The Saga of INDECO: No Sleep for My Beloved Country!

INDECO buildingBy Henry Kyambalesa

1.   Introduction

I have found it necessary to continue to share my views concerning the saga which has been engendered by the Zambian government’s proposal to revive the Industrial Development Corporation (INDECO or IDC) because the issue at hand is too important to be left to the whims of a few government officials, who could be pretending to support the idea merely because they are fearful of being disciplined or reprimanded by the appointing authorities.

This is, of course, understandable!

But be that as it may, future generations will judge us harshly for our fascination with a disastrous socialist experiment that once plunged our beloved country into socio-economic decay and backwardness—an experiment that ultimately subjected the majority of our people to want, misery, and destitution!

There is really nothing that is benign, equitable, or humane about such an experiment!

Dr. Kaunda

Dr. Kaunda

In fact, the devastating loss by UNIP in the 1991 Presidential and General Elections was, by and large, a reflection of the Zambian people’s extreme suffering occasioned by decades of the Party’s experiment with socialist ideals.

There are many dissenting voices against the INDECO venture—is any of our national leaders out there listening? And are they courageous enough to highlight the pitfalls of an experiment that will undoubtedly lead to:

(a)   Increased public-sector borrow­ing and government spend­ing to finance its operations, and the operations of its subsidiaries, especially in times when it will not be able to generate profits;

(b) The re-introduction of a regime of price controls, which will surely culminate in rampant shortages of commodities, smuggling, and stunted economic growth;

(c) The depletion of our beloved country’s meager foreign exchange reserves, like the defunct INDECO, and also lead to the rationing of foreign exchange and the re-introduction of exchange rate controls;

(d)  The suppression of competi­tion and innova­tion in com­merce and industry in the national economy;

(e)  Sour relations between our country and the International Monetary Fund (IMF), the World Bank, and our development partners; and

(f)  Impaired relations between our country and the International Monetary Fund (IMF), the World Bank, and our development partners; and

2.   Rational Use of Public Resources

From 1972 to date, our government has not been able to adequately meet the basic needs and aspirations of the people partly due to bloated administrative structures. The creation of the Central Committee (a somewhat parallel structure to the National Assembly) and the position of Prime Minister which followed the introduction of a one-party State in 1972, for example, escalated the cost of performing government functions.

Levy Mwanawasa

Levy Mwanawasa

In March 2007, the late former President Levy Mwanawasa, during his official visit to Namibia, revealed that 65% of the national budget was devoted to the sustenance of a bloated state apparatus, and that only a paltry 35% was left for education, agriculture, healthcare, roads and bridges, and so forth.

In June 2009, former President Rupiah Banda decried the fact 50% of the government’s domestic revenues were spent on 1% of the population, including Ministers, and wondered how the provision for roads, hospitals, schools, energy, and defence and security could be met.

And in October 2012, an article by Kabanda Chulu, which appeared in The Post Newspaper, revealed that 50% of the 2013 national budget would be spent on the wages, salaries, allowances, and fringe benefits of civil servants and government officials.

Given this state of affairs, what His Excellency, President Michael Sata, can do is to be courageous enough to trim the national government by doing away with sinecures and superfluous government functions.

We need to create a smaller and more efficient government. We need to do so in order to save resources for use in addressing the needs of education and training, agriculture and food security, public health and sanitation, public housing, transportation infrastructure, and so forth.

Finding new ways of spending the country’s meager resources—such as the revival of INDECO, which will require enormous amounts of foreign exchange, debt-financing, and tax-payer funding to implement—will clearly be counterproductive.

3.   Privatization of State Companies

Some people have accused me of trying to sanitize the “privatization” of state-owned companies without addressing any of the issues relating to the rampant asset-stripping, the mass lay-offs of workers in privatized companies, and the misappropriation of proceeds from privatized state-assets which followed the privatization of such companies.

These and other unfavorable effects which followed the privatization of state-owned companies, I believe, were very likely due to the lack of adequate and stringent rules and regulations designed to provide safeguards against potential pitfalls in the implementation of the privatization program.

Countries which are committed to the privatization of state-owned companies need to address a number of issues, such as the pace of privatization, the choice of compa­nies or industries to be affected, stringent antitrust legislation, prevention of asset-stripping, consumer protection, protection of employees, and the suitability of exi­sting policies and conditions to the development of a robust market econo­my.

With respect to the pace of privatization, there has been a ten­dency for governments com­mit­ted to economic liberalization to be obsessed with speedy privatization of state-owned companies without considering the very likely possibili­ty that they are merely shifting the monopo­lis­tic positions enjoyed by such companies from govern­ment to private hands if new, pri­vate investments are not quic­kly made in the lines of busi­ness involved to provide the necessary competition to the buyers of the companies and prompt them to strive for greater efficiency.

