ZAMBIA’S TRADE SITUATION: IMPLICATIONS FOR DEBT AND POVERTY REDUCTION

The supremacy of international trade as an engine of growth has regained its pre-eminence on the development agenda. Thus far external trade has been accepted as not only an engine of growth but also as a critical element of any strategy to satisfy domestic aggregate demand and fight poverty. For Zambia, international trade relations are very important given the country’s dependence on imports for the much-needed manufactured goods and earnings from the export of primary commodities. Within the global context, there is compelling evidence to show that most poor countries at the behest of the Bretton Woods Institutions are pursuing export-led policies within the framework of neo-liberalism. However, most of the least developed countries like Zambia are faced with declining terms of trade, export barriers and ambiguous trade protocols within the regional and multilateral trading systems (MTS). This results in chronic current account deficits and balance of payments (BOP) crises that militate against development in poor countries. As an interim measure to close the BOP deficits, the poor countries are usually forced to borrow domestically and externally with the resultant accumulation of huge domestic and external debt stocks. Most of the external debt poses adverse economic effects on the borrowing country given the austere conditionality and ‘shock therapies’ that donors attach to the loans.The problem of unsustainable external debts continues to be a major source of concern among the civil society, cooperating partners, government and indeed other stakeholders. With Zambia’s qualification to the Heavily Indebted Poor Country (HIPC) completion point in April 2005, the external debt relief and cancellation are likely to significantly reduce both Zambia’s external debt stock and debt service amounts, other things being equal. However, the unfair external trade regime at the international level threatens the sustainability of the external debt stock as it generates Balance of Payment (BOP) crises that require mitigation mainly through external borrowing. Thus, the Jesuit Centre for Theological Reflection (JCTR)’ s Debt and Trade Project is concerned that the relationship among debt, trade and poverty is a very important factor and must be explored and made part of the holistic policy environment, which leads to sustainable development. Therefore, this study was commissioned by the JCTR’s Debt and Trade Project to explore Zambia’s trade situation. Among the focus questions addressed are the following: What is Zambia’s trade situation like? How are the trade policies and negotiation positions formulated? Is there a linkage between trade and investment in Zambia? What are the main trade protocols that the country has so far ratified? What is the likely impact of the Economic Partnership Agreements (EPAs) on Zambia? Furthermore the paper sought to define clearly the link between trade and debt and how these impact on the Zambian people. The main conclusions drawn from the study are that: First, there is a very strong linkage among trade, debt and poverty. Second, Zambia’s comparative or competitive advantage in the non-traditional exports (NTEs) lies mainly in the Agriculture sector. Third, the full trade reciprocity with the European Union (EU) will be very costly for Zambia irrespective of how the issue is looked at. Further the paper recommends that there is urgent need to lobby for fair trade if debt sustainability and poverty reduction are to be a reality in Zambia. In this vein, there is need for closer cooperation among government, civil society organisations and other non-state actors. Moreover, the JCTR has a specific role to play in the advocacy for more just trade that will lead to poverty reduction and sustainable human development

The Tragedy and Reliability of Zambian Trade Data

Trade is an essential engine of growth and poverty reduction. Yet trade data suffers from poor quality and inconsistencies. There are several reasons for this: trade data is collected with little coordination between the reporting agencies and the central statistical offices, inadequate resources located to the data gathering agencies undermines archival process of good data, normal statistical errors of measurement and observation, and various complexities associated with international trade such as trade misinvoicing. This study explored the poor quality and inconsistencies in Zambian trade data which might render efforts at policy formulation to boost intra-regional trade and resolve issues of growth and poverty intractable. The study computed an index to depict the extent of trade misinvoicing and hence the quality of Zambia’s trade statistics in comparison with other African countries. The study documented the tendency to over-invoice exports and under-invoice imports. This is of great concern; particularly in the trade liberalisation era where the need for high quality trade data to inform constantly evolving regional and continental trade arrangements is more urgent than ever. Plausible interventions include, but are not limited to: increasing intra-country coordination between statistical and other data reporting agencies, increasing collaboration between local and partner country level data collection agencies, and encouraging open collaboration between data collection agencies and users. __________________________________________________________________________

Economic reforms and product market integration in developing countries : an empirical investigation using retail prices in Zambia

In spite of extensive trade reforms, markets for goods and services are not fully integrated across countries. Less appreciated also is that product markets within countries are frequently not integrated. Barriers to trade within countries are shown to be as important in preventing product market from integrating as barriers between countries. This evidence of withincountry market segmentation is largely based on data from developed countries. Yet market segmentation is likely to be greater between and within developing countries that face large infrastructure, trade facilitation, tariff and other regulatory barriers than between and within developed countries. This thesis uses newly obtained micro-price and tariff data to extend the price-based empirical evidence of product market integration in a developing country, namely Zambia, by examining the influence of trade costs, tariff reform and tradability on internal price dispersion. The main aim of this thesis is to examine how internal trade costs and exposure to external competition affect domestic prices and internal product market integration using Zambia as a case study of a developing country in Sub-Saharan Africa. The empirical analysis is conducted in four inter-related papers. The thesis chapters are organised as follows: The first chapter provides the general introduction of the thesis. The second Chapter documents the background to the International Monetary Fund and World Bank initiated stabilisation and structural adjustment reforms implemented by Zambia since the late 1980s. The focus of the chapter is on documenting in detail the trade liberalisation programme adopted over the period 1987 to 2011 using a highly disaggregated product-level tariff dataset constructed from primary sources, such as the Government Gazettes. This data is then used to document the extent to which the country opened up to external competition initially through multilateral reform and later through regional trade agreements. This chapter sets the scene and foundation for the later chapters, which unpack the link between tariff reform and domestic prices. The third chapter empirically investigates the extent of internal market integration in Zambia across districts, products and time using the law of one price as a theoretical benchmark. It draws on a unique product level database of monthly regional prices from 1993 to 2011 that are collected from the Central Statistics Office of Zambia. The chapter presents a descriptive iii analysis of this data. In addition, it presents a cursory assessment of how trade reforms are associated with the observed trends in internal price dispersion using simple econometric estimates

