In August 2021, a dramatic change of government took place in Zambia. Hakainde Hichilema of the United Party for National Development (UPND), the largest opposition party, finally defeated Edgar Lungu of the Patriotic Front (PF), who was running as the incumbent president, by more than one million votes to take victory on his sixth attempt.

While in many African countries the ruling party repeatedly secures re‑election, Zambia has experienced multiple democratic transfers of power since the 1990s. Yet behind this democratic politics lie an economy dependent on mineral resources and severe poverty. As many African economies were hit by the COVID‑19 pandemic, Zambia too was affected and fell into default in November 2020. What lies behind Zambia’s economic problems? This article takes a closer look at the current economy together with its historical background.

Inauguration of Hakainde Hichilema (Photo: ChaloNiZambia / Wikimedia Commons [CC-BY-SA-4.0])

Historical background before independence

Across what is now Zambia and its surrounding area, various ethnic groups and kingdoms have long taken shape. For more than hundreds of thousands of years, hunter‑gatherers known as the Batwa and Khoisan inhabited the region, but from the 15th to the 19th centuries, Bantu peoples (※1) bearing iron and livestock flowed in, mainly from what is now southern Democratic Republic of the Congo and northern Angola, pushing aside or absorbing the indigenous inhabitants. Over time, these communities developed into various ethnic groups and political organizations such as kingdoms. Major kingdoms included the Chewa kingdom, which reached what is now eastern Zambia from the present‑day DRC; the Lunda kingdom, which dominated the fertile soils around Lake Mweru in the north; the Bemba kingdom in the north‑central area; and the Lozi kingdom (also known as the Barotse kingdom), which held fertile lands along the Zambezi River in the south, all of which existed. Given this history of diverse kingdoms, Zambia today has as many as 73 different ethnic and language groups.

Thereafter, the slave trade that spread worldwide also dealt a blow to this region. Beginning along Africa’s coasts, many people were captured and “bought and sold” as slaves to Europe, the Americas, and Arab countries. In the late 1700s, the slave trade finally expanded into inland areas such as eastern Zambia. Those seeking slaves exploited inter‑ethnic rivalries, encouraging the capture of slaves from rival groups, leading to frequent conflicts and disputes between groups erupting. In the 19th century, the slave trade was gradually banned worldwide, and with colonization it eventually came to an end.

In 1889, Cecil Rhodes, a colonial politician based in what is now South Africa, established the British South Africa Company (BSAC). From the following year, in search of mineral resources such as gold in southern Africa, the company used a quasi‑military organization to push northward and began extracting the region’s mineral resources. The areas corresponding to today’s Zambia and Zimbabwe were named Rhodesia after Rhodes, and became British colonies as Northern Rhodesia and Southern Rhodesia, respectively. When the Belgian king occupied central Africa, a boundary was created between the Congo and Northern Rhodesia, enabling British forces to control the southern African region from South Africa to the Congo and administer it as northern and southern spheres. Meanwhile, Portugal had long been advancing inland from the coasts and colonizing the regions now corresponding to Mozambique and Angola, creating colonial boundaries that sandwiched Northern Rhodesia from east and west.

In this way, European powers divided pre‑existing kingdoms with new borders, drawing international boundaries in the course of colonization. BSAC split Northern Rhodesia into west and east, ruling it as North‑Western Rhodesia (the Barotse kingdom) and North‑Eastern Rhodesia. Under BSAC administration, these regions became British protectorates in 1899 and 1900, respectively. From 1900 onward, as part of colonial rule, the two regions imposed taxes that required cash obtainable only through wage labor such as mining, ending subsistence livelihoods and ensuring a labor force for the mines.

North‑Western and North‑Eastern Rhodesia were unified in 1911, and in 1924 Northern Rhodesia was transferred from BSAC and became a formal British colony. In 1953, Northern Rhodesia (now Zambia), Southern Rhodesia (now Zimbabwe), and Nyasaland (now Malawi) were federated under the British. The federal government carried out little policy for Northern Rhodesia in areas such as education and agriculture, and favored Southern Rhodesia, where British settlers had concentrated, so by the late 1950s the federation ceased to function effectively.

During this period, resistance to colonial rule in Northern Rhodesia grew, setting the course toward independence. In 1958, Kenneth Kaunda formed the United National Independence Party (UNIP), and as Britain began to withdraw from its African colonies, the federation collapsed in 1963. Under colonial rule, power had been concentrated in eastern Zambia (formerly administered as North‑Eastern Rhodesia), but in the move toward independence, an agreement was also concluded with the Barotse kingdom in the west. In October 1964, Zambia achieved independence as the Republic of Zambia, and Kenneth Kaunda, who had been the prime minister of Northern Rhodesia, became the country’s first president.

