Zambia: Winning was the easy part…

After winning the recent Zambian presidential elections by more than a million votes, the new Zambian President Hakainde Hichilema has a substantial task ahead of him to turn the country’s economic fortunes around. It may well be that winning the election on his fifth attempt was the easy part of becoming president.

President Hichilema, the self-proclaimed ‘cattle-boy’, has risen from humble beginnings to take the country’s helm as it faces a debt crisis. Despite Zambia’s significant social and economic progress between 2000 and 2014, since then performance has stalled. GDP growth rates averaging 6.8% have now only averaged 3.1% between 2015 and 2019. The recent COVID-19 pandemic has seen things slow even further in the last two years.

The Zambian economy comprises the mining industry, tourism, and agricultural production, subject to external factors, such as falling commodity prices, pandemics, and poor seasonal rains. These issues have manifested themselves in the last few years, which have negatively impacted the Zambian economy. Poor rains have also caused a fall in the electrical power available to industry, especially the power-hungry mining and smelting sector, as 85% of power generation is hydroelectric.

It is not only external factors that have hampered Zambia’s recent progress. Edgar Lungu, President Hichilema’s predecessor, had a fondness for large infrastructure projects paid for through foreign loans, many of these from Chinese firms, which Zambia is now struggling to repay. In March 2020, Zambia became the first country in sub-Saharan Africa to default on debt repayments, which currently stand at US$12.7bn or an unsustainable 105% of GDP.  Other self-induced factors include government policy inconsistency, widespread corruption, and high domestic lending rates; combined, these further hamper economic growth and investment.

While COVID-19 will cast its shadow over the tourism sector for a while yet, it is not all doom and gloom for Zambia. A gradual economic recovery is forecast, with GDP growth projected at 1.8% in 2021 and averaging 2.8% between 2021-23.  Higher commodity prices, especially copper, will lead to increased government tax revenues and the annual rains falling back into an established pattern which will also help increase the productivity of the agricultural sector. Furthermore, some of the large infrastructure projects which went a long way in causing the debt crisis may also start to repay their return on investment, with upgrades to hydroelectric production due to be completed.

As Zambia faces more favourable economic conditions, then the immediate pressure on President Hichilema will ease. The mid-term prospects for the economy will depend on careful management with such a significant debt burden hanging over it. Zambia must work with the IMF and creditors to restructure current debts and minimise the accrual of new ones. Although Zambia should avoid handing over state assets in lieu of repayments, as this will cause outrage amongst the electorate wary of China’s reputation for debt slavery. President Hichilema’s administration should also put long-term plans to restore growth to other areas of the economy and diversify its base to make it more resilient to external factors, such as commodity prices and climate change. Stamping out corruption (particularly amongst government employees) and undertaking policy reforms will also be vital to building business confidence and attracting investors to invest in Zambia.

President Hichilema showed great tenacity in his attempts to become president of Zambia in the face of great adversity. He will need the same resolve to see Zambia through the current economic difficulties. He should avoid changes designed to win short term favour with the electorate and prioritise efforts that will hold long term benefits for the country.  Though the constitution sets the presidential term at five years, the plans Hichilema’s administration needs to put in place need to have a much longer timescale in mind. It will be only through careful long-term management that Zambia will successfully get out from under its debt burden without further defaults and the economic and reputational woes that brings.