Today, Mr. Ng'andu Magande, Zambia's Finance Minister and chief architect of the country's economic resurgence, is to present what is perhaps his most important budget speech to date. The country's economic performance has improved steadily during his tenure. He has exercised commendable fiscal discipline and managed to steer the country to a programme of substantial debt relief. The mining industry, still the mainstay of Zambia's economy, has experienced tremendous growth in the last four or five years. Copper mining, the largest sector of the mining industry, has benefitted from privatisation, foreign investment and soaring international copper prices. The key economic indicators look very promising indeed.
But there are threats.
2006 is an election year in Zambia with all the attendant temptations for fiscal indiscipline that that entails. The strengthened local currency has posed a considerable challenge to Zambian exporters. International oil prices, a key factor in the country's economic performance, are extremely high, and may rise even higher this year. While the Zambian economy has been liberalised, a significant local entrepreneurial class has not emerged. There are a combination of factors behind this, too involved to go into here in any detail, but some are historical (e.g., Zambia was a socialist country until as recently as 1991) and some are environmental (e.g., the enormous financial interest rates which made it nigh on impossible for entrepreneurs to access credit).
I believe the key challenge before Mr. Magande and his team at the Ministry of Finance is to stimulate private enterprise in Zambia, for instance by lowering taxes significantly across the board. I'll have more to say on this post-Budget.
Incidentally, the Zambian budget was one of the breaking news stories featured on BusinessWeek Online today.
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