Nationalisation: A case study of Zambia

Nationalisation: A case study of Zambia By Ndangwa Noyoo Rhodes University Summer School 13 September 2011

Introduction  On 19th April 1968 the president of Zambia, Kenneth

Kaunda, announced that the state would intervene in the Zambian economy and nationalise all private retail, transport, and manufacturing firms in the country, through what came to be known as the Mulungushi Reforms. The government was to acquire 51 per cent shares through the newly created parastatal - the Industrial Development Corporation (INDECO). A year later, on 11th August 1969, the Matero Reforms were announced, and these resulted in the government purchasing 51 per cent shares from the existing mining companies: Anglo American Corporation and Roan Selection Trust, leading to partial nationalisation of the copper industry. 2

 Eighty per cent of the economy was now under state

control after this second phase of nationalisation which now encompassed mining, energy, transport, tourism, finance, agriculture, services, commerce, trade, manufacturing and construction sectors. Further reforms were carried out on 10th November 1970. These were extended to the financial sector including the insurance companies and building societies, but excluding the banks, which successfully resisted being taken over.

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Rationale  “Several times before, I have declared in very clear

terms that political independence without matching economic independence is meaningless. It is economic independence that brings in its wake social, cultural and scientific progress of man. No doubt political independence is the key, but only the key to the house we must build……If we are true humanists then whatever institutions we create must be geared towards fulfilling our commitments to the common man. Basically this means providing adequate food, adequate clothing and adequate shelter for all our people in Zambia and not just a few of them.” 4

 “Today our society is being exploited very

badly indeed by some unscrupulous men and women who are driven to the extreme right by the ‘profit motive’. A good number bring very little capital into Zambia, but because of their know-how they are able to build something locally on borrowed Zambian money and send out of the country excessive profits after a very short time.” (Kaunda, 1968). 5

 The overall goal of nationalisation was to

increase local control over an economy which at independence was completely dominated by foreigners at the ownership and managerial levels. Even as late as 1968 only 15 per cent of bank credit was channelled to Zambian citizens. A parallel aim was to ensure that a larger proportion of the Gross National Product remained in the country (Molteno and Tordoff, 1974). 6

Extent of Nationalisation  This was far-reaching: the president put notice for “owners of

certain firms to invite the Government to join their enterprise.” Listed firms had to sell at least 51 per cent of their shares to the government. The first firms mentioned were Anros Industries Ltd., Monarch (Zambia) Ltd., and Crittal-Hope (Zambia) Ltd. These three companies dominated the field of window and door frame manufacturing. The building industry was also targeted: Anglo-African Glass Co. Ltd., P.G. Timbers, Baldwins Ltd., Steel Supplies of Zambia Ltd., P.G. Timbers, Baldwins Ltd., Steel Supplies of Zambia Ltd., Zamtimbia Ltd., May and Hassell (Zambia) Ltd., and Johnson and Fletcher were taken over and fell under the control of the new parastatal company the Zambia Steel and Building Supplies Ltd., which was wholly owned by the Industrial Development Corporation.

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 The third area linked to the building industry were

three quarries that had supplied crushed stone in the Lusaka area. They were Nicholas Quarries, Gerry’s Quarries and Greystone Quarry. The next industry that was “asked to invite” the government to join in its activities was the brewing industry. Northern Breweries Ltd., and its subsidiary the Heinrich’s Syndicate Ltd., were earmarked. Next was the transport sector: Smith and Youngson Ltd., and Central African Road Services Ltd., were nationalised. 8

 The state was also to engage in retail and wholesale

distribution. The firms which were targeted were: C.B.C stores and shops, O.K. Bazaars, Standard Trading, Solanki Brothers Ltd., and Mwaiseni Stores Ltd. In the timber sector the Zambezi Sawmills Ltd., and the Mining Timbers Ltd., which supplied logs and mining poles to the mines were nationalised. In the print media, the Zambia Newspapers Ltd., which published Zambia’s only daily and Sunday newspapers fell under government control. In the fisheries industries, Irvin and Johnson Ltd., was “invited” as well. 9

On compensation of foreign firms  This was to be on the basis of book value of

assets as Kaunda noted: “I shall leave it to INDECO to negotiate values and terms of payment but I want to make it clear that what they will pay is a fair value represented by the book values. There is no such thing as business goodwill or paying for future profits as far as I am concerned. I cannot see any reason why we should pay extra for the boom we have ourselves created.” 10

