Here is how Corruption has Ruined Zambian economy

By Mwansa Prospery Chalwe

There is a very vague picture about what the impact of corruption on the day to day lives of ordinary people is. In this article, I will show how endemic corruption negatively impacts any economy in the world including that of Zambia based on supporting empirical econometrics evidence in my book.

For the purpose of clarity, there are three main categories of corruption which are: bureaucratic corruption, economic corruption and political corruption. All the aforementioned types of corruption exists in Zambia at endemic levels.

The major problem that we have in Zambia and Africa, is that those who profess to fight against corruption, and the so called experts, are unable to simplify and explain to an ordinary person such as a villager, the compound or shanty town dweller, HOW, this scourge of corruption directly affects them. Corruption is only talked about in abstract terms. I will attempt to simplify and explain in summary, using three proven technical economic costs of corruption – low GDP, Excess public Debt and Low Tax revenue.

I will demonstrate how endemic corruption can be traced to Zambia’s current high cost of living, high youth employment, the shortage of medicines in hospitals, under funding of social services such as education, high poverty levels and social ills such as political violence, based on the Zambian experience. My appeal to readers in my country is: please do not politicize my article. This is intellectual and patriotic stuff and not for knee jerk commenters who lack tools of analysis and rationale.

From the technical point of view, it has been proven empirically that countries like Zambia with perceived high level of corruption have slow economic growth in terms of GDP, excessive government debt, lower tax revenue, higher income inequality and high fiscal deficits. This is not in dispute to the knowledgeable – those who bother to read.

As Zambians, we should agree that there is no need to debate or argue about the existence massive corruption in our country as it has already been admitted by the highest level office in the land. Our area of focus should, therefore, be to educate the people on how corruption affects their daily lives and what, we as a nation, should do about it, as no country ever developed with endemic corruption.

Zambia’s Head of State is on record as having confirmed the existence of corruption in country. The President, His Excellency Dr. Edgar Chagwa Lungu, openly admitted the existence of corruption. In 2016, when swearing in five Ministers, he announced that some of his ministers were involved in corrupt practices and had acquired immense wealth in a very short period of time.

“Lately, I have seen an increase in acts of corruption amongst our people. We have integrity committees at places of work and ministries but they are not working. There is so much corruption, so much corruption that you can smell it,” President Lungu said. “I have seen deposits in people’s accounts, huge amounts on a daily basis, for people who are not in industry, business, commerce or trade. It shows that there is something wrong here. Desist, keep away, refrain because very soon, I will be firing people, I will be firing cabinet ministers,” he said.

Apart from the Head of State’s admission, the respected Transparency International’s annual reports have confirmed the same. Zambia’s corruption perception index has deteriorated since 2013. The 2020 Corruption Perceptions Index (CPI) released by Transparency International revealed that Zambia’s score on the Corruption Perceptions Index (CPI) has dropped by one point from 34 in 2019 to 33 in 2020. In 2018, Zambia had a score of 35 and was placed 18th in Sub-Saharan Africa (SSA) and in 2017 it had a score of 37. It is clear that Zambia’s corruption perception index has been worsening four years in row.

The first technical economic cost of corruption is its hindrance of the economic growth and development of a country. In other words, it results in lower level Gross Domestic Product (GDP).This does not make sense to the man in the street. Let me simplify how this occurs. When a country has high level of corruption, most credible foreign investors avoid that country. If one was to go and do an analysis of the quantum of foreign direct investment inflows into Zambia in 2011 and 2021, they are likely to find the answer. The local investors also reduce the amount they can invest. This is for two reasons, one, the cost doing business goes up due to the required bribes. Two, the perceived risk of the country goes up as there is inherent insecurity in the economy due to the politicization of the economic environment. The net result of all this is that because of corruption there is less production of goods and services by companies and individuals as a result there is reduced economic activity, resulting in high unemployment levels.

