The Mulungushi Syndrome

I think it was 1968 – three years after Zambia obtained its Independence under the leadership of Kenneth Kaunda and UNIP. Dr Kaunda stood up in the Mulungushi Hall in Central Zambia and made a speech announcing that every firm that employed more than 100 people had to be majority Zambian owned. It was Zambia’s own version of the current thrust for indigenisation in Zimbabwe.

UNIP had come to power and inherited an economy dominated by copper which was shipped in vast quantities to world markets – at the time Zambia was one of the largest suppliers of the metal in the world. Not quite so easy to see was a rapidly growing private sector in all other sectors of the economy. Incomes were lower than in Zimbabwe and South Africa, but the future looked good and Zambians had a new sense of optimism.

The major multinational companies that produced the copper quickly recognised that they could not win in a direct confrontation with the State and elected to withdraw and allow the State to assume ownership and control. In a surprisingly short time this was achieved and the international giants withdrew their management and took their funds out of Zambia to pursue their goals and objectives elsewhere. Smaller companies found the new policy unacceptable and either opted to sell out like the big groups had done or to fight for their assets and control. They lost and many were simply dispossessed and left the country, literally with their entire assets in a suitcase.

In the wider sphere of the national economy, the impact was immediate and catastrophic for the new Nation. Companies stopped investment and halted maintenance, property values fell and the GDP stopped growing. Over the next 40 years Zambia suffered from little or no growth, high rates of inflation and declining incomes. Not everyone was poorer, the policy had created many fortunes overnight, executives at the helm of State companies were earning big salaries and perks and corruption and cronyism had become embedded in the country, a minority did very well.

Then in a shock defeat, anticipated by no one, Chiluba beat Kaunda who retired and took up his now respected role as an elder Statesman. Chiluba did not bring about the changes that Zambia needed and in the next election, Zambians changed their leadership again. The new Government, made up of younger Zambians who had been working abroad or in the local administration and private sector, recognised that they had to change to give the country a new lease of life.

They faced huge problems, the mines were almost bankrupt and very little copper or any other product was finding its way into global markets. The cost of living was high and wages low. Inflation and poor monetary and fiscal policies had made the Zambia Kwacha the laughing stock of the region. Every filling station employed two people at each pump – one to count the blocks of cash being used to pay for the fuel, the other to put the fuel in your tank.

Quietly and without fanfare they abandoned Mulungushi. They engaged the multilaterals and adopted tough fiscal and monetary policies; they made life tougher for the majority and said it was necessary to get the economy back onto its feet. They canvassed the world for companies to take over the main driver of the economy – the mines. Vast complexes of mining investment and machinery were transacted for nominal value in return for new investment in technology and equipment, exploration and mining. Slowly the economy began to recover and in the past decade, Zambia has become one of the main beneficiaries of Foreign Direct Investment (FDI). By 2009 Zambia was growing at near double digit rates and incomes were improving, the Kwacha was realigned and strengthened and macroeconomic policies brought into line with best practice internationally.

Last year, at the annual mining indaba in South Africa, one of the largest gatherings of its kind in the world, the Zambian Minister of Mines used Zimbabwe as an illustration of just how Zambia would not behave, ever again. His remarks were greeted with laughter from his 800 strong audience.

The turnaround was achieved not only using the drivers of the big mining companies, but by a host of other actions. Property rights were guaranteed, tax rates brought into line with other investment destinations, investors were made to feel welcome and at home. In a way they did just what Deng Zhou Ping did in China – he said “it does not matter what colour the cat is, does it catch mice?” The President of Zambia brought a relocated white farmer from Zimbabwe into Parliament and introduced him as the largest tobacco grower in the country. “Zimbabwe’s loss, our gain” he said to standing applause from the House.

When Zanu PF last had a majority in the lower House (2007) they forced through an Act to indigenize the economy. The MDC, then in opposition, opposed the Act and fought it for days, when finally the majority Party simply went ahead with the vote, they walked out of the House. In 2010, when it looked as if the economy was going to start growing rapidly they used their control of the responsible line Ministry to publish, without consultation, regulations to implement the Act. In those regulations they declared that the Mulungushi syndrome would apply to all existing and new investment in the country. They did not use that term of course – very few of them could remember what went on in Zambia 50 years ago, but that is what they meant.

They were going to take 51 per cent of all business, the regulations stated and businesses did not have the right to choose their partners. It was like a punch in the stomach for the economy, just as in Zambia in 1968, all investment stopped, companies reviewed plans for expansion and growth and those with spare cash, took steps to protect their assets. The Zimbabwe economy went into another nose dive, liquidity dried up, the stock market froze and capital flight took the place of FDI which plunged to new lows.

Coming after the disastrous “fast track land reform programme” which stripped 6000 agricultural firms of their assets without compensation and often with violence and in complete disregard for the law and the Constitution, the business community took the new regulations at their face value and overnight this became the leading impediment to investment and growth. Since taking back absolute power in July 2013, the Zanu PF has reaffirmed their commitment to indigenisation. Clarifications issued by Ministers to try and alleviate the fears of the investing community at large have not put to rest the belief that this is not just another asset grab in a new form.

As a direct consequence, FDI has dried up, capital flight remains endemic, the banking sector is extremely fragile and the GDP has slowed or even contracted since the elections. Company closures are continuing and employment in the formal sector declining. This will be the worst agricultural season for many years, despite good rains and the engine of growth in Zimbabwe, aside from the farm sector, is stagnant or contracting. Tax revenues are also declining and this poses an immediate threat to the State and our fragile stability as the budget is simply not big enough to meet even a fraction of our needs.

It may be a tough pill to swallow but if our leadership does not wake up and appreciate that the days of achieving wealth by taking away from others what they have created by their own efforts, are over. If we want to rejoin the real world that exists “out there” we must make the kind of changes that the Kenyans and the Zambians have made in the past decade and who are now reaping the wind of rapid growth and investment. We have already done much of what is needed to realize the future, let’s get on with it and finish the job so that we can all get back to making a decent living.

Eddie Cross
Harare, 8th February 2014