Government’s hands-off approach has ensured an economic success story, writes Tim Trulock
For 27 years, the former president of Zambia, Kenneth Kaunda, nationalised not only the large flagship companies, but also many small, nickel-and-dime operations.
The government became the major shareholder in Zambia and then proceeded to run it into the ground, destroying not only the profitability and competitiveness of these companies, but also the work ethic.
But then a new democratically elected regime took over in 1991. The new order had to figure out what to do with these run-down, over-staffed and unprofitable dinosaurs. The solution was the Zambia Privatisation Agency (ZPA).
Formed in 1992 as an independent body to control the process of selling off the state-owned companies and properties (called units), the agency aims to make a realistic assessment of each business – its assets, debts, staff, viability – and sell it off for the maximum benefit to Zambia. Various methods have been used, including trade sales, competitive bids and management or employee buyouts.
The ZPA is a one-stop shop. Although the Zambian government decides what assets are to be privatised, it is up to the ZPA to analyse each unit, often with the help of outside consultants.
Once it has determined the best method for disposal, it makes a recommendation to the government, which then considers it and in most cases rubber-stamps the ZPA’s advice. Then it drops out of the process, leaving the ZPA to manage the details.
This method has proved extremely successful in ensuring there is no favouritism or shady deals involved with the allocation of the units. To ensure the privatisation process is transparent, objective and free of political influence, asset evaluations are always undertaken by independent, professionally certified organisations.
By the end of 1997, the agency had privatised 224 units. The sales have netted Zambia about $70-million, not counting the investment pledges that have been made and incorporated in the sales agreements.
Still to come on line are 28 units that are currently under negotiation and waiting to be awarded (including most of the Zambian Consolidated Copper Mines bids). There are still another 137 units in various forms of preparedness waiting to be privatised. The ZPA estimates it will have sold off all the units by mid-1999.
South African investors have acquired 25 units or companies and several of them have made a huge impact on the Zambian economy and standard of living.
One of the first investors was Anglo American, which acquired the Lusaka Zambian Breweries (Zambrew) in 1994. Before privatisation, Zambrew produced only one type of lager, called Mosi (“The Beer that Thunders”).
Mosi was always in short supply and just about impossible to obtain if you didn’t have a crate of empties, as there was also a shortage of beer bottles. Out of every case of 24 beers, six would be good, 12 would be passable and the rest would be undrinkable.
The first thing Anglo did was to standardise the brewing process to achieve consistency in the quality of the beer. Then it turned to boosting supply. By the middle of 1997, it had introduced locally brewed Ohlssons and Castle. In the process it has achieved a major market share in the copper belt from the other privatised brewery, Northern Breweries.
Shoprite/Checkers moved into Zambia in 1996 after successfully obtaining several of the old and defunct privatised supermarkets in six of the major urban areas. The first shop in downtown Lusaka caused a huge stir in the city’s retail sector.
According to the Lusaka Lowdown, a local magazine, it was about 20% cheaper than other smaller supermarkets in the city. The company has now opened many more outlets in the other urban centres in remote Zambia.
Other South African companies are waiting in the wings. Southern Sun has been tipped to win the tender for two prime hotel sites adjacent to the Victoria Falls.
The Zimbabwean side of the falls is overcrowded and constrained by the nature reserves surrounding the town, while Zambia has plenty of space to develop. The type of world-class development that has been proposed on the Zambian side may well kickstart the fledgling Zambian tourist industry.
And with the completion of the negotiations over unbundling the copper and cobalt mining conglomerate, more South African investment is set to enter Zambia.
This is the cornerstone of the privatisation programme and one that has the power to make or break the economy. It is estimated that the sales will raise well over $2,5-billion in upfront and committed investments.
Anglo, which has long owned 27% of the group, estimates the cost of developing Zambia’s richest known copper reserve at between $700-million and $800-million.
The Zambian government, which owns 60,3%, will sell its holdings in two stages. First, majority interests will be sold to trade partners, leaving the government as a minority partner. In the second stage, the government will eventually sell at least some of its shares to individual and institutional investors.
The copperbelt province, where the copper mines are located, is beginning to experience a resurgence as a result. Property prices are rising and the service industry is gearing up to accommodate the expected influx of people and money.
To overturn decades of misrule and misguided economic meddling is not easy. But Zambia has managed, against the odds, to overcome problems of nepotism and corruption – at least when it comes to privatisation.
The ZPA has proven to be one of Africa’s success stories.
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