Lessons from Kaundanomics

General Governance

A story is told that a few years after independence in 1964, Kenneth Kaunda, Zambia’s first president, visited one of the mines in the mineral rich Copperbelt Province and was immediately struck by the complete absence of Zambians in senior management positions.

He proceeded to ask the mine owners as to when they reasonably thought Zambians would be ready to occupy positions of influence within the country’s mining sector. With straight faces, the mine owners responded “not before 2003, Mr. President.”

Following independence from Britain, Zambia’s economy was organized broadly along capitalist free market lines. The economy, split up into mining and non-mining sectors, was wholly in the hands of foreign private interests. The copper mines, the country’s jewels, were owned a 100% by Anglo American Corporation and American Metal Climax. Both companies having obtained the rights to mine copper in perpetuity from Cecil Rhodes’ British South Africa Company (Rhodes had himself obtained the mining rights under dubious circumstances). The non-mining sector – including banks, insurance companies, construction companies and so on – were similarly in the hands of foreign interests.

The logic, or at least hope, in organizing the economy in this way was that unfettered foreign capital would not only drive productivity improvements at home, including knowledge and technological transfers, but would, crucially, play a big role in meeting the newly independent country’s social expenditure targets. The latter point was of vital importance given that the colonial government had disproportionately privileged whites in the provision of social services.

Unsurprisingly, unfettered foreign capital did the exact opposite. Instead of re-investing a considerable proportion of their profits in local operations, the mining companies externalized almost everything. Before independence, mining companies had re-invested about 50% of their profits in Zambian operations. After independence, the rate of re-investment fell to about 20%, according to estimates by Oliver Saasa, a Zambian development expert.

Things were not any better in the non-mining sector. Saasa estimates that the outward remittance of dividends to foreign owners increased by 84% in 1966, two years after independence. As for the commercial banks, they continued just as before to favor resident Europeans in the provision of credit facilities. Only 15% of bank credit was extended to Zambian citizens, a move that constrained the emergence of an indigenous entrepreneurial class.

In as far as funding the state purse was concerned, the mining and non-mining companies utilized all manner of gimmicks, including “invisible costs,” to ensure that their tax liabilities in Zambia were kept to a bare minimum.

It very early on dawned on Kaunda and his team that “the encouragement of private investment inevitably meant the promotion of the dominance of foreign enterprises in the productive sectors of [Zambia’s] economy.” Rather than be engaged in a never-ending game of dubious logic with the foreign capitalists, Kaunda decided to act.

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By Grieve Chelwa

Picture credit: Rodger Bosch/Getty Images.