Chapter I: Introduction
Exceptionally in the case of the Zambia, the promotion and encouragement of policies fostering growth and development can substantially benefit the economic and social conditions of the country. The former colony gained complete freedom from its colonisers in 1964. The economic situation after independence had remained stagnant until a sharp decline in the overall economic activity was experienced from 1980. Zambia is a landlocked country surrounded by countries like Zimbabwe, Mozambique, and Botswana etc. Notably, Zambia was able to maintain political and social stability, when the surrounding neighbours were struck with terror and political volatility. Despite being a landlocked country, the tropical climate of the region allows for flourishing of agricultural produce. The importance of agriculture for a developing economy is discussed below.
The poor performance of the copper sector unraveled the sliding down of the Zambian economy, from 1980 to 1992. Corresponding to the worsening economic situation in the country, government revenue declined sharply from 28% in 1975 to less than 18% in 1989. The state remained unchanged after this. As a consequence of the government’s financial position, the country faced an overall deficit of 115% in 1991. The incompetence of the government in revenue generation as well as the lack of allocation of grants and funds in the form of foreign aid resulted in negative growth in India. Considering, the over-dependence on copper and decline in financial position, figure: 1 depicts the real GDP growth in Zambia between 1980 and 1992.
Figure 1: Trend in Real GDP Source: Department of Economics, University of Gothenburg 1994
Aid in Zambia consists of two types: (a) Bilateral Aid (b) Multilateral Aid. Bilateral aid refers to official flow of funds and resources from the donor to the official recipient of the beneficiary country, which is then later distributed by them. Multilateral aid, on the other hand, refers official contributions to multilateral agencies in the recipient, which may be redistributed to other multilateral agencies. Foreign aid received by Zambia between the years of 1960 and 2005 has been
Foreign Aid in Zambia
Year Amount of Aid
1960 920,000
1965 10,860,000
1970 13,240,000
1975 86,200,000
1980 317,210,000
1985 319,290,000
1990 474,810,000
1995 2.031 billion.
2000 794,650,000
In the mid-1970s, the cost of copper, Zambia’s prime export commodity, endured an extreme decrease in prices around the world. In Zambia’s circumstance, the cost of transporting the copper to the market was an extra strain for the Zambian economy. During this period, Zambia turned to foreign assistance, however, as copper costs remained at an all- time low, it turned out to be progressively difficult to repay the debts, due to the accumulating debts. By the mid-1990s, in spite of limited debt relief, the per capita foreign debt of the country remained amongst the highest in the global economy. The decrease in copper prices and the severe drought experienced by the country commenced the debt accumulation and foreign assistance of the Zambian economy. Large amounts of money from the developed economies were given to Zambia in the form of foreign aid, which was distributed amongst the different sectors of the economy by the decision- makers of the world.
Remarkably, implementation of policies, allocation of resources and careful management of foreign aid, can consequently result in progressive economic growth and development for the country. Furthermore, this allows for growth in intellectual environment as well as promotion of domestic manufacturing. The “culture of aid” that has emerged in the recent past and the view on African countries, such as that of Zambia, has led to economical degradation of the countries. The over-dependence on aid in these countries reduces the chances of sustainability and growth. For example, tied aid, which is a common form of bilateral trade, leads to demotion of domestic production, as they lack incentive and are unable to face the competition in the global market. The altruistic nature of foreign aid often hides its harmful effects on the recipient country. Thus a new perspective needs to be taken into consideration and the detrimental effects of foreign aid are required to be understood in order to better policy implementation.
Chapter II: Flow of foreign aid in Zambia.
Aid has long been in the cultural agenda of the African economies due to a myriad of reasons. Moyo (2009) through her refreshing opinion on foreign aid in Africa expressed the idea of the rising “Aid- culture” in the developed economies. The term refers to the growing trend of foreign assistance without long term economic, social and political stability.
Particularly at the time of independence, in 1964, the economic conditions in Zambia were relatively stable. The country achieved relatively fast economic growth and was able to sustain it. However, this sudden growth in the economy did not last for long – An amalgamation of internal and external disturbances. The discomfort in the political and social environment of the neighbouring country – Zimbabwe, initialised the soon to come influx of foreign assistance. The aid inflow was accelerated in 1970, when external disturbances hit the economy of Zambia. The commencement of foreign assistance in Zambia ignited the trend of foreign aid, more accurately referred to as “Aid- Culture” (Moyo, 2009).
In the following years, foreign assistance to Zambia increased significantly. Simson (1985), states that there was a considerable increase in external assistance in Zambia (300 per cent) between 1974 and 1980. During the 1980’s aid in Zambia remained high, in addition to this The IMF and World Bank supported structural adjustment programs (SAP), during 1985-87. In fact, by 1998 the number of donor agencies were as high 150 (UNDP, 1988). Additional drought problems further increased the inflow of aid into the country.
