Introduction

Policy towards industrial development in developing countries evolved from import

substitution industrialisation (ISI) to export-oriented industrialisation (EOI) (Fei 1992). The
ISI was adopted during the early stages of economic development in the 1950s through to
the 1960s. The ISI is an inward looking industrial development strategy characterised by
production of non-durable and durable consumer goods, and intermediate and capital
goods to reduce dependence on Western markets.
The failure of the ISI as a sustainable development strategy paved the way for the EOI,
especially in East Asia (Gwynne 1996), and more recently as a result of the adoption of the
IMF/WB structural adjustment programmes in Africa and Latin America. The state plays a
very crucial role in both the ISI and EOI. In the ISI, the state encourages national selfsufficiency, while in the EOI the state champions international competitiveness of industry
and exports as the engines of growth. The common consensus among analysts of
development is that export-led growth is more sustainable than import oriented. This
article, therefore, seeks to analyse the evolution and nature of Zambias development
policy since independence in 1964, and to evaluate its successes and failures, and to
suggest the way forward.
Nationalization and Industrialisation
At independence, Zambias economy was mainly dependent on copper mining that
accounted for 90 per cent of its export earnings (Republic of Zambia 1996). The leadership
was committed to the promotion of economic development and restructuring the economy.
The government, therefore, undertook rapid nationalisation of the economy shortly after
independence, paving the way for state-led development. State intervention in the economy
was set in motion with the 1968 Mulungushi Economic Reforms that allowed the
government to acquire 51 per cent shares from private retail, transportation, and
manufacturing firms (Republic of Zambia 1968). The Industrial Development Corporation
(INDECO), a state industrial holding company, was created to spearhead industrialisation.
Subsequently, the Matero Economic Reforms of 1969 resulted in the government
purchasing 51 per cent shares from the mining companies, Anglo-American Corporation
and Roan Selection Trust, leading to partial nationalisation of the copper mining industry
(Republic of Zambia 1969). Nationalisation enabled the state to control 80 per cent of the
economy through parastatals involved in mining, energy, transport, tourism, finance,
agriculture, trade, manufacturing and construction (Turok 1989, 78). Thus, the state
became the engine of growth.
State-led industrial development was possible because of the availability of copper
revenues that were channelled to industrial transformation and rural development. The
government relied on both monetary and fiscal policies to promote growth in the
manufacturing sector. The import substitution strategy was clearly stipulated in the
national development plans. The state, through the National Commission for Development
Planning, formulated four national development plans between 1964 and 1991. The
development plans had several objectives including the:

diversification away from copper mining to promote balanced economic

development and rural development;
investment in social and physical infrastructure;
Zambianisation (domestic ownership); reduction of dependency on Rhodesia
(Zimbabwe) routes to the world market by building the Tanzania-Zambia Railway;
and
employment creation.

Admittedly, there were reasonable growth rates in the 1960s and early 1970s (Republic of
Zambia 1979), primarily due to high copper production and prices and increases in maize
and manufacturing output, as well as increases in numbers of social facilities and physical
infrastructure.
However, the nationalization programmes in general, and import substitution in particular,
proved very costly. Zambia failed to diversify the economy from copper mining and the
import substitution strategy proved unsustainable, resulting in economic decline. There are
many reasons for the poor economic performance. First, the decline in world copper prices
since 1974 contributed to economic decline causing reduced government expenditure on
development, including import substitution industries, inability to import goods, especially,
inputs into manufacturing; balance of payment problems; and inability to service external
debt. Lack of savings by the government during periods of high copper prices to cushion
the impact of any fall in copper prices worsened the economic situation. Instead of
accumulating savings, the government increased expenditure on social and physical
infrastructure, imported luxury goods, assisted parastatal and private companies
manufacturing profits, and compensated workers with high wages, especially, mine
workers. Second, extensive state intervention gave rise to bureaucratisation, corruption
and uncertainty, discouraging productive private investment and foreign trade initiatives.
Third, import substitution industries proved inefficient and uncompetitive due to high input
costs, high monopoly prices, reliance on government subsidies, lack of technological
dynamism, and underutilisation of capacity and labour (Gwynne 1996). INDECO failed to
reduce dependence on foreign imported inputs, failed to create substantial employment
opportunities due to capital-intensive machinery, and catered to small urban market at the
neglect of the poor majority in the rural areas (Tangri 1999, 28). More importantly,
INDECO failed to advance beyond production of non-durable consumer goods to durable
and capital goods. Fourth, the bias against agriculture and rural areas meant the continued
dependence on the copper mining industry. Fifth, the bias against exports and import
restrictions resulted in higher exchange rates and reduced the gains from exports. Sixth,
Zambias support for the liberation movements of Southern Africa and the closure of the
border following the Unilateral Declaration of Independence by Rhodesia seriously affected
implementation of development plans, as alternative export routes had to be built,
especially the Tanzania -Zambia Railway.

