Journal 2nd Qtr 2008 Economic Empowerment

April / June 2008

THEME

Economic Empowerment

Features 1 2 4 6 7 9

Freeway - External or internal ? The Citizens Economic Empowerment Act An Unnecessary Law How microfinance can empower the poor, especially women Power to the people Quotations of the month

10 The Virtues of a Free Market System 11 Economics without tears Food exports - good or bad ? 12 Notes - Away with delay 12 The wiki 12 Membership

ZIPPA Board : Muyunda Mwanalushi ( Chair.), Jonathan Chileshe (V/Chair.), Murray Sanderson (Exec. Sec.), Wilphred Katoto(Hon.Treas.) Hopewell Chirwa, Passmore Hamukoma, Mary Kakumbi, Chibamba Kanyama, Charles Lungu.,

Freeway - External or Internal ? Economic empowerment – what is it and how is it created? Is it internal or a gift from outside? A human being may have a strong and healthy frame; but that does not make an athlete. Sporting success requires exercise, training, discipline and, most of all, commitment and determination. With these qualities a person is empowered – self-empowered. Without them the best coaching and the most costly equipment will achieve little or nothing. As an article in this issue points out, Zambia's early outstanding entrepreneurs received little, if any, help from others. They succeeded without external empowerment; they empowered themselves. It has been well said that “The greatest power on earth is the power of example”. But when many people see the

same example often only one or two of them are inspired to emulate it. Can an economic empowerment law help? Certainly, provided it opens doors which were formerly barred, as happened in South Africa after the defeat of apartheid. Our own Mulungushi Reforms of 1968 had some similar effects, despite the dead end of state ownership. But do Zambians need the same external empowerment 40 years later? To answer that question we need to remember all those failed state lending institutions. We should also examine the Citizens Economic Empowerment Act, which will impose on every firm employing 25 or more a burden of innumerable regulations, plans and reports. What a costly and time-consuming distraction from the business priority of satisfying customers with better products and more efficient services. And what priceless

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opportunities for corrupt self-enrichment will face an army of inspectors. An early casualty of the new system will be job creation. Small businesses will be discouraged from growing beyond the 24 employee level, while those that have slightly exceeded it will have a strong reason not to replace departing employees. Laws and regulations rarely empower anyone but legislators and bureaucrats. Far more promising sources of economic empowerment are training schemes, mobile phones, micro-credit and stories of successful entrepreneurs. It is tempting to rely on legislation, but much more will be gained through the efforts of individuals who adopt the attitudes and practices of winners. Instead of pinning their hopes on preferential treatment, ambitious youngsters should emulate the determination of Samuel Matete or the enterprise of Costain Chilala.

Many readers will find the article 'Power to the People' familiar. Yes, we carried it two years ago. We publish it again because it is wonderfully appropriate, not just for the theme of Economic Empowerment, but also for today's situation in the rural areas. It reminds us of the saying that it is better to read one good book six times than to read six ordinary books once.

The Citizens Economic Enpowerment Act : a critique Dr. Jonathan H. Chileshe

Brief Background Any initiative that will contribute to the general economic wellbeing of citizens is a step in the right direction. The Citizens Economic Empowerment Act intends, among other things, “to promote the economic empowerment of targeted citizens, citizen empowered

companies, citizen influenced companies and citizen owned companies”. Such action is known as “positive discrimination”. The Act aims at providing nationals with development opportunities. This initiative is long overdue. However, past experiences in this area create doubts about likely efficacy, and the resemblance to earlier initiatives suggests “déjà vu”. Sceptics could even liken it to putting “new wine in old bottles”. However, those who are not incurable pessimists will hope this time round to see “genuine old wine being put in old bottles”. The Act has five parts: Preliminary; Economic Empowerment Commission; Economic Empowerment Measures; Citizens Economic Empowerment Fund and General Provisions. This analysis focuses attention on Part III, “Economic Empowerment Measures”. The Act defines “broad–based economic empowerment” as “empowerment through diverse but integrated socio-economic strategies to include ownership of productive assets and resources, increasing the levels of employment in the formal” (silent on informal) “sector, increasing household incomes,expanding literacy and skills development and ensuring preferential procurement and access to services of State institutions”, so as to benefit: a. b. c. d.

