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Botswana Vs. Zambia — Success Vs. Failure

Why did aid help Botswana out of poverty — and prove ineffective in Zambia?

March 22, 2005

Why did aid help Botswana out of poverty — and prove ineffective in Zambia?

Aid helped lift Botswana out of poverty — but was wasted in Zambia. Why the difference? Both countries had minerals. The two countries' cultures are quite similar.

True, education levels were different at independence, but it was Botswana that had the less literate population. What really mattered, however, was that Botswana had good economic policies, soundly administered — whereas Zambia did not.

Forty years ago, it all looked different. At independence in 1964, Zambia seemed poised for success. It was the second-wealthiest nation in Africa, after South Africa. It had a popularly elected government committed to helping the poor, some of the world's best copper mines — and a generous stream of aid.

Most donors at the time believed that the main obstacle to development was lack of money and that giving poor governments cash to invest would spur rapid growth.

It was not so simple. Zambia's first president, Kenneth Kaunda, set up a one-party socialist state and he nationalized everything — from the copper mines to hair salons and dry cleaning shops.

In order to promote "self-sufficiency," he erected tariff walls and currency controls, thereby shutting the Zambian economy off from the rest of the world. His officials told farmers what to grow, bought their crops — and then sold them at heavily subsidized prices.

Generous loans were granted to farmers and little attempt was made to make them repay, but Zambians came to see government loans as a perk of freedom from colonial rule.

In state hands, Zambia's industry withered. President Kaunda assumed that the copper mines would be an inexhaustible source of revenues. Thousands of unnecessary hands were hired. Contracts to supply the mines with anything from pencils to pickaxes were awarded to ruling party cronies, who gleefully padded their invoices.

When mining tools broke down, they were only occasionally mended. Copper production peaked in 1969, just before nationalization, at 825,000 tons a year. By 1999, it had plunged to less than a third of this level.

After 1974, the copper price fell. And suddenly the government could not pay its bills — but any shortfall was picked up by foreign donors. As Kaunda's economic policies grew more foolish, aid climbed steadily, reaching 11% of GDP by the early 1990s.

IMF loans in the 1980s were tied to free-market reforms, but these were enacted without enthusiasm and frequently reversed. Aid kept the treasury full —even as Kaunda destroyed most of the productive businesses in the country.

A gentle and amiable man, and not a bad guitar-player besides, Kaunda is still widely respected in Zambia.

But when he left office in 1991, after 27 years in power, he left his country men and women poorer. Zambians remember his rule as a time when the shops were so bare that even the well-off had trouble buying soap.

In the end, Kaunda's disastrous handling of the economy led to his downfall. In 1990, donor pressure forced him to allow opposition parties. The next year, donors pushed him into calling an election.

To his surprise, he lost. Frederick Chiluba, a former union leader, won on a platform of allowing greater democracy and liberalizing the economy.

Donor funds rose anew. Buoyed with foreign cash and good will, the new President enjoyed some early successes. He brought inflation down from over 100% to only 20% in 1999. He cut tariffs, repealed exchange controls — and welcomed foreign investors.

This filled the shops with fancy foreign goods: wine and lawn furniture from South Africa, Japanese televisions and dozens of flavors of ice cream. But only the wealthy could afford these things and most Zambians continued to grow poorer under Chiluba, despite receiving roughly $900 a head in aid and debt relief during the 1990s.

The torrent of foreign aid allowed Chiluba to delay — or avoid — essential reforms. For instance, before coming to power, to safeguard Zambia's future, he promised voters that he would trim the bloated and inert civil service he inherited from Kaunda.

Instead, he recruited yet more bureaucrats in the hope that they would be grateful and vote for him. Without aid, the wage bill would have bankrupted the government. With donor support, Chiluba was able to pay thousands of the brightest Zambians to shun the kind of productive enterprise that might have made the country less poor.

Worse, Chiluba failed for almost a decade to privatize the copper mines. Even after years of decay, the mines were still Zambia's only significant exporter. Under state control, copper output fell by the year and the mines recorded huge losses.

The idea of privatization was not popular with ordinary Zambians. Many saw it as surrendering the country's most prized asset to foreigners.

But probably a more important reason for the delay was that, in state hands, the mines were a tremendous source of patronage. If anything, they were looted more systematically in the 1990s than they had been under Kaunda.

Under pressure from donors, the government put the mines on the auction block in 1997 — but then rejected all offers. Exasperated donors starting cutting aid, which forced the government to try again in 1999. By this time, most foreign mining groups had lost interest.

But in 2000, Anglo American — the Zambian firm from which the mines had originally been expropriated — bought most of them for $90 million. By one calculation, the delay cost Zambia $1.7 billion — about half a year's GDP.

To cap it all, two years later Anglo pulled out of Zambia — saying that the mines were in an even worse state than they had realized and could not be salvaged. Meanwhile, Chiluba filled his government with an astonishing array of crooks, arms-traffickers and drug-dealers.

One of his former cabinet ministers, who resigned in disgust in the mid-1990s, handed me a parliamentary report into the misappropriation of state assets which would have been enough to bring down any normal government. Chiluba's regime simply suppressed it.

Another told me how even the money intended to buy corn for starving Zambians was stolen by Chiluba's cronies

Thus, aid failed in Zambia — and failed miserably. But in neighboring Botswana, it helped fuel a protracted economic boom. It is a remarkable story.

Botswana was, at independence in 1966, one of the poorest countries in the world. Cows grazed the few patches of ground that were not desert. Herdsmen herded them. That was pretty much the sum total of economic activity in Botswana.

To begin with, aid funded virtually all government investment and much of its recurrent expenditure, too. In 1971, aid was equivalent to 98% of state revenue. But shortly after independence, prospectors found diamonds under the Botswanan desert.

Unlike successive Zambian governments, Botswana's did not squander the windfall. Diamond dollars were ploughed into infrastructure, education and health. Private business was allowed to grow unmolested and foreign investment was welcomed.

A group of South Africans came — and set up safari lodges in the Okavango delta. There, a river runs into the desert and stops, forming a 15,000-square-kilometer oasis for all the wildlife in the country. Tourists flocked to gawk at the elephants and wild dogs — and to be punted around water-bird sanctuaries in hollowed-out logs.

Donors' suggestions were carefully evaluated. Projects were only approved if the proposers could demonstrate that they were sustainable — and did not duplicate work being carried out by others.

Aid programs were transparent, too. Donors could come at any time and observe how their money was being spent.

In the last 35 years, Botswana's economy has grown faster than any other in the world. Yet, cabinet ministers have not awarded themselves mansions and helicopters — and even the president has been seen doing his own shopping.

Exchange controls were abolished in 1999, the country's budget has usually been in surplus (although it has slipped recently) — and GDP per head tops $3,000. The country remains vulnerable to swings in the price of diamonds and has not diversified enough into other industries. But all in all, its record is impressive.

Their task completed, donors are packing their bags. The country still has a horrific AIDS problem, but the government is now rich enough to offer drug therapy to people who need it.

Adapted from “The Shackled Continent” by Robert Guest