Economic Problems In Zambia: Causes And Solutions

Many African countries are putting behind them the conflict, stagnation, and dictatorships of the past. These countries are looking to decrease poverty, expand democracy, improve governance, and achieve a higher and steady economic growth.

Choose one of these countries (Burundi, Malawi, or Zambia.) and in 3 to 5 pages explain the following:

• What are the current economic conditions and how are they a problem?    

• What are the causes of the problem?

Pay attention to the role that the absence of institutions played in forming these problems

• Propose solutions to help the country developing into a stable and growing economy.

In other words, think about the types of good institutions that need to be established or improved and the types of bad institutions that need to be eliminated. Suggest governmental changes or policies that should be implemented to spur economic growth. Explain the mechanism in which these improvement will take place if the suggested institutions were built or bad institutions were eliminated. 

The Problem of Extreme Poverty and Income Inequality in Zambia

The global economic scenario is a diverse and dynamic aspect, with diverse economic situations in different economies across the globe. Over the years, different countries have experienced huge economic dynamics and growth in the performance of the different growth indicators of their economies (Meara et al., 2015). However, the pace and the magnitude of growth and development has not been the same in all the countries and while countries like the USA, the European countries, China and Australia have developed considerably and the Asian countries are developing fast, different countries in the African continent, are still lagging behind in the aspects of economic growth.

However, in the recent periods these countries are trying to get over their economic limitations and stagnated situations, by combatting the existing problems to catch up with the global economic development (Leigh & Blakely, 2016). Keeping this into consideration the concerned report tries to discuss the economic situation in one such country, Zambia, thereby discussing the primary economic problems existing the country, the reason behind these problems and the possible solutions which can be incorporated in this aspect.

Situated in the Southern part of African continent, the country of Zambia is primarily a landlocked country with limited resources and industrial and commercial aspects in the country. The primary problem of the economy of the country, is that of the presence of abject poverty and income inequality in the population of the country, in the contemporary period, with little progress achieved in this aspect, over the decades (Pieper, Mkandawire & Van der Hoeven, 2016). This can be seen from the following figure showing the dynamics in the poverty gap in the country over the years:

 

Figure 1: Dynamics in the poverty scenario of Zambia over the years

(Source: Aho.afro.who.int, 2018)

As can be seen to be evident from the above figure, the poverty of the country has not decreased significantly and the level of extreme poverty in the country is still above the target (till 2015) to be reached by the government of the country (De la Fuente, Murr & Rascón, 2015). Another problem, which the country has been facing over the years, in relation to the presence of abject poverty in the country, has been the presence of extreme income inequality in the country which can be seen with the help of the diversion of the Lorenz Curve for the country from the line of equality, as can be seen from the following figure:

Causes of Economic Problems in Zambia

 

Figure 2: Lorenz Curve for Zambia

(Source: Zambian-economist.com, 2018)

The above mentioned issues in the economy of Zambia in the contemporary period are huge problems for the economy as nearly 64% of the total population of the country lives below the poverty line of $1/day, 40% of the population have no access to basic amenities of life such as safe drinking water and nearly 14% of the total population is affected by HIV, all of which are fallouts of the presence of abject poverty in the country (Buffie & Atolia, 2012).

There are several reasons which have contributed to the creation of such acute poverty in the economy of the country, the primary ones being discussed as follows:

1. a) Dependency Syndrome-One of the significant reason behind the poverty in the country in consideration is the excessive reliance on the foreign aids and support from especially Western countries, over the decades, by the economy of the country, which has led to the lack of encouragement both among the government as well as in the population to build up their economy themselves by bringing in industries and building up robust economic prospects in the country (Faust, Leiderer & Schmitt, 2012). This in turn has led to the stagnation of the economy, which can be observed from the stagnation of the growth of the GDP of the country over the years, which can be shown as follows:

 

Figure 3: Annual growth rate of GDP of Zambia over the years

(Source: Tradingeconomics.com, 2018)

As can be seen from the above figure, the GDP of Zambia, which increased to some extent till 2013, actually declined hugely in the recent period. This has led to the lack of employment scopes in the country, thereby contributing to the increased poverty among a major share of the population in the country.