Targeted citizens; Citizen empowered companies Citizen influenced companies; and Citizen owned companies

The crucial area of nurturing an entrepreneurial class is not addressed. But it is most important, especially as Zambia is not endowed with a core of families with business instincts and culture similar to what obtains in some other parts of Africa, notably Ethiopia (Gurage), Kenya (Kikuyu), Tanzania (Chagga) and West Africa (Fulani).

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However, Zambia had a pool of indigenous entrepreneurs at provincial level. For example: Northern Province (Mwenso Brothers of Kasama, Shichinsambwe of Mbala), Luapula Province (Anna Chilombo, Kashimbaya, Luka Mumba, Kapesha and Kalyafye), Lusaka Province (Hiwa, Nkhuwa and Isaac Mumpanshya), Western Province (Harrington of Senanga), Central Province (Manda in Mkushi). An important feature of past entrepreneurs was their ability to start their operations without relying on the type of structure envisaged in the CEE Act.

However, certain parts of the Act leave much to be desired. For instance, the Commission has too much prominence and is given responsibilities beyond superintending the exercise.The Commission should not behave like a CEO.It has no capacity to be an entrepreneur. Its functions are to facilitate the objectives of the initiative, not to implement them.

Its Broader Context

The Crux of the Matter

Zambians have sad memories of the rise, mismanagement and demise of past experiments. They have a right to wonder whether the latest initiative will not suffer a similar fate to its predecessors: - Credit Organisation of Zambia (COZ), Lima Bank, Village Industries, Cooperative Societies and Small Industries Development Organisation (SIDO). Their demise set back the clock of economic empowerment and wasted vast resources.

“Economic empowerment” is a strategy and a tool for taking full advantage of an economy's natural and human resources. Further, it assists economic viability. It can also help to boost employment, encourage price stability, and contribute towards equitable distribution of income and wealth, as well as lightening the heavy poverty burden and reducing the ruralurban dichotomy.

Certain sections of the Act Contain good recommendations. The suggestion to collaborate with appropriate interest groups or those working in similar fields is welcome. The Commission should promote strong linkages with other institutions if it is to attain its objectives. In addition a timetable for objectives should be drawn up and progress closely monitored. Many suggestions in the Act are not new. For instance, the Danish government adopted an empowerment approach when implementing a rural road construction project in Eastern Province. The project provided for on the job training and supplied each participant with basic road maintenance equipment (wheelbarrows, a van, shovels, a water bowser, etc). It also gave them ample time to pay for the equipment from

future earnings. They were further accorded Preferential procurement (Section 19 of the Act) for road contracts in the rural areas.

The reality on the ground indicates that economic empowerment exists at various levels: individual, family, village, district, rural, urban, territorial. Economic empowerment at each level may require fine tuning depending on circumstances specified in the Act. Empowerment does not require big bank balances. To the contrary, economic empowerment at the village and rural levels should enable the individual to access needs for life while also contributing to society through paying taxes. The village is an important economic sector, yet the Act is silent on it. Sinking a well to provide water can transform its economy by empowering the inhabitants to undertake activities which depend on water. Vegetable growing near a well promotes nutrition and boosts productivity. The cash earned not only enables them to purchase other basic needs but

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also forms likely start up capital. There can be no better example of rural economic empowerment.

some of these adverse effects the programme should provide for greater decentralization of decision-making.

The Act acknowledges benefits likely to derive from collaborating with the Ministry of Agriculture, especially with a greater involvement of Agriculture Extension Officers. The Act has gone to town on collaboration with TEVETA (Sections 17 and 18). But its emphasis on employment creation from economic empowerment ignores service providers who are empowered through the interplay of market forces.

It is evident from our study of the Act that some of the suggestions on ways and means of achieving the principal objective of the initiative raise a number of arguable points. This apart, the current initiative is more focused and object oriented than previous ones.

Somehow, the Act gives the impression that there are not many linkages between different sectors of the economy, apart from those it has listed.It fails to acknowledge significant initiatives already afoot. Examples include Twikatane Small Business Enterprises and Kwesha Mu Kwenu. The former has already registered commendable results with funding by a private local financial institution. Through its structure a culture of entrepreneurship is emerging, resulting in debt recovery of some 95%.

Author: Dr. Jonathan Chileshe is Chairman, Research Development Group and Vice Chairman, ZIPPA.

