State Enterprise and Privatisation in Zambia 1968 - 1998
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STATE ENTERPRISE AND PRIVATISATION IN ZAMBIA 1968 - 1998. by JOHN ROBERT CRAIG. Submitted in accordance with the requirements of the degree of Doctor of Philosophy. The University of Leeds. Department of Politics and Centre for Development Studies. March 1999. The candidate confirms that the work submitted is his own and that appropriate credit has been given where reference is made to the work of others. ACKNOWLEDGEMENTS. This thesis could not have been completed without the help of many people who have assisted me in my research and in the preparation of this thesis. My supervisors Morris Szeftel and Carolyn Baylies have offered encouragement and guidance throughout. All errors and omissions remain my own. Apart from those resources available at the University of Leeds, the research has relied on the access to the libraries of other institutes of higher education in the UK. In particular, the facilities made available by the Institute of Commonwealth Studies at the University of London and the London Business School have been crucial to the study. I would also like to thank those in the financial community of the City of London who were willing to share their opinions with me, and the staff at the Zambian High Commission in London, who have provided assistance. The project was entirely self-financed and could not have been completed without the support of my family - Alison, Tom and Max. ABSTRACT. In the 1980s and 1990s, privatisation has been widely adopted across the developing world and has reversed the previous trend towards the expansion of state enterprise. This thesis examines the establishment, operation and privatisation of the state enterprise sector in Zambia between 1968 and 1998. Following the economic reforms announced at Mulungushi (1968) and Matero Hall (1969), state enterprise came to dominate the economy. In 1990 a policy of limited privatisation was introduced which was subsequently extended to cover the entire state enterprise sector. By the end of 1998, this had resulted in the privatisation of the majority of state enterprises. The thesis examines the changing role of state enterprise from a political perspective, with the state analysed as the agent of policy choice and implementation. It examines the reasons for the growth in state enterprise, evaluates its performance and identifies the factors which prompted the adoption of privatisation and influenced its implementation. It argues that the growth of state enterprise was primarily a response to the inadequacies of the existing private sector in meeting the state's developmental objectives. However, the strategy pursued by the state enterprise sector proved to be commercially and financially unsustainable. To these problems were added pressure from creditors and donors for Zambia to adopt policies of market liberalisation. This resulted in the adoption of a strategy of comprehensive privatisation. The thesis examines how the choice of the method of privatisation of individual enterprises reflected the objectives of the government in undertaking the programme and the constraints under which it was implemented. The Zambian Government sought to promote competitive industrial structures, indigenous ownership and the viability of the enterprises involved in the process. It has, however, been constrained in this by a number of factors, including the existing legal rights of minority shareholders, the weak commercial and financial position of many state enterprises and the macro-economic environment in which the programme has been undertaken. iv TABLE OF CONTENTS. ACKNOWLEDGEMENTS. ABSTRACT. TABLE OF CONTENTS. iv LIST OF TABLES. vi ABBREVIATIONS. vii NOTE ON CURRENCIES AND DATES. ix CHAPTER 1. INTRODUCTION AND FRAMEWORK FOR THE STUDY. 1 Section 1.1. Theoretical Issues. 2 1.1.1 State Enterprise and State Strategy. 4 1.1.2 State Enterprise Performance. 5 1.1.3 Privatisation. 7 Section 1.2. Design of the Thesis. 9 1.2.1 Principal Sources of Data. 9 1.2.2 Chapter Plan of the Thesis. 11 CHAPTER 2. CONSTRUCTING THE ZAMBIAN STATE ENTERPRISE SECTOR. 13 Section 2.1. Confronting the Colonial Legacy. 14 2.1.1 The State and the Economy at Independence. 15 2.1.2 Initial Development Strategy. 18 2.1.3 Expansion Through INDECO 1964 to 1968. 22 Section 2.2. Problems of Development Strategy and Evolution of Policy. 25 2.2.1 Explanations of the Course of Development Policy. 27 2.2.2 Expansion Through Acquisition 1968 to 1973. 37 2.2.3 The Balance Between New Investments and Acquisitions. 40 2.2.4 Ownership Patterns and Policy. 42 Section 2.3 Structure and Control in the State Enterprise Sector. 46 2.3.1 Ownership and Management. 47 2.3.2 The Financial Balance of the Takeovers. 