Monument symbolizing liberation from colonial rule (Photo: Virgil Hawkins)

Zambia after independence

After independence, UNIP held power from 1964 to 1991. In 1972, Kaunda banned all parties other than UNIP, turning Zambia into a one‑party state. As UNIP was the only legal party, elections were held but there was only one party to vote for, a situation that suppressed other political forces. This was accompanied by a turn toward authoritarianism. At home, the president took measures such as detaining critics and political opponents without trial. Even as politics became more heavy‑handed, to govern a multi‑ethnic nation Kaunda upheld the slogan “One Zambia, One Nation,” steadfastly pursuing the principle of maintaining political balance among ethnic groups.

Kaunda also turned his attention to liberation in neighboring countries. He devoted himself to supporting independence movements in southern African countries that had yet to achieve independence from colonial rule, not only his own. For example, he supported liberation movements in Mozambique and Angola, which were under Portuguese rule until 1975. He supported forces resisting white rule in Southern Rhodesia ( ※2 ), and he hosted the headquarters of the African National Congress (ANC), which was resisting apartheid in South Africa, in Zambia’s capital, Lusaka.

Economically, Zambia showed relatively stable growth in the early years after independence. During the colonial period, Britain had exploited Zambia’s mineral resources, but once independent, Zambia could use all of its resources and revenues for itself. Coupled with rising copper prices from 1964 to 1970, the copper‑rich Zambian economy grew rapidly. Using revenues from copper, social services such as hospitals and universities expanded. However, from the mid-1970s to around 1980, copper prices collapsed, inflation surged, and the Zambian economy deteriorated.

Kenneth Kaunda visiting the United States in 1983 (Photo: A1C William M. Firaneck)

Democracy through multi‑party politics

Amid economic stagnation and mounting public dissatisfaction with dictatorship, the Kaunda administration abolished the one‑party system in August 1991 and allowed multi‑party elections. In October 1991, under the new multi‑party system, presidential elections were held, and Frederick Chiluba of the Movement for Multi‑Party Democracy (MMD), head of the Zambia Congress of Trade Unions, won, replacing the Kaunda administration. With the economy in decline at the time and some state‑owned enterprises bankrupt, Chiluba privatized many large, low‑productivity enterprises, including mining companies. But problems arose here as well. In the process of granting mining rights to foreign firms through privatization, government officials received bribes from foreign companies and granted mining rights on terms that were extremely favorable to them. As a result, instead of restoring Zambia’s finances, a system emerged in which wealth from mineral resources flowed abroad.

With privatization and other moves drawing attention to problems in the new administration, other parties began to rise. In this context, a new party, the United Party for National Development (UPND), was formed in 1996. Led by Anderson Mazoka, UPND narrowly lost to the ruling MMD in the 2001 election. Meanwhile, in 2002 Michael Sata formed the Patriotic Front (PF), which grew rapidly. In 2006 Hakainde Hichilema was chosen as UPND leader and fought hard, but in the 2011 presidential election PF’s Sata defeated the ruling MMD.

Although PF grew significantly during Sata’s tenure, public dissatisfaction mounted as some campaign pledges—such as reducing unemployment and improving socioeconomic policy—were not delivered. After Sata died in office, elections were held in 2015, and PF’s Edgar Lungu became president. The Lungu administration carried out extensive infrastructure development, such as improving existing roads and building schools. However, the economy deteriorated due to depressed copper prices, and the 2020 COVID‑19 pandemic further harmed the Zambian economy.

In the August 2021 presidential election, PF’s Lungu received 38% (1,814,201 votes), while UPND’s Hichilema won with 57% (2,811,757 votes), securing victory. It was UPND’s triumph after five previous failed presidential bids.

The National Assembly of Zambia (Photo: Virgil Hawkins)

Zambia’s mineral resources

As seen above, Zambia has undergone repeated changes of government, but it is no exaggeration to say that the constant backdrop has been economic challenges. Zambia faces serious poverty, with 92% of the population living below the ethical poverty line of 7.4 US dollars per day (※3). Today, the economy is sustained by mineral resources—chiefly copper and cobalt—but how much of their benefits do people in Zambia actually receive?

Against the backdrop of problems since the 1990s, when privatization of the mines advanced and mining rights were transferred to foreign firms on favorable terms, Zambia still struggles to capture the benefits of its mineral resources through taxation of foreign companies. Foreign mining companies are obliged to pay mineral royalties and other taxes such as corporate income tax, but taking advantage of the fact that mining development cannot proceed without foreign participation, they have demanded extremely low tax rates through negotiations. For example, when the mines were first privatized, the royalty on mineral resources was set at 0.6%. In addition, various tax exemptions were granted, yielding extremely low tax revenues from the mines. Although the law has been revised repeatedly since then, attempts to raise the royalty rate have repeatedly met stiff resistance from mining companies. As of 2021, the royalty is a mechanism that varies between 5.5％ and 10％ in line with the price of copper.

In addition to low tax revenues due to initially low rates, there is also the problem of profit shifting through illicit practices: tax havens and the illicit financial flows that occur through them. By “selling” copper at low prices to related companies based in low‑tax jurisdictions, mining companies can reduce the taxes they owe in Zambia. Although this often contravenes the law, the high secrecy of tax‑haven structures makes enforcement extremely difficult. Some studies estimate that Zambia loses 3 billion US dollars in tax revenue every year through such tax avoidance, tax evasion, and exemptions.

