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Country analysis > Zambia Last update: 2020-11-27  

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An Easy Look at Zambia’s Poverty Reduction Strategy Paper 2002-2004

8. The Enabling Environment

The Enabling Environment

This booklet has described many programmes that aim to reduce poverty for millions of Zambians. But if conditions are not right, none of these programmes can succeed.

For success, we need a stable and equitable society, based on the rule of law. In these conditions, hard work will yield profits whilst corruption and exploitation will fail. Good investors will come to Zambia, and assist in bringing fair growth to the nation.

The PRSP has identified two key areas that will create an enabling environment.

  • Good Governance

  • Macro-Economic Policy
Enabling Environment 1: Good Governance

Governance includes many aspects of how a nation is run, and of how its citizens live. Good governance supports poverty reduction, whilst bad governance deprives citizens of income, social services and education, and of the opportunity to speak and participate. Governance is not just a concern for Governments. It affects all of us. Let us look at what good and bad governance are in practical terms.

The Government has a very large “National Capacity Building Programme for Good Governance” document. However, the programme is so large and complicated that most of the activities cannot be implemented.

The PRSP process discussed governance with participants throughout the country. As a result of these consultations, PRSP has focussed three critical areas for poverty reduction.

PRSP Support for Good Governance

Promote Democratic Decision Making

For many years, Government has talked about decentralisation. But statements about decentralisation are not matched with the staff and resources needed for effective performance. Government revenues are used up at national level, and only occasionally do we find few pennies reaching district level. So central Government makes promises that the district staff are unable to deliver. PRSP will promote decentralisation, contributing to the design and implementation of a new decentralisation programme. This is a top priority for Government.

Discussion Point

How does your community participate in decision making over issues that affect them?
Do all members of the community have the same opportunity to participate?

Efficient, Equitable and Transparent Management of Public Resources Much has been said about problems in managing public resources. In the budget, the priorities of the poor may be pushed aside; Government financial procedures are not correctly followed; misuse and poor prioritisation never favours the poor; audit and implementation of financial controls are weak. To overcome these problems, the PRSP will promote “zero tolerance” of corruption and abuse of resources, and will build the capacity of the civil service to operate efficiently. Social safety net programmes will be strengthened, and targeting of the vulnerable will be transparent.

Justice for All

All citizens must enjoy their human rights, constitutional rights and full access to the law. The PRSP will promote justice for all by increasing the availability of courts, justices and prosecutors. The legal system will be simplified to make it quicker and more easily understood by all citizens.

Enabling Environment 2: Macro-Economic Policy

Managing Zambia’s Economy

“Macro-economic policy” means how you manage the whole national economy. Managing any national economy involves tricky choices, and feels like a balancing act. Economic policy affects how the economy grows, which sectors grow the most, and whether you can attract investment. Government must collect enough tax to pay for all the services it offers, but not so much that businesses are unable to grow because they are over-taxed. Government will sometimes need to borrow money to fund its activities, but borrowing too much pushes up interest rates and may create a debt problem.

Macro-economic management has a complicated vocabulary – “quasi-fiscal deficit”, “monetary policy”, “budget deficits” and “intra-regional trade tariffs”- that cannot all be explained here. But the PRSP has identified some objectives and priorities for macro-economic policy that are essential for poverty reduction. These are highlighted below.

Why do we need foreign investors? Zambia is a poor country, and few people have savings in the bank. If there are no savings, the banks have no money to lend businesses for new investments. So we need to encourage investors to bring in money from outside to build businesses in Zambia. The right sort of businesses will make profits for the investors, but also reduce poverty and promote economic growth in Zambia. When the Zambian economy is bigger we can expect more local funds for investments, and will depend less on foreign money.

What sort of businesses will help to build the Zambian economy? The best businesses employ Zambians to produce goods for export. This builds our workforce, generates foreign exchange, and contributes tax to Government. Businesses that are not so useful include those that use natural resources unsustainably (e.g. exporters of valuable timber species) or that just import foreign goods (e.g. retail shops). We also don’t need local or foreign “investors” that try to get huge tracts of land or funny concessions through corruption.

How do we get the right investors? We make it easy for the right investors to come to Zambia, especially when they have partnerships with local businesses. We can offer incentives for businesses that will invest in production and export development (incentives are usually discounts on taxes for some years), but not for importers of luxury goods. We implement “zero tolerance” on corruption, which attracts good investors, and sends bad investors elsewhere.

How can Zambia export more? Firstly, Zambia must find markets where we have strengths. It is no use trying to produce something that other countries can produce better or cheaper. When we have the right products, we must ensure that exporters enjoy a “level playing field”. This means that we must not allow other countries to send products freely into Zambia whilst charging our producers excessive duties for taking products to their countries. There are agreements to prevent these problems, but we have to make sure we use them. At present, other countries are being smarter than Zambia in protecting their producers.

What is happening to the kwacha? The kwacha has been getting weaker and weaker for years, so we need more and more kwacha to buy a dollar. This is called devaluation. Devaluation pushes prices higher and higher, which is called inflation. High inflation means that interest rates must be high, or else you would be repaying less than what you borrowed! High interest rates means that businesses can’t afford to borrow money to expand. All this has to be sorted out for the economy to grow, and so PRSP will tackle these problems.

Are there any unseen problems? Well, Government has massive debts. There is the much-discussed international debt, as well as the less well-known “domestic debt”. Domestic debt is what Government owes to private suppliers, the pension schemes, ZESCO and Zamtel and others. In addition, there are the unseen debts that were run up by parastatal companies such as ZCCM and Zambia National Oil Company. These companies ran up huge losses, which must be repaid by Government. Getting out of all this debt will be a very expensive exercise, and it uses today’s scarce resources to pay for yesterday’s expenditures, with no benefits. The PRSP also commits Government to making sure that we don’t get into any more of these bad debts.

So can we really improve the situation? Yes we can! The road is hard, but it is essential for poverty reduction. Government will control inflation, improve budgeting, prioritise poverty reduction, improve financial management, collect taxes, clear debts, and encourage sustainable economic growth.

It will take time, but gradually improvements will be made.
If we all work hard, when we tell our grandchildren about the days when
Zambia was such a poor country, they will not believe us!

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