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Nationalisation: A case study of Zambia

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Title: Nationalisation: A case study of Zambia


1
Nationalisation A case study of Zambia
  • By Ndangwa Noyoo
  • Rhodes University Summer School
  • 13 September 2011

2
Introduction
  • On 19th April 1968 the president of Zambia,
    Kenneth Kaunda, announced that the state would
    intervene in the Zambian economy and nationalise
    all private retail, transport, and manufacturing
    firms in the country, through what came to be
    known as the Mulungushi Reforms. The government
    was to acquire 51 per cent shares through the
    newly created parastatal - the Industrial
    Development Corporation (INDECO). A year later,
    on 11th August 1969, the Matero Reforms were
    announced, and these resulted in the government
    purchasing 51 per cent shares from the existing
    mining companies Anglo American Corporation and
    Roan Selection Trust, leading to partial
    nationalisation of the copper industry.

3
  • Eighty per cent of the economy was now under
    state control after this second phase of
    nationalisation which now encompassed mining,
    energy, transport, tourism, finance, agriculture,
    services, commerce, trade, manufacturing and
    construction sectors. Further reforms were
    carried out on 10th November 1970. These were
    extended to the financial sector including the
    insurance companies and building societies, but
    excluding the banks, which successfully resisted
    being taken over.

4
Rationale
  • Several times before, I have declared in very
    clear terms that political independence without
    matching economic independence is meaningless. It
    is economic independence that brings in its wake
    social, cultural and scientific progress of man.
    No doubt political independence is the key, but
    only the key to the house we must buildIf we
    are true humanists then whatever institutions we
    create must be geared towards fulfilling our
    commitments to the common man. Basically this
    means providing adequate food, adequate clothing
    and adequate shelter for all our people in Zambia
    and not just a few of them.

5
  • Today our society is being exploited very badly
    indeed by some unscrupulous men and women who are
    driven to the extreme right by the profit
    motive. A good number bring very little capital
    into Zambia, but because of their know-how they
    are able to build something locally on borrowed
    Zambian money and send out of the country
    excessive profits after a very short time.
    (Kaunda, 1968).

6
  • The overall goal of nationalisation was to
    increase local control over an economy which at
    independence was completely dominated by
    foreigners at the ownership and managerial
    levels. Even as late as 1968 only 15 per cent of
    bank credit was channelled to Zambian citizens. A
    parallel aim was to ensure that a larger
    proportion of the Gross National Product remained
    in the country (Molteno and Tordoff, 1974).

7
Extent of Nationalisation
  • This was far-reaching the president put notice
    for owners of certain firms to invite the
    Government to join their enterprise. Listed
    firms had to sell at least 51 per cent of their
    shares to the government. The first firms
    mentioned were Anros Industries Ltd., Monarch
    (Zambia) Ltd., and Crittal-Hope (Zambia) Ltd.
    These three companies dominated the field of
    window and door frame manufacturing. The building
    industry was also targeted Anglo-African Glass
    Co. Ltd., P.G. Timbers, Baldwins Ltd., Steel
    Supplies of Zambia Ltd., P.G. Timbers, Baldwins
    Ltd., Steel Supplies of Zambia Ltd., Zamtimbia
    Ltd., May and Hassell (Zambia) Ltd., and Johnson
    and Fletcher were taken over and fell under the
    control of the new parastatal company the Zambia
    Steel and Building Supplies Ltd., which was
    wholly owned by the Industrial Development
    Corporation.

8
  • The third area linked to the building industry
    were three quarries that had supplied crushed
    stone in the Lusaka area. They were Nicholas
    Quarries, Gerrys Quarries and Greystone Quarry.
    The next industry that was asked to invite the
    government to join in its activities was the
    brewing industry. Northern Breweries Ltd., and
    its subsidiary the Heinrichs Syndicate Ltd.,
    were earmarked. Next was the transport sector
    Smith and Youngson Ltd., and Central African Road
    Services Ltd., were nationalised.

