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Liberalization and privatization in Tanzania and Zambia
Vol. 21, No. 12, pp. 1981-1988, WorldDevelopmenr, Printed in Great Britain.
Liberalization
0305-750x/93 $6.00 + 0.00 0 1993 Pergamon Press Ltd
1993.
and Privatization Zambia
in Tanzania and
JEAN M. DUE* University of Illinois, Urbana-Champaign
Summary. - Poststructural adjustment policies currently being emphasized by the World Bank, International Monetary Fund, and donors in tropical Africa are liberalization and privatization of the economies. In theory both of these policies will allow firms to operate more efficiently and the economy to be more competitive and market-oriented. This paper focuses on the short-run effects of these policies, how goverments are initiating them and what segments of the population are benefiting/losing. The programs are sufficiently new in tropical Africa that the literature contains little analysis. A recent visit to Tanzania and Zambia provides the basis for this review of the experiences in these two countries.
1. INTRODUCTION Poststructural adjustment policies emphasized by the World Banks International Monetary Fund (IMF), and donors in tropical Africa are the liberalization and privatization of the economies. Liberalization refers to the relaxation of government controls so that government agencies no longer control certain prices, production, marketing, transport, foreign exchange allocations, etc. Privatization refers to the selling of publicly owned enterprises (parastatals), including industries, banks, agricultural cooperatives and marketing agencies, most of which have been operating with negative net returns, to the private sector. In theory greater liberalization will allow the market to set prices, adequately remunerating producers and relieving shortages; liberalization will also remove government controls over marketing, allowing goods to move freely through distribution channels. Privatization will allow greater competition and efficiency as market forces are allowed to operate and the number of workers is reduced to efticient levels. How are governments initiating these policies? Who are the purchasers? What have been the short-run effects of the policies? What segments of the population are benefiting/losing? Are the decisions popular with citizens? The programs are suffciently new in tropical Africa that the literature contains little analysis. A recent visit to Tanzania and Zambia in the fall of 1992 provides the basis for review of the experiences in these two countries which had heavily socialized economies. The Tanzanian and Zambian economies have
been severely depressed since the mid to late 1970s. The percentage growth of average annual per capita GNP from 1965/90 has been negative (-0.1 and -2.0% respectively) and the inflation rate has been running at over 30% a year during 1980190 World Bank, 1992b, p. 216). Family and per capita incomes of the majority of the population declined precipitously, corruption was widespread, and at times during 1980/90 consumer goods were very scarce, prices of many articles were controlled, manufacturing plants were operating at low capacity, and foreign exchange was in short supply, its allocation controlled by the government bureaucracy. The structural adjustment programs introduced by the World Bank and the IMF brought some needed structural changes and an inflow of foreign exchange. In Tanzania the government began to realize that the socialist model was not working adequately and liberalization and privatization began in 1984. The shilling was devalued, subsidies were reduced on maize meal and fertilizer, producer prices of rice, maize and export crops were raised, and internal trade barriers to moving agricultural products were removed, allowing private traders to buy and transport up to 500 kg of food grains. Individuals with their own sources of foreign exchange were allowed to import goods and sell at marketclearing prices (Amani, 1992). During the *Tanzania and Zambia were chosen for this research because of the socialist political philosophies in each country since the late 1960s (called Humanism in Zambia) and because of the large number of government parastatals to be privatized. Final revision accepted: July 10, 1993.
1981
1982
WORLD
DEVELOPMENT
succeeding two years price and other controls were liberalized very gradually as were restrictions on privatization. By now almost all controls have been removed and foreign exchange availability has increased markedly. An Open General License system has been introduced and Bureaus of Change (where anyone can sell travellers cheques or foreign _.._r___./ UI __ _..r_ I-““.. c-.._:-.. _.._r_^,..l\ 1. ^.._ I-^,... LuLIG;IIl,y pU’CLl*aG l”lclgu LulLc:lLy, LI‘IVC “GC,, established in major urban areas: and many persons are utilizing them. The stores are well supplied with goods. Privatization of the economy is being encouraged; already the most obvious changes are in construction, transport (buses and trucks), small hotels, safari operations, automobile and farm machinery dealerships, small kiosks selling all types of goods, service enterprises, and wholesaling and retailing of food and other consumer goods. In Zambia the changes have come later. It was not until the multiparty election in October 1991, when the new government seriously embraced liberalization and privatization, that changes began in removing some food and fertilizer subsidies, providing opportunities for private agricultural and other marketing, foreign exchange liberalization, etc. Zambia also has Bureaus of Change but rates are similar to the official rates (whereas in Tanzania they are higher), so use in Zambia is not nearly as widespread. It is important to emphasize how public ownership had become very important in many sectors of these economies. In 1988 Tanzania had 4 13. public enterprises, of which 339 were commercial, 56 noncommercial plus several holding companies. (An example of a noncommercial parastatal was the University of Dar es Salaam.) The parastatal sector accounted for 24% of nonagricultural wage employment and 13% of value added, with sole operation of utilities, and the railroads, a strong presence in agriculture ( cooperative marketing, input supply, milling. etc.), mining and manufacturing, banking. but little role in construction commerce and motor transportation. Many of the parastatals had negative net returns and the trend was accelerating. In 1988 more than 180 parastatals reported losses totalling Tsh 33 billion; over half of the agricultural and industrial parastatals reported losses as did threequarters of the marketing parastatals. The losses of the sector as a whole increased from Tsh 11.5 billion in 1987 to Tsh 14.9 billion in1989. These losses had been financed directly and indirectly by the government; direct payments accounted for 8% of total expenditures in 1989 as well as 3% of government revenue payments spent in implicit subsidies. Most holding companies and industrial parastatals are insolvent; total outstanding debt of these companies at the end of 1988 was Tsh 74 billion, greater than the value of net fixed assets of Tsh 54 billion (on a revalued basis). Some of the debt is in hard
currency. Ninetyfive percent of the arrears of the National Bank of Commerce, the major government bank and the only general commercial bank in the country, are from the parastatal sector (USAID. 1992).
Privatization of former heavily socialized economies is more difficult than first appears; one might think that with the relaxation of controls. with foreign exchange more available (thanks to the international community), and with encouragement of private enterprise, entrepreneurs would come forward to form and operate numerous enterprises. But much has to be done before this can happen on a substantial scale. Companies, banking and other financial institutions laws have to be changed, a company registration act passed, and formal policies established to facilitate private enterprise. Policies also must be implemented to deal with techniques of disposal/reorganization of the parastatals. A government Parastatal Sector Reform Commission has been formed to establish guidelines as to which parastatals are strategic in nature and, therefore, should be preserved, which are commercially viable and selected for sale, which should be restructured and allowed to operate at least in the short run, and which are hopeless and should be liquidated. In addition a Loans and Advances Realization Trust (LART) Act was passed in 1991 to streamline the framework for recovery of nonperforming debt. Parastatals with heavy debt burdens will be allowed to transfer a major portion of the debt to the LART which will attempt to collect the debt; public enterprise debt stood at Tsh 1,000 billion at the end of June, 1992 of which 90% was owed to the Treasury and other state-owned institutions (Daily News, October 21 1992). To- nlan rm--- for ~-- and facilitate industrial sector p:lrastatal restructuring several studies have been undertaken for specific subsectors, which will be very helpful in privatization decisions. Wangwe and Mbelle have written good reviews of the industrial sector in general. Wangwe ( 1992) carried out a performance comparison with private sector industries which produced up 60% of industrial production. Mbelle (1992) analyzed the textile industry. In addition a uolicy on compensation to redundant employees’is needed. The parastatals have already laid off 25% of their employees since 1986 and it is estimated that 50,000 civil servants will be dismissed (Daily News, October 21, 1992) One news report mentioned that the government would pay four months’ salary for every year of service: the next day the same source reported that the government is only discussing this level of remuneration
LIBERALIZATION
(Daily News, October 22, 1992). The World Bank is working with the government to develop a policy of remuneration and retraining. In a democracy the government also has to publicize what is occurring in privatization so that all citizens are informed. The government is trying to perform this role; advertisements of parastatals for sale are appearing in the international and national press as well as reports of privatization seminars which are being conducted for government, business, and party officials. But the average citizen believes that the parastatals, for which they have worked and paid for more than 25 years, are valuable and should contribute substantially to government debt reduction when sold. It may well be that, given the debt levels and the cost of estimating value and negotiating sales, employees to be remunerated, and other issues, the total costs will far outweigh the revenues from sales of the firms.
