Speech by the Head of UK’s DFID Zambia on the Country’s Economy

Zambia’s economy and UK aid

1. Introductory remarks

Recognise Deputy Governor BoZ, CEO Standard Chartered, British Chamber of Commerce, Board members Bank of Zambia.

First I’d like thank to Standard Chartered for putting on this event, I’m particularly looking forward to hearing Razia Khan’s perspective.

I also recognise Hon. Mutati’s presence here, and I look forward to his usual insightful blend of economics, political intelligence and common sense.

I will start with small thought from my own family on economic relations.

As it happens my grandfather was a banker, my father a trained economist and my mother business woman.

When I was quite young it became clear to me, that in my mother’s view:
Her father played with other people’s money
Her husband talked about money
But she alone actually made money
You can probably guess what she thought about her son becoming a civil servant. A career dedicated to spending her hard earned money.

2. Macroeconomic situation

I’ve been asked to provide some reflections on the economy.
As with all economic forecasters, I assume everything
except responsibility.

Now, looking at Zambia’s economy, it does feel like we’ve come through the worst, and we’re on the up.

Not long ago a copper price shock saw inflation top 20% and the exchange rate top 16 kwacha to the dollar. It’s a different picture now.

Copper prices have recovered somewhat, the exchange rate has been stabilised and inflation is now down to 6.5%. And forecasts for growth this year are up – at around 4%.

We’ve also had good rains, so load shedding has reduced and a bumper harvest is expected.

But Zambia still faces some big challenges. One of the big ones is arguably the public finances – the level of debt has been rising – just under 60% of GDP – and there’s a persistent fiscal deficit, around 10% last year. Although improving steadily this year.

In part, the domestic stock of that debt is why commercial interest rates have fallen only slightly and, while the policy rate is now at 12.5%, many Zambia firms still find it difficult to find affordable finance. Banks has a responsibility as well in this area.

So it’s good that an IMF deal appears close to being agreed, and there’s a debt management strategy on the way. An IMF deal will give some much-needed breathing space for Zambia to bring about further fiscal consolidation, and will reassure investors that Zambia remains a good place to do business. I have considerable respect for Hon. Mutati and his team who have worked tirelessly to develop the right programme for the country.

Like others in the region Zambia has had to adjust to global and regional events. Perhaps most importantly, copper prices. Copper accounts for the large majority of Zambia’s export revenues. But high copper prices can be both a blessing and a curse –boosting public finances but also reducing the incentives to diversify away from copper. It’s difficult to spread the benefits from the mining industry widely, and relying on copper prices is a risky strategy.

Linked to this is perhaps the key challenge for Zambia, and the region, going forward – the creation of jobs.

Here is a striking statistic: 1,000 young Zambians join the workforce every single day.

The so-called demographic dividend is there for the taking, but to do so Zambia will need to continue to diversity away from copper improving agricultural productivity, and develop and grow new industries. In many respects Zambia is well placed to do this.

The risk of not succeeding is that the demographic dividend becomes a burden. Zambia’s persistent levels of poverty have resulted in it becoming one of the most unequal countries in the world. Inequality feeds political insecurity and that in turn reduces investment.

3. So what is the UK doing to help with this agenda

DFID is active in running programmes from health to education to agriculture. We give the government some direct budget support including help to fund the social cash transfer programme which targets the poorest in Zambia. And we are a critical friend – we offer our support but will make suggestions where we can. And I like to think that’s reciprocated.

The UK remains one of the largest donors to Zambia, spending around £86m this year from our office here and our London based programmes – but that is still a small part of the government’s revenue. So unlike other places where DFID works, government isn’t highly dependent on funding from partners, indeed it already has many of the resources it needs to shape its future.

Our programmes also support the government’s excellent economic reform programme –which I’m sure the Honourable Minister will say more about. Examples include:

• On tax policy and budget credibility – our Public Financial Management programme supports the Zambian Revenue Authority
• On social protection, by supporting the government’s Social Cash Transfers
• On economic and fiscal governance – technical assistance and training to the Ministry of Finance, the Bank of Zambia; and Ministries of General Education and Health
• And last but not least on economic growth and job creation – we are investing in commercial agriculture and infrastructure including in significant investments in Northern Province,
• We are operating an innovative investment fund in Solwezi to supporting a range of Zambian businesses including those now supplying to the mines
• The UK’s CDC invested some $65m into Zambeef last year.
• And critically, given the role of trade in development, the UK Government reaffirmed its commitment to Zambia’s development this week with an announcement that, after Brexit, Zambia will continue to benefit from duty-free exports into the UK on all goods, under the “everything but arms” arrangement.

4. Final thoughts

I’ve spent 8 years in Zambia, in 2 phases, going back to 2003. As I leave Zambia, I’m pleased to see that for many people it’s a much better place to live and work and raise a family.

Zambia is blessed with natural resources, is historically a stable and peaceful democracy, and enjoys the goodwill of very many countries and investors. But if recent years have taught us anything, it is that these can’t be taken for granted.

Nonetheless, looking at the facts it is hard not to be optimistic about this country, and I look forward to returning to Zambia and to hearing again about the considerable progress it has continued to be made.

I thank you.