A gradual transition to a private-sector-driven economy can enable a government to put in place a sound competition policy, a strong market for securities, and the necessary legislation to enforce contracts, among a host of other things.

4.   Objectives of the INDECO Proposal

I understand that the INDECO idea is currently a mere suggestion about potential initiatives in the government’s attempts to revitalize the Zambian economy. But if it is ultimately pursued, it expected to stimulate industrial development, create 1 million jobs in 5 years, become a development financial institution, be a sovereign wealth fund, be a holding company for all state-owned enterprises, and, among other things, make investments in high-risk areas that the private sector would not find profitable enough to engage in.

But, as Jeremiah Mwansa Mweemba has argued in an article published recently in Zambia Weekly, industrial development can be spurred without an IDC. A predictable fiscal policy and further promotion of existing industrial clusters such as the Multi-Facility Economic Zones can achieve the same result.

In his view, the country already has a development financial institution (DFI) under the auspices of the Development Bank of Zambia, which in some ways operates like the Development Bank of Southern Africa and South Africa’s IDC, and the Citizens Economic Empowerment Commission also mirrors many of these activities.

He has further argued that the country already has a de facto sovereign wealth fund in the name of ZCCM-IH, and the IDC would struggle to enhance corporate governance of SOEs due to the political element in decision-making that would emanate from having the President as Chair of the IDC.

In addition to Mweemba’s suggestions, the government can boost economic activities by incentivizing the private sector to create jobs and bolster economic growth if it can adequately provide for various kinds of guarantees, inducements, and essential public services and facilities.

The following is Mweemba’s conclusion regarding the proposal to revive INDECO:

“It would be better for the government to improve the viability and governance of existing … [state-owned enterprises], while encouraging further private-sector growth through credit availability and more private equity investments by NAPSA and ZCCM-IH.”

5.   What Is Zambia’s National Ideology?

Finally, let us consider how our beloved country’s socio-economic system has evolved from its independence in 1964 to date.

When we gained political independence in 1964, our country adopted an economy that was more or less managed by the British colonial government through free-market principles.

From 1968 to 1991, the country’s economy was managed by means of socialist state policies, which barred both local and foreign private inves­tors from certain commer­cial and indus­trial sec­tors of the econo­my. Dr. Kenneth D. Kaunda made the policy pronounce­ments which ushered in an era of state-owned enter­prises in his April 1968, August 1969, and November 1970 addresses to the Nation­al Council of the United National Independence Party.

The next govern­ment of the late President Frederick J. T. Chiluba of the Movement for Multi-party Democracy embarked on economic reforms designed to create a market-based economy—a private-sector-driven economy—upon his inaugu­ration in November 1991.

The reforms were designed to ensure that investment laws were clear, transparent, and accessible, and included the following: (a) abolition of price controls; (b) abolition of exchange rate controls; (c) privatization of state-owned companies; (d) liberalization of interest rates; (e) provision for 100% repatriation of profits; (f) removal of quantitative restrictions on imports; and (g) removal of restrictions on investment in all sectors of the country’s economy.

So, what is the way forward for our country in terms of its ideological inclination?

President Sata

President Sata

I would urge the ruling political party, the Patriotic Front, to honor and embrace what is enshrined in the current Republican constitution, the 1996 Republican constitution, Article 112(b) of which asserts that “the State shall endeavor to create an economic environment which shall encourage individual initiative and self-reliance among the people and promote private investment.”

And, preferably, a Clause proclaiming that “the State shall not nationalize or expropriate private property” should have been enshrined in the new Republican constitution that is currently being crafted to ensure that investors know without a shadow of a doubt the country’s stance on local and foreign investment.

There is a need for political parties and their leaders in Zambia to guard against the temptation of changing the country’s socio-eco­nomic ideals when they secure the people’s mandate to assume the reins of power.

Obviously, every country needs to generate a set of socio-eco­nomic ideals (or an ideology, to use the term that is in vogue worldwide) to serve as a guide to all national pursuits and endeavors. But such an ideology, or set of ideals, must satisfy three basic require­ments if it is to stand the test of time.

Firstly, it should be generated through national consensus, either by parliament or through a refer­endum, and not by an individ­u­al leader, a group of lead­ers, a political party, or a group of political parties.

Secondly, it should be consis­tent with the cherished values and virtues of a country’s people. And, thirdly, it should be based on realistic assu­mptions about what is human­ly achievable rather than on an idealized or utopian con­cept of the best conditions of human life.

In this regard, consider­ation of the failures and successes of the socialist, commu­nist, and free-enterprise ideologies and their various versions and blends is critical to the formu­lation of a viable national ideology.

(The author, Mr. Henry Kyambalesa, is a Zambian academic currently residing in the city of Denver, Colorado, in the United States.)