Zambia:The Privatisation of State-Owned Assets Explained By Henry Kyambalesa

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  • 1. INTRODUCTIONNews stories concerning the privatisation of Zambia’s State-ownedenterprises which took place 30 years ago have continued to linger in thecountry’s news outlets. In this article, I wish to provide a non-partisanbird’s-eye view of a process that was mainly fostered and funded by ourcountry’s development partners, whose experts directly participated in theprivatisation process.The development partners, whose support was cardinal to theconsummation of the privatisation process, included the DanishInternational Development Agency (DANIDA), the German TechnicalCooperation Agency (GTZ), the Norwegian Agency for DevelopmentCooperation (NORAD), Official Development Assistance (ODA), theUnited Nations Development Programme (UNDP), the United StatesAgency for International Development (USAID), and the World Bank.As a backdrop to the discussion, I will provide a brief survey of Zambia’schanging economic scenarios since independence on October 24, 1964.Thereafter, I will briefly discuss matters relating to Zambia’s PrivatisationAct No. 21, as well as tender several reasons why Zambia should considerprivatising its current State enterprises.1.1 The UNIP Era:As Fundanga and Mwaba (1997:5) have observed, our beloved countryadopted a fairly prosperous economy at independence—an economy thathad a well-established private sector dominated mainly by largeexpatriate business entities. And, as Bigsten, Mulenga and Olsson (2010)have noted, our country was one of the richest of the newly independentdeveloping countries in Africa at independence in 1964.
  • 2Currently, however, three out of four citizens in the country live in extremepoverty and, according to USAID (2020), the country faces a multitude ofchallenges, including high unemployment, low agricultural productivity,inadequate transportation and energy infrastructure, and limited governmentcapacity to plan and manage national development.The country’s economic problems started soon after the country’s politicalindependence from Great Britain. In April 1968, August 1969 andNovember 1970, former president, the late Dr. Kenneth D. Kaunda, madepolicy pronouncements in his addresses to the National Council of the Uni-ted National Independence Party (UNIP)—pronouncements which wereaimed at nationalising privately owned enterprises.By the end of 1969, State ownership of business entities encompassed allindustrial and services sectors of the country’s economy, includingagriculture, airline and bus services, baking, hotels and tourism, milling,mining, real estate (partly the construction of houses), the timber industry,and utilities—including the supply of water and electricity.Essentially, UNIP’s socialist policies barred both local and foreign privateinvestors from medium and large-scale commercial and industrial sectors ofthe country’s economy from the mid-1960s to 1991. Naturally, themonopolistic position enjoyed by State companies in the country’seconomy culminated in complacence and gross inefficiency because, in theabsence of competition, they apparently found it unnecessary to seek or usetechnological inventions and innovations that would have improved thequality and quantity of their outputs.The culmination of such a state of affairs was a national economy that wascharacterised by rampant and unprecedented shortages of commodities,and, among other socioeconomic ills, an escalation of black markets for thecommodities.1.2 The MMD Era:The unprecedented socioeconomic problems facing the country during theUNIP era partly prompted the next government of the late PresidentFrederick T. J. Chiluba to embark on an ambitious privatisation programmeupon his inauguration in October 1991 in an attempt to boost competition incommerce and industry.
  • 3In making the transition, he summed up his thinking about the role hisadministration was going to play in the creation of an economic system inwhich commercial and industrial activities were the preponderance of theprivate sector in the following words: “Never shall the Government allowthe selling of soap and foodstuffs to be its business” (Nyakutemba,1992:32), and “We will privatise everything … from a toothbrush to a carassembly plant” (Ham, 1992:41).As Chilipamushi (1994:16) has noted, privatisation was expected tostimulate private investment, give economic power to a greater number ofpeople through stock ownership, promote competition and encourageefficiency in commerce and industry, beef up government coffers throughthe sale of government holdings in state enterprises, as well as ease thefinancial burden of state companies on the public treasury.And, as Pitelis and Clark (1993:7) have maintained, the reduction ofgovernment involvement in commerce and industry that would follow theprivatisation of State enterprises was expected to result in reduced public-sector borrowing and government spending.Also, State-owned assets and enterprises, to paraphrase Muuka andAbubaker (2002:16), could easily become vehicles for embezzlement andbribery for personal aggrandisement, often at the expense of theimplementation of aid-financed projects, and could also foster thedevelopment of cronyism through patronage at the highest levels ofgovernment.Moreover, they could bolster the siphoning-off of public resources forparty, political or factional purposes, as well as trigger the packing of publicenterprises with supporters of the ruling political party without regard forgenuine personnel requirements.The following excerpts should provide some of the other worthwhile bene-fits associated with privatisation: “Privatisation of state enterprises is anextension of democracy because it removes political interference from therunning of businesses” (Chitalu, 1996). And “There are heavy costs associ-ated with the conversion of a State-controlled economy into a free marketsystem, such as increased unemployment; in the long run, however, the freemarket system holds great promise for everyone” (Mwewa, 1996:36).
