ZAMBIA'S DEVELOPMENT STRATEGIES AND CHALLENGES
2.2 The Crisis Period 56
2.2.1.3 Economic Context of SNDP
As for the economic context in which the SNDP was implemented, most of the key economic indicators point to a general trend of declining economic activities. Copper prices on which the economy depended for more than 95% of its export earnings, and over 50% of government revenue, contributing about 40% of GDP, generally declined starting from 1971 before rising again in 1974 and 1975 as Figure 2.1 above shows. More serious damage to the economic was inflicted by the sharp rise in the price of oil following the 1973 Oil Crisis.
Sharp increases in oil prices coupled with the declining demand for copper on world market undermined Zambia's ability to import inputs for manufacturing, mining machinery, as well as agricultural supplies. Consequently, in real terms, the terms of trade for Zambia deteriorated continuously from 1970 onwards. From the index value of 100 in 1970 the terms of trade declined to about 35 in 1980 as shown in Figure 2.4 below.
Figure 2. 4 Terms of Trade (1970-1988)
X o
G
> — i
U o
•—
1970 1 1972 1973 1974 1975 1976 1977 1978 1979 19801981982 1983
Year
.Export Price Index import Price Index
Terms of Trade
Source: Based on data from Economic Reports 1976-1983; Bank of Zambia Report, 1976-1982
In real terms, the value of Zambian goods that used to buy 100 units of import goods in 1970 were only able to buy 13 units of imported goods in 1986. In other words, if the value of 100 tonnes of copper used to buy 100 tractors in 1970, in 1986, 100 tonnes of copper could only buy 13 tractors! What this means is that Zambia had to spend an increasing large amount of export value to obtain import goods of even lesser value. The seriousness of the situation is clear when one considers the long term trend of the purchasing power between 1970 and 1986 shown in Figure 2. 5 below. In the long run, this made it difficult for Zambia to import inputs it needed for productive activities. Implicitly, if all things remain the same, the economic activities in these circumstances are bound to decline. More seriously, such a situation creates pressure on the balance of payments account resulting in a critical shortage of foreign currency.
Figure 2.5 Buying Power of Export (1970-1986
X CD
!_
<D
Q_ o c
>
3
00
100 90 80 70 60 50 40 30 20 10
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 Year
Source: Based on figures from Jamal & Weeks, (1993: 84) in Ferguson (1999:43).
As can be see from the Table 2.9 below, starting from 1970, the balance of payments account experienced a deficit except in 1974 and 1979. Consequently, the foreign reserves in a situation of a persistent balance of payments deficit tend to be used to finance the deficit on both the current and capital accounts. While a negative balance on the foreign account is not always a bad thing, but if it persists for a long time, it often has severe negative economic consequences. What highlights the negative effects of the deficit on the foreign accounts in the case of Zambia is that the large part of the deficit during this period was mostly incurred on the current account and not the capital account indicating that the deficit was incurred to finance consumption.
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The overall economic impact of the situation depicted in Table 2.9 below is the pronounced slump in economic activities that is manifested in the decline in all aspects of the GDP as shown in Table 2.10 below.
Year
Over all Balan ce Rese rves
1966 9.4
-9.4
1967 -24
24
Table 2. 9 1965-1980 Balance of Payment Profile
1968 6.4
-6.4
1969 126.3
-126.3 1970 113.8
-113.8 1971 -208.6
208.6
1972 -107.7
107.7 197 3 -8.1
8.1 197 4 18.6
-18.6 197 5 -250
250 197 6 -136
136.
2
1977 -224
224
1978 -258.8
258.8
1979 158.4
-158.4 1980 -219.7
219.7 Source: Bank of Zambia (in Meyn,1984:10)
From 1970 to 1985, the GDP recorded an average growth rate of zero. In terms of GDP per capita, over this period, per capita's growth on average was negative. Although the sharp decline in GDP per capita income over this period may be attributed to the increase in population in the context of a declining economy, such a situation impacts negatively on social development and the welfare of the people.
In terms of GDP growth, three of the fours years recorded a negative growth. And this downward trend in the economy continued such that by 1985, the per capita income was only 43% of what it was in 1970 and only 37% of the 1969 per capita income (Mwanwina, 1993: 70, See Table 2.10 below). For the purpose of this study, this poor economic performance implies that few resources were available for social development purposes especially improvements in water services, which as we shall see later in Chapter Five has weak political sway.
Table 2.10 G D P & GDI
Year
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Average
GDP(K, m)
2766 2769 3040 3011 3211 3135 3271 3114 3172 2898 2986 3253 3161 3099 3058 3161
P Per Capita Growth Rates (Constant 1980 Prices) GDP Growth Rate
-11 0 10
-1 7 -2
4 -5
2 -9
3 9 -3 -2 -1 3 0
GDP Per Cap
(Kwacha)
681 535 559 624 668 498 497 435 414 429 438 455 370 377 339 299
GDP Per Cap.
Growth Rate -15 -21 4 12
7 -25
0 -12
-5 4 2 4 -19
2 -10 -12 -5
S o u r c e : (in Mwanawina, 1993)
Other economic indicators such as employment levels also show a stead decline over the period of the SNDP. Table 2.11 below shows that while formal employment declined by close to 10% between 1974 and 1985, the labour force grew by over 44% during the same period highlighting the pressure on the labour market. Employment during this time was actually cushioned by the parastatal's effort to maintain high employment levels because their operational losses were offset by state subsidies. For instance, Mwanawina(1993) argues that much of the labour force during this time was actually being
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absorbed by the "community, social and personal service" sectors where government was the dominant employer (76).
Table 2 . 1 1 Formal Sector Employment 1974-1985 Year
1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
Total Labour Force '000
1430 1479 1527 1586 1641 1698 1761 1824 1880 1938 1998 2060
No. Employee
•ooo 386 393 370 370 367 374 391 374 364 365 364 362
% of Labour Force
27 26.6 24.2 23.4 22.4 22.1 21.6 20.5 19.5 18.5 18.2 17.6
Source: Republic of Zambia, CSO, Monthly Digest of Statistics, October/Novermber 1985, Vol. 21, p.5 (in Mwanza, 1993)
In short, the context in which the SNDP was implemented was characterized by a contracting economy strangled by the shortage of foreign exchange, rising costs of import goods, declining government revenue, inflationary pressures unleashed by the soaring price of oil, poor performance of the parastals, and a growing deficit on the balance of payments account. The ripple effects of all these forces constrained production of Zambia's main export earner—copper, a situation that further deepened the crisis.