An Unnecessary Law By Sharad Nayee

In his column entitled KK's diary, published in the Sunday Post of 24th February 2008, the First President writes, “we had to support the material and social development of every person in Zambia, whatever background they were from. We had to support economic empowerment. We made sure that Zambia and its people benefited from the resources available.”

Concluding Remarks Part III is on Economic Empowerment Measures. It defines what is expected of each section in terms of: General economic measures; Prohibition of discrimination: Employment equity plan; Sector education and training; Promotion of local and foreign investment; Supportive culture; Strategy for broad-based economic empowerment and Sector codes. What contributed to the eventual downfall of earlier initiatives is an open secret. Regrettably, some of the root causes seem to have found their way into the Act. For instance, excessive bureaucracy and the Commission occupying centre stage in implementation. To ameliorate

He goes on to write “the Mulungushi and Matero Reforms of 1968 and 1969 placed the economy into the hands and control of the Zambian people. Through investment, the people of Zambia took majority shareholding and control of the mining industry”. So what went wrong? In the same column Dr. Kaunda offers one answer. He says “in November 1991, we left office and actions towards local economic and social empowerment were drastically reversed by Chiluba's MMD administration” No doubt Chiluba will have his own take on this last statement! The question is: Apart from the Privatization

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program, what new legislation did the Chiluba regime introduce that has disadvantaged the Zambian people? The legal fraternity knows that new legislation is a response to a perceived problem or need, an attempt to redress a situation or to cure a mischief in law. What problem, need or mischief is the Citizens Economic Empowerment Act (CEE) of 2007 intended to address? During the past 44 years Zambians have never been subjected to any discriminatory legislation, such as the apartheid laws which subjugated black South Africans for decades. One can understand the Black Economic Empowerment (BEE) measures taken by the post apartheid government in South Africa. But even there, debate rages as to whether the intended beneficiaries have not been shortchanged by the well connected political elite. Coming back to the CEE, one notices the introduction of the term “targeted citizens”. Anyone who has followed the debate over this Act in Parliament will be left in no doubt that this term is in reality a euphemism for indigenous citizens. Perhaps someone had the presence of mind to realize that parts of the Act would conflict with Article 23 of the Constitution, which outlaws discrimination between or amongst citizens. Not withstanding this, some government departments, in clear conflict with the Constitution, have clearly stipulated in advertisements that only applications from indigenous Zambians will be considered for schemes such as the Tourism Fund. A closer study of the Act itself reveals that, however well meaning it is, it does not articulate how the poor will be brought into the mainstream economic activities or how gender balancing will be achieved. How the Act will be implemented without trampling on the ownership and property rights of non-targeted individual citizens will also be interesting to follow. Will it be implemented on

the companies owned by indigenous citizens, in which case the current enthusiasm amongst them may evaporate? Section 2 of the Act stipulates that it shall apply to “all State institutions and any employer that employs at least twenty five people”. Section 13 of the Act outlines the general economic empowerment measures but without being specific. Section 14 prohibits discrimination, which could have been easily addressed in the Labour Laws of the country. Section 15 calls upon state institutions and private companies to prepare and implement an employment equity plan. This shall, inter alia, state the empowerment measures to be implemented as provided by Section 13. This will no doubt result in a lot of very creative thinking on the part of planners. More wearisome, it will generate large volumes of paperwork for the Commission to process, which in turn will entail a huge bureaucratic structure. The vulnerability to corrupt practices is enhanced by the powers of the Commission to assess compliance under Sections 33 and 34. The penalties stipulated in Sections 38 and 39 will also create fertile ground for corruption. Section 21 of the Act provides for the reservation of specific areas of commerce, trade and industry for targeted citizens, citizen empowered companies, citizen influenced companies and citizen owned companies. This is laudable, but could have been done easily by minor amendments to the current legislation such as the Trade Licensing Act. Perusing through the other parts of the Act, one gets the impression that this was rather a rushed piece of legislation. Perhaps the enthusiasm was fuelled by the Citizens Economic Empowerment Fund which, if not carefully handled, will go the same way as the Credit Organization of Zambia and the

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Agriculture Finance Company. The Zambia National Farmers Union has already voiced objection to the Irrigation Fund being administered by the CEE Commission. Interestingly the Commission enjoys blanket immunity from any action against any commissioner, member of staff, agent or representative of the Commission for or in respect of any act done or omitted to be done in good faith in the exercise or purported exercise of its functions. The Act itself seems to be in conflict with the liberalized policies espoused by the government. Whilst intending to alleviate the wide-spread poverty in the country, the Act is long on ideas but short on practical measures. There are too many unknown and unspecified variables to be prescribed by the President or the Commission. Unless these are clarified and investors are assured that there will be no compulsory participation or expropriation, we can expect further investment to be put on hold or, worse still, taken elsewhere. It is hard to escape the conclusion that this Act is likely to have some harmful effects, and that whatever benefits it may bring could have been achieved in other ways. Author : Sharad Nayee is a Past President of the Kitwe Chamber of Commerce and Industry.

