Download Nationalisation: A case study of Zambia

Nationalisation: A case
study of Zambia
By Ndangwa Noyoo
Rhodes University Summer School
13 September 2011
Introduction
 On 19th April 1968 the president of Zambia, Kenneth
Kaunda, announced that the state would intervene in
the Zambian economy and nationalise all private
retail, transport, and manufacturing firms in the
country, through what came to be known as the
Mulungushi Reforms. The government was to acquire
51 per cent shares through the newly created
parastatal - the Industrial Development Corporation
(INDECO). A year later, on 11th August 1969, the
Matero Reforms were announced, and these resulted
in the government purchasing 51 per cent shares
from the existing mining companies: Anglo American
Corporation and Roan Selection Trust, leading to
partial nationalisation of the copper industry.
2
 Eighty per cent of the economy was now under state
control after this second phase of nationalisation
which now encompassed mining, energy, transport,
tourism, finance, agriculture, services, commerce,
trade, manufacturing and construction sectors.
Further reforms were carried out on 10th November
1970. These were extended to the financial sector
including the insurance companies and building
societies, but excluding the banks, which successfully
resisted being taken over.
3
Rationale
 “Several times before, I have declared in very clear
terms that political independence without matching
economic independence is meaningless. It is
economic independence that brings in its wake
social, cultural and scientific progress of man. No
doubt political independence is the key, but only the
key to the house we must build……If we are true
humanists then whatever institutions we create must
be geared towards fulfilling our commitments to the
common man. Basically this means providing
adequate food, adequate clothing and adequate
shelter for all our people in Zambia and not just a few
of them.”
4
 “Today our society is being exploited very
badly indeed by some unscrupulous men and
women who are driven to the extreme right by
the ‘profit motive’. A good number bring very
little capital into Zambia, but because of their
know-how they are able to build something
locally on borrowed Zambian money and
send out of the country excessive profits after
a very short time.” (Kaunda, 1968).
5
 The overall goal of nationalisation was to
increase local control over an economy which
at independence was completely dominated
by foreigners at the ownership and
managerial levels. Even as late as 1968 only
15 per cent of bank credit was channelled to
Zambian citizens. A parallel aim was to
ensure that a larger proportion of the Gross
National Product remained in the country
(Molteno and Tordoff, 1974).
6
Extent of Nationalisation
 This was far-reaching: the president put notice for “owners of
certain firms to invite the Government to join their enterprise.”
Listed firms had to sell at least 51 per cent of their shares to the
government. The first firms mentioned were Anros Industries
Ltd., Monarch (Zambia) Ltd., and Crittal-Hope (Zambia) Ltd.
These three companies dominated the field of window and door
frame manufacturing. The building industry was also targeted:
Anglo-African Glass Co. Ltd., P.G. Timbers, Baldwins Ltd., Steel
Supplies of Zambia Ltd., P.G. Timbers, Baldwins Ltd., Steel
Supplies of Zambia Ltd., Zamtimbia Ltd., May and Hassell
(Zambia) Ltd., and Johnson and Fletcher were taken over and
fell under the control of the new parastatal company the Zambia
Steel and Building Supplies Ltd., which was wholly owned by
the Industrial Development Corporation.
7
 The third area linked to the building industry were
three quarries that had supplied crushed stone in the
Lusaka area. They were Nicholas Quarries, Gerry’s
Quarries and Greystone Quarry. The next industry
that was “asked to invite” the government to join in its
activities was the brewing industry. Northern
Breweries Ltd., and its subsidiary the Heinrich’s
Syndicate Ltd., were earmarked. Next was the
transport sector: Smith and Youngson Ltd., and
Central African Road Services Ltd., were
nationalised.
8
 The state was also to engage in retail and wholesale
distribution. The firms which were targeted were:
C.B.C stores and shops, O.K. Bazaars, Standard
Trading, Solanki Brothers Ltd., and Mwaiseni Stores
Ltd. In the timber sector the Zambezi Sawmills Ltd.,
and the Mining Timbers Ltd., which supplied logs and
mining poles to the mines were nationalised. In the
print media, the Zambia Newspapers Ltd., which
published Zambia’s only daily and Sunday
newspapers fell under government control. In the
fisheries industries, Irvin and Johnson Ltd., was
“invited” as well.
