British High Commissioner James Thornton spoke at the Shaping our Future Conference hosted by the British Council in Lusaka today. He said:
Wayne Harper, Country Director, British Council
Senior Government Officials
Members of the press
Distinguished guests, ladies and gentlemen
All protocols observed
I am delighted to be speaking at this conference, organised by the British Council with substantial funding from the High Commission.
The British Council has a well-deserved high reputation here in Zambia, doing important work on education and entrepreneurship. It is great to welcome the Council’s new Director, Wayne Harper, to Zambia. I am sure he will lead the organisation to yet greater heights.
I want to talk today about the challenges for the future that Zambia faces.
I think it is increasingly recognised that it is Zambia’s own actions that will determine its future.
We learned the other day that Zambia’s GDP is 25% larger than previous figures had indicated.
That puts Zambia much more firmly within the ranks of lower middle income countries.
The United Kingdom, through our Department for International Development, commonly known as DFID, has a long-standing presence here and is doing work in a wide range of areas.
Its contribution is substantial – yet also very small.
Substantial because it amounts in this UK financial year (April 2013 to the end of this month) to over £70m. That is about Kw690m at today’s exchange rates. That feels like a lot of money. Small because it amounts to less than half a percent of Zambia’s recalculated GDP.
We want to make a difference to Zambia’s prospects, but with only half a percent of GDP to play with, we have to work hard at it. Increasingly we look at what we do to support institutions or economic structures that will themselves deliver bigger changes than we would be capable of on our own.
All cooperating partners combined now spend in the order of 4% of Zambia’s GDP – a sum now less than the tax raised from the mining sector.
So what does Zambia need to do to ensure a bright future?
How Zambia develops over the next years and decades is up to you.
I think there are eight things that the country needs to think about.
(People tell me that you should make only three main points in a speech. They are right. But I am sure you will be able to follow me.)
1. Vision for the economy
Firstly, Zambia needs to consider broadly what sort of economy it wants to have twenty years from now. What sort of economic production do you envisage taking place?
Once that has been worked out, then you need to work out what conditions need to be put in place to encourage the development of such production.
The Government is currently revising the Sixth National Development Plan. I hope that the revised version will have clarity about those two issues.
The second issue is mining. I assume that, given the country’s copper reserves, mining will be part of that vision for the economy of the future.
In recent years Zambia has been very successful in growing its mining sector. Since 2000, at the time of the privatisation of the mines, copper production has grown from 257,000 tonnes per year to 850,000 tonnes in 2013.
Clearly a lot of investments that were begun some years ago are still in train and have yet to come on stream.
But I am not aware of many recent announcements of major new investment decisions.
If new investments are not being embarked on, we need to ask why, and whether anything can be done about it.
My third point is about diversification away from mining.
The increase in mining output has been the main driver of Zambia’s phenomenal economic growth over the last dozen years or so. Without it, Zambia would still be struggling to reach lower middle income status.
But sooner or later, the easier to extract copper reserves will be used up. Production will plateau and will eventually decline. Zambia needs to think about how the current mining boom can be used to lay the foundations for broader economic development.
For that, the income from mining needs to be used well, to invest in physical infrastructure and, even more important, the development of human capabilities.
Actually, of course, people have been talking about the need for diversification away from mining for a long time now. Ten years, to my knowledge; but I suspect in reality for much longer than that.
Some diversification has clearly taken place. So-called non-traditional exports have been rising in the last eight to ten years. A lot of the non-traditional exports have been agricultural products, but they also include light manufacturing.
But it seems to me that there needs to be a debate about why more has not been achieved in this area.
One issue is the exchange rate. People are worried about the falling Kwacha. But the value of the Kwacha stabilised in about 2002 at about 5,000 to the dollar. There has been some fluctuation since then, but today’s rate, twelve years on, of less than six rebased Kwacha to the dollar is not a big movement.
Furthermore, there has been a lot of inflation in those twelve years. In real terms, the value of the Kwacha has increased significantly.
There are clearly disadvantages to a falling Kwacha. But one advantage of a Kwacha that was weaker over the long term would be that local production would find it easier to compete against imports.
4. Governance structures
The fourth thing a country like Zambia needs to do is to ensure that governance structures are right.
Governments need to be able to make effective, properly thought-through decisions for the benefit of their people.
Governments raise their money through taxation of individuals and companies. No-one likes to be taxed. It is important that government services are delivered effectively, with constant vigilance to ensure there is no wastage or syphoning-off of tax revenue.
It is only through good governance that mining revenues will translate into inclusive growth. It is these structures that make sure that funds are collected and managed in a transparent way for the benefit for the country.
The rule of law needs to be policed through an efficient judicial system.
Much of what the government does has an impact, either positive or negative, on business.
In the UK an assessment is done on the impact on business of every single regulation or piece of legislation, before it is brought in. This assessment is premised on strong consultation with businesses themselves.
The Zambian Government is spearheading such a process here. We are supporting them through technical advice from the UK’s better Regulation Office. But the key thing will be for it to be implemented properly by all the line ministries.
