22 February 2002

ZAMBIA: World Bank tells government to privatise even more

The World Bank has drawn up a tentative plan to rescue Zambia's troubled economy as the country's strategic copper mining industry totters towards what analysts fear could be inexorable collapse.

The Bank's resident representative in Lusaka said Bank staff had been discussing a plan with government officials to diversify the economy as the copper industry shrinks on the back of falling international prices and rising production costs. However, the Bank's support for the economic transition would depend on the government's commitment to seeing through far-reaching economic reforms that the reformist former government of Frederick Chiluba initiated under a donor-backed structural adjustment programme a decade ago.

"By and large, there are major problems in the industry. Copper mining in the Copperbelt [Province] may soon cease as a result of the poor market conditions and high cost of production," Clarke told journalists this week at a pre-budget presentation workshop for business reporters in Lusaka. "This is the time to start thinking diversification, diversification, diversification," he said.

While it contributes only four percent to the country's Gross Domestic Product (GDP), the copper industry is responsible for around 70 percent of Zambia's foreign receipts and directly employs some 17,000 people. However, the industry's future prospects have looked uncertain since late 2001, when Anglo-American Corporation put on hold the Konkola Deep Mining Project, which sought to extend the life of the country's copper mines by an estimated 40 years. Last month, the mining house resolved to cut back its investments in the local copper industry on the back of a continued slide in metal prices and a rise in operating costs. Other strategic mining houses in the country have indicated that they, too, may cut down on or suspend their investments.

Clarke said the World Bank saw partnership between the public and private sectors as the best way to diversify the economy through the development of agriculture, manufacturing, and tourism. "A public-private partnership is necessary to successfully execute the diversification programmes in short, medium and long term. A public-private task force, preferably headed by the private sector, should be set up immediately to agree on the transformation and diversification programme in the Copperbelt," he said.

However, the World Bank would expect the government to speedily conclude the privatisation of remaining strategic state utilities and effect belated economic policy reforms before helping it expand its economic base. "Expected initial government of Zambia responses include the privatisation of the energy, financial and telecommunications sectors within the next six to nine months to improve governance and efficiency of infrastructure service delivery required for economic growth and business development," Clarke said. The privatisation of the state-run utilities was crucial if the country hoped to reach the Highly Indebted Poor Countries (HIPC) initiative completion point, which would introduce a final debt relief package. Clarke predicted that Zambia's economic prospects would also be dampened by a severe HIV/AIDS crisis, debilitating widespread poverty, and the prospect of cuts in lifeblood donor aid over governance concerns this year. "If you think that the year 2001 was difficult for Zambia, 2002 will be even worse," Clarke said.

Western donors led by the European Union (EU) have expressed grave concerns at the conduct of general elections held last December, which were widely regarded as rigged by the ruling Movement for Multiparty Democracy (MMD). President Levy Mwanawasa has responded to the electoral concerns by accusing the EU of trying to influence the polls in favour of the opposition. The resultant standoff has raised fears that the EU could introduce punitive aid cuts against the government.

Clarke said the EU had not indicated to the World Bank whether or not its electoral concerns would effect its support to the country, but noted "the anecdotes are worrying" and urged the government to address the donors concerns. "We have said to the president that we have to deal with these problems as speedily as possible so that the lingering issues are resolved and the business of development can start," Clarke said.

Western donors fund around half of Zambia's national budget. Most bilateral donors cut balance of payment support to the country in 1996 in protest against the manner in which general elections, held in the previous year, were conducted. (IRIN)

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