For the longest time, I thought that our political leaders make bad decisions over the country because they are ignorant or lack exposure. For some it may be true, but it slowly dawned on me that when politicians are in power, they more or less know exactly what they are doing, even if the decisions they make seem senseless. There is a rational logic to what they do.
For example, why would any sane politician insist on keeping loss-making parastatals such as ZESCO and Zamtel in government hands even though their dismal performance is clear to anyone that cares to look at their financial statements? Why would a president ban the export of maize from Zambia when they know that it shall bring Dollars into Zambia that shall help solve the massive Kwacha depreciation problem?
Why has Vodacom been blocked for many years from coming into Zambia even though it makes sense to have more competition? The current cellphone companies except the useless Zamtel make huge profits in the region of 60-80%. Why have certain projects worth billions of Dollars been prevented from being actualized?
Why would imports of goods like cement be sometimes banned even though cheaper cement from abroad is good for the country? Why slap tariffs on imported cheaper fertilizer? Why subsidize fuel and maize? Why is the Food Reserve Agency involved in maize marketing and has been a colossal disaster at it? Why does GRZ want to reopen the defunct Zambia Airways when almost all African Airlines are loss making, including South African Airways from a much bigger economy?
Follow the money. Ask who stands to gain from what. Find out the implications for political power. That’s the first step to the answers.
ZESCO and Zamtel have been tools for ruling parties from UNIP, MMD and PF to extract money to line their pockets and provide jobs to their relatives. Zamtel was a well performing company under LAPGreenN until Michael Sata expropriated it and filled it with PF cadres who have run it into the ground in 3 years as money is siphoned out through dubious contracts and other machinations. Same thing will happen to Zambia Airways which will be even worse. INDECO gobbled K10 million to set up.
Someone has to provide all sorts of goods and services to ZESCO so it makes sense to have it under GRZ. Millions of dollars per month are spent to subsidize electricity for Zambians and the mines. The mines consume half of all the power generated. One cannot help and suspect that maybe some people somewhere in GRZ are being oiled nicely to resist upward adjustments in the tariffs. There are whispers that new power plants from smaller players have been resisted in the past because some people are eating when ZESCO imports power. Besides, there is more money to be eaten if a big contract is given to a Chinese construction to build a huge hydro project.
It is not in the interests of MTN and Airtel to have a strong competitor like Vodacom. I seem to recall a certain CEO for one of them making a statement some years ago that Zambia did not need a fourth mobile provider. When Zamtel was sold to LAPGreenN, a statutory instrument was signed which placed a moratorium on new mobile phone licences until in 2015. The SI expired and Vodacom is still not yet here, though I hear they are coming isoon. I am sure you can connect the dots by now why Vodacom was denied a licence all these years.
It is well-connected elites who benefit when maize exports are banned because they have the ability to smuggle without being caught easily. FISP and other agricultural subsidies also benefit large farmers who are either in GRZ or well-connected. It is rumoured that Dangote Cement was also resisted for some time. After making noise about costs of doing business in Zambia, it is funny that other cement makers have reduced their prices in line with Dangote.
Point is that ruling elites gain a lot by creating monopolies and cartels through legislation and executive orders. They always couch them in terms of patriotism as they wine and dine at our expense in the sense that they create barriers to entry in business. The only time they do the right thing is when they are forced by circumstances the way parastatals had to be sold during the Chiluba era.
Everything they do is to make money for themselves or otherwise advantage themselves in some way. Even things like subsidies are not really meant to help the poor but to make the poor vote for them so that they continue making a killing by being in power. Ruling elites fear what the economist Joseph Shumpeter called “Creative Destruction”. Creative Destruction is unleashed when barriers to entry are lowered and monopolies killed. So don’t expect ZESCO to be privatized anytime soon unless external factors come in (eg IMF).
Here are some excerpts from chapter 3 of the best book I have read this year so far, “Why Nations Fail” by Daron Acemoglu and James Robinson:
Inclusive economic institutions create inclusive markets, which not only give people freedom to pursue the vocations in life that best suit their talents but also provide a level playing field that gives them the opportunity to do so. Those who have good ideas will be able to start businesses, workers will tend to go to activities where their productivity is greater, and less efficient firms can be replaced by more efficient ones.
Inclusive economic institutions also pave the way for two other engines of prosperity: technology and education. Sustained economic growth is almost always accompanied by technological improvements that enable people (labor), land, and existing capital (buildings, existing machines, and so on) to become more productive.
These improvements follow from science and from entrepreneurs such as Thomas Edison, who applied science to create profitable businesses. This process of innovation is made possible by economic institutions that encourage private property, uphold contracts, create a level playing field, and encourage and allow the entry of new businesses that can bring new technologies to life. It should therefore be no surprise that it was U.S. society, not Mexico or Peru, that produced Thomas Edison, and that it was South Korea, not North Korea, that today produces technologically innovative companies such as Samsung and Hyundai.
Intimately linked to technology are the education, skills, competencies, and know-how of the workforce, acquired in schools, at home, and on the job. We are so much more productive than a century ago not just because of better technology embodied in machines but also because of the greater know-how that workers possess. All the technology in the world would be of little use without workers who knew how to operate it.
But there is more to skills and competencies than just the ability to run machines. It is the education and skills of the workforce that generate the scientific knowledge upon which our progress is built and that enable the adaptation and adoption of these technologies in diverse lines of business.
The United States could produce, or attract from foreign lands, the likes of Bill Gates, Steve Jobs, Sergey Brin, Larry Page, and Jeff Bezos, and the hundreds of scientists who made fundamental discoveries in information technology, nuclear power, biotech, and other fields upon which these entrepreneurs built their businesses.
The low education level of poor countries is caused by economic institutions that fail to create incentives for parents to educate their children and by political institutions that fail to induce the government to build, finance, and support schools and the wishes of parents and children. The price these nations pay for low education of their population and lack of inclusive markets is high.
They fail to mobilize their nascent talent. They have many potential Bill Gateses and perhaps one or two Albert Einsteins who are now working as poor, uneducated farmers, being coerced to do what they don’t want to do or being drafted into the army, because they never had the opportunity to realize their vocation in life.
The ability of economic institutions to harness the potential of inclusive markets, encourage technological innovation, invest in people, and mobilize the talents and skills of a large number of individuals is critical for economic growth.