Zambia’s President Must Lay Out Reforms In Upcoming Budget

Recently elected President of Zambia Hakainde Hichilema is due to deliver his government’s first budget at the end of this week, a little over two months since taking office. In a statement last week, Finance Minister Situmbeko Musokotwane said Friday’s budget would focus on three priority areas: poverty reduction; job creation; and ensuring a conducive environment for investment. 

The stakes for this inaugural budget could hardly be higher, coming just under a year after Zambia became the first African country in the pandemic era to default on its foreign debts. Since then, these obligations have climbed to an estimated $14.3 billion, with overall debt representing 113% of the country’s GDP – up from just 66% in 2011. Despite a boon to the country’s bond market following Hichilema’s election in August, Zambia is still teetering on the edge of economic collapse, with this budget representing a potentially pivotal moment in the nation’s future.

Central to Musokotwane’s ambition to reduce poverty in Zambia will be helping the country to escape from underneath its mountain of foreign debts. The previous administration, under the profligate leadership of President Edgar Lungu, attempted to court a bailout package from the IMF on numerous occasions, but was repeatedly rebuked for its exorbitantly high borrowing. This borrowing, coupled with a default on the interest payments in November 2020, has triggered runaway inflation in Zambia and a marked rise in the cost of goods. This is making it increasingly hard for even those with jobs to feed their families, with many Zambians reduced to eating just one proper meal per day. 

Hichilema will need to spell out a serious programme of reform in Friday’s budget if he wants to secure a bailout package from the IMF.

Hichilema was elected in August on a programme of economic reform: promising to put food on the table for millions of Zambians. His administration is still chasing that $1.3 billion bailout package from the IMF, however a recent visit by the Fund in late September concluded that there were still “urgent steps” needed for Zambia to get a handle on its finances. On Friday, Hichilema and his finance minister will need to present a budget that significantly cuts down on borrowing – particularly for day-to-day spending - and also sets out a plan to sit down with foreign investors and rebuild Zambia’s credibility. 

Furthermore, if the new government is serious about creating a conducive environment for investment, then it will need to take major steps to reign in the corruption that has grown rife in Zambian public life. When Hichilema took office two months ago, he reported that the country’s coffers were “literally empty” and that stooges of the previous administration, the Patriotic Front, were still drawing government salaries and hiding this cash overseas. Prior to this, Zambia was rocked by numerous government corruption scandals, including one in which a $17 million contract for pharmaceutical supplies was awarded to a company called HoneyBee that produced mouldy paracetamol tablets and latex condoms and gloves that leaked when filled with water.  

This kind of government waste and ineptitude will certainly be a deterrent to any private investors looking to sink their money into the Zambian market. And while Hichilema has promised to take a “zero tolerance” approach to corruption, there have been very few high-profile arrests since his party took office. 

Moreover, if Hichilema is set to boost both employment and investment in Zambia then his budget will need to make at least some overtures to the private sector, in particular the mining companies. Under the previous administration, the Zambian government waged war against the foreign-owned companies involved in copper mining - the country’s most lucrative industry. In May 2019 the government’s investment arm, ZCCM-IH, handed control of Konkola Copper Mines (KCM) to a liquidator, who was tasked with splitting the company in two and selling off the assets. The mine’s private owners, Indian-based Vedanta Resources, contested the decision in court and in July an arbitral tribunal in London ordered the liquidator to be dismissed immediately. However, KCM has still not yet been returned to Vedanta, despite the liquidator, Milingo Lungu, now being charged with corruption for allegedly stealing $2.2 million dollars during the liquidation process. 

Productivity at KCM has fallen off a cliff edge since the government seized control from private owners Vedanta.

KCM’s productivity has fallen off a cliff edge since the government assumed control, declining by some 70% compared to 2019. With this have come job losses, in an industry that previously employed some 90,000 Zambians. Friday’s budget desperately needs to remedy this situation and return mines like KCM back into private hands. Not doing so risks a return to the dark days of nationalisation in the 1970s and 80s, when production plummeted and an average of 2,000 mining jobs were lost every year. 

As with his foreign creditors, Hichilema needs to sit down with the private mining companies and work out a solution that benefits both them and the Zambian workers they employ. For their own part, Vedanta have offered an additional $1.5 billion in investment if the Konkola mine is returned to them. However, in a pre-budget consultative meeting for stakeholders hosted by Musokotwane last week, none of the major mining companies were represented. This seems a gross oversight and if Hichilema is to fulfil his promise of setting Zambia back on the path towards financial prosperity, he will need to ensure his budget brings all parties to the table.