3. PROGRESS TO DATE -
TANZANIA
As mentioned earlier, there are signs of privatization everywhere in private housing and other construction, in many new small retail shops and kiosks, small hotels, service businesses, auto and agricultural machinery dealerships, etc. and people are said to be working harder. On the parastatal sector there are more rumors than facts but a new banking and ftnancial institutions act has been passed forcing the banks to operate as banks in other Western countries (rather than as bookkeepers of credit allocations of the government) and a policy of positive real interest rates to facilitate savings mobilization and resource allocation has been adopted. The new banking act requires borrowers to provide security for loans; given that smallholder farmers who produce over 80% of total agricultural production do not have title to their farms or houses, they and other entrepreneurs without secure assets are now exciuded from formal credit. This exclusion affects most women. Financial institutions are short of capital due to government policy to reduce the budget deficit and inflation. But competing international and private banks are being encouraged, plans are being established for restructuring of the national banks, for computerization and more efficient cheque clearing, etc. The Cooperative and Rural Development Bank, a parastatai formed to serve the agricuiturai sector (of which a large part of the portfolio was allocated to the cooperatives and the state farms) will be restructured into a commercial bank competing with other banks in the country. Both the National Bank of Commerce, which handled over 90% of the banking in the country, and the Cooperative and Rural Development Bank are slated for sale but probably not in the near future.
AND PRIVATIZATION
1983
Some of the smaller parastatals have been either liquidated or sold already. Examples of some companies that have been liquidated are: General Food Company, Tanzanian Livestock Marketing Company, Tanzanian Livestock Authority, Biashara Transportation Company, National Cold Chain Company, Domestic Appliance and Bicycle Company, General Agricultural Products and Exports, and the Tanzanian Agricultural Research Organization (the latter has been absorbed by the Ministry of Agriculture in 1988). Some industrial parastatals have been privatized by direct sale or joint ventures; some examples are: Blanket Manufacturers Ltd. -a 40% sale to private investors; Perma sharp Tanzania Ltd. (a metals firm) direct sale after being taken over by creditors; Tanga Cement Company management contract with a Swiss firm with Danida financing; Tanzania Cement Company -26% sale; Tanzanian Sheet Glass full sale; Tanzania Starch Company full sale; Tanzania Shoe Company sold to Bata from whom it was previously nationalized . Thus parastatals are being sold on as enterpriseby-enterprise basis; in general the progress of disposition has been slower than anticipated. Parastatal managers may attempt to attract potential buyers; many of these are then joint ventures which the managers may prefer as their positions may be maintained to oversee government interests. Decisions in the agricultural sector and the agroprocessing area have been progressing much more quickly than in the industrial sector; some examples are as follows: East Usembeze Tea Estate sale to CDC (Commonwealth Development Corporation); Kagera Sugar Company joint venture with Booker Tate, a UK company; Kilimanjaro Coffee Estates direct sale to CDC (a UK company); Kimanba Sisal Estatea several sold to Abdul Farhaji; Mifundi Tea Co. privatized to Lonrho, a former owner; Ngombezi Sisal Estates management contract with Booker Tate; Raiii Estates direct saie to a UK group; Tanga Planting Company management contract with a Danish Company. Privatization deals under discussion include: Manawa Ginnery a percentage sale to Cargill; Morogoro Cooking Oil Refinery direct sale to Cargill; National Food Company direct sale, still incomplete; Tanzanian Tea Authority full sale to Brooke Bond (USAID, 1992, and personal conversation). in the tourist sector the Tanzanian Tourist Corporation has negotiated a management contract with Novotel (a French Company) to manage seven hotels in the national parks; part of the arrangement includes management training. Seventy-seven percent of the New Africa Hotel (in the capital city) has been acquired by a Swiss Company and discussions are underway with Sheraton and Intercontinental to manage the Kilimanjaro Hotel, also in Dar es
1984
WORLD DEVELOPMENT
Salaam. In agricultural input supply and marketing, the present regional cooperative unions ( which are government and not member owned) are being disbanded (and assets sold); under the new Cooperative Act (1990) small owner-operated cooperative societies may be established whose manager will be elected by the members. Also mentioned in the press was a proposed Cooperative Bank which would provide facilities for savings for members and the societies. The former regional cooperative unions were administered by the Ministry of Cooperatives and managers were selected by the Ministry rather than by the members. Corruption was rampant and losses heavy. Private traders are now encouraged to purchase food grains and other commodities. Some international companies have located branches/subsidiaries in Tanzania rather than buying parastatals. One example is Cargill, which has established a grain seed company; Cargill is also involved in a parastatal purchase for oil extraction. Acknowledging that credit constraints on the restructured banking institutions will not allow sufficient credit for many nationals to invest in private enterprises, the World Bank is exploring the possibility of attracting venture capital for intermediate scale indigenous entrepreneurs. The plan is to attract/hire an international management firm which would both administer the fund (established jointly by the firm and the government), invest in the fund, and provide investment advisory services to successful applicants. The IFC (International Finance Corporation) might be interested in investing in this type of fund. It is suggested that this fund would be established for 5-10 years and be termed a Private Investment Fund.
are the problems of potential foreign control of important enterprises in the economy, lack of training of nationals in management, repatriation of earnings abroad rather than investing them in the local economy, overpricing of imported inputs and underpricing of exports to reduce corporate tax liability, etc. World Bank personnel argue that if the investment climate in Tanzania is sufficiently attractive, foreign and domestic firms will invest there. They cannot be compelled to do so, however, if the business climate is not conducive. Questions are being raised about further concentration of business enterprises in the hands of minority nationals (Asians and Arabs in particular); few are raising questions about the lack of credit provided for small-scale farmers and women who do not currently and cannot meet the Banking Act’s collateral requirements. Liberalization and privatization of the agricultural sector and good weather allowed retail maize prices to fall dramatically in real terms during 1984-86 and to stabilize during 1987-90 (Santorum and Tibaijuka, 1992). In agricultural marketing it has been found that credit restraints have curtailed both private transport and storage capacity and private traders have ignored the furthest distant smallholder farmers (Amani, 1992 and Santorum and Tibajika, 1992).