9
On compensation of foreign firms
 This was to be on the basis of book value of
assets as Kaunda noted: “I shall leave it to
INDECO to negotiate values and terms of
payment but I want to make it clear that what
they will pay is a fair value represented by the
book values. There is no such thing as
business goodwill or paying for future profits
as far as I am concerned. I cannot see any
reason why we should pay extra for the boom
we have ourselves created.”
10
 The mines were not initially nationalised
because as Kaunda put it: “The copper mines
are big business—too big for us.” But a year
later, there was a change in attitude from
Kaunda.
 Time Magazine of August 22, 1969 probably
best captures the reasons behind the
nationalisation of the mines:
11
 “Zambia, the former British colony of Northern
Rhodesia, remains uncomfortably dependent upon
white-dominated Rhodesia for trade and electric
power. The cost of living is soaring and abrasive
tensions between Zambia's blacks and whites (who
constitute 1.5% of the population), are on the rise.
Recognising the importance of the mines to his
country, Kaunda met two years ago with Chile's
President Eduardo Frei to discuss an arrangement to
help maintain world copper prices and quotas.
Although no price-fixing agreement resulted from
their talks, Frei's nationalisation of the Chilean copper
industry, beginning in 1967, probably stimulated
Kaunda to take a similar step in Zambia.”
12
 The same article foretells quite poignantly:
“Kaunda's action entails serious risks for his country.
Zambia has neither the capital nor the skills to run the
mines by itself. Kaunda must rely heavily on both the
companies and their remaining 5,000 white miners to
keep operations going. Only the steadily rising price
of copper, now at a high of $740 per pound, has
enabled Zambia to maintain a favorable balance of
payments in recent years. Any decline in copper
prices as a result of an end of the war in Viet Nam,
the discovery of new sources, or the increased use of
other minerals, would hit Zambia hard.”
13
Implications of nationalisation
 It is important to note that at independence, Zambia
inherited a prosperous mining-based mono-economy.
With her abundant natural resources, prospects for
social and human development looked very bright.
However, the government was faced with the
challenge of diversifying the economy in order to
redress inherent inequalities that existed due to the
rural-urban divide, geographically isolated labour
reserves, high unemployment among indigenous
Zambians, and discriminatory channels for the
provision of socio-economic services, such as health
and education.
14
 This was compounded by the Unilateral
Declaration of Independence (UDI) by the
Smith government in Rhodesia that
unexpectedly cut off communication and
trade with Zambia’s southern neighbours in
1965 (UNDP, 2003).
15
 Nationalisation therefore, led to significant changes
from liberal policies to a more restrictive policy
environment that entailed increased government
involvement in national development. Policies also
attempted to diversify the economy from mining
through industrialisation and import substitution. The
main strategy for import substitution was the
introduction of various parastatal companies, through
which the local manufacturing sector was protected
by high tariffs and an over-valued exchange rate.
Price controls for major commodities were also put in
place (UNDP, 2003).
16
 In pursuance of an egalitarian society that
was guided by Humanism, the government
invested heavily in education and health
infrastructure, such as the University of
Zambia (UNZA), the University Teaching
Hospital (UTH) and thousands of schools,
colleges, and district hospitals which did not
exist in the colonial era. These facilities
opened up socio-economic opportunities for
many previously disadvantaged Zambians
(UNDP, 2003).
17
 The mining conglomerate - the Zambia Consolidated
Copper Mines (ZCCM) – which materialised from the
nationalised Roan Selection Trust and the AngloAmerican Corporation mines became a major player
in the country’s development. ZCCM mirrored the
State’s developmental philosophy and supplied social
amenities much wider in scope than those offered
during the colonial period, including free education for
miners’ children, alongside subsidised housing and
food, electricity, water and transport. ZCCM literally
operated a “cradle to grave” welfare policy, even
subsidising burial arrangements for the dead (Fraser
and Lungu 2006).
18
 The mines did not only just look after their workers,
they also provided services to the whole community.
The company managed the environment in the mine
townships, maintained roads and collected refuse as
well as provided cafeterias, bars and social clubs
dotted over the mine townships. They encouraged
the growth of economic and social activities
dependent on miners’ incomes, such as shops, farms
to supply food to the mine areas and other industrial
activities.
