Zambia - Overview of economy

The mining of copper dominates Zambia's national economy. A central legacy of the colonial period (1899-1964) was the exploitation of Northern Rhodesia's (modern Zambia) vast copper deposits, first, by the British South Africa Company (BSAC) who administered the territory until 1924 and, second, by the British government. The need for copper miners meant that a high percentage of Zambia's male workforce was, often forcibly, encouraged to leave their subsistence farms and work in the mines. This led to the neglect of the agricultural sector and Zambia's reliance on copper exports—a trend that continued to affect the national economy by 2001.

At independence in 1964, Zambia's economy was highly skewed; most regions outside of the "line of rail" (the railway that serviced the mining sector) were highly underdeveloped. However, the newly elected United National Independence Party's (UNIP) policy of actively developing the economy meant that the manufacturing and agricultural sectors increased in importance, and the supply

The UNIP, led by President Kenneth Kaunda, promoted a brand of so-called "humanist" socialism which was the ideological justification for the creation of a large number of parastatals in Zambia. The important reasons for this policy were the Unilateral Declaration of Independence (1965) by the neighboring white-supremacist Rhodesia (modern Zimbabwe), which threatened Zambia's supply lines, and the fact that the foreign owners of Zambia's enterprises often invested their profits abroad. In addition, parastatals were seen by the Zambian government as a mechanism to develop and diversify the economy.

By the late 1970s, parastatals employed a third of the official workforce and consisted of over 330 enterprises whose activities criss-crossed Zambia's economy with areas such as mining, transport, agriculture, construction, tourism, trade, and finance. Partly due to the parastatal system, Zambia's manufacturing output rose by more than 160 percent between 1965 and 1975, and the level of domestic power generated grew by more than 350 percent. However, the parastatals, and the economy as a whole, continued to rely on colonial structures in that they were dependent on foreign capital, expertise, technology, imports, and markets. In addition, parastatals (along with the government and civil service) were rife with corruption and inefficiency as many could not function without large government subsidies . This simply meant that the Zambian form of parastatals was inherently unsustainable.

In order to continue to subsidize state spending on parastatals and social services, UNIP continually borrowed from the International Monetary Fund (IMF) to support the economy's balance of payments deficits. By the early 1980s the IMF began to impose conditions of free market reform for continued lending. These reforms consisted of the stabilization of the economy and a degree of economic liberalization . However, the effects of these reforms on the incomes and employment of Zambia's workers were negative. By 1987, widespread social protest and discontent persuaded Kaunda to drop the IMF-sponsored reform.

In 1991 the UNIP government was defeated during multiparty elections by the Movement for Multi-Party Democracy (MMD). The MMD immediately institutionalized a radical program of free market reform in order to secure continued external aid and to satisfy Zambia's business class. Parastatals were privatized , the kwacha was devalued, and the exchange rate was liberalized. As well as reducing consumer incomes, these reforms caused a considerable amount of financial uncertainty, and a number of domestic banks collapsed. Moreover, even though the government had benefitted from increased revenue through the privatization of 85 percent of its parastatals by 1998, the national balance of payments remained in deficit.

In comparison to Zambia's traditional reliance on copper and cobalt at independence, by the 1990s the economy had significantly diversified. In 1999, non-traditional exports such as processed foods, copper rods, and textiles constituted 39.4 percent of export earnings. However, the growth of the national economy and government revenue was still determined by the unstable prices of primary commodities , particularly copper and cobalt, in world markets.