5. BACKGROUND
-
ZAMBIA
Privatization deais have taken much ionger than anticipated in Tanzania due to many factors, of which debt determination, enterprise valuation, and internal management capability were three. These gradual divestitures were undertaken while the government developed policies and guidelines. There was a lack of government negotiating experience with both foreign and domestic investors due to the lack of business orientation of government personnel. Although divestiture has been going forward,
Parastatals have not served Zambia well either; from 1965-90 the average annual percentage change in GNP/capita was even lower than in Tanzania (-2.0% compared with -0.1); Zambia has much better agricultural and mineral resources and a population of only 7.8 million (compared with Tanzania’s 24.5 million). From 1980-90 the average annual growth rate of the agricultural sector was 3.7% compared with 0.7% for the industrial sector and 3.5% for manufacturing; thus agricuiturai production and manufacturing increased at a rate slightly less than the growth in population of 3.7% per annum (World Bank, 1992b). During this same period inflation averaged 42.2% per year. Zambia’s 146 parastatals (in 1990) had problems similar to those in Tanzania. They contributed 35% of GDP but consumed 57% of domestic investment, providing 34% of formal wage employment in 1985 ,.1,__1-1 D--1. _^~^-..__^ itCC”“llK” ^^__.._.^-l ( w “llll Dit,lK, Inn?,., I77Lil). n..l_,:_ l-ll”IIG clllc:lpIlbCb
the government has not yet established a policy of compensation to employees laid off by the changes; this adds to general insecurity of employees of both parastatals and government. Lessons learned in the early 1960s about the dangers of foreign domination of the economy seem to have been forgotten in the 1990s; the main thrust currently is attracting foreign investment; forgotten
for 13% of the country’s external debt in 1989 and consumed K568 billion in government subsidies (this was 9.5% of government expenditure) (World Bank, 1992a). Zambia had a history of “on-again, off-again” structural adjustment programs, food and other subsidy initiation and removal, foreign exchange auctions, devaluation, etc. during 198@90. Reduction of
4. LESSONS LEARNED -
TANZANIA
LIBERALIZATION
subsidies on maize meal (the major food staple) often resulted in food riots, especially in the Copperbelt towns. It was not until after the newly elected government took charge in October 1991 that liberalization and privatization were really promoted. Subsidies on foods, fertilizer, and other commodities were significantly reduced or removed; price controls were lifted, the food stamp program terminated and parastatals managers warned that they had to operate at a profit or face sale of the enterprise. Thus the time period of real change in government policy is at least five years shorter than in Tanzania.
6. PROGRESS TO DATE -
ZAMBIA
In July 1992 the government passed the Privatization Act, which established the Zambia Privatization Agency (ZPA) which is responsible for the valuation and privatizing of the parastatals. A strategic list of parastatals not to be privatized has been drawn up; included are the telephone company, utilities, railroads, etc. Another list of enterprises to be disposed of over time has also been drawn up and released (Tables 1 and 2). Donor technical support has been requested for assistance within ZPA for valuation and disposition of parastatals, guidelines for establishing a future stock market, and remuneration to employees no longer needed. The government appears to be proceeding carefully and openly with discussions as to what is taking place. One of the requirements of the World Bank in providing a loan of $200 million was that there be forward movement in disposal of parastatals with at least 10 sold by the end of 1992. Many of the Zambian parastatals have minority investors (as well as government), making disposal subject to their votes as well as the government’s recommendations. Of the first 19 enterprises listed, 15 are reported to be attempting to arrange management buyouts by the present managers and minority investors. Government policy seems flexible toward joint ventures or outright sale of parastatals. The extent of remuneration to employees has not been determined but there is a suggested compensation of 25% of present salary plus one month’s salary for each year of employment. Environmental issues are also being discussed in Zambian parastatal sales. The cooperative unions, which have been responsible for agricultural input supply and marketing, have been allowed to restructure on their own with no government involvement to date; they can borrow as any other enterprise and must survive without government subsidy. The Ministsy of Cooperatives has been eliminated. Some agricultural sector personnel foresee the abandonment of the cooperative unions; they do not believe the cooperatives can be restructured and become economically viable. The
AND PRIVATIZATION
1985
government, however, is encouraging the establishment of small member-owned cooperatives at the grassroots level; these would be able to borrow to provide inputs to farmers and would assemble crops for private sector marketing. These small cooperatives would hire their own managers. Whether such cooperatives could afford personnel with sufficient experience to assist members, invest members’ savings, and provide other services is doubtful. Corruption was not unknown in the past; can it be controlled in these small owner-operated cooperative societies when banks are distant and where there is little manager training? During the extensive drought of the past year the cooperative unions and societies have been utilized to distribute food aid in the rural areas; the govemment had to assist the cooperatives financially but the government and cooperatives have been given high marks for fairness in this endeavor. But as the 1993 crop year begins, most farmers have no funds to purchase seeds and other inputs and the cooperative societies will be severely tested to provide the services needed. In addition, private sector truckers cannot obtain the credit needed for vehicle expansion; thus the small cooperative societies may not be able to obtain the nonsubsidized fertilizer and other inputs. In spite of these difficulties the 1993 maize crop was one of the largest in history, including a 15% increase in area under cultivation (personal correspondence). It is not known how well the private marketing system performed. The ZPA has drawn up a divestiture sequence plan for a list of companies over time. The first 20 have been advertised and it was reported that over 200 applications to purchase were received. A brief description of nonself-explanatory industries in Tranche 1 is shown in brackets in Table 1 to give readers some idea of industries chosen. It appears that ZPA is beginning with smaller companies of lower value for the first tranche and then moving to larger firms, examples of which are included in subsequent tranches in Table 2. The Wall Street Journal (June 8, 1993) reports that Zambia has completed the first two sales under its privatization program. Zambian businesses bought a motorvehicle repair and parts firm and a travel agency. Tables 1 and 2 give samples of the ZPA planning sequence: in Trenches 6-11 the balance of 134 parastatals are listed; included are Zambia Airways Corporation, National Airports Corporation, Zambian National Broadcasting Corporation, banks and mines. No date targets are given after Tranche 3.
CONCLUSIONS There is little doubt that the governments of both Tanzania and Zambia are serious about liberaliza-
1986
WORLD DEVELOPMENT
Table 1. Zambia Privatization Agency divestiture sequence plan forfirms to be sold by December 31, 1992 Tranche
1 AFE Ltd.(agricultural implements, tractors, irrigation equipment, hammermills, etc.) Crushed Stone Sales Ltd. Consolidated Tire Services Ltd. Eagle Travel Limited Mwinilunga Canneries Ltd. (pineapples) Nkwazi Manufacturing Company Ltd. (school & .other uniforms, overalls, etc.) Poultry Processing Company Ltd. (broilers, etc. Lusaka) Zambia Clay Industries Ltd. (building materials) Auto Care Ltd. (auto repair) Cleanwell Dry Cleaners (laundry & dry cleaning) Coolwell Systems (air conditioning) General Pharmaceuticals Ltd. Monarch Zambia Ltd. (metal buckets, dust bins, etc.) National Drum & Can Company Ltd. (petrol drums etc.) Norgroup Plastics Ltd. (cups, buckets, etc.) Prime Marble Products (building materials) Zambia Malting Ltd. (beer) Zambia Ceramics Ltd. (floor tile, bath tile, etc.) Zambia Concrete Ltd. Zuva Zambia Ltd.
Source: Zambia Privatization Agency.
tion, which had already occurred, and about privatization. In each country privatization is occurring more slowly and fewer foreign firms have shown interest than expected. Tanzania, with the longer history of privatization, has attracted more foreign buyers from the United Kingdom than from other areas. Some of these firms were owners of the properties before nationalization. Both governments have been relatively open about their procedures, advertising the n~t;nn~ll~~ L1LI ents=mtias=a ““‘~,y”u’” UYC’VLLU”,
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tn L” L-e-n .. . . ..y
has, however, announced the terms of sale or all the purchasers involved. Although data are not available on total value of sales to date, it is apparent that foreign firms and minority citizens have made more purchases than majority citizens. Thus one can predict a worsening of income distribution in the short run due to divestiture as average Tanzanians or Zambians do not have the savinrrs .- .._.__ ohtain --.-... the _..- credit to -‘-Du and ---- cannot make purchases. There are no data yet on changes in income distribution but in addition to lack of savings and credit availability, the new banking act requires security for loans, eliminating most smallholder farmers and women from borrowing (formerly these groups could borrow limited amounts from the Cooperative and Rural Development Bank in Tanzania and from Lima Bank in Zambia). Further citizens
informed.
