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Doing Business in Africa: Zambia

Doing Business in Africa: Zambia

Zambia, a landlocked country in southern Africa, is a country built on a single commodity – copper. Since independence in 1964 from the British Empire, the country’s economic and political fate has been tied to the price that copper, a crucial industrial metal, commands on world markets.

Politics, too, however has had its hand to play in determining Zambia’s fate. Indeed, Zambia was originally lumped together with neighboring Malawi and Zimbabwe – then called Rhodesia – in the Federation of Rhodesia and Nyasaland, an administrative unit of Britain’s empire is southern Africa that was created in 1953.

The federation proved unpopular, particularly in Northern Rhodesia – what would eventually become modern-day Zambia – and protests led by the United National Independence Party, headed by Zambia’s future first chief of state, Kenneth Kaunda, led to its dissolution in 1963 and independence as a separate nation in 1964.

Kuanda, while a Zambian patriot determined to lead his country out of colonial bondage, nonetheless proved less than an ideal ruler. Following the path set down by other African independence rulers, Kuanda’s presidency became autocratic and increasingly socialistic. In 1968 all parties except Kuanda’s UNIP were banned and in 1968 a program of nationalization of major foreign holdings in the country was instituted.

Ostensibly aimed at using Zambia’s rich copper resources to promote development, the nationalizations proved disastrously ill-timed. In the decade following, for instance, world oil prices skyrocketed in 1973 and 1979 as a result of war and revolution in the Middle East. This had the effect of choking off global industrial demand for copper – Zambia’s primary export – while dramatically increasing Zambia’s import bill for petroleum.

Coupled with large numbers of refugees from the late-Cold War conflicts throughout southern Africa and  caught between the hammer of reduced export revenues and increasingly expensive imported petroleum, the Zambian economy went into free fall.

By the 1980s, as a result, Zambia became one of the most indebted countries in Africa. Then, in 1990, the end of the Cold War and political unrest in Zambia over Kuanda’s continuing misrule forced the embattled president to enact political reforms that led to multiparty elections – and his own ouster – in 1991.

In his place, Zambians elected Frederick Chiluba as president – Zambia’s second since independence – and gave his political party, the Movement for Multiparty Democracy, a commanding lead in Zambia’s parliament.

Chiluba and his party pushed through a series of economic and political reforms that completely restructured the Zambian state and economy. Nationalized firms, particularly in the crucial mining sector, were privatized, state control over the economy was lessened, and foreign capital allowed in.

In support, foreign creditors and donors in the West provided economic aid and agreed to forgive some of Zambia’s outstanding debt.

Chiluba, then, refashioned Zambia along Western lines, and in the process promoted a much more benign environment for economic growth and entrepreneurship. Coupled with a strong rebound in demand for copper – particularly from China – by the late ‘90s and early 2000s, the stage was set for the new Zambia to produce significant amounts of economic growth.

Ease of Doing Business

Given all this, what are business conditions like in Zambia? According to the World Bank, Zambia currently ranks 76th out of 183 countries on its Ease of Doing Business Index – a measure created by the bank to gauge the degree to which commercial enterprises encounter regulatory hurdles, legal threats to property, and the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses.

By way of comparison, the United States ranks 4th on ease of doing business, right after Singapore, Hong Kong, and New Zealand.

What does this ranking mean? Take, for instance, the bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. From the figure one can see that the bank defines business-creation costs as consisting of the time and money outlays involved in the series of legal steps necessary for the entrepreneur must take in order to legally establish an in-country firm. Using this framework, the bank then tasks researchers to go through this process in order to establish in-country averages.