Growth the answer to Zambia Mining crisis

By Nathan Chishimba, President: Chamber of Mines

It’s easy to be despondent in the current economic crisis facing the country, what with power shortages, a depreciating currency, a sluggish economy, and a mining industry battling shrinking demand, declining profitability and job losses.

But it’s precisely at times like these that we, as a nation, need to focus and learn the lessons from the current crisis, because it need not be permanent.  There’s a saying which argues that being broke isn’t a big deal – it just means you’re short of cash. It’s a temporary situation, and can be remedied by the right measures.

We in the mining industry have been restructuring our operations, lowering our costs and contemplating investments which improve our efficiency and try to keep people in work. But what are the right measures when we’re dealing at the level of an entire country? Is there a magic bullet?  All the research available on how countries get rich and stay rich suggests that there is – and it’s economic growth.

No country has ever lifted itself out of poverty other than through economic growth. Economic growth creates wealth; and wealth creates jobs, disposable income and tax revenue. 

Economists like to talk about the “The Rule of Seventy”, which says that if you divide 70 by a country’s annual growth rate, you get the number of years it takes for the economy to double in size. So with a consistent growth rate of say, 7% (which Zambia has easily achieved before), a country’s economy would double in size within 10 years – in other words, the average citizen would be twice as wealthy.  After another 10 years of 7% growth, the economy would double in size again; and so on.

China has set the standard in recent times. With its average growth rate of 10% a year for nearly four decades, its economy has grown more than 30 times since 1980. People like to talk about the Chinese miracle; but, it’s no miracle – it’s just economic growth.

Perhaps the biggest surprise about economic growth is that any country can achieve it. This emerges in an interesting study, Habits of Highly Effective Countries. It was published in 2006 by the South African Law Review Project to help that country’s policymakers. The study doesn’t advocate particular policies, but merely notes, empirically, which ones are correlated with high economic growth.

It concludes that “the outlook for a country’s economy is dependent on factors within its direct control, and not on such variables as natural resources, climate, size, race, culture or arable land; nor is it dependent on extraneous [factors] like foreign aid or tariff-free access to foreign markets.”

In support of this counter-intuitive statement, the study lists the 20 highest-growth economies over periods of 5 and 10 years respectively, and notes that they cover “the full range of possibilities”, from poor to rich, small to big, formerly capitalist to formerly socialist, resource-rich to resource-poor, countries that were until recently colonised and countries that were not, and which cover a wide range of religions, races and cultures. African colonies feature both among the highest- and lowest-growth countries, and none of the world’s colonisers appear in either [category].

“This reaffirms the evidence suggesting that any country is likely to prosper, regardless of its circumstances or history, if it implements policies that are associated elsewhere with prosperity,” the study notes.

In all fairness, it is only reaffirming what numerous other studies have shown over many years: economic growth is no accident, but the direct result of policy.

This basic truth is tremendously encouraging for us in Zambia, for it tells us that despite the serious situation we currently find ourselves in, there is a way out. This explains why we, as an industry, are calling for a national strategic consensus among all stakeholders to promote the growth not just of the mining industry, but of the economy in general.  The long-term objective is a diversified high-growth economy in which the mining industry is no longer the sole contributor, but simply one of many industries selling products and services, creating jobs, and generating wealth for Zambia’s people and tax revenue for Government services.

It requires tremendous political leadership and courage to implement such policies, for they invariably upset the status quo and create short-term challenges for some even as they generate gains for others.  Recent public pronouncements by His Excellency, President Edgar Lungu on the absolute necessity for a growing, diversified economy are encouraging, and show the government is alive to the need for such a transformation. As an industry, we stand ready to work with government, and all other stakeholders, to help make this a reality. 

Economic growth is not a short-term fix; it’s a long-term imperative. These are policies which must take us not to the next Budget, or the next set of corporate financial statements, but 30 years and more into the future, to the economy that our children and grandchildren will inherit. 

Whether Zambia’s economy will have grown in size several times by then, or merely stagnated, will depend directly on the policies which we have the courage and foresight to implement today.