Neither
government
contributing to changes in income distribution is employee reduction without much remuneration in a time of significant inflation. World Bank personnel are devising a method of providing venture capital for medium-scale borrowers but have ignored completely access to capital markets by small-scale entrepreneurs, small-scale farmers, and women. T’nis is a major oversight. Due to the heavy debt burdens of many of the parastatals and the obsolete capital equipment, it is doubtful if the net value of sales revenue will begin to cover the cost of privatization, especially when most of the World Bank, IMF, and donor assistance is in the form of loans, not grants. Granted the funds are covered by long-term, low-interest loans but loans, nevertheless, which have to be repaid. It also appears that lessons learned in the early 1960s of the dangers of foreign domination of the economies seem to have been forgotten in the 1990s. While foreign ownership is necessary to provide much needed foreign exchange and international management and marketing, the dangers of repatriation of earnings abroad rather than investing them domestically, overpricing of imports and underpricing of exports, and foreign domination of the economies remain. There is concern about further concentration of business enterprises in the hands of minority nationals (Arabs and Asians primarily) especially in Tanzania but few in either country are raising questions about the lack of investment funds for smallscale farmers, entrepreneurs and women who cannot meet the collateral requirements of the Banking Acts. It is these groups which are particularly disadvantaged under the new policies. Special loans conditioned on the basis of past production, group lending, lending on the basis of character rather than collateral, or a venture capital fund for small-scale entrepreneurs will have to be established to facilitate fairness for these groups who have little or no savinnr ‘116”. The average citizen believes that privatization is going to create employment and reduce the deficit; they know they have worked and contributed for 25 years to the government-owned enterprises; they do not realize how little equity remains and are not being told to date. Each of the governments still has to determine the manner and level of compensation to employees no longer needed in the rnaractatals -... I_-_-.- and -..- in .. the _._ civil __ .. a-- -.----service. This also will be a costly and politically sensitive issue. There is some hope that the major donors will pick up some of this cost; in my view donor assistance for compensation will be difficult to obtain from donor taxpayers when there are many unemployed citizens in the donor countries. How can smallholder farmers, small entrepreneurs and women be assisted so that they have
LIBERALIZATION
1987
AND PRIVATIZATION
Table 2. Zambia Privatization Agency divestiture sequence plan forfirms to be sold after December, 1992 1992-93 Tranche 2 Ag-Agro-industry:
Construction: Manufacturing: 1993 Tranche Ag-Agro-industry:
Trading:
Mpongwe Development Company National Milling Company Ltd. ROP Ltd. Supa Baking Company Ltd. Zambia Agric. Development Ltd. Zambian Sugar Company Ltd. Chilanga Cement Ltd. Kafue Textiles (Z) Ltd.
Ltd.
Indeco Milling Ltd. Lint Company of Zambia Ltd. Nanga Farms Ltd. National Tobacco Company Ltd. Zambia Breweries Ltd. Zambia Horticultural Prods. Ltd. Consumer Buying Corp. of Zambia Zambia National Wholesale & Mktg. Company
Tranche 4 Ag-Agro-industry:
Construction:
Energy: Engineering: Finance: Trading: Tourism: Transport: Source: Zambia Privatization
Amalgamated Milling Company Antelope Milling Chimanga Changa Milling Kabwe Milling James Milling Olympic Milling Nchanga Farms NIEC Farms Ltd.
Ltd.
Zambia Cashew Company Ltd. Zambesi Sawmills Ltd. MIL Construction Zambia Engineering & Contracting Company Lublend Ltd. ZAL Elevators Zambia Nat. Commercial Bank Ltd. National Home Stores Ltd. Africa Bound Ltd. Lake Hoteis Ltd. Zambia Hotel Properties Ltd. Mulungushi Traveller Agency
opportunities to benefit from privatization? Lack of collateral constrains desired investment by these groups and there are, as yet, no stock markets in operation. In Zambia some cooperative unions, trying to survive and to compete with the private sector in input supply and marketing, are promoting small farmer-owned cooperative societies in rural areas to perform the functions of the previously govemmentmanaged ones (Tanzania is also encouraging these societies). In some areas of Zambia these societies are being assisted by donors (in one example by the Swedish Cooperative Federation). These societies would have to borrow for input supplies from the commercial banks (but are restricted due to lack of
collateral) and depend on private traders to pick up assembled crops for marketing. Given the small size of these societies, lack of capital, and distance of many from good roads and markets, it is doubtful if they can be viable. Research in Tanzania has shown that private traders do not service smallholder farmers who reside long distances from good roads (Santomm and Tibaijuka, 1992). In Zambia there are a number of rural Credit Union and Savings Associations (CUSAs) which provide outlets for savings and loans in rural as well as in urban areas; presumably these could be strengthened to assist to a greater degree. In addition, venture funds for smallscale entrepreneurs (noted above) or special arrange-
WORLD DEVELOPMENT
1988
ments with commercial banks are needed. In Zambia women cannot borrow without their husbands’ signature on the loan application; this, plus even lower levels of collateral than men, further marginalizes women. It has been seen that privatization involves much more than deciding to sell government-owned enterprises to the private sector. There needs to be a continued commitment on the part of government to a competitive, market-oriented economy, a positive investment climate, well-functioning capital markets, a pool of trained, indigenous managers, and an econ-
omy which is growing and in which inflation is under control. Policies have to be put into place to reimburse and retrain displaced employees, vigilance to ensure government monopolies are not replaced by private monopolies, and that income distribution does not deteriorate markedly (Klitgaard, 199 1; McKinnon, 1991; Roemer and Jones, 1991). These conditions are far from being present in Tanzania and Zambia currently. Privatization is a process which will not be accomplished in one or two but more like 10 years.
REFERENCES
Amani, H. K. R., “Agricultural market reform in Tanzania: Evaluation, performance and future policy issues,” in M. S. D. Bagachwa, et al. (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau, University of Dar es Salaam, 1992). Bagachwa, M. S. D., A. V. Y. Mbelle, and Brian Van Arkadie (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau, University of Dar es Salaam, 1992). Daily News (Dar es Salaam: October 21 & 22, 1992). Klitgaard, Robert, Adjusting to Reality: Beyond “State and Market” in Economic Development (San Franciso: ICE Press, 1991). Mbelle, A. V. Y., “Restructuring the public textile industry in Tanzania: Nature and prospects,” in M. S. D. Bagachwa, et al. (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau, University of Dar es Salaam, 1992). McKinnon, Ronald I., The Order of Economic Liberalization: Financial Control in the Transition to a Market Economy (Baltimore: Johns Hopkins University
“__“.. nnt \ r,c:ss,1 l77L,.
Roemer,
Michael,
Developing
and Christine
Countries:
Parallel,
Jones, Fragmented,
Markets in and Black
(San Francisco: ICE Press for the International Center for Economic Growth and Harvard Institute for International Development, 1991). Santorum, Anita, and Anna Tibaijuka, “Trading responses to food market liberalization in Tanzania,” in M. S. D. Bagachwa, et al. (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau, University of Dar es Salaam, 1992). USAID, Bureau for Private Enterprises, Tanzania Private Sector Assessment, prepared by Coopers and Lybrand, J. E. Austin Associates, Inc. and the Services Group (Washington, DC: USAID, 1992). Wangwe, Samuel M., “Nature and extent of parastatal restructuring: Case of industrial parastatals in Tanzania,” in M. S. D. Bagachwa, et al. (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau. University of Dar es Salaam, 1992). The Wall Street Journal (New York: June 8, 1993). World Bank, African Development Indicators (Washington, DC: United Nations Development Program and World Bank, 1992a). World Bank, World Development Report (New York: C\“F,...-l ri..:.,.%..-it.. De-.... 177&V,. ,nn?l.\ “*lUlLI u,,rvr;,a,,y r,c;ss, World Bank, Parastatals Program (Washington,
in Tanzania:
Towards a Reform
DC: World Bank, 1988).