9
  • The state was also to engage in retail and
    wholesale distribution. The firms which were
    targeted were C.B.C stores and shops, O.K.
    Bazaars, Standard Trading, Solanki Brothers Ltd.,
    and Mwaiseni Stores Ltd. In the timber sector the
    Zambezi Sawmills Ltd., and the Mining Timbers
    Ltd., which supplied logs and mining poles to the
    mines were nationalised. In the print media, the
    Zambia Newspapers Ltd., which published Zambias
    only daily and Sunday newspapers fell under
    government control. In the fisheries industries,
    Irvin and Johnson Ltd., was invited as well.

10
On compensation of foreign firms
  • This was to be on the basis of book value of
    assets as Kaunda noted I shall leave it to
    INDECO to negotiate values and terms of payment
    but I want to make it clear that what they will
    pay is a fair value represented by the book
    values. There is no such thing as business
    goodwill or paying for future profits as far as I
    am concerned. I cannot see any reason why we
    should pay extra for the boom we have ourselves
    created.

11
  • The mines were not initially nationalised because
    as Kaunda put it The copper mines are big
    businesstoo big for us. But a year later, there
    was a change in attitude from Kaunda.
  • Time Magazine of August 22, 1969 probably best
    captures the reasons behind the nationalisation
    of the mines

12
  • Zambia, the former British colony of Northern
    Rhodesia, remains uncomfortably dependent upon
    white-dominated Rhodesia for trade and electric
    power. The cost of living is soaring and abrasive
    tensions between Zambia's blacks and whites (who
    constitute 1.5 of the population), are on the
    rise. Recognising the importance of the mines to
    his country, Kaunda met two years ago with
    Chile's President Eduardo Frei to discuss an
    arrangement to help maintain world copper prices
    and quotas. Although no price-fixing agreement
    resulted from their talks, Frei's nationalisation
    of the Chilean copper industry, beginning in
    1967, probably stimulated Kaunda to take a
    similar step in Zambia.

13
  • The same article foretells quite poignantly
  • Kaunda's action entails serious risks for his
    country. Zambia has neither the capital nor the
    skills to run the mines by itself. Kaunda must
    rely heavily on both the companies and their
    remaining 5,000 white miners to keep operations
    going. Only the steadily rising price of copper,
    now at a high of 740 per pound, has enabled
    Zambia to maintain a favorable balance of
    payments in recent years. Any decline in copper
    prices as a result of an end of the war in Viet
    Nam, the discovery of new sources, or the
    increased use of other minerals, would hit Zambia
    hard.

14
Implications of nationalisation
  • It is important to note that at independence,
    Zambia inherited a prosperous mining-based
    mono-economy. With her abundant natural
    resources, prospects for social and human
    development looked very bright. However, the
    government was faced with the challenge of
    diversifying the economy in order to redress
    inherent inequalities that existed due to the
    rural-urban divide, geographically isolated
    labour reserves, high unemployment among
    indigenous Zambians, and discriminatory channels
    for the provision of socio-economic services,
    such as health and education.

15
  • This was compounded by the Unilateral Declaration
    of Independence (UDI) by the Smith government in
    Rhodesia that unexpectedly cut off communication
    and trade with Zambias southern neighbours in
    1965 (UNDP, 2003).

16
  • Nationalisation therefore, led to significant
    changes from liberal policies to a more
    restrictive policy environment that entailed
    increased government involvement in national
    development. Policies also attempted to diversify
    the economy from mining through industrialisation
    and import substitution. The main strategy for
    import substitution was the introduction of
    various parastatal companies, through which the
    local manufacturing sector was protected by high
    tariffs and an over-valued exchange rate. Price
    controls for major commodities were also put in
    place (UNDP, 2003).

17
  • In pursuance of an egalitarian society that was
    guided by Humanism, the government invested
    heavily in education and health infrastructure,
    such as the University of Zambia (UNZA), the
    University Teaching Hospital (UTH) and thousands
    of schools, colleges, and district hospitals
    which did not exist in the colonial era. These
    facilities opened up socio-economic opportunities
    for many previously disadvantaged Zambians (UNDP,
    2003).