  • 41.3 The PF Era:During the late President Michael C. Sata’s administration between 2011and 2015, the Zambian government changed course and reverted toeconomic policies pursued by UNIP between 1968 and 1991 by creating theIndustrial Development Corporation (IDC) in 2014—a Corporation that isdifferent from the Industrial Development Corporation (INDECO) that wasestablished by the UNIP government in abbreviation only.According to the Patriotic Front (PF) government, IDC is a state-ownedenterprise (SOE) charged with the mandate to spearhead the country’scommercial investments agenda aimed at strengthening the country’sindustrial base and job creation. It is wholly owned by the governmentthrough the Ministry of Finance.And, like its predecessor, IDC’s operations encompass all industrial andservices sectors of the country’s economy, including agriculture andforestry, energy, financial services, healthcare, information andcommunications technology, infrastructure, manufacturing, mining, realestate, tourism, and transportation and logistics.It took almost 20 years of State ownership of major economic units throughINDECO from the late 1960s to the late 1980s for the country to experiencethe following dour effects of extensive State ownership of economic units:(a) Unprecedented shortages of essential commodities;(b) Evolvement of black markets for essential commodities;(c) Chronic loss-making operations by SOEs;(d) A shortage of foreign exchange reserves due to failure by SOEs togenerate foreign reserves through exports;(e) Deepening government deficits partly emanating from government’sefforts to bail out loss-making SOEs; and(f) Escalation of smuggling of essential commodities into and out of thecountry.IDC has been in existence over the last 6 years. If the government cannotchange course by re-privatising the SOEs under the IDC group ofcompanies, we should eventually not be surprised to witness historyrepeating itself sooner or later.
  • 52. PRIVATISATION ACT NO. 21In July 1992, the Zambian Parliament enacted the Privatisation Act No. 21,which promptly established the Zambia Privatisation Agency (ZPA) as thesole institution charged with the responsibility of privatising State-ownedenterprises.The Agency was to be governed by a Board of Directors to be constitutedfrom civil society and government institutions, and was granted theautonomy to determine how the State enterprises and assets were to be soldand the prices that were to be paid for them, while Cabinet’s role wasconfined to the approval of the sequence of the privatisation process.Specifically, the purposes of the ZPA Board of Directors, according toAnglo-American (2002), were to plan, manage, implement, and control theprivatisation of State-owned enterprises by selling them to individuals andinstitutions with the wherewithal and expertise to run them on a commercialbasis.With respect to the overall divestiture or privatisation programme, thefollowing is a summary of the companies privatised by October 31, 1996cited by Fundanga and Mwaba (1997:11) and sourced from a press releaseby ZPA (1996):(a) 18 companies were sold to Zambian individuals through competitivebidding;(b) 41 companies were sold to Zambian companies through competitivebidding;(c) 13 companies were handed back to previous Zambian owners;(d) 16 companies were sold to Management buy-out teams;(e) 5 companies were sold to foreigners with Zambian minorityparticipation;(f) 14 companies were sold to foreigners on the basis of Pre-emptiverights (outside the control of ZPA);(g) 16 companies were sold to foreigners on competitive bid basis;(h) 12 companies were disposed of through winds-up and liquidation;and(i) 16 companies were disposed of by public flotation through ZPAefforts.