Liberalization
0305-750x/93 $6.00 + 0.00 0 1993 Pergamon Press Ltd
1993.
and Privatization Zambia
in Tanzania and
JEAN M. DUE* University of Illinois, Urbana-Champaign
Summary. - Poststructural adjustment policies currently being emphasized by the World Bank, International Monetary Fund, and donors in tropical Africa are liberalization and privatization of the economies. In theory both of these policies will allow firms to operate more efficiently and the economy to be more competitive and market-oriented. This paper focuses on the short-run effects of these policies, how goverments are initiating them and what segments of the population are benefiting/losing. The programs are sufficiently new in tropical Africa that the literature contains little analysis. A recent visit to Tanzania and Zambia provides the basis for this review of the experiences in these two countries.
1. INTRODUCTION Poststructural adjustment policies emphasized by the World Banks International Monetary Fund (IMF), and donors in tropical Africa are the liberalization and privatization of the economies. Liberalization refers to the relaxation of government controls so that government agencies no longer control certain prices, production, marketing, transport, foreign exchange allocations, etc. Privatization refers to the selling of publicly owned enterprises (parastatals), including industries, banks, agricultural cooperatives and marketing agencies, most of which have been operating with negative net returns, to the private sector. In theory greater liberalization will allow the market to set prices, adequately remunerating producers and relieving shortages; liberalization will also remove government controls over marketing, allowing goods to move freely through distribution channels. Privatization will allow greater competition and efficiency as market forces are allowed to operate and the number of workers is reduced to efticient levels. How are governments initiating these policies? Who are the purchasers? What have been the short-run effects of the policies? What segments of the population are benefiting/losing? Are the decisions popular with citizens? The programs are suffciently new in tropical Africa that the literature contains little analysis. A recent visit to Tanzania and Zambia in the fall of 1992 provides the basis for review of the experiences in these two countries which had heavily socialized economies. The Tanzanian and Zambian economies have
been severely depressed since the mid to late 1970s. The percentage growth of average annual per capita GNP from 1965/90 has been negative (-0.1 and -2.0% respectively) and the inflation rate has been running at over 30% a year during 1980190 World Bank, 1992b, p. 216). Family and per capita incomes of the majority of the population declined precipitously, corruption was widespread, and at times during 1980/90 consumer goods were very scarce, prices of many articles were controlled, manufacturing plants were operating at low capacity, and foreign exchange was in short supply, its allocation controlled by the government bureaucracy. The structural adjustment programs introduced by the World Bank and the IMF brought some needed structural changes and an inflow of foreign exchange. In Tanzania the government began to realize that the socialist model was not working adequately and liberalization and privatization began in 1984. The shilling was devalued, subsidies were reduced on maize meal and fertilizer, producer prices of rice, maize and export crops were raised, and internal trade barriers to moving agricultural products were removed, allowing private traders to buy and transport up to 500 kg of food grains. Individuals with their own sources of foreign exchange were allowed to import goods and sell at marketclearing prices (Amani, 1992). During the *Tanzania and Zambia were chosen for this research because of the socialist political philosophies in each country since the late 1960s (called Humanism in Zambia) and because of the large number of government parastatals to be privatized. Final revision accepted: July 10, 1993.
1981
1982
WORLD
DEVELOPMENT
succeeding two years price and other controls were liberalized very gradually as were restrictions on privatization. By now almost all controls have been removed and foreign exchange availability has increased markedly. An Open General License system has been introduced and Bureaus of Change (where anyone can sell travellers cheques or foreign _.._r___./ UI __ _..r_ I-““.. c-.._:-.. _.._r_^,..l\ 1. ^.._ I-^,... LuLIG;IIl,y pU’CLl*aG l”lclgu LulLc:lLy, LI‘IVC “GC,, established in major urban areas: and many persons are utilizing them. The stores are well supplied with goods. Privatization of the economy is being encouraged; already the most obvious changes are in construction, transport (buses and trucks), small hotels, safari operations, automobile and farm machinery dealerships, small kiosks selling all types of goods, service enterprises, and wholesaling and retailing of food and other consumer goods. In Zambia the changes have come later. It was not until the multiparty election in October 1991, when the new government seriously embraced liberalization and privatization, that changes began in removing some food and fertilizer subsidies, providing opportunities for private agricultural and other marketing, foreign exchange liberalization, etc. Zambia also has Bureaus of Change but rates are similar to the official rates (whereas in Tanzania they are higher), so use in Zambia is not nearly as widespread. It is important to emphasize how public ownership had become very important in many sectors of these economies. In 1988 Tanzania had 4 13. public enterprises, of which 339 were commercial, 56 noncommercial plus several holding companies. (An example of a noncommercial parastatal was the University of Dar es Salaam.) The parastatal sector accounted for 24% of nonagricultural wage employment and 13% of value added, with sole operation of utilities, and the railroads, a strong presence in agriculture ( cooperative marketing, input supply, milling. etc.), mining and manufacturing, banking. but little role in construction commerce and motor transportation. Many of the parastatals had negative net returns and the trend was accelerating. In 1988 more than 180 parastatals reported losses totalling Tsh 33 billion; over half of the agricultural and industrial parastatals reported losses as did threequarters of the marketing parastatals. The losses of the sector as a whole increased from Tsh 11.5 billion in 1987 to Tsh 14.9 billion in1989. These losses had been financed directly and indirectly by the government; direct payments accounted for 8% of total expenditures in 1989 as well as 3% of government revenue payments spent in implicit subsidies. Most holding companies and industrial parastatals are insolvent; total outstanding debt of these companies at the end of 1988 was Tsh 74 billion, greater than the value of net fixed assets of Tsh 54 billion (on a revalued basis). Some of the debt is in hard
currency. Ninetyfive percent of the arrears of the National Bank of Commerce, the major government bank and the only general commercial bank in the country, are from the parastatal sector (USAID. 1992).
Privatization of former heavily socialized economies is more difficult than first appears; one might think that with the relaxation of controls. with foreign exchange more available (thanks to the international community), and with encouragement of private enterprise, entrepreneurs would come forward to form and operate numerous enterprises. But much has to be done before this can happen on a substantial scale. Companies, banking and other financial institutions laws have to be changed, a company registration act passed, and formal policies established to facilitate private enterprise. Policies also must be implemented to deal with techniques of disposal/reorganization of the parastatals. A government Parastatal Sector Reform Commission has been formed to establish guidelines as to which parastatals are strategic in nature and, therefore, should be preserved, which are commercially viable and selected for sale, which should be restructured and allowed to operate at least in the short run, and which are hopeless and should be liquidated. In addition a Loans and Advances Realization Trust (LART) Act was passed in 1991 to streamline the framework for recovery of nonperforming debt. Parastatals with heavy debt burdens will be allowed to transfer a major portion of the debt to the LART which will attempt to collect the debt; public enterprise debt stood at Tsh 1,000 billion at the end of June, 1992 of which 90% was owed to the Treasury and other state-owned institutions (Daily News, October 21 1992). To- nlan rm--- for ~-- and facilitate industrial sector p:lrastatal restructuring several studies have been undertaken for specific subsectors, which will be very helpful in privatization decisions. Wangwe and Mbelle have written good reviews of the industrial sector in general. Wangwe ( 1992) carried out a performance comparison with private sector industries which produced up 60% of industrial production. Mbelle (1992) analyzed the textile industry. In addition a uolicy on compensation to redundant employees’is needed. The parastatals have already laid off 25% of their employees since 1986 and it is estimated that 50,000 civil servants will be dismissed (Daily News, October 21, 1992) One news report mentioned that the government would pay four months’ salary for every year of service: the next day the same source reported that the government is only discussing this level of remuneration
LIBERALIZATION
(Daily News, October 22, 1992). The World Bank is working with the government to develop a policy of remuneration and retraining. In a democracy the government also has to publicize what is occurring in privatization so that all citizens are informed. The government is trying to perform this role; advertisements of parastatals for sale are appearing in the international and national press as well as reports of privatization seminars which are being conducted for government, business, and party officials. But the average citizen believes that the parastatals, for which they have worked and paid for more than 25 years, are valuable and should contribute substantially to government debt reduction when sold. It may well be that, given the debt levels and the cost of estimating value and negotiating sales, employees to be remunerated, and other issues, the total costs will far outweigh the revenues from sales of the firms.