18
  • The mining conglomerate - the Zambia Consolidated
    Copper Mines (ZCCM) which materialised from the
    nationalised Roan Selection Trust and the
    Anglo-American Corporation mines became a major
    player in the countrys development. ZCCM
    mirrored the States developmental philosophy and
    supplied social amenities much wider in scope
    than those offered during the colonial period,
    including free education for miners children,
    alongside subsidised housing and food,
    electricity, water and transport. ZCCM literally
    operated a cradle to grave welfare policy, even
    subsidising burial arrangements for the dead
    (Fraser and Lungu 2006).

19
  • The mines did not only just look after their
    workers, they also provided services to the whole
    community. The company managed the environment in
    the mine townships, maintained roads and
    collected refuse as well as provided cafeterias,
    bars and social clubs dotted over the mine
    townships. They encouraged the growth of economic
    and social activities dependent on miners
    incomes, such as shops, farms to supply food to
    the mine areas and other industrial activities.

20
  • Youth development schemes helped youths in the
    compounds identify skills they could pursue and
    formalise as careers. Womens clubs concentrated
    on home-craft. Social casework agencies were
    charged with investigating social conditions in
    the townships. By the time of privatisation, ZCCM
    had one or two hospitals at each of its operating
    division. In towns like Nchanga and Konkola there
    were no government hospitals and non-mine
    employees and their dependants relied on mine
    hospitals for access to medical services (Fraser
    and Lungu 20068).

21
  • Parastatals also heavily subsidised their
    services in the favour of Zambias poor. For
    example, the United Bus Company of Zambia (UBZ)
    offered cheap transport throughout the country -
    even to the remotest parts, where private firms
    were not willing to operate. Other companies like
    the Nitrogen Chemicals of Zambia (NCZ) produced
    fertiliser and sold it at concessionary rates to
    farmers, while the Zambia Electricity Supply
    Corporation (ZESCO) took over from the private
    firms and began an electrification programme that
    extended to all parts of the country. Parastatals
    were engaged in crucial initiatives that the
    private sector was not willing to pursue or which
    they deemed unprofitable (Noyoo, 2010).

22
  • These organisations were also key in the
    governments employment creation and job security
    agenda. Zambians were guaranteed jobs as a way of
    tackling poverty via access to incomes. In the
    main, employment became a key development
    imperative and an artery of social policy. The
    policy of Zambianisation also reinforced the
    abovementioned.

23
How nationalisation was blunted
  • The copper mines propped up all facets of the
    Zambian economy. This situation was clearly
    unsustainable and perilous. It became evident
    with the onset of the first oil crisis of 1973
    that triggered a world recession and also led to
    the plummeting of copper prices on international
    markets. After the second oil crisis in 1979,
    interest rates shot up and Zambia was thrown into
    a severe debt crisis.

24
  • For twenty years the economy collapsed at an
    internationally unprecedented rate as copper
    prices continued to fall relative to the price of
    imports. Between 1974 and 1994, per capita income
    declined by 50 per cent leaving Zambia the
    twenty-fifth poorest country in the world (Fraser
    and Lungu 2006).

25
  • Zambia which had created a comprehensive welfare
    system could no longer guarantee services to its
    citizens. Companies that had offered heavily
    subsidised social services were operating below
    par and merely became drains on the economy.
    Again, it is noteworthy that throughout the
    economic crisis, ZCCM was treated as a cash
    cow, milked without corresponding investment in
    machinery and prospecting ventures, and the mines
    suffered from little investment, as had been the
    case before 1969.

26
  • With no prospects for exploration and drilling,
    and a lack of spares in equipment and machinery,
    no new mines were opened after 1979. ZCCM
    production collapsed from a high of 750,000 tones
    in 1973 to 257, 000 tonnes in 2000 (Fraser and
    Lungu 2006). Additionally, real GDP per capita
    fell from US 1455 in 1976 to US 1037 by 1987
    an average of -3.6 per cent per year. By 2000,
    real GDP per capita had fallen to US 892
    (Situmbeko and Zulu 2004). It cost Zambia
    1Million a day to run its mines.