Industrial Policy in Context: Comparative Experiences from Chile and Zambia

This article tries to draw lessons from Chile for Zambia on innovative industrial policy and strategies that lead to industrial transformation and job creation. The creation of quality jobs for the increasingly skilled youth requires significant efforts. Industrial policy has been argued to have the potential to contribute to the creation of employment through support for new and old initiatives in the economy. In the case of Zambia, the economy has mainly been dominated by the mining sector, where the creation of jobs has been very small, whereas the comparator country Chile developed an institutional framework for industrial policy that addressed market failures and encouraged innovation concentrated in specific sectors. These were attainable given the country’s existing or potential comparative advantage and therefore had strong growth prospects and impacted on job creation. The study finds that Chile provides a rich experience that Zambia can learn from in creating labour intensive job opportunities especially for youths

Industrial Policy in Context: Comparative Experiences from Chile and Zambia

This article tries to draw lessons from Chile for Zambia on innovative industrial policy and strategies that lead to industrial transformation and job creation. The creation of quality jobs for the increasingly skilled youth requires significant efforts. Industrial policy has been argued to have the potential to contribute to the creation of employment through support for new and old initiatives in the economy. In the case of Zambia, the economy has mainly been dominated by the mining sector, where the creation of jobs has been very small, whereas the comparator country Chile developed an institutional framework for industrial policy that addressed market failures and encouraged innovation concentrated in specific sectors. These were attainable given the country’s existing or potential comparative advantage and therefore had strong growth prospects and impacted on job creation. The study finds that Chile provides a rich experience that Zambia can learn from in creating labour intensive job opportunities especially for youths

Bottlenecks or Growth Zones? A Study of the Chirundu and Beitbridge Border Economies

Land borders in the Southern African Development Community (SADC) region are critical zones for unlocking regional value chains, trade and economic development. The Beitbridge and Chirundu border posts represent important links in the North–South Corridor. They are vital in both regional development and bilateral initiatives. It is at these borders that many issues related to regional integration intersect. Understanding the major complications that prevent competitive trade and undermine trade facilitation initiatives is, therefore, essential. This policy brief examines the causes of standing time – a major contributor to transport costs in sub-Saharan Africa – and discusses the softer issues such as driver behaviour and border operations. We further discuss the economic development opportunities for border economies. These are intimately linked to the operation of border posts. Various complex linkages are considered. These include the potential disruptive impact that trade facilitation measures may have on firms operating at the border. A failure to improve border efficiency can similarly undermine the existing industries at the border. We also review challenges and economic opportunities at the Beitbridge and Chirundu border posts with a focus on women and youth. We conclude by providing policy recommendations

Bottlenecks or Growth Zones? A Study of the Chirundu and Beitbridge Border Economies

Land borders in the Southern African Development Community (SADC) region are critical zones for unlocking regional value chains, trade and economic development. The Beitbridge and Chirundu border posts represent important links in the North–South Corridor. They are vital in both regional development and bilateral initiatives. It is at these borders that many issues related to regional integration intersect. Understanding the major complications that prevent competitive trade and undermine trade facilitation initiatives is, therefore, essential. This policy brief examines the causes of standing time – a major contributor to transport costs in sub-Saharan Africa – and discusses the softer issues such as driver behaviour and border operations. We further discuss the economic development opportunities for border economies. These are intimately linked to the operation of border posts. Various complex linkages are considered. These include the potential disruptive impact that trade facilitation measures may have on firms operating at the border. A failure to improve border efficiency can similarly undermine the existing industries at the border. We also review challenges and economic opportunities at the Beitbridge and Chirundu border posts with a focus on women and youth. We conclude by providing policy recommendations

The Global Financial Crisis and Developing Countries: Phase 2 Synthesis

When the global financial crisis broke out in earnest in September 2008, it quickly became clear that developing countries would also be affected, but that the impacts would vary markedly. The Overseas Development Institute (ODI) coordinated a multi-country study over January-March 2009 involving developing country teams in 10 countries. This showed that, while the transmission mechanisms were similar in each (trade, private capital flows, remittances, aid), the effects varied by country, and much was not yet visible. As such, further country-specific monitoring was required. Most findings suggested that, as a result of time lags, the worst effects were yet to come. This synthesis of the effects of the global financial crisis on developing countries updates the description of the economic and social situation during the course of the crisis in 11 countries