Figure 3, portrays the gross development assistance per capita in Zambia in between the years of 1962 and 1992.As seen on the graph developmental assistance increased substantially during late 1970’s, rising up to $156 in 1979. Official Developmental Assistance (ODA) stayed at an average of $100 in the late 1970’s, however in 1991 there experienced a sudden rise in ODA to $175, thus marking the peak during the time period.
However the figure above does not provide details such as that of borrowing from the IMF, as regular programs carried out by the IMF and the World Bank do not account for ODA. A negotiation carried out by the Zambian government of 13.6 million kwachas, allowed the country to use the IMF facilities. During this period large credits were drawn (1983-1986), by the country and consequently debt was at an all-time high in 1984. Notably, the existence of high amounts of debt ceased further contributions or inflows from the IMF to Zambia.
Bilateral Aid in Zambia
Andersson, Bigsten, Persson (2000) aptly state that bilateral aid forms a major component of the foreign aid scenario in Zambia. One of the main donors of bilateral aid in Zambia is former colonial rulers, Britain. United Kingdom provided as much as 25% of the overall bilateral aid in the country in 1970’s. In addition to United Kingdom, Sweden and USA were also responsible for bilateral aid in Zambia. Bilateral assistance in Zambia accounted for almost a 100% of aid in the country, followed closely by multilateral aid (Table 1). The overall average bilateral aid figures can be evaluated from figure 2.
Although immaculate on paper, bilateral aid comes with its own drawback- Self-interest and over dependence. The manipulative nature of such aid does not allow for sustainable growth and development of the receiving economy, due to ties such as those that require spending aid money on goods and services provided by the donor economies. This form of tied-aid creates a lack of promotion of domestic producers, which in turn results in a halt in economic growth or development. An increase in domestic production and manufacture, even at small scale proves to be advantageous to the domestic economy, by reducing dependence.
1988 1989 1990 1991
Bilateral 94.6 97.2 99.1 69.7
Multilateral 92.7 89.6 96,8 84.4
Total 94.3 95.5 98.8 74.0
TABLE 2: External Assistance to Zambia (1988-1991)
Source:
Figure 2: Net bilateral and multilateral aid to Zambia 1961-1991
Source:
Segregation of Foreign Assistance: Economic Sectors
Despite of the unfathomable amount of money that goes into foreign assistance, the allocation of foreign aid in Zambia is mediocre. The lack of resourceful allocation of foreign aid is the primary cause of its inefficiency and ability to maintain sustainable growth.
One of the resources that Zambia is rich in is Copper, it is also the main export commodity. As stated by the World Bank (2000) one of the main concerns of the country is its over- dependence on the export of copper in particular. The sharp fall in the prices of copper in late 1980’s proved the damage that could result due to Zambia’s over-dependence on the mineral. The distribution of foreign aid to Zambia is illustrated with the help of Table 3.
Table3: The copper sector performance, 1965-1993
Source: Oliver Saasa, Jerker Clarsson 1994
Table 3 shows the breakdown of the flow of aid into the Zambian economy during 1985-1991. The data portrays a sharp fall in the traditional sectors of aid such as that of production and technical cooperation (Andersson, Bigsten, Personn, 2000). Moreover, social sectors such as that of education, water and sanitation have also noticed a decline in foreign assistance. As a result, majority of Zambia’s farmers face inadequate foreign assistance in the face of worsening climatic conditions and poverty.
Furthermore, foreign aid towards agriculture has actually declined in the recent past. Zambia experienced a drastic change from US$ 70 million to a mere US$ 28 million. The inefficiency of foreign aid in terms of allocation is one of the main barriers to economic growth and development not only in Zambia, but also in other African countries. It prevents the country from carrying out an industrial plan. Ideally, the agriculture sector needs to be a priority in developing nations, as a strong and stable agricultural sector leads to the strengthening of the manufacturing sector. This allows for the promotion of domestically produced goods and services and is a crucial step towards breaking the cycle of dependence and moving towards development.
Table 4: Sector-wise segregation of foreign aid
Corruption in Zambia
“Foreign aid provides a ripe territory for corruption [since] aid disbursements are typically handed free to local authorities that then distribute them, with considerable discretion, among their fellow citizens.”(Knack 2001)
Corruption is an important case against foreign aid. Foreign aid, in many cases creates a platform for the spread of corruption. As mentioned above, since aid funds are typically handed to domestic decision makers directly, the honest distribution of these are questionable as the beneficiaries have proven to be unable to reap the benefits of foreign aid. This is clearly evident through the various growth parameters that are lagging behind in the economy. Dambisa Moyo, aptly states her argument against foreign aid in Zambia, in that it increases the potential of corruption, as the decision makers get used to “free-money” and exploit the resources and people of the economy.
As indicated by Mbao (2011), the present day plundering of national riches actually was unheard of in the beginning of colonial-free Zambia. In any case, no empirical evidence explains the existence of corruption in the economy. Privatization of state possessed organizations has
been referred to as a wellspring of the corruption cases predominant today. It is
concurred that liberalization in the 1990s presented another culture of debasement into Zambia.