49 2.3.3 Nationalisation and Integration. 52 Summary. 54 CHAPTER 3. THE PERFORMANCE OF THE ZAMBIAN STATE ENTERPRISE SECTOR IN THE 1970S AND THE 1980S. 56 Section 3.1. Political and Economic Context. 57 3.1.1 The Politics of the One-Party State. 58 3.1.2 Zambia's Economic Crisis. 61 Section 3.2. State Enterprise Performance. 68 3.2.1 Evaluating the Financial Performance of State Enterprise. 69 3.2.2 Discontent with State Enterprise. 79 3.2.3 Control and Supervision. 82 Section 3.3. State Mining Enterprises. 86 3.3.1 Performance and Problems. 87 3.3.2 Rehabilitation. 93 Section 3.4. INDECO. 96 3.4.1 Diversification Through INDECO. 98 3.4.2 Problems and Rehabilitation. 103 Summary. 111 CHAPTER 4. PRIVATISATION IN ZAMBIA. 114 Section 4.1. The Commitment to Privatisation. 115 4.1.1 Privatisation and UNIP. 116 4.1.2 The Rise of the MMD and the Fall of UNIP. 119 4.1.3 The MMD in Government. 123 V Section 4.2. Scope and Design of Privatisation. 129 4.2.1 Programme Administration. 130 4.2.2 The Sequence Plan. 135 4.2.3 Supervision of Enterprises Before Sale. 136 Section 4.3. Implementing Privatisation. 138 4.3.1 Actual Sequence of Sales. 139 4.3.2 Methods of Privatisation. 143 4.3.3 Developing Capital Markets. 151 4.3.4 Enterprises Remaining in State Ownership. 156 Summary. 160 CHAPTER 5. THE PRIVATISATION OF ZAMBIAN CONSOLIDATED COPPER MINES LIMITED. 163 Section 5.1. Ownership Structure and Policy. 164 5.1.1 Options for Privatisation. 166 5.1.2 Explanation of the Strategy Adopted. 175 Section 5.2. Privatising ZCCM 1996 to 1998. 179 5.2.1 Implementing the Rothschild Plan. 180 5.2.2 Initial Progress in Divestiture. 183 5.2.3 Repackaging and Progress to December 1998. 191 Summary. 197 CHAPTER 6. CONCLUSION. 199 APPENDICES. Appendix 1: ZIMCO Financial Results. 205 1.1. ZIMCO Summary Profit and Loss Account. Financial Year 1971 to Financial Year 1989. 205 1.2. ZIMCO Capital Structure. Financial Year 1971 to Financial Year 1989. 206 Appendix 2. State Mining Enterprises Financial Results. 207 2.1. Combined Summary Profit and Loss Account of NCCM and RST. Financial Year 1971 to Financial Year 1982. 207 2.2. ZCCM Summary Profit and Loss Account. Financial Year 1981 to Financial Year 1998. 208 2.3. Combined NCCM and RST. Capital Structure. Financial Year 1971 to Financial Year 1982. 209 2.4. ZCCM. Capital Structure. Financial Year 1981 to Financial Year 1998. 210 Appendix 3. INDECO Financial Results. 211 3.1. INDECO Summary Profit and Loss Account. Financial Year 1970 to Financial Year 1989. 211 3.2. INDECO Capital Structure. Financial Year 1970 to Financial Year 1989. 212 Appendix 4. Privatised Enterprises at December 1998. 213 4.1. Privatised Large-Sized Enterprises. 213 4.2. Privatised Medium-Sized Enterprises. 214 4.3. Privatised Small-Sized Enterprises. 215 Appendix 5. Enterprises and Assets Remaining Within the State Enterprise Sector at December 1998. 218 5.1 Large-Sized Enterprises. 218 5.2 Medium-Sized Enterprises. 218 5.3 Small-Sized Enterprises. 219 5.4 Enterprises Size Unclassified. 220 BIBLIOGRAPHY. 221 vi LIST OF TABLES. Number. Title. Page. I Sources of Zambian National Income. 1964. 18 II INDECO's Asset Allocation by Type of Investment. FY 1964 to FY 1967. 23 III Net Assets of ZIMCO Group by Division. FY 1972. 42 IV The Balance Between State and Private Enterprise in Selected Sectors of the 46 Economy by Number of Enterprises. 1972. V Real Growth Rates of the Zambian Economy. 1965 to 1989. 62 VI Zambia's Changing Terms of Trade. 1967 to 1989. 63 VII The Changing Structure of Zambian Manufacturing Industry and its Import 64 Dependence. 1965 to 1975. VIII Profitability of ZIMCO Group. FY 1971 to FY 1989. 73 IX Sources of Capital as a Proportion of Net Assets of ZIMCO Group. FY 1971 74 to FY 1989. X Profitability of State Mining Companies. FY 1971 to FY 1990. 75 XI Sources of Capital as a Proportion of the Net Assets of State Mining 76 Companies. FY 1971 to FY 1990. XII Profitability of INDECO. FY 1971 to FY 1989. 77 XIII Sources of Capital as a Proportion of the Net Assets of INDECO. FY 1971 to 78 FY 1989. XIV Decline in Refined Copper Production for ZCCM and its Predecessor 88 Companies. FY 1971 to FY 1990. XV Real Direct Production Costs of Producing Refmed Copper in Zambia. FY 90 1971 to FY 1982. XVI The Costs of Zambian Copper Production as Compared to that of Other 91 Major Producers in Selected Years. XVII The Profitability of INDECO's Subsidiary Companies. FY 1979 to FY 1983. 106 XVIII Indicators of Zambian Economic Performance Under the MMD Government. 124 1992 to 1998. MC Annual Level of Privatisations by Quantity and by Value. 1993 to 1998. 143 XX Privatisation by Method. 1992 to 1998. 145 XXI Indicators of the Size of the Lusaka Stock Exchange and the Level of 153 Securities Trading.