Chibamba Kanyama writes
Long article below but attempts to help political parties (particularly PF, UPND, SP) understand the power and influence of global markets as they communicate to Zambians.
PLAY GAME OR BE PUNISHED – THE CASE OF GLOBAL MARKETS AND ZAMBIA
By Chibamba Kanyama
It was reported a tweet I posted in June 2018 cost the country between US$9 million to US$27 million. The tweet stated that the Resident Representative for the International Monetary Fund (IMF) to Zambia, Alfred Baldini, had been withdrawn and that ‘his replacement was not expected any time soon,’.
I was, however, surprised the tweet shook the global markets because at the time I posted it, the markets already had the information except perhaps for the period it would take to replace Baldini. If the reported loss was true, it amplified the extent to which Zambia was hooked to the global markets and the degree of possible exposure of its vulnerabilities. It also meant the global markets were ready to punish Zambia for any behaviour unfavourable to them.
Global Markets refer to those who control capital and finance, have the means to direct global investments and are key players in trade. I am including here the multilateral bodies such as the IMF and World Bank (with its related arms such as the International Finance Corporation). Included in this definition are actual users of our copper as well as participants in our government securities and sovereign bonds (largely mutual funds).
GLOBAL MARKETS’ INTERESTS
In my book, ‘Determinants of Foreign Direct Investments in the Southern African Development Community – Risks and Opportunities’, I highlight the growing interests of both direct and portfolio investors in emerging and African markets. Under globalization, capital seeks to move across countries unrestricted. Businesses, largely from developed economies want to take advantage of global markets to expand and achieve sustainable competitive advantage.
It is also realized that the emerging markets will continue to grow and present companies with tremendous opportunities. We have observed in the case of Zambia that global markets are interested in many opportunities that the country offers them. First, global markets facilitated privatization programmes to which associated companies were financed to take over the failing state enterprises.
Second, the mining industry is of huge interest to global markets because it does not only guarantee the availability of the mineral required for industrial development in those countries but offers opportunities for equity holding. The mining companies in Zambia are listed in foreign stock markets where returns are significantly huge.
Third, global markets have for a long time participated in Zambia’s money and capital markets and lately in the Eurobonds. In short, given the level of interest, the global markets will always show interest in our politics and the policies that the winner of the August 12 elections will adopt.
We should always remember that it was the global markets that punished the government of Dr. Kenneth Kaunda, the man we are mourning today. They brought the economy to its knees over a period of time until the scarcity of foreign exchange led to numerous problems with the populace that included the workers. He was voted out of power in 1991. It is the same markets that decided the direction of Zambia’s economy post Kaunda era including the mode of sale for the mines.
THE CANDIDATES AND GLOBAL MARKETS
I have not read any political party manifesto in detail but listened to many presidential candidates. In any case, what they say publicly is the manifesto and not those meticulously designed documents put together by technocrats they rarely appoint in government when they take over power.
By his own words, Hakainde Hichilema of the United Party for National Development (UPND) appears to be a darling of global markets and he signaled this by what he anticipates will be the immediate response to the foreign exchange market on the day he is sworn in (on the presumption he wins). If I am to paraphrase, he declared he was the candidate global markets would be comfortable with (though in my many interactions with representatives of global capital, they have not hinted on who they will be comfortable with though they are following the elections very closely). Hakainde’s assertations are in line with findings by the University of Chicago Press Journals about the behaviour of stock markets under such circumstances. The Journal states, ‘The political economy literature finds that stock markets drop after left-wing and increase after right-wing electoral victories.’
The incumbent, President Edgar Lungu and leader of the Patriotic Front has already experienced a hide and seek game with the markets, signaling he cares little about their interests (took over Konkola Copper Mines with ease, and never hesitated to move into Mopani Copper Mines when the owners somersaulted). The default on interest payments can be said to be a clear signal of his intentions; they can pack and go.
The global markets (bondholders in particular) appear still confused at the development, currently being managed by the advisors Lazard Ferre, but the continued devaluation of the Kwacha even in the face of high copper prices is indicative of negative market sentiment, temporarily pacified by prospects of an IMF involvement. In its article, ‘Sovereign defaulters: Do international capital markets punish them?’, the Journal of Development Economics says Yes, they do. I quote, ‘The decay in FDI (Foreign Direct Investment) flows is higher in the years closer to the default date and for countries that have defaulted more times.’ In short, President Lungu has signaled to global markets to either play Zambia’s game or get out!
I have a list of other candidates but will talk about one more, Fred Mmembe of the Socialist Party. Fred, as we like to call him, has clearly come out by hinting that the real enemy to Zambia’s progress is capitalism; a direct message and warning to global markets. The manifesto is anchored on one sentence relative to global capital, ‘Since 1991, Zambians have been subjected to a neoliberal global programme that aims at redistribution of wealth from workers to capital, wages to profits, and from the poor to the rich.’
Cuba that is taken to be the model of socialism wrestled capitalists nearly fifty years ago and am not sure Zambia is prepared to take that route at this level of foreign capital penetration. In my opinion, it does not seem to be a simple matter as the relationship between the Zambian economy and global markets is not marriage of convenience that today is and can break apart tomorrow without either party paying a huge price. This is because the issue Zambia faces is not purely about capital accumulation (which it can easily do with patience and great planning) but a lot to do with a rigged global market system where you have to play ball or be punished.
MARKETS CAN PUNISH SEVERELY
Global Markets can punish severely those non-complaint economies due to their interconnectedness, Their strength is in the control of trade, heavy involvement in fluid national assets such as stock markets and government securities including investments in the mines in the case of Zambia. The exposure to external debts has left Zambia vulnerable and can be exemplified by our recent engagement of debt managers following significant fluctuations in the performance of the Eurobond.
The global markets did it in Zimbabwe where they reduced a once thriving economy and only documented emerging market in Africa at the time to near ashes. If it were not for the resilience of the financial and business infrastructure built by the same markets over a period of many years, I think the Zimbabwean economy would be reduced to rubble today.
The issue of imperialism or global markets will continue to dominate Zambian politics and may somewhat influence voter decisions. What cannot be underrated is the role that global markets play in promoting a sound currency, facilitating for balanced budgets, debt management, job creation and the improvement in the standard of living. Whether they add or subtract is where the debate is. My personal position is that we cannot do away with global markets. What matters is whether we enter the playing field with no clue about how to engage with them or we possess the capacity to negotiate terms that are based on a win-win.
In summary, the influence of global markets cannot be underestimated as stated by Susan Strange in the book, ‘The Retreat of the State: The Diffusion of Power in the World Economy,’. It says in summary, ‘The impersonal forces of global markets are now more powerful than the states to whom ultimate political authority over society and economy is supposed to belong. Where the states were once masters of markets, now it is the markets which, on many crucial issues, are the masters over the governments of the states.’