How Microfinance Can Empower The Poor Especially Women Dyson Mandivenga

Microfinance is the provision of financial services to micro-entrepreneurs. These services include savings, loans, training in business management and the provision of business advice. It is important to highlight the three main categories of poor people, that is, poorest of the poor, poor and near poor. These categories are very pertinent. Microfinance caters for the

economically active among the poor and near poor. The poorest of the poor are those who depend on handouts and government social safety nets. This category will concentrate on feeding themselves when they get money; hence microfinance will not be the appropriate tool to take them out of poverty. It is the poor and the near poor that benefit from accessing microfinance, as they have the desire to empower themselves through engaging in economic activities. In this category you find entrepreneurs who lack tangible security, women who do not have any collateral to their names and who mainly rely on consent from their spouses to borrow, OVCs, school dropouts, retrenchees and vocational training graduates. How then can microfinance help these enterprising people out of their quagmire? First, they have one thing in common, the will to fend for themselves; they don't need hand outs. Second, they lack the necessary security to borrow against. Microfinance provides a lifeline by demanding, instead of collateral, other nonconventional forms of security that most commercial banks and other financial institutions do not accept. Among these are group guarantees, household assets, insignificant cash security, and the existence of the project itself, as well as guarantees from family members and friends with traceable income. Unlike microcredit, which provides credit only, microfinance covers credit, savings and business development services. For microfinance to have an impact on poverty, the products must be designed to suit the diverse needs of this very vulnerable target group, while excluding opportunists. The latter are excluded through enforcing product characteristics, such as size of loan, cyclical increases and insistence on group guarantees. Opportunists find these conditions time-consuming, but poor people will always be humble and patient.

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Poor people live in a risky environment. Microfinance helps the poor to take advantage of opportunities for improving income or economic status, while protecting themselves against shocks or crises. Poverty reduction is a process of increasing income and economic stability, which leads to improvement in obtaining basic needs and accessing services. Income generating projects create more income, and this is how microfinance acts as a tool to empower the poor. It is well known that, amongst the most vulnerable, women top the list, for they are generally more disadvantaged, marginalized and poor than men. The empowerment of women can facilitate control over resources, which allows for this improved access. This empowerment can also help them develop a range of assets that will reduce the vulnerability of households to physical, economic and social shocks. These assets are described as financial, human, physical and social. Since microfinance targets poor clients worldwide, there is now ample evidence of its positive impact, particularly through increased income, in reducing risk and vulnerability and in the empowerment of women. Microfinance leads to the the establishment of regular income, thus enabling the poor o access food, healthcare, education and other services. Microfinance also enables poor clients to accumulate physical assets. Poor households, mainly run by women, invest in physical assets which contribute to quality of life, savings in kind (livestock) and assets which generate income, such as land or houses for rent and equipment for business. I would like to conclude by saying microfinance indeed empowers the poor, especially women, but it is not a panacea for poverty alleviation. Microfinance institutions must continuously design client-oriented products, so that poor people can access a wide range of financial services. The Millennium Development Goals

(MGDs) focus on poverty alleviation, and microfinance is a critical tool for achieving them. Author: Dyson Ziviso Mandivenga is a microfinance practitioner.