3. PROGRESS TO DATE -
TANZANIA
As mentioned earlier, there are signs of privatization everywhere in private housing and other construction, in many new small retail shops and kiosks, small hotels, service businesses, auto and agricultural machinery dealerships, etc. and people are said to be working harder. On the parastatal sector there are more rumors than facts but a new banking and ftnancial institutions act has been passed forcing the banks to operate as banks in other Western countries (rather than as bookkeepers of credit allocations of the government) and a policy of positive real interest rates to facilitate savings mobilization and resource allocation has been adopted. The new banking act requires borrowers to provide security for loans; given that smallholder farmers who produce over 80% of total agricultural production do not have title to their farms or houses, they and other entrepreneurs without secure assets are now exciuded from formal credit. This exclusion affects most women. Financial institutions are short of capital due to government policy to reduce the budget deficit and inflation. But competing international and private banks are being encouraged, plans are being established for restructuring of the national banks, for computerization and more efficient cheque clearing, etc. The Cooperative and Rural Development Bank, a parastatai formed to serve the agricuiturai sector (of which a large part of the portfolio was allocated to the cooperatives and the state farms) will be restructured into a commercial bank competing with other banks in the country. Both the National Bank of Commerce, which handled over 90% of the banking in the country, and the Cooperative and Rural Development Bank are slated for sale but probably not in the near future.
AND PRIVATIZATION
1983
Some of the smaller parastatals have been either liquidated or sold already. Examples of some companies that have been liquidated are: General Food Company, Tanzanian Livestock Marketing Company, Tanzanian Livestock Authority, Biashara Transportation Company, National Cold Chain Company, Domestic Appliance and Bicycle Company, General Agricultural Products and Exports, and the Tanzanian Agricultural Research Organization (the latter has been absorbed by the Ministry of Agriculture in 1988). Some industrial parastatals have been privatized by direct sale or joint ventures; some examples are: Blanket Manufacturers Ltd. -a 40% sale to private investors; Perma sharp Tanzania Ltd. (a metals firm) direct sale after being taken over by creditors; Tanga Cement Company management contract with a Swiss firm with Danida financing; Tanzania Cement Company -26% sale; Tanzanian Sheet Glass full sale; Tanzania Starch Company full sale; Tanzania Shoe Company sold to Bata from whom it was previously nationalized . Thus parastatals are being sold on as enterpriseby-enterprise basis; in general the progress of disposition has been slower than anticipated. Parastatal managers may attempt to attract potential buyers; many of these are then joint ventures which the managers may prefer as their positions may be maintained to oversee government interests. Decisions in the agricultural sector and the agroprocessing area have been progressing much more quickly than in the industrial sector; some examples are as follows: East Usembeze Tea Estate sale to CDC (Commonwealth Development Corporation); Kagera Sugar Company joint venture with Booker Tate, a UK company; Kilimanjaro Coffee Estates direct sale to CDC (a UK company); Kimanba Sisal Estatea several sold to Abdul Farhaji; Mifundi Tea Co. privatized to Lonrho, a former owner; Ngombezi Sisal Estates management contract with Booker Tate; Raiii Estates direct saie to a UK group; Tanga Planting Company management contract with a Danish Company. Privatization deals under discussion include: Manawa Ginnery a percentage sale to Cargill; Morogoro Cooking Oil Refinery direct sale to Cargill; National Food Company direct sale, still incomplete; Tanzanian Tea Authority full sale to Brooke Bond (USAID, 1992, and personal conversation). in the tourist sector the Tanzanian Tourist Corporation has negotiated a management contract with Novotel (a French Company) to manage seven hotels in the national parks; part of the arrangement includes management training. Seventy-seven percent of the New Africa Hotel (in the capital city) has been acquired by a Swiss Company and discussions are underway with Sheraton and Intercontinental to manage the Kilimanjaro Hotel, also in Dar es
1984
WORLD DEVELOPMENT
Salaam. In agricultural input supply and marketing, the present regional cooperative unions ( which are government and not member owned) are being disbanded (and assets sold); under the new Cooperative Act (1990) small owner-operated cooperative societies may be established whose manager will be elected by the members. Also mentioned in the press was a proposed Cooperative Bank which would provide facilities for savings for members and the societies. The former regional cooperative unions were administered by the Ministry of Cooperatives and managers were selected by the Ministry rather than by the members. Corruption was rampant and losses heavy. Private traders are now encouraged to purchase food grains and other commodities. Some international companies have located branches/subsidiaries in Tanzania rather than buying parastatals. One example is Cargill, which has established a grain seed company; Cargill is also involved in a parastatal purchase for oil extraction. Acknowledging that credit constraints on the restructured banking institutions will not allow sufficient credit for many nationals to invest in private enterprises, the World Bank is exploring the possibility of attracting venture capital for intermediate scale indigenous entrepreneurs. The plan is to attract/hire an international management firm which would both administer the fund (established jointly by the firm and the government), invest in the fund, and provide investment advisory services to successful applicants. The IFC (International Finance Corporation) might be interested in investing in this type of fund. It is suggested that this fund would be established for 5-10 years and be termed a Private Investment Fund.
are the problems of potential foreign control of important enterprises in the economy, lack of training of nationals in management, repatriation of earnings abroad rather than investing them in the local economy, overpricing of imported inputs and underpricing of exports to reduce corporate tax liability, etc. World Bank personnel argue that if the investment climate in Tanzania is sufficiently attractive, foreign and domestic firms will invest there. They cannot be compelled to do so, however, if the business climate is not conducive. Questions are being raised about further concentration of business enterprises in the hands of minority nationals (Asians and Arabs in particular); few are raising questions about the lack of credit provided for small-scale farmers and women who do not currently and cannot meet the Banking Act’s collateral requirements. Liberalization and privatization of the agricultural sector and good weather allowed retail maize prices to fall dramatically in real terms during 1984-86 and to stabilize during 1987-90 (Santorum and Tibaijuka, 1992). In agricultural marketing it has been found that credit restraints have curtailed both private transport and storage capacity and private traders have ignored the furthest distant smallholder farmers (Amani, 1992 and Santorum and Tibajika, 1992).
