Zambia Turning Corner Under IMF Pressure, Pays Price for Change
9/21/0 5:26 (New York)
Zambia Turning Corner Under IMF Pressure, Pays Price for Change
Ndola, Zambia, Sept. 21 (Bloomberg) -- At the sleepy Ndola
airport in northern Zambia, executive jets line the runway as
mining company executives fly in to survey their new acquisitions
-- some of the world's biggest copper mines.
That's the first sign visitors see of Zambia's economic
revival. Another is the aid streaming into a country where more
than 70 percent of the people live in poverty and 60 percent lack
basic nutrition. That money was withheld by the International
Monetary Fund and other lenders until the government agreed to
sell state-run copper mines and processing plants to mining
companies for almost $2 billion.
By slowing aid to a trickle, the lenders forced Zambia's
government to admit the failure of a three-decade-old experiment
that saw the nationalization of mines result in the near collapse
of the economy. Losses at the mines climbed to as much as $1
million a day as output slumped by more than half, a calamity for
a country where mining makes up some 40 percent of the economy.
``The privatization was all driven by the donor community,
principally the IMF,'' said Angus Downie, an analyst at London's
Economist Intelligence Unit, a business information provider. ``It
was very much a carrot-and-stick approach.''
Zambia has paid a heavy price for the changes, and it's a
textbook case of how IMF free-market remedies often initially
generate more pain than gain. That has made the fund a target of
criticism by anti-poverty and human rights groups around the
world, whose members are going to be out in force in the next few
days on the streets of Prague during the IMF's annual meeting.
Painful Change
Zambia's government, under pressure to sell the mines after
years of haggling with companies, got less than 10 percent of the
money it initially sought for assets that produced two-thirds of
the country's copper.
Thousands of people were fired from mines as a condition for
sales to businesses like Anglo American Plc, the world's largest
mining company. And the network of social services that state-run
companies traditionally provided for their workers is collapsing.
``There is the removal of pensions and subsidies, and
expectations are not going to be matched with reality,'' said
Charlie Weeks, an Africa analyst at Control Risks Group in London.
``Most Zambians are going to remain poor.''
Still, these changes have unleashed a surge of investment
that could spur 4.5 percent growth in the gross domestic product
this year, accelerating to 5.8 percent in 2001, according to the
Economist Intelligence Unit.
What is more, the government is aiming to qualify for an IMF-
run debt-relief program by 2001, reducing the government's debt-
service payments that year to $225 million from a projected $600
million, according to the fund.
Export Growth
In March, the IMF agreed to lend Zambia $349 million over
three years to help the economy grapple with falling copper
prices. And in July the World Bank and other lenders promised $1
billion during the next two years.
An even bigger impetus to development, though, will likely be
the growth in exports triggered by investments from companies such
as Anglo American, Anglovaal Mining Ltd. and First Quantum
Minerals Ltd.
Anglo, which established and owned most of Zambia's mining
industry before it was gradually taken over by the government by
the early 1970s, has said it will spend $1.19 billion buying and
rehabilitating mines and plants and digging a new mine.
Anglovaal is revamping and expanding a plant to process
cobalt, a byproduct of copper, while First Quantum, with its
partner Glencore International AG, plans to spend more than $500
million buying and modernizing two copper mines.
While the growth in exports will boost Zambia's economy, the
effect of the asset sales has already been felt.
The new owners of the mines can meet the bills, paying
suppliers for goods ranging from food to power that state mining
company, Zambia Consolidated Copper Mines Ltd., could not.
That's boosting consumer spending, which is benefiting non-
mining companies and spurring construction in Copperbelt towns
such as Ndola and nearby Kitwe.
Exciting Possibilities
``Next year and beyond things are going to improve quite
dramatically,'' said Bruce Bouchard, managing director at
Pangea/Emi Securities, Zambia's biggest investment banker. ``The
environment, possibilities and prospects are very exciting.''
Not all the news is good. The asset sale program took eight
years to complete, starving the economy of income, as companies
bargained with the government and falling copper prices drove
offer prices lower.
Companies like Anglovaal, Noranda Inc. and Phelps Dodge Corp.
cut back, or abandoned, investment plans because of the
bureaucratic thicket they had to penetrate.
That led Zambia to accept just $90 million from Anglo for
assets that produced two-thirds of the country's copper. It had
began its program asking for as much as $1 billion and turned down
earlier offers of $270 million, according to analyst estimates.
Step Forward
``The government has gone back on its word several times and
the IMF had to pull out all the stops to get it done, so you can't
call it a 100 percent success,'' said Downie. Still, ``from a
business point of view it's a step forward.''
Others disagree. Anglo's purchase and investment pledges came
with a condition that Zambia Consolidated fire one-quarter -- more
than 7,000 people -- of its workforce, before the London-based
mining company took over.
The decline of the state copper company also saw the collapse
of social services the business long provided.
``Zambia Consolidated wasn't just an industry that had mines:
It had houses, clinics, schools, taverns,'' said Peter Henriot,
chairman of the Zambian branch of the Catholic Commission for
Justice and Peace. ``It was a social entity.''
Some of the fired workers have had to wait up to two years
for their severance payments and haven't been able to pay for
health care or education, said Joseph Kalunga Sampa, deputy
director of a study the commission is conducting.
``Children who should be in school are on the streets
begging,'' he said.
--Antony Sguazzin in Kitwe, Zambia (27 11) 784 9944 or
asguazzin@bloomberg.net /mm/shg |