 The mines were not initially nationalised

because as Kaunda put it: “The copper mines are big business—too big for us.” But a year later, there was a change in attitude from Kaunda.  Time Magazine of August 22, 1969 probably best captures the reasons behind the nationalisation of the mines:

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 “Zambia, the former British colony of Northern

Rhodesia, remains uncomfortably dependent upon white-dominated Rhodesia for trade and electric power. The cost of living is soaring and abrasive tensions between Zambia's blacks and whites (who constitute 1.5% of the population), are on the rise. Recognising the importance of the mines to his country, Kaunda met two years ago with Chile's President Eduardo Frei to discuss an arrangement to help maintain world copper prices and quotas. Although no price-fixing agreement resulted from their talks, Frei's nationalisation of the Chilean copper industry, beginning in 1967, probably stimulated Kaunda to take a similar step in Zambia.” 12

 The same article foretells quite poignantly:

“Kaunda's action entails serious risks for his country. Zambia has neither the capital nor the skills to run the mines by itself. Kaunda must rely heavily on both the companies and their remaining 5,000 white miners to keep operations going. Only the steadily rising price of copper, now at a high of $740 per pound, has enabled Zambia to maintain a favorable balance of payments in recent years. Any decline in copper prices as a result of an end of the war in Viet Nam, the discovery of new sources, or the increased use of other minerals, would hit Zambia hard.” 13

Implications of nationalisation  It is important to note that at independence, Zambia

inherited a prosperous mining-based mono-economy. With her abundant natural resources, prospects for social and human development looked very bright. However, the government was faced with the challenge of diversifying the economy in order to redress inherent inequalities that existed due to the rural-urban divide, geographically isolated labour reserves, high unemployment among indigenous Zambians, and discriminatory channels for the provision of socio-economic services, such as health and education. 14

 This was compounded by the Unilateral

Declaration of Independence (UDI) by the Smith government in Rhodesia that unexpectedly cut off communication and trade with Zambia’s southern neighbours in 1965 (UNDP, 2003).

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 Nationalisation therefore, led to significant changes

from liberal policies to a more restrictive policy environment that entailed increased government involvement in national development. Policies also attempted to diversify the economy from mining through industrialisation and import substitution. The main strategy for import substitution was the introduction of various parastatal companies, through which the local manufacturing sector was protected by high tariffs and an over-valued exchange rate. Price controls for major commodities were also put in place (UNDP, 2003). 16

 In pursuance of an egalitarian society that

was guided by Humanism, the government invested heavily in education and health infrastructure, such as the University of Zambia (UNZA), the University Teaching Hospital (UTH) and thousands of schools, colleges, and district hospitals which did not exist in the colonial era. These facilities opened up socio-economic opportunities for many previously disadvantaged Zambians (UNDP, 2003). 17

 The mining conglomerate - the Zambia Consolidated

Copper Mines (ZCCM) – which materialised from the nationalised Roan Selection Trust and the AngloAmerican Corporation mines became a major player in the country’s development. ZCCM mirrored the State’s developmental philosophy and supplied social amenities much wider in scope than those offered during the colonial period, including free education for miners’ children, alongside subsidised housing and food, electricity, water and transport. ZCCM literally operated a “cradle to grave” welfare policy, even subsidising burial arrangements for the dead (Fraser and Lungu 2006). 18

 The mines did not only just look after their workers,

they also provided services to the whole community. The company managed the environment in the mine townships, maintained roads and collected refuse as well as provided cafeterias, bars and social clubs dotted over the mine townships. They encouraged the growth of economic and social activities dependent on miners’ incomes, such as shops, farms to supply food to the mine areas and other industrial activities.

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 Youth development schemes helped youths in the

compounds identify skills they could pursue and formalise as careers. Women’s clubs concentrated on home-craft. Social casework agencies were charged with investigating social conditions in the townships. By the time of privatisation, ZCCM had one or two hospitals at each of its operating division. In towns like Nchanga and Konkola there were no government hospitals and non-mine employees and their dependants relied on mine hospitals for access to medical services (Fraser and Lungu 2006:8). 20

 Parastatals also heavily subsidised their services in

the favour of Zambia’s poor. For example, the United Bus Company of Zambia (UBZ) offered cheap transport throughout the country - even to the remotest parts, where private firms were not willing to operate. Other companies like the Nitrogen Chemicals of Zambia (NCZ) produced fertiliser and sold it at concessionary rates to farmers, while the Zambia Electricity Supply Corporation (ZESCO) took over from the private firms and began an electrification programme that extended to all parts of the country. Parastatals were engaged in crucial initiatives that the private sector was not willing to pursue or which they deemed “unprofitable” (Noyoo, 2010). 21

 These organisations were also key in the

government’s employment creation and job security agenda. Zambians were guaranteed jobs as a way of tackling poverty via access to incomes. In the main, employment became a key development imperative and an artery of social policy. The policy of Zambianisation also reinforced the abovementioned.