5. BACKGROUND
-
ZAMBIA
Privatization deais have taken much ionger than anticipated in Tanzania due to many factors, of which debt determination, enterprise valuation, and internal management capability were three. These gradual divestitures were undertaken while the government developed policies and guidelines. There was a lack of government negotiating experience with both foreign and domestic investors due to the lack of business orientation of government personnel. Although divestiture has been going forward,
Parastatals have not served Zambia well either; from 1965-90 the average annual percentage change in GNP/capita was even lower than in Tanzania (-2.0% compared with -0.1); Zambia has much better agricultural and mineral resources and a population of only 7.8 million (compared with Tanzania’s 24.5 million). From 1980-90 the average annual growth rate of the agricultural sector was 3.7% compared with 0.7% for the industrial sector and 3.5% for manufacturing; thus agricuiturai production and manufacturing increased at a rate slightly less than the growth in population of 3.7% per annum (World Bank, 1992b). During this same period inflation averaged 42.2% per year. Zambia’s 146 parastatals (in 1990) had problems similar to those in Tanzania. They contributed 35% of GDP but consumed 57% of domestic investment, providing 34% of formal wage employment in 1985 ,.1,__1-1 D--1. _^~^-..__^ itCC”“llK” ^^__.._.^-l ( w “llll Dit,lK, Inn?,., I77Lil). n..l_,:_ l-ll”IIG clllc:lpIlbCb
the government has not yet established a policy of compensation to employees laid off by the changes; this adds to general insecurity of employees of both parastatals and government. Lessons learned in the early 1960s about the dangers of foreign domination of the economy seem to have been forgotten in the 1990s; the main thrust currently is attracting foreign investment; forgotten
for 13% of the country’s external debt in 1989 and consumed K568 billion in government subsidies (this was 9.5% of government expenditure) (World Bank, 1992a). Zambia had a history of “on-again, off-again” structural adjustment programs, food and other subsidy initiation and removal, foreign exchange auctions, devaluation, etc. during 198@90. Reduction of
4. LESSONS LEARNED -
TANZANIA
LIBERALIZATION
subsidies on maize meal (the major food staple) often resulted in food riots, especially in the Copperbelt towns. It was not until after the newly elected government took charge in October 1991 that liberalization and privatization were really promoted. Subsidies on foods, fertilizer, and other commodities were significantly reduced or removed; price controls were lifted, the food stamp program terminated and parastatals managers warned that they had to operate at a profit or face sale of the enterprise. Thus the time period of real change in government policy is at least five years shorter than in Tanzania.
6. PROGRESS TO DATE -
ZAMBIA
In July 1992 the government passed the Privatization Act, which established the Zambia Privatization Agency (ZPA) which is responsible for the valuation and privatizing of the parastatals. A strategic list of parastatals not to be privatized has been drawn up; included are the telephone company, utilities, railroads, etc. Another list of enterprises to be disposed of over time has also been drawn up and released (Tables 1 and 2). Donor technical support has been requested for assistance within ZPA for valuation and disposition of parastatals, guidelines for establishing a future stock market, and remuneration to employees no longer needed. The government appears to be proceeding carefully and openly with discussions as to what is taking place. One of the requirements of the World Bank in providing a loan of $200 million was that there be forward movement in disposal of parastatals with at least 10 sold by the end of 1992. Many of the Zambian parastatals have minority investors (as well as government), making disposal subject to their votes as well as the government’s recommendations. Of the first 19 enterprises listed, 15 are reported to be attempting to arrange management buyouts by the present managers and minority investors. Government policy seems flexible toward joint ventures or outright sale of parastatals. The extent of remuneration to employees has not been determined but there is a suggested compensation of 25% of present salary plus one month’s salary for each year of employment. Environmental issues are also being discussed in Zambian parastatal sales. The cooperative unions, which have been responsible for agricultural input supply and marketing, have been allowed to restructure on their own with no government involvement to date; they can borrow as any other enterprise and must survive without government subsidy. The Ministsy of Cooperatives has been eliminated. Some agricultural sector personnel foresee the abandonment of the cooperative unions; they do not believe the cooperatives can be restructured and become economically viable. The
AND PRIVATIZATION
1985
government, however, is encouraging the establishment of small member-owned cooperatives at the grassroots level; these would be able to borrow to provide inputs to farmers and would assemble crops for private sector marketing. These small cooperatives would hire their own managers. Whether such cooperatives could afford personnel with sufficient experience to assist members, invest members’ savings, and provide other services is doubtful. Corruption was not unknown in the past; can it be controlled in these small owner-operated cooperative societies when banks are distant and where there is little manager training? During the extensive drought of the past year the cooperative unions and societies have been utilized to distribute food aid in the rural areas; the govemment had to assist the cooperatives financially but the government and cooperatives have been given high marks for fairness in this endeavor. But as the 1993 crop year begins, most farmers have no funds to purchase seeds and other inputs and the cooperative societies will be severely tested to provide the services needed. In addition, private sector truckers cannot obtain the credit needed for vehicle expansion; thus the small cooperative societies may not be able to obtain the nonsubsidized fertilizer and other inputs. In spite of these difficulties the 1993 maize crop was one of the largest in history, including a 15% increase in area under cultivation (personal correspondence). It is not known how well the private marketing system performed. The ZPA has drawn up a divestiture sequence plan for a list of companies over time. The first 20 have been advertised and it was reported that over 200 applications to purchase were received. A brief description of nonself-explanatory industries in Tranche 1 is shown in brackets in Table 1 to give readers some idea of industries chosen. It appears that ZPA is beginning with smaller companies of lower value for the first tranche and then moving to larger firms, examples of which are included in subsequent tranches in Table 2. The Wall Street Journal (June 8, 1993) reports that Zambia has completed the first two sales under its privatization program. Zambian businesses bought a motorvehicle repair and parts firm and a travel agency. Tables 1 and 2 give samples of the ZPA planning sequence: in Trenches 6-11 the balance of 134 parastatals are listed; included are Zambia Airways Corporation, National Airports Corporation, Zambian National Broadcasting Corporation, banks and mines. No date targets are given after Tranche 3.
CONCLUSIONS There is little doubt that the governments of both Tanzania and Zambia are serious about liberaliza-
1986
WORLD DEVELOPMENT
Table 1. Zambia Privatization Agency divestiture sequence plan forfirms to be sold by December 31, 1992 Tranche
1 AFE Ltd.(agricultural implements, tractors, irrigation equipment, hammermills, etc.) Crushed Stone Sales Ltd. Consolidated Tire Services Ltd. Eagle Travel Limited Mwinilunga Canneries Ltd. (pineapples) Nkwazi Manufacturing Company Ltd. (school & .other uniforms, overalls, etc.) Poultry Processing Company Ltd. (broilers, etc. Lusaka) Zambia Clay Industries Ltd. (building materials) Auto Care Ltd. (auto repair) Cleanwell Dry Cleaners (laundry & dry cleaning) Coolwell Systems (air conditioning) General Pharmaceuticals Ltd. Monarch Zambia Ltd. (metal buckets, dust bins, etc.) National Drum & Can Company Ltd. (petrol drums etc.) Norgroup Plastics Ltd. (cups, buckets, etc.) Prime Marble Products (building materials) Zambia Malting Ltd. (beer) Zambia Ceramics Ltd. (floor tile, bath tile, etc.) Zambia Concrete Ltd. Zuva Zambia Ltd.
Source: Zambia Privatization Agency.
tion, which had already occurred, and about privatization. In each country privatization is occurring more slowly and fewer foreign firms have shown interest than expected. Tanzania, with the longer history of privatization, has attracted more foreign buyers from the United Kingdom than from other areas. Some of these firms were owners of the properties before nationalization. Both governments have been relatively open about their procedures, advertising the n~t;nn~ll~~ L1LI ents=mtias=a ““‘~,y”u’” UYC’VLLU”,
.tanA . ..U intmmntinncallxr ‘L’L.A’.Ub’“‘nU”,)
tn L” L-e-n .. . . ..y
has, however, announced the terms of sale or all the purchasers involved. Although data are not available on total value of sales to date, it is apparent that foreign firms and minority citizens have made more purchases than majority citizens. Thus one can predict a worsening of income distribution in the short run due to divestiture as average Tanzanians or Zambians do not have the savinrrs .- .._.__ ohtain --.-... the _..- credit to -‘-Du and ---- cannot make purchases. There are no data yet on changes in income distribution but in addition to lack of savings and credit availability, the new banking act requires security for loans, eliminating most smallholder farmers and women from borrowing (formerly these groups could borrow limited amounts from the Cooperative and Rural Development Bank in Tanzania and from Lima Bank in Zambia). Further citizens
informed.