The other issue that is closely connected to slow economic growth and the consequential high unemployment figures in Zambia, relates to empowerment programmes. The Zambian government has implemented so many financial assistance programmes in the past ten years. Studies have shown that financial empowerment programs are ineffective in a corrupt environment as they tend to be selective. The main reason is that due to patronage and cronyism, awards of grants are not made on merit and the wrong people are given grants which are based on political affiliation and their projects end up failing.

Also, when corruption is endemic, with high level of patronage and cronyism, merit goes out of the window and preference is given to unqualified Party cadres. The result is the economy becomes inefficient. This is a situation where contracts and key jobs in government and quasi government institutions are not given on merit. Innovators and talented entrepreneurs who can add value and create jobs are excluded from the economic system as well as highly qualified individuals are excluded. This is happening in Zambia at political, government and parastatal levels. It is not surprising that there are poor decisions being made due to quality of human resources running government and state institutions.

Econometric analysis has also proved that one of the main economic costs of corruption is the high level of public debt of a nation. There is overwhelming empirical evidence all of the world to prove that corruption results in excessive public debt accumulation. The question one may ask, as usual is: how does this happen? There are two ways this occurs. The first one is that corrupt public officials are incentivised to borrow because they stand to benefit directly from the commission of the debt contracted. Alternatively, public officials are incentivised to accumulate unnecessary debt to fund unnecessary infrastructure projects from which they will get bribes from contractors who are awarded projects. It has been proven that in countries with high level of infrastructure projects, there is so much corruption driven excess debt accumulation. There is so much borrowing for wrong priorities due to potential personal benefits to government officials which is very common place. It has also been proven that defence contracts are a major conduit for corrupt deals and excessive public debt.

There are critics of the current administration in Zambia, who allege that the above scenarios are all obtaining in Zambia. They argue that although not all public debt can be attributable to corruption, there has been substantial unnecessary and excessive debt that Zambia has accumulated that must have been corruption driven. As a result, ordinary Zambians are suffering from the high cost of living due to the kwacha depreciation caused by excessive foreign borrowing. The lack of jobs for the youth are also partly attributed to corruption and its consequential excessive borrowing by government; which has overcrowded the private sector, who cannot borrow at high interest rates to start or expand their businesses. The high debt servicing levels which is over 40% of government budget revenue has resulted in high taxes by Zambians. In addition, the high amount of revenue being used to service the debt has contributed to the shortage of medicines in hospitals and other social services.

Corruption is also said to impede the amount of tax revenue collected in a given country. Tax revenue is significantly affected by corrupt activities and results in the reduction of the amount of tax revenue collected. Data from studies carried out demonstrate that countries with higher corruption levels tend to have relatively lower tax revenue-GDP ratios. From the technical point of view, therefore, there is no doubt that nations with high corruption levels tend to collect fewer tax revenues in relation to GDP. But what does this mean to the man on the street? This simply means, there will be less money to buy medicines, less money to fund education, less money to fund farmers’ subsidies and of course there will be need to borrow more money to finance these activities.

The issue of corruption having a direct impact on the performance of the economy has clearly been demonstrated this article. This should not be a partisan issue and all Zambians are supposed to be united across the political divide. There is more than sufficient empirical evidence to show that countries with high level of corruption perform poorly economically on almost all economic indicators. They have lower GDP, lower tax collection, high debt levels, high income inequality, high government deficits and high levels of unemployment. Zambia appears to fit this narrative.

I have extensively covered how corruption affects an economy like Zambia in my book, this article is only a tiny little bit and only comprises the excerpts my book. Below is the link to the book.

CHINA-WEST BATTLEGROUND IN AFRICA:DEBT RIDDEN ZAMBIA: Why U.S. May Lose Geo-Economic Competition to China https://www.amazon.com/dp/B097DVXBKH/ref=cm_sw_r_wa_api_glt_7PR5H7YBZZ14FCDNT54Y

The Writer is a Chartered Accountant and Author. He is a financial commentator and Analyst, and an Op-Ed Contributor to the Hong Kong based, Alibaba owned, South China Morning Post (SCMP).