If done well, this assessment process should, over time, make Zambia an easier place for both domestic and foreign businesses to operate.
The fifth thing the country needs to focus on is education. Like Nelson Mandela puts it “Education is the most powerful weapon which you can use to change the world.”
The OECD, a policy forum based in Paris, looks hard at drivers of economic growth. It says that the biggest single factor affecting long-term growth is education.
Zambia is good at getting children to enrol at primary school. But the government recognises that standards of education in schools are low. DFID is working with them to remedy this.
The type of education you receive is crucial. Do you just learn facts, or mathematical techniques? Or do you learn to think, to construct arguments, to solve problems?
It is because we insist on the development of such skills that British universities have such a good reputation. Many Zambians have discovered that at first hand by studying in the UK.
We also have globally recognised qualifications in vocational and professional subjects. Our host today, the British Council is administering over 40,000 UK examinations to over 15,000 candidates a year in Zambia.
With the world leaning more to a knowledge economy it is becoming increasing easier to get a more rounded education. With the increasing access to smart phones and internet penetration it is my hope that education services will become more accessible.
The sixth thing the country needs to do is to promote entrepreneurship among its people.
Other countries have entrepreneurs who have really made it big. One thinks of Aliko Dangote of Nigeria.
There seems to be very few companies of any size that are owned by indigenous Zambians. I am not sure why that is.
I know that there are a lot of new entrepreneurs here – Bongo Hive is a good example.
What is it that will help small Zambian companies grow into large ones?
The Zambian Government is keen to develop SMEs. The increase in the capital requirements for banks here was intended to raise the amount of money available for companies to borrow. And the caps on interest rates were imposed in an attempt to ensure that companies could borrow at sensible rates.
You will have your own views as to whether the measures taken were the most effective ones to achieve the intended aims.
DFID is about to start a programme to look at the obstacles to SME creation, and to propose technical solutions.
7. Foreign investment
However, home-grown enterprise will take time to expand. In the meanwhile there is a particular need for foreign investment. The seventh task for Zambians is to ensure that the country is an attractive place for foreign companies to operate.
I will say a bit more about this theme, as it is of course of direct relevance to British companies!
There is of course intense competition for foreign investment. Every country wants to attract it.
The United Kingdom puts a lot of effort to attracting companies from overseas to set up operations in our territory and create jobs there.
I am sure all Zambia’s neighbours are doing the same.
I know that many multinationals consider many more investment projects than they have the capital to pursue. We will never get to hear about the ones they reject.
To put it bluntly, Zambia has to beat the competition. Competition not just from neighbouring countries but also from other producers in the developing world such as China and Vietnam.
Mining companies have to go where the ore is. Manufacturers can set up anywhere.
Why would a company set up here?
Some service companies – banks, insurance companies or supermarkets - will come because of the growing Zambian middle class with money to buy what they have to offer. But Zambia is still a small market. As I said before, the country needs to think about what it can export.
What will attract companies wishing to produce for export?
Things like a competitive cost base, a productive workforce, not too much red tape, policy certainty, political stability and security of investment.
Companies also want the flexibility to run their affairs in their own way. If they recruit staff for whom they subsequently have no use, they want the freedom to pay them a reasonable severance package and let them go.
It is a paradox that, in order to attract new jobs, you have to accept that some old jobs may have to go.
Companies also want to be able to bring in senior staff who know their business. Excessive restrictions on work permits for expatriates can put companies off investing here.
8. Inclusive Growth
And the eighth and last thing the country needs to do is to ensure that everyone has an opportunity to share in the country’s development.
The inequality between rich and poor in this country is really striking. It is clear that much of the benefit of economic growth is accruing to the middle classes here in Lusaka. The increase in traffic on the roads here is testament to that.
The poor and isolated, particularly those in rural areas, all need to be able to access education and other public goods. They need to be able to improve their farming techniques, and sell their produce.
DFID will remain focussed on support to the poor. Not just because there is a moral imperative to help those who are in most need, who suffer most. But because there are massive economic gains to be made by giving them even basic opportunities.
The government thus has a fundamental role to provide opportunity and incomes for all. The government’s 700% increase in the funding for the social transfers scheme is a step towards attainment of this dream. We are pleased to have played a key role in piloting that scheme.
Ladies and Gentlemen
I have two final thoughts. First, a senior advisor to Tony Blair once said, after stepping down from working in government that governments tended to overestimate the influence they could have in the short term. But they tended to underestimate the influence they could have in the long term.
It is only in the last few years that the economic liberalisation put in place by Frederick Chiluba has borne the greatest fruit.
The choices that are made now will make a big difference to how this country will fare in ten or twenty years time.
My second message is that you here today can play a big role in shaping those choices. Nelson Mandela once said, “Overcoming poverty is not a task of charity, it is an act of justice. Like Slavery and Apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the actions of human beings. Sometimes it falls on a generation to be great. YOU can be that great generation. Let YOUR greatness blossom.”