19
 Youth development schemes helped youths in the
compounds identify skills they could pursue and
formalise as careers. Women’s clubs concentrated
on home-craft. Social casework agencies were
charged with investigating social conditions in the
townships. By the time of privatisation, ZCCM had
one or two hospitals at each of its operating division.
In towns like Nchanga and Konkola there were no
government hospitals and non-mine employees and
their dependants relied on mine hospitals for access
to medical services (Fraser and Lungu 2006:8).
20
 Parastatals also heavily subsidised their services in
the favour of Zambia’s poor. For example, the United
Bus Company of Zambia (UBZ) offered cheap
transport throughout the country - even to the
remotest parts, where private firms were not willing to
operate. Other companies like the Nitrogen
Chemicals of Zambia (NCZ) produced fertiliser and
sold it at concessionary rates to farmers, while the
Zambia Electricity Supply Corporation (ZESCO) took
over from the private firms and began an
electrification programme that extended to all parts of
the country. Parastatals were engaged in crucial
initiatives that the private sector was not willing to
pursue or which they deemed “unprofitable” (Noyoo,
2010).
21
 These organisations were also key in the
government’s employment creation and job
security agenda. Zambians were guaranteed
jobs as a way of tackling poverty via access
to incomes. In the main, employment became
a key development imperative and an artery
of social policy. The policy of Zambianisation
also reinforced the abovementioned.
22
How nationalisation was blunted
 The copper mines propped up all facets of
the Zambian economy. This situation was
clearly unsustainable and perilous. It became
evident with the onset of the first oil crisis of
1973 that triggered a world recession and
also led to the plummeting of copper prices
on international markets. After the second oil
crisis in 1979, interest rates shot up and
Zambia was thrown into a severe debt crisis.
23
 For twenty years the economy collapsed at
an internationally unprecedented rate as
copper prices continued to fall relative to the
price of imports. Between 1974 and 1994, per
capita income declined by 50 per cent leaving
Zambia the twenty-fifth poorest country in the
world (Fraser and Lungu 2006).
24
 Zambia which had created a comprehensive welfare
system could no longer guarantee services to its
citizens. Companies that had offered heavily
subsidised social services were operating below par
and merely became drains on the economy. Again, it
is noteworthy that throughout the economic crisis,
ZCCM was treated as a “cash cow”, milked without
corresponding investment in machinery and
prospecting ventures, and the mines suffered from
little investment, as had been the case before 1969.
25
 With no prospects for exploration and drilling, and a
lack of spares in equipment and machinery, no new
mines were opened after 1979. ZCCM production
collapsed from a high of 750,000 tones in 1973 to
257, 000 tonnes in 2000 (Fraser and Lungu 2006).
Additionally, real GDP per capita fell from US$ 1455
in 1976 to US$ 1037 by 1987 – an average of -3.6
per cent per year. By 2000, real GDP per capita had
fallen to US$ 892 (Situmbeko and Zulu 2004). It cost
Zambia 1$Million a day to run its mines.
26
 Having supported liberations movements of Angola,
Mozambique, Namibia, South Africa and Zimbabwe,
both morally and financially, Zambia lost out on a lot
of economic opportunities. Constant military raids by
the armed forces of the white minority regimes in the
region, resulted in countless deaths of Zambians, the
destruction of infrastructure (that was critical to
economic development) as well as engendered a
heightened state of insecurity in the country that was
inimical to Foreign Direct Investment (FDI). Zambia’s
position against colonialism and apartheid is
estimated to have cost over US$ 19 billion.
Furthermore, Zambia’s apartheid debt is put at about
US$ 5.34 billion (Action for Southern Africa, 2005).
27
 The period that saw the downturn of the
economy, especially after 1975, also
coincided with the rise of political misrule on
the part of the ruling party UNIP. This era was
exemplified by arbitrary decisions made by
the government, especially in economic
matters without consulting the Zambian
people.
28
 This is because in 1972, Zambia was officially
proclaimed a one-party state and a year later
the consolidation of this system earnestly
started. All opposition political parties and
activities were effectively banned. The
country’s political landscape was now
dominated and controlled by one party: UNIP.
29
 Dissent and alternative views from those of the ruling
party were thwarted. All spaces for political
contestation were closed down and Zambia slowly
became a regimented society. There were also
arbitrary and mass detentions of Zambians who were
perceived as enemies of UNIP and Kaunda.