1. b) Corruption and unfair political leaders-Zambia is burdened with high level of corruptions in every sector, which is one of the primary hurdles in the path of significant economic development of the country (Elbahnasawy & Revier, 2012). The government officials often use unfair means like that of taking bribes and other advantages to do their designated works and there remains high individualistic motives of personal welfare maximization and preference of their own organizations which in turn leaves the deserving candidates deprived and leaves the decision-making power for the country in the hands of selfish and underserving ones.
2. c) Poor infrastructural institutions and poor policy planning-The technological and infrastructural development of the country has been stagnated over the years, thereby depriving the country of the growth in its industrial and economic sectors. The policy frameworks of the country, on the other hand, are designed with a visible bias towards the elite class of the country as well as towards the foreign multinational companies who invest in the sectors profitable to the elite class of the country. This is seen to be reflected in the rising inequality and poverty among a major share of the country over the years (Potts, 2016). Notwithstanding the extreme pressure of competition of the foreign companies, many local businesses had to leave the market, which in turn indicates towards the failure of the government of the country to develop its own economic and industrial prospects.
3. d) Brain drain-One of the primary reason behind the low development and poverty in the country is the high rate of drainage of human capital of the country with the emigration of highly skilled people like that of doctors, scientists, business people as well as teachers to other countries with greater prospects. This in turn has left the country resource scarce and there has been no incentive for the deserving people to stay and work to build up the economy of the country.
4. e) Illiteracy-The country has remained acutely poor due to the lack of proper skill development and unemployment, which in turn can be attributed to the lack of proper education. With 90% of the female population and a considerable section of the male population being uneducated, the poverty and suffering of the population of the country has remained high over the years (Ranis & Stewart, 2012). 

To deal with the economic issues of extreme poverty and inequality, the following policies and steps can be implemented by the government of the country:

1. The primary policy which has to be reformed in the country is the unfair policy of electing the leaders of the country which shows enough individual and personal bias. This can be removed by building a proper and unbiased election commission, directly under the judiciary of the country, where the leaders are elected by the residents on the basis of their merits and leadership abilities.
2. The government should implement policies such as protection and support of the infant and indigenous industries and business and should also impose restrictions on the multinational companies entering in the country and using unfair means and cost efficiencies. The indigenous businesses, if given the chance to grow and achieve economies of scale, can help in creating employment opportunities, thereby eradicating poverty and other related economic problems in the country.
3. The government of the country should also reframe their policy frameworks so as to support the tax-paying citizens and not the cartels and elite class only. Setting up of employee trust funds, unemployment securities, provision of education and skill development institutions can help in creating a skilled workforce which in turn can help in building up the economic sectors of the country.
4. Eradication of illiteracy has to be one of the primary agendas of the government of the country as it is directly linked to employment and economic prospects, which can be done by building up enough schools and educational institutions and ensuring enrolments in such institutions.
5. Incentives should also be provided to the human capital resources of the country such that they prefer to stay and work for the economic growth and overall development of the country and such incentives can include monetary as well as non-monetary benefits for the individuals who choose to stay back and prefer to work for the country itself. 

Proposed Solutions 

Of all the possible strategies and solutions mentioned above, the most strong and effective ones for this country are to develop the indigenous industries and commerce as well as reduce the level of corruption in the country.

Why these solutions 

Poverty being the primary economic problem in the concerned country, the most effective policy that can be taken by the government of the country is to increase the level of employment and monetary well being of the people. This can only be done by encouraging the growth of domestic industries as relying solely on foreign industries lead to exploitation of labour as can be seen to be happening. Workers should also be provided with skill development and training facilities and the government needs to provide financial aid and support to the indigenous businesses in order to make them sustainable and cost efficient. For the purpose of doing the same and to ensure that the benefits go to the deserving people and not to the elite class, a corruption free government will be required. 

Strengths and Limitations 

While these solutions pose as long term and sustainable ones, there can arise the issue of mobilization of resources and investments in the infant industry sectors due to the presence of scepticism. Also ruling out corruption completely from the public offices is a long term and difficult affair but not impossible one.

Solutions and Policy Changes for Improving Economic Situation in Zambia

Evaluation of the solutions 

The solution proposed being that of development of indigenous industries is directly conceptually linked with that of the notion of comparative advantage in economics. The country, with its population, can focus on some specific, especially labour-intensive industries, thereby building up these industries, which in turn is going to hire people, thereby increasing their skills as well as employment in the country. This in turn is going to increase aggregate demand which will boost productions, thereby leading to economics of scale in the industries. This cycle will go on, thereby improving the overall economy of the country. Thus, this solution not only seems to be effective for the concerned country but for the entire global framework.