Following the recommendations of the IMF and the WB, the government undertook
economic policy reforms to rejuvenate the economy from 1983. However, the structural
adjustment programmes (SAPs) worsened, rather than improved the economy. Agricultural
and manufacturing outputs and exports failed to increase significantly. This was attributed
to the inadequate incentives for farmers due to uncompetitive exports of manufactures,
high inflation, unemployment, and rising external debts.
Liberalisation and Elusiveness of Development
The new government that came to power in 1991 adopted fully-fledged SAPs. The Chiluba
government implemented economic reforms more rapidly than its predecessor, or any other
African government for that matter, earning the reputation of a model liberalising economy.
Such a reputation allowed the government to borrow heavily from the donor community, to
offset deficient export earnings and to finance development. Zambias debt currently stands
at US $7.1 billion. As most of the national income and foreign assistance went into debt
service obligations, instead of socio-economic development, public confidence in the
government quickly turned into disillusionment and disappointment.
Liberal economic policies, foreign assistance and democratisation did not spur economic
recovery, sustainable development and poverty reduction. The five-year privatisation plan
of 1993 did not go well as only 12 of the 150 parastatal companies had been privatised
(Tangri 1999, 45). In spite of privatisation of the copper mining industry, production and
world prices declined, and have worsened since the 1990s. These and other problems of
increased mining costs forced the Anglo-American Corporation (AAC) to withdraw its
investment from Konkola Copper Mines (KCM) in 2002, less than two years after
purchasing a majority stake in the KCM (www.zamnet.zm, 20 August 2002). The pullout of
the AAC from KCM, which produces 67 per cent of copper and cobalt exports, was a big
blow to the copper-dependent Zambian economy. Recent reports seem to indicate that
copper mining is no longer viable in Zambia.
The manufacturing industry collapsed partly due to mismanaged privatisation, and partly
due to competition from Zimbabwe and South Africa manufactured goods (Tangri 1999,
77). Agricultural output also dropped due to drought and the governments agricultural
policies that left the producer without extension and marketing support after the abolition
of marketing boards and cooperatives.
Furthermore, liberalisation was accompanied by corruption, which also contributed to poor
economic performance. Rampant graft had permeated all the institutions of the
government. Zambia is ranked the 11th most corrupt nation in the world (www.zamnet.zm,
9 June 2002). There had been gross misuse of national resources including foreign
assistance, mishandling of privatisation, and electoral fraud. Privatisation of public
companies was deliberately mismanaged to allow leaders in the ruling party and the
government, and their international allies to purchase them cheaply, and at times without
depositing the money in the government treasury or distributing it to intended
beneficiaries. In particular, the privatisation of the Zambian copper mines was seriously
flawed. For example, the Chiluba government has not accounted for the sum of US $35
million from the sale of the Roan Antelope Mining Corporation of Zambia in Luanshya
(www.post.co.zm, 8 October 2002). Similarly, the foreign accounts of the government had

been utilised for personal benefit by the leadership, as well as for political patronage
purposes (www.zamnet.zm/zamnet/post, 8 October 2002).
The poor economic performance had severe consequences for the entire economy. Real per
capita gross domestic product declined by more than 20 per cent in 1991-95, and the
number of people living in poverty increased overtime to 73 per cent in 1996. Rural poverty
stood at 83 per cent, while urban poverty was estimated at 56 per cent (Republic of Zambia
2000). Zambia is now one of the poorest countries in the world, having lost its middleincome status in 1985.
Zambias poor economic performance since 1991 can also be attributed to two other
interrelated factors. First, the political elite had no well-defined long-term policies and
strategies for development. They only had a short-term vision of overthrowing the
government of Kaunda. Second, the excessive reliance on, and unconditional acceptance of,
the IMF/WB economic decision-making reduced the states capacity to develop the
economy (Mengisteab and Daddieh 1999). It is in this respect that Zambia lacks a
developmental elite, nationalistic in outlook and determined and committed to economic
progress and development. The government abandoned national development planning,
public investment, financial incentives to business, and provision of social services and
affordable food to its people. This stance was illogical as all countries that have
experienced development, irrespective of ideology, have assigned an active role for the
state, to provide financial assistance and incentives to promote industrialisation and
general development; and have demonstrated the importance of a strong, interventionist
state, capable of planning, directing and complementing market forces.
A Way Out?
Both the import substitution industrialisation and export orientation through SAPs have not
promoted sustainable development in Zambia. While structural adjustment has contributed
to improved annual growth rates since 1991, it has failed to promote viable development
and has compounded the debt burden. SAPs are considered inadequate for development
because of emphasis on exports of primary products (copper), yet for development to take
place an economy needs to export manufactured goods and simultaneously develop
domestic demand, undertake regulated liberalisation and sustain growth with equity
(Morrissey 2001; Mittelman and Pasha 1997). The experience of East Asian economies
might provide valuable lessons for Zambias economic recovery and development. Of
particular relevance is the agriculture policy with emphasis on land reform and incentives
for farmers, liberalised yet regulated industrial and financial sectors, and equitable
distribution of income. These have to be complemented with technical capacity, political
will and a state that governs the market for successful growth with equity.
Conclusion
The policy of import substitution, and economic liberalisation without re-orientation from
copper mining to export-oriented industrialisation has proved unsustainable to economic
development. Consequently, the country has become one of the poorest in the world and
suffers from economic decline, with little prospects for recovery. In order to achieve

sustainable economic recovery, there is need for Zambia to go beyond SAPs and to pave the
way for growth with equity.