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How nationalisation was blunted  The copper mines propped up all facets of

the Zambian economy. This situation was clearly unsustainable and perilous. It became evident with the onset of the first oil crisis of 1973 that triggered a world recession and also led to the plummeting of copper prices on international markets. After the second oil crisis in 1979, interest rates shot up and Zambia was thrown into a severe debt crisis. 23

 For twenty years the economy collapsed at

an internationally unprecedented rate as copper prices continued to fall relative to the price of imports. Between 1974 and 1994, per capita income declined by 50 per cent leaving Zambia the twenty-fifth poorest country in the world (Fraser and Lungu 2006).

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 Zambia which had created a comprehensive welfare

system could no longer guarantee services to its citizens. Companies that had offered heavily subsidised social services were operating below par and merely became drains on the economy. Again, it is noteworthy that throughout the economic crisis, ZCCM was treated as a “cash cow”, milked without corresponding investment in machinery and prospecting ventures, and the mines suffered from little investment, as had been the case before 1969.

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 With no prospects for exploration and drilling, and a

lack of spares in equipment and machinery, no new mines were opened after 1979. ZCCM production collapsed from a high of 750,000 tones in 1973 to 257, 000 tonnes in 2000 (Fraser and Lungu 2006). Additionally, real GDP per capita fell from US$ 1455 in 1976 to US$ 1037 by 1987 – an average of -3.6 per cent per year. By 2000, real GDP per capita had fallen to US$ 892 (Situmbeko and Zulu 2004). It cost Zambia 1$Million a day to run its mines.

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 Having supported liberations movements of Angola,

Mozambique, Namibia, South Africa and Zimbabwe, both morally and financially, Zambia lost out on a lot of economic opportunities. Constant military raids by the armed forces of the white minority regimes in the region, resulted in countless deaths of Zambians, the destruction of infrastructure (that was critical to economic development) as well as engendered a heightened state of insecurity in the country that was inimical to Foreign Direct Investment (FDI). Zambia’s position against colonialism and apartheid is estimated to have cost over US$ 19 billion. Furthermore, Zambia’s apartheid debt is put at about US$ 5.34 billion (Action for Southern Africa, 2005). 27

 The period that saw the downturn of the

economy, especially after 1975, also coincided with the rise of political misrule on the part of the ruling party UNIP. This era was exemplified by arbitrary decisions made by the government, especially in economic matters without consulting the Zambian people.

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 This is because in 1972, Zambia was officially

proclaimed a one-party state and a year later the consolidation of this system earnestly started. All opposition political parties and activities were effectively banned. The country’s political landscape was now dominated and controlled by one party: UNIP.

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 Dissent and alternative views from those of the ruling

party were thwarted. All spaces for political contestation were closed down and Zambia slowly became a regimented society. There were also arbitrary and mass detentions of Zambians who were perceived as enemies of UNIP and Kaunda. Innovation and talent were treated with suspicion and perceived as potential threats to single-party rule. Business persons or wealthy individuals were also targets of the one-party state, and they in turn felt insecure. The country literally began to “mark time” in this period (Noyoo, 2010). 30

 Even though the intention was noble Kaunda had

nationalised the mines without undertaking a broad consultative process (even his cabinet was not aware of this move before it was announced).  Nationalisation was also used for political expediency. It is noteworthy that the 1967 Mulungushi UNIP internal elections were the first and biggest threat to Kaunda’s leadership since independence in 1964. Naturally he had to secure himself through this noble cause. In 1968, UNIP also suffered major losses at the national polls as the opposition was gaining ground. Nationalisation was thus Kaunda and UNIP’s trump card. 31

 It was in this atmosphere that the World Bank and the

International Monetary Fund entered into Zambia’s economic decision-making processes, in the 1980s, through austerity programmes. The former organisations were owed large amounts of money by the country. With this leeway, they then compelled the Zambian government to liberalise the economy and also cut down on social spending. The understanding behind these measures was that the State-controlled economy had overheated through interventionist policies. 32