Persuasion 

To make the solution persuasive, an extensive research was done by the team regarding the actual examples of the countries which have taken advantage of their comparative advantage and started with the development of those industries. Apart from the highly developed countries like UK and the USA, it was seen that most of the Asian countries, like Taiwan, China, India and others who started like this have been now reaping the benefits. This made the proposed solution even more persuasive.

Feedback 

The solution was found to be considerably persuasive. However, according to the feedbacks, more empirical evidences to support the same need to be collected and the proper ways to implement the solutions have to be suggested.  

Learning insights 

In the process of this real-world problem-solving project, the primary lesson our team received was that of exploring the real economic problems which exist in the countries across the globe, in depth. This in turn gave us the encouragement to think out of the box, regarding what can be done to solve the problems. We went through various options and their outcomes in real cases and also studies the economic patterns of Zambia, which helped us to assert that it is primarily a capital starved labour intensive country where extreme inequality prevails. We also got the insight about policy designing and implementation techniques and the possible linkages of the same. 

Future Steps 

In the future, to improve the concerned framework, our team will try to make the framework more focussed and productive with no place for vague explanations. We will try to explore more empirical evidences and possibilities while suggesting a solution. We will also try to analyse the real-life problems more deeply from different perspectives to reach to our creative solution.

Evaluation 

From the given exercise, our team learned considerably, with the primary lesson being on creation of solutions to the real-life issues. Given that this was the first time we were engaged in such a work, our team showed coordination, research abilities and also abilities to propose feasible yet creative solutions which are not too hypothetical and have empirical supports. However, we need to develop our thinking abilities in order to propose exactly how our proposed solutions can be implemented and what can be the effects of the same. 

References 

Aho.afro.who.int. (2018). African Health Observatory. African Health Observatory. Retrieved 28 April 2018, from https://www.aho.afro.who.int/profiles_information/index.php/Zambia:MDG_Goal_1:_Eradicate_extreme_poverty_and_hunger_-_Other_MDGs

Buffie, E. F., & Atolia, M. (2012). Trade, growth, and poverty in Zambia: Insights from a dynamic GE model. Journal of Policy Modeling, 34(2), 211-229.

De la Fuente, A., Murr, A., & Rascón, E. (2015). Mapping subnational poverty in Zambia.

Elbahnasawy, N. G., & Revier, C. F. (2012). The determinants of corruption: Cross?country?panel?data analysis. The Developing Economies, 50(4), 311-333.

Faust, J., Leiderer, S., & Schmitt, J. (2012). Financing poverty alleviation vs. promoting democracy? Multi-donor budget support in Zambia. Democratization, 19(3), 438-464.

Leigh, N. G., & Blakely, E. J. (2016). Planning local economic development: Theory and practice. Sage Publications.

Meara, J. G., Leather, A. J., Hagander, L., Alkire, B. C., Alonso, N., Ameh, E. A., ... & Mérisier, E. D. (2015). Global Surgery 2030: evidence and solutions for achieving health, welfare, and economic development. The Lancet, 386(9993), 569-624.

Pieper, H., Mkandawire, T., & Van der Hoeven, R. (2016). Africa’s recovery in the 1990s: From stagnation and adjustment to human development. Springer.

Potts, D. (2016). Debates about African urbanisation, migration and economic growth: what can we learn from Zimbabwe and Zambia?. The Geographical Journal, 182(3), 251-264.

Ranis, G., & Stewart, F. (2012). Success and failure in human development, 1970–2007. Journal of Human Development and Capabilities, 13(2), 167-195.

Tradingeconomics.com. (2018). Zambia GDP Annual Growth Rate | 1961-2018 | Data | Chart | Calendar. Tradingeconomics.com. Retrieved 28 April 2018, from https://tradingeconomics.com/zambia/gdp-growth-annual

Zambian-economist.com. (2018). CSO on Income Inequality. Zambian-economist.com. Retrieved 28 April 2018, from https://www.zambian-economist.com/2008/05/cso-on-income-inequality.html