  • 6Clearly, the privatisation process conducted mainly through competitivebidding does not seem to have provided any room for anyone wishing tosteal or corruptly obtain any assets or enterprises on offer, let alone pocketthe proceeds from the privatised assets or enterprises, since such proceedswere directly collected by the Zambia Revenue Authority—which assumedthe functions of the Department of Taxes and the Department of Customsand Excise from the date of its establishment on April 30, 1993 by theZambia Revenue Authority Act No. 23 of 1993.Also, one wonders how any individual could have been crafty enough tosucceed in corruptly gaining access to any of the assets and/or enterprisesunder the surveillance of all the members of the ZPA’s Board of Directorsand all the expert personnel from the six or so agencies sponsored bydevelopment partners!It is also important to note that we have had the Frederick Chiluba, LevyMwanawasa, Rupiah Banda, Michael Sata, and Edgar Lunguadministrations since the privatisation of State assets.Incidentally, the World Bank, cited by Fundanga and Mwaba (1997:8),rated our beloved country’s privatisation programme in 1996 as havingbeen “the most successful” in sub-Saharan Africa, and that it offered “manyexamples of best practice.”Why, then, should we start casting doubts about the probity and veracity ofthe people who presided over, as well as those who performed the varioustasks of, a process that was highly rated by the World Bank—a highlyreputable and genuine global institution—30 years later?3. REASONS TO RE-PRIVATISEIn practically all affluent nations of the world today, privately owned andoperated business undertakings are the major institutions that are in theforefront searching for efficient and effective ways and means forapplication in the creation and delivery of a cornucopia of high-qualitygoods and services at competitive prices.In these nations, business entities, as Davis and Frederick (1984:454-455)have noted, are greatly depended upon to keep the stream of discoveries
  • 7flowing in the form of consumer goods and services. This certainly calls forcompetitive business systems, which are generally and conspicuouslylacking in countries whose economies are based on socialist ideals andmonopolistic government policies.History, and what has happened to countries worldwide whose economiesare, or have been, based on socialist ideals, should offer us guidance. In thefollowing sub-sections, I have cited examples of socioeconomic illsassociated with government ownership of the means of production anddistribution should give us the impetus to re-privatise SOEs under IDCgroup of companies.3.1 Cuba:The country’s economy is dominated by state-run enterprises. Thegovernment owns and operates most industries in the country. Currently,the country is currently experiencing the worst economic crisis in itshistory. Akin to Zambia’s unpalatable experiences during the late 1980s,stores in Cuba no longer routinely stock products including eggs, flour,chickens, cooking oil, rice, powdered milk, and ground turkey.These basic commodities disappear from shops for days or weeks. Hours-long lines appear within minutes of trucks showing up with new supplies,and shelves are often empty the same day.3.2 East Germany:East Germany had a command economy—an economy captained by Stateenterprises. It experienced economic problems similar to those experiencedby other socialist countries worldwide. Prior to the end of World War II in1945, a War that started in 1939, East Germany and West Germany wereone country. After the War, Soviet forces occupied eastern Germany, whileFrench, British and U.S. forces occupied the western half of the country.The Berlin Wall was constructed by East Germany with the help of thenow-defunct Soviet Union in 1961 to prevent the socialist country’s citizensfrom escaping to the more affluent and democratic West Germany.At least 171 East Germans were killed trying to defect to West Germany,while more than 600 border guards and 4,400 other refugees “managed to
  • 8cross the border [illegally] by jumping out of windows adjacent to the wall,climbing over … barbed wire, flying in hot air balloons, crawling through… sewers, and driving through unfortified parts of the Wall at highspeeds”—History.com Editors, 2019.The introduction of perestroika and glasnost in the former USSR by theMikhail Gorbachev administration in 1987 and the eventual break-up of theUSSR on December 26, 1991 occasioned the dismantling of the BerlinWall, which separated communist East Germany and capitalist WestGermany, in November 1989 and eventual reunification of the twocountries into a united capitalist Germany upon the signing of areunification treaty on August 31, 1990.3.3 Venezuela:Shortages of regulated food staples and basic necessities are widespreadmainly following the country’s enactment of price controls and othersocialist policies. The severity of the shortages has led to the largest refugeecrisis ever recorded in the Americas. There are shortages of milk, meat,coffee, rice, oil, precooked flour, butter, toilet paper, medicines, andpersonal hygiene products.Hours-long lines have become common, and those who wait in themdisappointingly go back to their homes empty-handed. Some citizens haveresorted to eating wild fruit and garbage.The country has been governed for the past 20 years by the socialist PSUVparty. From 1999 to his death in 2013, Hugo Chávez was president. He wassucceeded by his right-hand man, Nicolás Maduro. During its two decadesin power, the PSUV has gained control of numerous key economicinstitutions.On September 24, 2019 in a speech delivered at the United Nations GeneralAssembly in New York, Jair Bolsonaro, President of Brazil, uttered thefollowing words relating to the socioeconomic ills facing Venezuela: “It isfair to say [that] socialism is working in Venezuela—they are all poor.”3.4 Zimbabwe:The economic history of Zimbabwe began with the transition to majority
  • 9rule in 1980 and Britain’s ceremonial granting of independence. The newgovernment under Prime Minister Robert Mugabe promoted socialism andMarxist-type rule. Within 20 years, the country has had unprecedentedsocioeconomic woes, rampant corruption and political instability, whichhave continued to haunt the country to date.Note: In October 2001, Zimbabwean president, the late Mr. RobertMugabe, stunned the world by abandoning his country’s economicliberalization efforts. News headlines in this regard were self-explanatory:“Mugabe Returns Zimbabwe to Socialism” (Independent Online, 2001) and“Zimbabwe a Step Closer to Marxist-Style Economy” (Independent Online,2001).3.5 The Soviet Union:The Soviet economy was based on State ownership of the means ofproduction and distribution. In May 1985, newly “elected” MikhailGorbachev delivered a speech in which he publicly criticised the SovietUnion’s inefficient socialist / communist system. This was followed by aFebruary 1986 speech to the Communist Party Congress, in which he talkedabout the need for political and economic restructuring—that is,Perestroika—and called for a new era of transparency and openness—thatis, Glasnost.It was reasoned that the lack of open markets which could have providedprice signals and incentives to direct economic activity led to waste andeconomic inefficiencies. The Union of Soviet Socialist Republics (USSR)ceased to exist on December 31, 1991.
