic 256, 278; see also decolonising African economies revival of industrial policy 118–120, 247; see also National Industrial Policy Rhodes, Cecil John 9, 11, 21, 46, 264 role of INDECO 167–168; see also parastatal companies rural–urban imbalance 238; see also urban bias Sardanis, Andrew 240 Sarraut, Albert 24–25 Second Rand 66, 128 selective industrial policy 231–232, 244 self-sufficiency 34–35 shift to the North-West 147; see also new Copperbelt skills shortages 221–222 Small Industrial Development Organisation 112 Smith, Adam 36 Southern African Development Community 272 spatial diversification 104–105, 238; see also urban bias spatial incoherence see disarticulation state failures 234 state-private sector relations 241–242 State-led industrial strategies 236–237 Structural Adjustment Programmes 117, 120 structural transformation in Africa 258 subsistence agriculture 38 substitution industrialisation 120 sulphide ores 129–131 tariffs and import quotas 109–110; see also incentive strategy Taubman Goldie, George 21 tax regime 217; see also contestation of mineral tax textile industry 208–209 thinking on the margins 259–260; see also frontier industrial policy third generation of Industrial Development Corporation 248–249 three phases of industrial policy in Zambia 236 tobacco industry 208

Index trade and industrial draft policy 246 trade incentives strategies 108–109 Transformative Industrial Policy 235, 258 transport system see disarticulation trends in the agro-processing 200–205 Unilateral Declaration of Independence 86–87, 103, 237 urban bias 238; see also dualism urgency to transform the economy 94 value chains 119, 164, 184, 212–214, 260; regional industrial policies 266, 272 Village Industrial Services 112–113 Vision 2030 118, 193; and industrial policy 247

289

Wade, Robert 258 wage gap between Africans and European settlers 77; see also dual wage structure weak linkages 44, 51, 124, 165, 194 weak transformation outcomes 115–116 Welensky, Roy 70 Wood industries 209–210 Woolf Leonard 21 Zambia Breweries 207 Zambia Development Agency 247–248 Zambia Industrial and Mining Corporation see parastatal companies Zambian economy: dominance mining sector in 96–97, 124; features of 95–100 Zambianisation 239