In 2018, to reduce tax avoidance in the mining sector, Zambia established rules requiring foreign companies to document and substantiate all related‑party transactions. The aim is to prevent illicit financial flows through profit shifting by companies. Zambia also requires the use of arm’s‑length pricing for transactions between related entities such as mining companies. Tools Zambia uses to block these practices have already yielded cases of recovering a portion of previously lost tax revenues.

Nchanga Copper Mine, Zambia (Photo: BlueSalo / Wikimedia Commons [CC-BY-SA-3.0])

Furthermore, pollution problems have occurred at mines across Zambia. For example, in January 2021, a Vedanta‑owned copper mine contaminated local water sources, and affected residents filed a lawsuit. For roughly two decades, harmful substances from the mine had continued to pollute local water sources, infringing on people’s lives and the environment. More than 2,500 residents brought suit against the mining company. The lack of specific arrangements regarding liability for domestic environmental pollution can be seen as part of the reason such pollution was left unaddressed for so long.

Zambia’s economic situation and debt problem

Because mineral resources support Zambia’s economy, global demand for minerals affects not only the mining industry but the entire economy. For example, in the mid‑1970s, the oil shock slowed the global economy and the price of copper, Zambia’s main export, fell. As the slump in copper prices continued, Zambia gradually accumulated debt. By the mid‑1990s, per‑capita external debt had reached about 8.74 US dollars, one of the highest levels in the world. From the 1990s onward, copper prices rose as China’s economy grew and for other reasons, and Zambia also saw economic growth. From 2003, as the economy improved, Zambia’s fiscal situation also improved, with annual debt declining. However, the accumulated debt was enormous, and in April 2005 the World Bank implemented a debt relief policy of 3.8 billion US dollars, writing off more than 50% of Zambia’s debt.

Around 2008, the global financial crisis triggered by the Lehman shock caused asset prices to collapse and the world economy to contract. As copper demand fell, prices plunged, once again impacting Zambia’s economy. Since the 2005 relief policy, Zambia’s debt began piling up again from 2008, and by March 2020 the economy had been hit by depressed commodity prices and the COVID‑19 pandemic. As of June 2020, public debt, domestic and external, totaled about 27 billion US dollars, of which 16.86 billion was externally held. A quarter of the external debt was held by Chinese companies through secret transactions with Zambian entities, and Zambia currently owes Chinese companies about 3 billion US dollars. In November 2020, the external debt‑to‑GDP ratio exceeded 100％, making Zambia the first African country to fall into default during the pandemic.

People working in a copper mine (Photo: Virgil Hawkins)

Toward resolving the fiscal problem?

Hichilema, who was elected in August 2021, inherited the country’s debt and an economy weakened by the pandemic, but expectations for him are high. He has stated that bold action is needed to resolve the debt problem—his top priority—and to revive the economy so as to bring jobs and better lives to the people. President Hichilema is a businessman who owns and runs multiple ventures, and he has expressed a desire to build a sustainable fiscal base and foster relationships with those willing to invest in Zambia. The Zambian government is also participating in an International Monetary Fund (IMF) financing program to reduce the fiscal deficit and obtain recovery support. However, an IMF program is only a temporary relief measure. In the past, the IMF imposed conditions such as spending cuts on the Zambian government; although debt was reduced, spending on public services such as health and education was cut, exacerbating poverty. There is also a view that the IMF is not presently imposing such one‑sided conditions, but it can also be said that, at this point, the IMF may not fully grasp the current realities.

As we have seen, while Zambia possesses abundant mineral resources, for various reasons it has not fully benefited from them. As a result, even as power changes hands periodically, the economy remains unstable and severe poverty persists. With issues such as fluctuating mineral prices and large outflows of capital piling up, even if Zambia’s debt declines little by little, a complete resolution of its economic problems is still far off.

Going forward, the challenge will be whether the country can further strengthen promising sectors such as tourism and agriculture while safeguarding its wealth and industries against foreign companies. However, there are many issues beyond the Zambian government’s control, such as global tax reforms addressing tax havens. There is growing attention on what policies President Hichilema, who took office in 2021, will pursue to revive Zambia’s economy.

※1 From around the 2nd millennium BCE to the 15th century, people gradually moved from southern West Africa to central, eastern, and southern Africa. This is known as the Bantu migration, which led to Bantu languages being spoken over a wide area of Africa today.

※2 To avoid decolonization, the local government that ruled Southern Rhodesia during the colonial era declared a unilateral independence from Britain while maintaining race‑based rule, continuing white minority governance. After a war of independence, that rule ended in 1979.

※3 At GNV, we use the ethical poverty line (7.4 US dollars per day) rather than the World Bank’s extreme poverty line (1.9 US dollars per day). For details, see the GNV article “How should we interpret the world’s poverty situation?”.

Writer: Mei Hatanaka

Graphics: Yosif Ayanski