Power To The People - The Economist Newspaper, 11th March 2006 As a young boy in rural Bangladesh in 1971, Iqbal Quadir walked ten miles to collect some medicine for a sibling who was unwell. But when he arrived at his destination, the medicine man was not there, so he had to walk home empty-handed, having wasted an entire day. Many years later, having moved to America and become an investment banker, Mr Quadir was reminded of this episode when the network at his New York office stopped working. Without communications, he realized, people are far less productive, whether in a modern office or a rural village; a simple telephone call could have prevented him from making that unnecessary round trip all those years earlier. As he waited for the e-mail to start flowing again, Mr Quadir was seized by the idea that “a telephone is a weapon against poverty”. He decided to dedicate himself to making telephones more widely available to the poor in his homeland. “I didn't know anything about telecoms,” he says, “But maybe that was helpful.” It was only after having many fruitless meetings with firms and policymakers that Mr Quadir finally hit upon the right approach. He was inspired by Grameen Bank, a Bangladeshi organization well known for supplying “microcredit”, or small loans, mainly to the rural poor. In a typical example, a woman borrows enough money to buy a cow, and then repays the loan using the profits that result from selling its milk. The loan is repaid, the woman earns an income from the cow, and her neighbours can buy milk. Mr Quadir looked at this model and

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realized that “a cell phone could be a cow”. He formed a consortium with Grameen Bank and Telenor, a Norwegian mobile operator that provided the required telecoms expertise. He was then able to secure loans from development banks and aid agencies, and won a license from the Bangladeshi government. GrameenPhone launched its service in March 1997, and today has more than 6m subscribers in what has become a booming market. Around 200,000 of GrameenPhone's subscribers are “telephone ladies” who provide access to telephony in more than 50,000 rural villages, with a total population of 80m people. Despite accounting for a small proportion of the mobile phones in circulation, these “village phones” account fro one-third of the traffic on the network, since they are shared between a large number of users. By making telephony w i d e l y a v a i l a b l e , s a y s M r Q u a d i r, GrameenPhone has increased the country's GDP by a far greater amount than repeated infusions of foreign aid. Mobile phones promote economic activity, prevent wasted journeys, make it easier to look for work, and widen access to markets. GrameenPhone is not a charity, but a profitable venture: it made net profits of $102min 2004. Its approach is now being replicated in other countries in Asia and sub-Saharan Africa, including Uganda and Rwanda. GrameenPhone's success is a striking endorsement of Mr Quadir's unusual approach to promoting economic development. The problem with the traditional top-down approach of supplying development aid to governments, he complains, is that it widens the gap between politicians and the people, by increasing the power of central authorities. “The key to economic progress in Bangladesh does not lie in foreign aid, but in the hands and brains of its masses,” he says. “We need to find technologies that can activate those hands and brains for productive purposes.” Using technology to empower citizens from below, as

mobile phones do, is a far better way to promote development, says Mr Quadir: “Top-down approaches do not work. The bottle neck is at the top of the bottle.” There are historical precedents for this bottomup approach, notes Mr Quadir, who lectured in technology and economic development at Harvard University's Kennedy School of Government for four years from 2001 and has recently moved to the Massachusetts Institute of Technology, where he is establishing a new programme in development entrepreneurship. In medieval Europe, innovations such as spectacles, water wheels, clocks and printing had the effect of empowering people from below and stimulating economic development, often in the face of opposition from church and state. Similarly, the industrial revolution was the result of entrepreneurial, bottom-up activity, not government planning Having proven the e ff e c t i v e n e s s o f h i s a p p r o a c h w i t h GrameenPhone, Mr Quadir is now working to apply the same combination of technology and bottom-up entrepreneurship in other areas, starting with the supply of electricity. “I see myself as an entrepreneur between the geek and the meek,” he says. The aim of his new venture, Emergence Energy, is to establish small, neighbourhood power plants in Bangladesh that can provide electricity to a handful of homes, shops and businesses. This time he has teamed up with Dean Kamen, an American inventor best known for creating the Segway electric scooter. During 2005 they conducted a six-month trial in two rural villages in Bangladesh of prototype generator, created by Mr Kamen, based on a design called a Stirling engine. The generators can be powered by biogas extracted from cow manure. The idea is that one entrepreneur, funded by a microcredit loan, sets up a business to turn manure into methane gas and fertilizer; another entrepreneur, also funded by microcredit, buys the methane to power the

