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Zambia needs to re-orient growth model – World Bank

 

WORLD Bank Group country manager Ina Ruthenberg says Zambia needs to be put back on a stronger growth trajectory. During the 12th economic brief yesterday titled ‘Wealth Beyond Mining: Leveraging Renewable Natural Capital’, Ruthenberg said Zambia’s economy picked up slightly from 3.4 per cent to 3.7 per cent in 2018 supported by strong performance in the services sector. She, however, said recovery was constrained by poor agricultural harvest, lower copper prices, and macro-fiscal challenges that affected private sector activity.

“Rebuilding market confidence – how? Calling for bold fiscal and debt management efforts supported by reforms in key State-Owned Enterprises,” Ruthenberg said.

She said Zambia’s poverty levels were already very high.

“We need to do everything to avoid that they deteriorate further. Growth rates are not even close to those needed for effective poverty reduction, which is about seven per cent,” she said. “As I travel the country, I can see that we are facing situations of hunger in some parts of Zambia and dispensaries in the hospitals are empty, I hear. It is quite dramatic: hungry school children don’t learn.”

Ruthenberg said decisively addressing Zambia’s macro-fiscal challenges and a very careful fiscal consolidation was urgently needed.

“However, this needs to be done very carefully. We have painfully learned around the world and in Zambia: public budget needs to ensure funding for key public service delivery, particularly in social spending, including social cash transfers to the most vulnerable and needy. In Zambia they are mostly in the rural space,” she said.

“This brings me to the theme we picked for this Economic Brief: Zambia needs to re-orient its growth model – the theme of natural capital wealth – but other than the extractives sector. The high growth that Zambia has experienced in the past decade and a half has been largely extractives-based – with most of its benefits accruing to richer and urban-based segments of the population – and has left a legacy of environmental liability in mining towns.”

Ruthenberg said the brief launched yesterday was focused on how Zambia can harness its renewable resources to promote sustainable and equitable growth.

“The question we ponder here is ‘how to measure natural renewable wealth beside GDP (gross domestic product) to monitor sustainable development?’ This work is inspired by the WB report published last year: ‘The Changing Wealth of Nations’. It introduced a methodology of how to measure wealth much more comprehensively – managing as a portfolio of assets. We applied this methodology to Zambia and started work on better accounting this natural wealth,” she said.

“Zambia joined the Wealth Accounting and Valuation of Ecosystems Services (WAVES) Global Partnership in 2017 upon the request of the MNDP [Ministry of National Development Planning]. WAVES is a WB programme promoting natural resources accounts to get introduced into national accounts and development planning. In Zambia we covered under WAVES the areas of forestry, land and water.”

Ruthenberg said the diagnostic found that 40 per cent of Zambia’s wealth was natural capital, of which over 70 per cent was renewable natural capital which include forests, pasture land, crop land and protected areas. She said critical was the management of forests, land and water for sustainable use and equitable growth.

“Just as a quick example, did you know – a tonne of bees wax is of higher value than a tonne of copper on international markets? Better utilising Zambia’s abundant water resources would mean more irrigated land for agricultural production – this is largely underdeveloped,” she said.

Ruthenberg said in contrast to non-renewables, sustainable use of renewable capital (e.g. agricultural land, forests, water) could produce benefits in perpetuity and bring benefits to the rural economy. She said the report suggests that investments in non-timber products and, or tourism related to natural areas could generate high economic returns for the country without contributing to deforestation.

“Zambia’s economy has thus far been dominated by discoveries, expansion, and fluctuations in the minerals sector, but going forward, the country needs to harness its renewable natural resource endowment to promote sustainable growth. While the contribution of renewable resources like agricultural land, forestry and fishing to GDP has declined in recent years, the sector’s linkages with the rest of the economy remain significant,” said Ruthenberg.

 

World Bank senior economist for Zambia Samson Kwalingana said: “Zambia needs to undertake bold fiscal and structural policy reforms to preserve macroeconomic stability, boost business and market confidence, and improve its growth prospects for 2019 and beyond in line with the Zambia Plus.”

 

The brief suggests some policy options including (i) front-loading fiscal consolidation to return to medium risk of debt distress and create fiscal space for inclusive growth; (ii) strengthening debt management to reduce the debt service burden and minimise debt-related vulnerabilities; (iii) rebuilding foreign exchange reserves to buttress external stability, and (iv) implementing plans to improve the financial and operational sustainability of Zesco and enhance the transparency of State-Owned Enterprises (SOEs). The report highlights multiple opportunities that Zambia’s abundant renewable natural resources present to support sustainable economic growth. The brief noted that the Bank’s recent Systematic Country Diagnostic revealed risks in the current use of Zambia’s natural resources, particularly the increased levels of deforestation from increased agriculture expansion and charcoal production.

It stated that investments in non-timber products and tourism related to natural areas could generate high economic returns for the country without contributing to deforestation. The brief stated that similarly, licensing for forestry products like timber, honey, wax and charcoal can contribute to higher government revenue collection, exports and foreign exchange reserves.

The briefing was also attended by Albert Zeufack, the WBG Chief Economist for the Africa Region.

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