Primary production, financial constraints and economic instability:Zambia since independence.

Abstract

A systematic analysis is presented of the economic consequences of the abnormally high concentration of Zambia's exports on a commodity whose price is exceptionally unstable. Zambian macro-economic variables in the post-independence years are extensively documented, showing acute instability and decline, particularly after the energy price revolution and the collapse of copper prices. The relevance of stabilization policies designed to correct short-term disequilibrium is questioned. It is, therefore, a pathological case study of externally induced economic instability, complementing other studies in this area which use cross-country analysis of a few selected variables. After a survey of theory and issues pertaining to development, finance and stabilization, the emergence of domestic and foreign financial constraints on the Zambian economy is described. The world copper industry is surveyed and an examination of commodity and world trade prices concludes that copper showed the highest degree of price instability. Specific aspects of Zambia's economy identified for detailed analysis include: its unprofitable mining industry, external payments disequilibrium, a constrained government budget, potentially inflationary monetary growth, and external indebtedness. International comparisons are used extensively, but major copper exporters are subjected to closer scrutiny. An appraisal of policy options concludes the study.