Neither
government
contributing to changes in income distribution is employee reduction without much remuneration in a time of significant inflation. World Bank personnel are devising a method of providing venture capital for medium-scale borrowers but have ignored completely access to capital markets by small-scale entrepreneurs, small-scale farmers, and women. T’nis is a major oversight. Due to the heavy debt burdens of many of the parastatals and the obsolete capital equipment, it is doubtful if the net value of sales revenue will begin to cover the cost of privatization, especially when most of the World Bank, IMF, and donor assistance is in the form of loans, not grants. Granted the funds are covered by long-term, low-interest loans but loans, nevertheless, which have to be repaid. It also appears that lessons learned in the early 1960s of the dangers of foreign domination of the economies seem to have been forgotten in the 1990s. While foreign ownership is necessary to provide much needed foreign exchange and international management and marketing, the dangers of repatriation of earnings abroad rather than investing them domestically, overpricing of imports and underpricing of exports, and foreign domination of the economies remain. There is concern about further concentration of business enterprises in the hands of minority nationals (Arabs and Asians primarily) especially in Tanzania but few in either country are raising questions about the lack of investment funds for smallscale farmers, entrepreneurs and women who cannot meet the collateral requirements of the Banking Acts. It is these groups which are particularly disadvantaged under the new policies. Special loans conditioned on the basis of past production, group lending, lending on the basis of character rather than collateral, or a venture capital fund for small-scale entrepreneurs will have to be established to facilitate fairness for these groups who have little or no savinnr ‘116”. The average citizen believes that privatization is going to create employment and reduce the deficit; they know they have worked and contributed for 25 years to the government-owned enterprises; they do not realize how little equity remains and are not being told to date. Each of the governments still has to determine the manner and level of compensation to employees no longer needed in the rnaractatals -... I_-_-.- and -..- in .. the _._ civil __ .. a-- -.----service. This also will be a costly and politically sensitive issue. There is some hope that the major donors will pick up some of this cost; in my view donor assistance for compensation will be difficult to obtain from donor taxpayers when there are many unemployed citizens in the donor countries. How can smallholder farmers, small entrepreneurs and women be assisted so that they have
LIBERALIZATION
1987
AND PRIVATIZATION
Table 2. Zambia Privatization Agency divestiture sequence plan forfirms to be sold after December, 1992 1992-93 Tranche 2 Ag-Agro-industry:
Construction: Manufacturing: 1993 Tranche Ag-Agro-industry:
Trading:
Mpongwe Development Company National Milling Company Ltd. ROP Ltd. Supa Baking Company Ltd. Zambia Agric. Development Ltd. Zambian Sugar Company Ltd. Chilanga Cement Ltd. Kafue Textiles (Z) Ltd.
Ltd.
Indeco Milling Ltd. Lint Company of Zambia Ltd. Nanga Farms Ltd. National Tobacco Company Ltd. Zambia Breweries Ltd. Zambia Horticultural Prods. Ltd. Consumer Buying Corp. of Zambia Zambia National Wholesale & Mktg. Company
Tranche 4 Ag-Agro-industry:
Construction:
Energy: Engineering: Finance: Trading: Tourism: Transport: Source: Zambia Privatization
Amalgamated Milling Company Antelope Milling Chimanga Changa Milling Kabwe Milling James Milling Olympic Milling Nchanga Farms NIEC Farms Ltd.
Ltd.
Zambia Cashew Company Ltd. Zambesi Sawmills Ltd. MIL Construction Zambia Engineering & Contracting Company Lublend Ltd. ZAL Elevators Zambia Nat. Commercial Bank Ltd. National Home Stores Ltd. Africa Bound Ltd. Lake Hoteis Ltd. Zambia Hotel Properties Ltd. Mulungushi Traveller Agency
opportunities to benefit from privatization? Lack of collateral constrains desired investment by these groups and there are, as yet, no stock markets in operation. In Zambia some cooperative unions, trying to survive and to compete with the private sector in input supply and marketing, are promoting small farmer-owned cooperative societies in rural areas to perform the functions of the previously govemmentmanaged ones (Tanzania is also encouraging these societies). In some areas of Zambia these societies are being assisted by donors (in one example by the Swedish Cooperative Federation). These societies would have to borrow for input supplies from the commercial banks (but are restricted due to lack of
collateral) and depend on private traders to pick up assembled crops for marketing. Given the small size of these societies, lack of capital, and distance of many from good roads and markets, it is doubtful if they can be viable. Research in Tanzania has shown that private traders do not service smallholder farmers who reside long distances from good roads (Santomm and Tibaijuka, 1992). In Zambia there are a number of rural Credit Union and Savings Associations (CUSAs) which provide outlets for savings and loans in rural as well as in urban areas; presumably these could be strengthened to assist to a greater degree. In addition, venture funds for smallscale entrepreneurs (noted above) or special arrange-
WORLD DEVELOPMENT
1988
ments with commercial banks are needed. In Zambia women cannot borrow without their husbands’ signature on the loan application; this, plus even lower levels of collateral than men, further marginalizes women. It has been seen that privatization involves much more than deciding to sell government-owned enterprises to the private sector. There needs to be a continued commitment on the part of government to a competitive, market-oriented economy, a positive investment climate, well-functioning capital markets, a pool of trained, indigenous managers, and an econ-
omy which is growing and in which inflation is under control. Policies have to be put into place to reimburse and retrain displaced employees, vigilance to ensure government monopolies are not replaced by private monopolies, and that income distribution does not deteriorate markedly (Klitgaard, 199 1; McKinnon, 1991; Roemer and Jones, 1991). These conditions are far from being present in Tanzania and Zambia currently. Privatization is a process which will not be accomplished in one or two but more like 10 years.
REFERENCES
Amani, H. K. R., “Agricultural market reform in Tanzania: Evaluation, performance and future policy issues,” in M. S. D. Bagachwa, et al. (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau, University of Dar es Salaam, 1992). Bagachwa, M. S. D., A. V. Y. Mbelle, and Brian Van Arkadie (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau, University of Dar es Salaam, 1992). Daily News (Dar es Salaam: October 21 & 22, 1992). Klitgaard, Robert, Adjusting to Reality: Beyond “State and Market” in Economic Development (San Franciso: ICE Press, 1991). Mbelle, A. V. Y., “Restructuring the public textile industry in Tanzania: Nature and prospects,” in M. S. D. Bagachwa, et al. (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau, University of Dar es Salaam, 1992). McKinnon, Ronald I., The Order of Economic Liberalization: Financial Control in the Transition to a Market Economy (Baltimore: Johns Hopkins University
“__“.. nnt \ r,c:ss,1 l77L,.
Roemer,
Michael,
Developing
and Christine
Countries:
Parallel,
Jones, Fragmented,
Markets in and Black
(San Francisco: ICE Press for the International Center for Economic Growth and Harvard Institute for International Development, 1991). Santorum, Anita, and Anna Tibaijuka, “Trading responses to food market liberalization in Tanzania,” in M. S. D. Bagachwa, et al. (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau, University of Dar es Salaam, 1992). USAID, Bureau for Private Enterprises, Tanzania Private Sector Assessment, prepared by Coopers and Lybrand, J. E. Austin Associates, Inc. and the Services Group (Washington, DC: USAID, 1992). Wangwe, Samuel M., “Nature and extent of parastatal restructuring: Case of industrial parastatals in Tanzania,” in M. S. D. Bagachwa, et al. (Eds.), Market Reforms and Parastatal Restructuring in Tanzania (Dar es Salaam: Economics Department and Economic Research Bureau. University of Dar es Salaam, 1992). The Wall Street Journal (New York: June 8, 1993). World Bank, African Development Indicators (Washington, DC: United Nations Development Program and World Bank, 1992a). World Bank, World Development Report (New York: C\“F,...-l ri..:.,.%..-it.. De-.... 177&V,. ,nn?l.\ “*lUlLI u,,rvr;,a,,y r,c;ss, World Bank, Parastatals Program (Washington,
in Tanzania:
Towards a Reform
DC: World Bank, 1988).