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generator, and sells the resulting electricity. This will, Mr Quadir hopes, unleash all kinds of economic activity. “Energy gives you the power to empower,” he says. The trial was intended as a test, to find out what people would use electricity for, and whether there was an economically viable business model. The results were promising: the scheme proved to be technically feasible, there was strong demand for electrical power, and consumers were willing to pay for a regular supply. The main use of electricity was for lighting, says Mr Quadir; using low-power bulbs, each generator, which produces one kilowatt of power, was able to light up 20 households or shops. This allowed shops to stay open later, enabled students to study for longer hours, and let people enjoy television and other forms of entertainment. Surprisingly, Mr Quadir found that some households already had televisions, powered using car batteries. Such batteries are also used to recharge mobile phones. This suggests that the potential “chicken and egg” problem that there would be o demand for electricity, since nobody owns any electrical appliances, will not arise. Access to regular supply of electricity should, however, promote the wider adoption of electrical devices of all kinds. The next step is to mass produce the generators so that the scheme can be launched commercially. Mr Quadir says he hopes to convince a manufacturing company to license Mr Kamen's design and set up a factory in Bangladesh to build the generators. This would have several advantages over simply importing the technology (as happened with the mobile phones): it would create jobs, avoid import tariffs that would otherwise make the generators less affordable, and the resulting transfer of technology and skills would ensure that the machines could be fixed by locals, rather than having to rely on foreign technicians.

To finance the purchase of the generators by entrepreneurs, Mr Quadir is working with another microcredit lender. The generator will cost several thousand dollars, far more than a mobile phone. But microloans are already being used to finance larger purchases, such as houses, says Mr Quadir, so he is confident that the microcredit model can be applied to the new venture. The result, as entrepreneurs start to install generators in villages, will be to produce electricity, fertilizer and jobs. Trying to change things from the ground up is more effective than lobbying authorities, insists Mr Quadir. “Without necessarily introducing enlightenment or new arguments, technology can quietly initiate novel ways of making things or trading them, potentially redistributing economic and political clout,” he says. Just as economists invoke the “invisible hand” of the market, he likes to speak of a technology as an “invisible leg” that can move an economy from one state to another. And even when a government adopts a sensible policy, there is no guarantee it will be implemented. Before the establishment of GrameenPhone, for example, the Bangladeshi government's stated policy was to promote universal access to telecommunications; but in practice not much happened. The clear success of GrameenPhone, however, prompted the government to issue more mobile licenses, which led to today's thriving market. Technology, in short, makes it possible to change the facts on the ground first, so that government policy can then follow, says Mr Quadir. Power to the people, indeed.

Quotations of the Month Surely Malays would not vote against their own economic self-interest? In the event many seem to have realized that the policy has become less a means for redistributing disadvantaged wealth to be than a vehicle for corruption and cronyism. 'The Economist' 14.3.08

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There is no greater power on earth than the power of example. – Albert Schweitzer

The Virtues of a Free Market System By Trevor Simumba

Many writers have attempted to discredit free market economics. However, most of them inadvertently provide evidence of its efficacy as an economic system for Africa, and for Zambia in particular. Many proponents of socialist systems envy the European social welfare model, but forget to point out that it depends on market systems that allow competition. The capitalist system is efficient precisely because it generates wealth and jobs, which in turn provide tax revenues which enable governments to pay for the social welfare schemes countries like Zambia would like to copy. Some of the countries cited as examples (Britain and Scandinavian countries) are among the best run free market economies, and are home to huge multinational firms like BP, Nokia, Philips, British Airways and KLM. More important, Britain is the MOTHER of privatisation and deregulation. It should also be noted that, even though privatisation in Britain started under the Conservatives, the current Labour government has not reversed it. In fact, Labour has extended privatisation to health, social security and education. What's more, the Labour Government, soon after taking power in 1997, imposed a “windfall” tax on UK utility companies, as a way of financing social programmes and creating new jobs. Donor agencies from the UK, Sweden and the Netherlands are the biggest proponents of socalled “pro-poor” market reforms in Zambia. DFID finances a major part of Zambia's public sector reform; SIDA supports financial sector reforms in Zambia, while the Dutch are the major financiers of agriculture sector and

private sector development reforms. Free market economic systems are the best way for a country to create wealth and get out of poverty. If we look at the top ten countries in the UN Human Development Index, we find that highly deregulated countries are in the top ten, namely; 1. Norway 2. Iceland 3. Australia 4. Luxembourg 5. Canada 6. Sweden 7. Switzerland 8. Ireland 9. Belgium 10. United States. Further, if we look at the top ten countries in terms of GDP per capita, we find the same story, and basically the same countries. When you compare a list of the top ten countries, with the lowest ranking country (Malawi), by per capita GDP (in terms of Purchasing Power Parity or PPP, the statistical method adopted by the UN) it shows the following: 1. Luxembourg 2. Norway 3. United States 4. Ireland 5. Iceland 6. Denmark 7. Canada 8. Austria 9. Hong Kong 10. Switzerland 179. Malawi