  • BIBLIOGRAPHYAndersson, Per-Ake, Bigsten, Arne and Persson, Håkan, “Foreign Aid, debtand Growth in Zambia,” Research Report No. 112, NordiskaAfrikainstitutet, Sweden, 2000.Anglo-American PLC, “Adherence to the OECD Guidelines forMultinational Enterprises in Respect of Its Operations in Zambia:Submission to the UK National Contact Point Introduction,” January 2002.
  • 10Bigsten, A., Mulenga, S. and Olsson, O., “The Political Economy ofMining in Zambia,” Mimeo (World Bank: Washington DC., 2010).Chilipamushi, D. M., “Investment Promotion and the Privatisation Processin Zambia,” in Deassis, N.A. and Yikona, S.M., editors, The Quest for anEnabling Environment for Development in Zambia: Selected Readings(Ndola, Zambia, 1994).Chitalu, V., quoted in Kyambalesa, Henry, Quotations of Zambian OriginSecond Edition (Lusaka, Zambia, 1996).Davis, Keith and Frederick, William C., Business and Society:Management, Public Policy, Ethics (New York: McGraw-Hill BookCompany, 1984).Fundanga, Caleb M. and Mwaba, Andrew, “Privatisation of PublicEnterprises in Zambia: An Evaluation of the Policies, Procedures andExperiences,” African Development Bank: Economic Research Papers No.35, 1997.Ham, M., “Luring Investment,” Africa Report, September/October 1992.Independent Online, “Mugabe Returns Zimbabwe to Socialism,”http://www.iol.co.za/, October 15, 2001.Independent Online, “Zimbabwe a Step Closer to Marxist-Style Economy,”http://www.iol.co.za/, October 17, 2001.Moussa, A., quoted in Chomba, G. and Chonya, M., “New Economic EraDawns,” Zambia Daily Mail, http://www.daily-mail.co.zm/, November 1,2000.Mwewa, L., quoted in Kyambalesa, Henry, Quotations of Zambian OriginSecond Edition (Lusaka, Zambia, 1996).Nyakutemba, E., “Chiluba Plunges into the Market,” New African, May1992.Ouattara, A.D., “Africa: An Agenda for the 21st Century,” in Finance andDevelopment, Volume 36/Number 1, March 1999.
  • 11Pitelis, C. and Clarke, T., “Introduction: The Political Economy of Priva-tisation,” in Clarke, T. and Pitelis, C., editors, The Political Economy ofPrivatisation (London, England, 1993).Thole, G., “No More Parastatal Privatisation, Declares Chiluba,”Information Dispatch Online, http:///www.dispatch.co.zm/, January 19,2001.Wikipedia, “Shortages in Venezuela,”https://en.wikipedia.org/wiki/Shortages_in_Venezuela/USAID, “Zambia,” https://www.usaid.gov/zambia/, September 24, 2020.ZPA (Zambia Privatisation Agency) Press Release, Times of Zambia,October 3, 1996. Rodriguez, Andrea and Weissenstein, Michael, “Shortages Hit Cuba,Raising Fears of a New Economic Crisis,” Associated Press:https://apnews.com/article/efb7313888ca4b61824f5b293ae9cade, April 20,2019.McCauley, Martin and Lieven, Dominic, “The Gorbachev Era: Perestroikaand Glasnost,” Britannica:https://www.britannica.com/place/Russia/The-Gorbachev-era-perestroika-and-glasnostBBC News, “Venezuela Crisis in 300 Words,”https://www.bbc.com/news/world-latin-america-48121148/, January 6,2020. *The author, Henry Kyambalesa, is a retired academic. He has pursuedstudies in Business Administration and Management at the University ofZambia and Oklahoma City University, Mineral Economics at ColoradoSchool of Mines, and International Studies (including the fields ofInternational Business, International Economics, International Relations,and International Technology Analysis and Management) at the Universityof Denver.He has served as adjunct Assistant Dean and tenured lecturer in Busines
  • 12Administration in the School of Business at the Copperbelt University, andon the MBA Affiliate Faculty at Regis University in Denver, Colorado,USA. He has also served as Instructor in Economics, Marketing and Sta-tistics at the former Zambia Institute of Technology, and as a GuestLecturer in Supervision, Production Management and Management Devel-opment at Mindolo Ecumenical Foundation in Zambia.
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