Innovation and talent were treated with suspicion and
perceived as potential threats to single-party rule.
Business persons or wealthy individuals were also
targets of the one-party state, and they in turn felt
insecure. The country literally began to “mark time” in
this period (Noyoo, 2010).
30
 Even though the intention was noble Kaunda had
nationalised the mines without undertaking a broad
consultative process (even his cabinet was not aware
of this move before it was announced).
 Nationalisation
was also used for political
expediency. It is noteworthy that the 1967
Mulungushi UNIP internal elections were the first and
biggest threat to Kaunda’s leadership since
independence in 1964. Naturally he had to secure
himself through this noble cause. In 1968, UNIP also
suffered major losses at the national polls as the
opposition was gaining ground. Nationalisation was
thus Kaunda and UNIP’s trump card.
31
 It was in this atmosphere that the World Bank and the
International Monetary Fund entered into Zambia’s
economic decision-making processes, in the 1980s,
through
austerity
programmes.
The
former
organisations were owed large amounts of money by
the country. With this leeway, they then compelled
the Zambian government to liberalise the economy
and also cut down on social spending. The
understanding behind these measures was that the
State-controlled economy had overheated through
interventionist policies.
32
Lessons for South Africa
 There
is nothing inherently wrong with
nationalisation if it is well-mapped out, wellthought out, devoid of political machinations
or interference, nepotism, ethnic agendas,
corruption or clientelistic tendencies. But this
has hardly been the case in Africa.
 Many good things came out of Zambia’s
nationalisation process such as universal and
near free education and quality health care.
However, it funded a whole lot of bad things.
Such as patronage and state repression.
33
 Politicians
of all shades have advocated
nationalisation – communists, socialists, social
democrats, liberals, conservatives, fascists. Stalin
nationalised, and so did Mussolini, Attlee, and
Edward Heath. Nationalisation has been done in
peace and war, boom and slump, depressions,
recessions, reconstructions and economic miracles.
Nationalisation is indeed an established part of South
Africa’s economic history. State involvement in the
economy was firmly established in the 1920s. Long
before the post-war nationalisations in the West,
South Africa had placed all its major utilities and
several of its industries under national ownership
(Coleman, 1991).
34
 Many of these public companies were established
from the scratch – like the South African Post Office,
with interests in postal services, telecommunications
and banking services, even marketing boards.
 There were three main reasons for these
nationalisations:
1. To develop industries not prioritised by private
capital, but essential to the development of an
advanced economy. For example the Iron and Steel
Corporation (Iscor – which was later privatised, and
the South African Transport Services with a
monopoly over railways, dominance in air transport,
and interests in road transport. Also Eskom, which
supplies all electricity.
35
2. As a strategic response to oil and arms embargoes imposed
against apartheid. The state set out to make South Africa selfsufficient in arms and munitions through Armscor (but failed)
and in energy through Sasol (and failed again).
3. Successive governments, particularly after 1948, sought to
provide whites with a high standard of living. Apartheid
governments nationalised and regulated where their ideological
aims were not achieved by the private sector alone. Preferential
jobs were given to whites within the expanding state sector. In
1943, National Party leader D.F., Malan proposed that the state
intervene to the “maximum possible degree in the economy to
help the Afrikaner achieve his rightful share” of South Africa’s
economic cake ( Coleman, 1991:3).
36
was part of the state’s
economic policy for the four decades of
National Party rule.
 Nationalisation
37
Conclusion and way forward
 Worldwide nationalisation is embarked upon
due to: (a) politics and ideology; (b) Economic
reasoning – equitable distribution of wealth;
(c) Protecting strategic interests.
 What is key however is that before any
government begins to nationalise, it must
have clear reasons for doing so (emphasis
added). The more broader and imprecise the
aims, the less likely nationalisation is to
succeed.
38
 To end, Coleman (1991:6) prophetically observed:
“However, the frequently wide differences between
the stated aims of nationalisation in South Africa and
other countries indicates a need for advocates of
nationalisation here to think again, to return to the
drawing board. Economic and social objectives, one
finds have been sacrificed at the alters of politics and
ideology. Arguments elsewhere in the world have put
together coherent, if contentious, reasons to
nationalise. In South Africa, however, no wholly
logical, rigorous motivation has yet been put forward.”
39
References
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40