Policy Signals and Market Responses: A 50-Year History of Zambia’s Relationship with Foreign Capital

297 Pages·0.952 MB·English

by  Stuart John Barton (auth.)

Policy Signals and Market Responses
Palgrave Studies in the History of Finance
Series Editors: Adrian R. Bell, D’Maris Coffman, Tony K. Moore
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Guy Rowlands
DANGEROUS AND DISHONEST MEN: THE INTERNATIONAL BANKERS
OF LOUIS XIV’S FRANCE
Martin Allen and D’Maris Coffman
MONEY, PRICES AND WAGES
Stuart J. Barton,
POLICY SIGNALS AND MARKET RESPONSES
D’Maris Coffman
EXCISE TAXATION AND THE ORIGINS OF PUBLIC DEBT
Duncan Needham
UK MONETARY POLICY FROM DEVALUATION TO THATCHER, 1967–1982
Ali Kabiri
THE GREAT CRASH OF 1929
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Policy Signals and
Market Responses
A 50- Year History of Zambia’s Relationship
with Foreign Capital
Stuart John Barton
Corpus Christi College, University of Cambridge, UK
© Stuart John Barton 2016
Softcover reprint of the hardcover 1st edition 2016 978-1-137-39097-4
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DOI 10.1057/9781137390981
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Library of Congress Cataloging- in- Publication Data
Barton, Stuart John, 1 973–
Policy signals and market responses : a 50 year history of
Zambia’s r elationship with foreign capital / Stuart John Barton.
pages cm. — (Palgrave studies in the history of finance)
Includes bibliographical references.
1. Economic development— Zambia— History. 2. Investments, Foreign—
Zambia— History. 3. Finance— Zambia— History. 4. Zambia— Economic
policy. 5. Zambia— Foreign economic relations. I. Title.
HC915.B37 2015
338. 96894— dc23 2014023296
Typeset by MPS Limited, Chennai, India.
Contents
List of Figures and Tables vii
Acknowledgements viii
List of Abbreviations ix
1 Introduction and Background 1
Introduction 1
Methodology and sources 4
Scope and limitations 8
Overview of the book 9
Important background to the period 12
2 What the Literature Already Tells Us 19
Introduction 19
Copper dependency 20
Capital constraint 24
Policy and capacity 26
Institutions and economic growth 28
Historical paths and causal mechanisms 33
Linking Zambia’s institutions with economic growth 37
3 Control: Responsibility and Risk ( 1964– 1970) 39
Introduction 39
UNIP’s political context 40
The State and the economy 44
Institutional change 46
Market response 56
Control – responsibility and risk 60
4 Exclusion: Centralisation and Contraction ( 1970– 1974) 66
Introduction 66
Economic exclusion 67
Political exclusion 72
International exclusion and foreign reserves 76
Mine management takeover, 31 August 1973 80
Exclusion: centralisation and contraction 86
v
vi Contents
5 Crisis: Decline and Denial ( 1975– 1981) 91
Introduction 91
First balance- of- payments crisis 93
Underlying factors 96
Reform under institutional inertia 103
Opposition, exclusivity, and renewed control 108
MiGs before maize 111
Crisis: decline and denial 112
6 Conditionality: Inertia and Adjustment ( 1981– 1991) 117
Introduction 117
The second b alance- of- payments crisis 118
Conditionality and implementation 122
The new economic recovery programme 127
New reform and an emerging democracy 129
Conditionality: Inertia and Adjustment 132
7 Reform: Building Trust and Raising Capital (1 991– 2005) 136
Introduction 136
Formal reform and informal resistance 138
Uncomfortable privatisation: ZCCM 141
Sustaining reform and the HIPC Initiative 146
Inclusion and economic stimulus: export- processing zones 149
Reform: building trust and raising capital 152
8 Inclusion: Stability and Growth ( 2005– 2014) 157
Introduction 157
Reluctant investment 159
Special economic zones and institutional islands 162
Investment growth in the MFEZs 164
Relationship with foreign capital outside the zones 167
Renewed borrowing 171
Inclusion: stability and growth 174
9 Zambia’s 5 0- Year Relationship with Foreign Capital 177
Introduction 177
Setting expectations and accepting responsibility 178
Exclusivity and foreign investment 182
Institutional inertia, crisis, and reform 185
Conclusion: how exclusivity has affected Zambia’s growth 189
Notes 193
Bibliography 244
Index 275
List of Figures and Tables
Figures
1.1 Contemporary map of Zambia and its neighbours 13
2.1 Quarterly LME copper price, 1 960– 1991 22
2.2 A causal mechanism 38
4.1 Gross capital formation, 1 960– 2012 86
7.1 Ten- y ear growth lag following formal reform 137
7.2 Total external debt, 1 972– 2004 147
7.3 Interrelated three- way reform 156
8.1 Zambian GDP per capita, 1 960–2 013 158
8.2 Foreign direct investment, net inflows, 1 984– 2012 158
9.1 A causal mechanism 178
9.2 Zambian GDP per capita, 1 960–2 013 190
Tables
1.1 Comparative GDP per capita since 1964 2
2.1 Wage increases, 1 966– 1967 27
5.1 Current and capital expenditure, 1 969– 1974 96
vii
Acknowledgements
This book would not have been possible without the support and
encouragement from a number of people. I am especially grateful to
my PhD supervisor, Dr Alastair Fraser, of Trinity Hall, University of
Cambridge, whose knowledge of Zambia and intellectual guidance
throughout the study made the book possible. My thanks are also due
to Professor Martin Daunton and Professor Megan Vaughan for their
guidance, as well as to the members of the Centre for Financial History,
particularly Dr D’Maris Coffman, whose enthusiasm ensured the book’s
timely completion.
I would also like to thank all those who facilitated my research in
Zambia, particularly Dr Marja Hinfelaar at the National Archives of
Zambia, Mr Petwell Munshya at the United National Independence
Party Archive, and Mr Ackim Musonda at the Parliamentary Library;
without their assistance the study would not have encompassed the
detail that it does.
Thank you also to my parents for their encouragement and to my
wife, Dr Helena Barton, for her endless support.
viii
List of Abbreviations
AMAX American Metal Climax Inc.
ANC African National Congress
Anglo Anglo American Corporation of South Africa
BAZ Bankers’ Association of Zambia
BoP B alance- of- payments
BoZ Bank of Zambia
BSAC British South Africa Company
BST British Selection Trust
BZW Barclays de Zoete Wedd
CNMC China Non- Ferrous Metals Mining Corporation
DCF Discounted Cash Flow
EPZ Export Processing Zone
ESAF Enhanced Structural Adjustment Facility
FB Finance Bank of Zambia Limited
FDI Foreign Direct Investment
FINDECO Finance and Development Corporation
FNDP First National Development Plan
GBP Great Britain Pound
GDP Gross Domestic Product
GRZ Government of the Republic of Zambia
HIPC Heavily Indebted Poor Countries
IFI International Financial Institution
IMF International Monetary Fund
INDECO Industrial Development Corporation of Zambia
JICA Japan International Cooperation Agency
KCM Konkola Copper Mine
LAP Green Libya Africa Investment Portfolio Green Networks
LAZ Law Association of Zambia
ix