Lessons for South Africa  There

is nothing inherently wrong with nationalisation if it is well-mapped out, wellthought out, devoid of political machinations or interference, nepotism, ethnic agendas, corruption or clientelistic tendencies. But this has hardly been the case in Africa.  Many good things came out of Zambia’s nationalisation process such as universal and near free education and quality health care. However, it funded a whole lot of bad things. Such as patronage and state repression. 33

 Politicians

of all shades have advocated nationalisation – communists, socialists, social democrats, liberals, conservatives, fascists. Stalin nationalised, and so did Mussolini, Attlee, and Edward Heath. Nationalisation has been done in peace and war, boom and slump, depressions, recessions, reconstructions and economic miracles. Nationalisation is indeed an established part of South Africa’s economic history. State involvement in the economy was firmly established in the 1920s. Long before the post-war nationalisations in the West, South Africa had placed all its major utilities and several of its industries under national ownership (Coleman, 1991). 34

 Many of these public companies were established

from the scratch – like the South African Post Office, with interests in postal services, telecommunications and banking services, even marketing boards.  There were three main reasons for these nationalisations: 1. To develop industries not prioritised by private capital, but essential to the development of an advanced economy. For example the Iron and Steel Corporation (Iscor – which was later privatised, and the South African Transport Services with a monopoly over railways, dominance in air transport, and interests in road transport. Also Eskom, which supplies all electricity. 35

2. As a strategic response to oil and arms embargoes imposed against apartheid. The state set out to make South Africa selfsufficient in arms and munitions through Armscor (but failed) and in energy through Sasol (and failed again). 3. Successive governments, particularly after 1948, sought to provide whites with a high standard of living. Apartheid governments nationalised and regulated where their ideological aims were not achieved by the private sector alone. Preferential jobs were given to whites within the expanding state sector. In 1943, National Party leader D.F., Malan proposed that the state intervene to the “maximum possible degree in the economy to help the Afrikaner achieve his rightful share” of South Africa’s economic cake ( Coleman, 1991:3).

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was part of the state’s economic policy for the four decades of National Party rule.

 Nationalisation

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Conclusion and way forward  Worldwide nationalisation is embarked upon

due to: (a) politics and ideology; (b) Economic reasoning – equitable distribution of wealth; (c) Protecting strategic interests.  What is key however is that before any government begins to nationalise, it must have clear reasons for doing so (emphasis added). The more broader and imprecise the aims, the less likely nationalisation is to succeed. 38

 To end, Coleman (1991:6) prophetically observed:

“However, the frequently wide differences between the stated aims of nationalisation in South Africa and other countries indicates a need for advocates of nationalisation here to think again, to return to the drawing board. Economic and social objectives, one finds have been sacrificed at the alters of politics and ideology. Arguments elsewhere in the world have put together coherent, if contentious, reasons to nationalise. In South Africa, however, no wholly logical, rigorous motivation has yet been put forward.” 39

References   

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Action for Southern Africa (ACTSA), (2005). On the front line: Zambia indebted for her antiapartheid stance. htpp://actsa.org/Debt/zambiafrontline.htm, accessed 20 July 2005. Coleman, K., (1991). Nationalisation. Beyond the Slogans. Fraser, A., and Lungu, J., (2006). For Whom the Windfalls? Winners and losers in the privatisation of the Zambia’s copper mines. http://www.revenuewatch.org/documents/windfalls_20070307.pdf, accessed on 10 September 2007. Kaunda, K.D., (1968). Speech at the National Council of the United National Independence Party – UNIP – at Mulungushi, 19th April. Midgley, J., (1995). Social Development - The Developmental Perspective in Social Welfare. London: SAGE Publications. Molteno, R., and Tordoff, W., (1974). Conclusion, In W., Tordoff (Ed.), Politics in Zambia. Manchester: Manchester University Press. Noyoo, N., (2010). Linking Corporate Social Responsibility and Social Policy in Zambia, In P., Utting and J.S., Marques, (Eds.), Corporate Social Responsibility and Regulatory Governance. Towards Inclusive Development? (pp.105-123). Houndsmills: Palgrave Macmillan Publishers. Noyoo, N., (2010). Social Policy and Human Development in Zambia. London: Adonis and Abbey. Time Magazine (1969). Mining: Nationalisation in Zambia. Friday, Aug. 22. United Nations Development Programme, (UNDP) (2003). Zambia Human Development Report. Lusaka: UNDP.

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