27
  • Having supported liberations movements of Angola,
    Mozambique, Namibia, South Africa and Zimbabwe,
    both morally and financially, Zambia lost out on
    a lot of economic opportunities. Constant
    military raids by the armed forces of the white
    minority regimes in the region, resulted in
    countless deaths of Zambians, the destruction of
    infrastructure (that was critical to economic
    development) as well as engendered a heightened
    state of insecurity in the country that was
    inimical to Foreign Direct Investment (FDI).
    Zambias position against colonialism and
    apartheid is estimated to have cost over US 19
    billion. Furthermore, Zambias apartheid debt is
    put at about US 5.34 billion (Action for
    Southern Africa, 2005).

28
  • The period that saw the downturn of the economy,
    especially after 1975, also coincided with the
    rise of political misrule on the part of the
    ruling party UNIP. This era was exemplified by
    arbitrary decisions made by the government,
    especially in economic matters without consulting
    the Zambian people.

29
  • This is because in 1972, Zambia was officially
    proclaimed a one-party state and a year later the
    consolidation of this system earnestly started.
    All opposition political parties and activities
    were effectively banned. The countrys political
    landscape was now dominated and controlled by one
    party UNIP.

30
  • Dissent and alternative views from those of the
    ruling party were thwarted. All spaces for
    political contestation were closed down and
    Zambia slowly became a regimented society. There
    were also arbitrary and mass detentions of
    Zambians who were perceived as enemies of UNIP
    and Kaunda. Innovation and talent were treated
    with suspicion and perceived as potential threats
    to single-party rule. Business persons or wealthy
    individuals were also targets of the one-party
    state, and they in turn felt insecure. The
    country literally began to mark time in this
    period (Noyoo, 2010).

31
  • Even though the intention was noble Kaunda had
    nationalised the mines without undertaking a
    broad consultative process (even his cabinet was
    not aware of this move before it was announced).
  • Nationalisation was also used for political
    expediency. It is noteworthy that the 1967
    Mulungushi UNIP internal elections were the first
    and biggest threat to Kaundas leadership since
    independence in 1964. Naturally he had to secure
    himself through this noble cause. In 1968, UNIP
    also suffered major losses at the national polls
    as the opposition was gaining ground.
    Nationalisation was thus Kaunda and UNIPs trump
    card.

32
  • It was in this atmosphere that the World Bank and
    the International Monetary Fund entered into
    Zambias economic decision-making processes, in
    the 1980s, through austerity programmes. The
    former organisations were owed large amounts of
    money by the country. With this leeway, they then
    compelled the Zambian government to liberalise
    the economy and also cut down on social spending.
    The understanding behind these measures was that
    the State-controlled economy had overheated
    through interventionist policies.

33
Lessons for South Africa
  • There is nothing inherently wrong with
    nationalisation if it is well-mapped out,
    well-thought out, devoid of political
    machinations or interference, nepotism, ethnic
    agendas, corruption or clientelistic tendencies.
    But this has hardly been the case in Africa.
  • Many good things came out of Zambias
    nationalisation process such as universal and
    near free education and quality health care.
    However, it funded a whole lot of bad things.
    Such as patronage and state repression.

34
  • Politicians of all shades have advocated
    nationalisation communists, socialists, social
    democrats, liberals, conservatives, fascists.
    Stalin nationalised, and so did Mussolini,
    Attlee, and Edward Heath. Nationalisation has
    been done in peace and war, boom and slump,
    depressions, recessions, reconstructions and
    economic miracles. Nationalisation is indeed an
    established part of South Africas economic
    history. State involvement in the economy was
    firmly established in the 1920s. Long before the
    post-war nationalisations in the West, South
    Africa had placed all its major utilities and
    several of its industries under national
    ownership (Coleman, 1991).