US$69,800 42,364 41,399 40,610 35,586 34,737 34,273 33,615 33,411 32,571 596

These statistics do not match the theory of capitalism as some dangerous beast out to steal people's wealth. In actual fact capitalism is a catalyst for economic development, and it distributes wealth much better than using corrupt state controlled means which do not reach the intended masses. In 1755 Adam Smith declared, "little else is required to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes and the tolerable administration of justice". This leading advocate of laissez-faire capitalism is

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leading advocate of laissez-faire capitalism is widely regarded as the father of modern economics around the developed world. While he never used the term capitalism, he referred to his ideal as "the system of natural liberty". Indeed what is known today as capitalism is all about liberty. Those who strongly support individual liberty, as most Zambians do, see that it is government interference in people's lives that is a great barrier to freedom. Anything that impinges on individual freedom is likely to have seriously negative consequences. This is clear when one looks at the economy of our country which, after suffering from 'one party participatory democracy', is now suffering from poor public sector management in a poorly regulated market system. The Zambian Government has failed to implement effective market deregulation. We should learn from our mistakes and improve the system. Socialism or Marxism works only in the minds of academics and failed politicians, the reality on the ground is stark. Socialist countries are the poorest countries in the world. At a time China, India and Russia are embracing market economics, who are we in Zambia to advocate a return to the dark ages? We should get away from ideology and begin to reflect on how we can create systems that will multiply jobs, diversify our economy and enable our people to escape from poverty!! Author: Trevor Simumba is an International Business Consultant .

Economics without tears by Dishi

Food exports – good or bad? Ought a country to export its basic food at a time when many of its people are hungry? Of course

not! That is the obvious answer. Is it also the right one? In considering that question, we should bear in mind the famous opening of Henry Hazlitt's 'Economics in One Lesson', with which 'Economics without tears' opened 3 years ago. 'The whole of economics,' wrote Hazlitt, can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but a t the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups'. Listeners to the BBC will know about current big increases in the price of food grains – rice, wheat and maize. And they will have heard that Lula's government in Brazil has imposed high taxes on food exports, to which the farmers have responded with fury by blocking roads. Nor is this tussle between farmers and consumers peculiar to Brazil. Many countries have similar difficulties, due to their government either stopping grain exports or impeding them by imposing steep tariffs. The immediate effects of these export taxes are to make more food available for local consumption, and at lower prices. That at once benefits consumers, especially the poor. But how about the longer term effects? Today's high prices would have encouraged and enabled farmers to invest more and increase their planting. Next year more food is produced. Conversely, lower prices today and the fear of continuing restraint of exports next year will discourage expansion and may well result in less production next year. Thus favourable results today can produce future problems. And the consequences for different groups? Consumers benefit, but farmers and their suppliers and transporters suffer. Which group is more important? That's impossible to say. True, there are more consumers than farmers. But if farmers suffer, the area under crops is

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likely to fall, and then the consumer will suffer too. Hazlitt's explanation makes it plain that apparently simple problems are often complex, and that for governments to jump in, with the best of intentions, but without giving much thought to longer term effects and to other participating groups, can have adverse, even disastrous, results.

Notes Away with delay! ZIPPA and Transparency International are planning a workshop in Lusaka for June. It will focus on tackling delays, particularly in government departments. Delays breed opportunities for corruption, and are often created to induce applicants to pay 'speed money'. The aim of the workshop will be to find ways to minimize delays, so as to offer a quick, transparent and corruption free service to the public. People may laugh at the idea, but we are optimistic and determined.

Disclaimer The views expressed in this newsletter are those of the authors. They are not necessarily shared by members or by ZIPPA, which has no official view

Next Theme The Rule of Law will be the theme of the 3rd quarter, July to March 2008, Journal. Readers are strongly encouraged to contribute articles and letters, which should be sent to: The Editor, ZIPPA Journal, P O Box 20516, Kitwe. Email: [email protected]

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Membership Annual subscriptions are now due. The rates are still unchanged at Individuals K100,000, Institutions K300,000, Companies K500,000. Do support ZIPPA by renewing your subscription or joining. Active members are especially welcome.

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