35
  • Many of these public companies were established
    from the scratch like the South African Post
    Office, with interests in postal services,
    telecommunications and banking services, even
    marketing boards.
  • There were three main reasons for these
    nationalisations
  • 1. To develop industries not prioritised by
    private capital, but essential to the development
    of an advanced economy. For example the Iron and
    Steel Corporation (Iscor which was later
    privatised, and the South African Transport
    Services with a monopoly over railways, dominance
    in air transport, and interests in road
    transport. Also Eskom, which supplies all
    electricity.

36
  • 2. As a strategic response to oil and arms
    embargoes imposed against apartheid. The state
    set out to make South Africa self-sufficient in
    arms and munitions through Armscor (but failed)
    and in energy through Sasol (and failed again).
  • 3. Successive governments, particularly after
    1948, sought to provide whites with a high
    standard of living. Apartheid governments
    nationalised and regulated where their
    ideological aims were not achieved by the private
    sector alone. Preferential jobs were given to
    whites within the expanding state sector. In
    1943, National Party leader D.F., Malan proposed
    that the state intervene to the maximum possible
    degree in the economy to help the Afrikaner
    achieve his rightful share of South Africas
    economic cake ( Coleman, 19913).

37
  • Nationalisation was part of the states economic
    policy for the four decades of National Party
    rule.

38
Conclusion and way forward
  • Worldwide nationalisation is embarked upon due
    to (a) politics and ideology (b) Economic
    reasoning equitable distribution of wealth (c)
    Protecting strategic interests.
  • What is key however is that before any government
    begins to nationalise, it must have clear reasons
    for doing so (emphasis added). The more broader
    and imprecise the aims, the less likely
    nationalisation is to succeed.

39
  • To end, Coleman (19916) prophetically observed
    However, the frequently wide differences between
    the stated aims of nationalisation in South
    Africa and other countries indicates a need for
    advocates of nationalisation here to think again,
    to return to the drawing board. Economic and
    social objectives, one finds have been sacrificed
    at the alters of politics and ideology. Arguments
    elsewhere in the world have put together
    coherent, if contentious, reasons to nationalise.
    In South Africa, however, no wholly logical,
    rigorous motivation has yet been put forward.

40
References
  • Action for Southern Africa (ACTSA), (2005). On
    the front line Zambia indebted for her
    anti-apartheid stance. htpp//actsa.org/Debt/zambi
    afrontline.htm, accessed 20 July 2005.
  • Coleman, K., (1991). Nationalisation. Beyond the
    Slogans.
  • Fraser, A., and Lungu, J., (2006). For Whom the
    Windfalls? Winners and losers in the
    privatisation of the Zambias copper mines.
    http//www.revenuewatch.org/documents/windfalls_20
    070307.pdf, accessed on 10 September 2007.
  • Kaunda, K.D., (1968). Speech at the National
    Council of the United National Independence Party
    UNIP at Mulungushi, 19th April.
  • Midgley, J., (1995). Social Development - The
    Developmental Perspective in Social Welfare.
    London SAGE Publications.
  • Molteno, R., and Tordoff, W., (1974). Conclusion,
    In W., Tordoff (Ed.), Politics in Zambia.
    Manchester Manchester University Press.
  • Noyoo, N., (2010). Linking Corporate Social
    Responsibility and Social Policy in Zambia, In
    P., Utting and J.S., Marques, (Eds.), Corporate
    Social Responsibility and Regulatory Governance.
    Towards Inclusive Development? (pp.105-123).
    Houndsmills Palgrave Macmillan Publishers.
  • Noyoo, N., (2010). Social Policy and Human
    Development in Zambia. London Adonis and Abbey.
  • Time Magazine (1969). Mining Nationalisation in
    Zambia. Friday, Aug. 22.
  • United Nations Development Programme, (UNDP)
    (2003). Zambia Human Development Report. Lusaka
    UNDP.
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