In 2011 the charismatic Michael Sata, leader of the Popular Front, was elected President of Zambia. His manifesto blamed slow economic growth and poverty reduction on the cautious macroeconomic policies of his now-defeated predecessors. In place of caution, Sata promised a bold project of infrastructure investment. The centerpiece of this vision was roads, rehabilitating roads, upgrading roads, new feeder roads, new inter-district roads, new inter-provincial roads, new bridges, and new ring roads. Roads! Roads! And lots more roads! Not my kingdom for a horse, but my kingdom for shiny snakes of bitumen and asphalt.
Eleven years later. The International Monetary Fund (IMF) came to visit Zambia. Zambia faced a debt crisis and received a $1.3 billion loan from the IMF in return for implementing a reform plan to ‘restore macroeconomic stability’ and ‘foster higher, more resilient, and more inclusive economic growth’. The plan included a formidable roster of spending cuts (subsidies on fuel and agriculture) and tax increases (consumers and corporations). The IMF were scathing about the decade-long road-building program. They declared,
“Zambia is dealing with large fiscal and external imbalances resulting from years of economic mismanagement, especially an overly ambitious public investment drive that did not yield any significant boost to growth or revenues.”
One fact was incontrovertible, Zambia had borrowed a lot of money and by 2022 was unable to service that debt. By the end of March-2022 arrears on the principal and interest had reached $2.4 billion. Total Zambian debt had floated off into the stratosphere, reaching almost $34 billion, or 133 percent of GDP.
The dream of President Michael Sata was labeled ‘poorly targeted and inefficient public investment’ and would be ‘reduced’. The ‘better Zambia for all’ promised in 2011 had fizzled out into recrimination, blame, and economic failure.
Is this view fair? A cursory look at the recent history of big road-building projects in the European Union, Brazil, India, and China shows that roads give a ubiquitous boost to economic growth. Other studies show that roads have accelerated urbanization across 15 countries and 287 cities in Africa between 1992 and 2008 and across 579 European cities between 1990 and 2012. A detailed case study of a single (724-mile) road rehabilitation project in Zambia (the Nacala Road Corridor crossing Zambia, Malawi, and Mozambique) using satellite light intensity estimated that locations within 7 miles of the road experienced an increase in GDP of more than 20%. The IMF presented no substantial evidence that Sata’s asphalt admiration was a growth failure. Was the IMF mistaken? Empirical studies on road building show that the positive impacts of road building can take decades to work through their full impact on economic growth, urbanization, and changes in economic structure. Was the IMF overly hasty in proclaiming the absence of a Sata bitumen bounce?
In 2011 Michael Sata had a weight of good reason to build roads. Studies showed that transport costs were much higher in Africa in 2007 than in China, the US, Brazil, or Pakistan. The effect of distance on the cost of transporting goods in Ethiopia or Nigeria was up to five times higher than in the US. In 2008 the price of oil across Sub-Saharan Africa jumped three-fold if it had to be transported more than 300 miles from a major city. High costs of transport were directly linked to the relative absence of paved roads in Africa; in 2010 the lowest of any global region. Landlocked countries (such as Zambia) traded less with the rest of the world and suffered lower economic growth as a consequence. The Sata project tackled a real and well-documented constraint on economic growth.
In 2011 Zambia had the fiscal space to build infrastructure. Under the IMF and World Bank Highly Indebted Poor Countries (HIPC) initiative in 2005 Zambia saw its international debt stock reduced from $7.1 billion in 2005 to around $600 million in 2010. This debt reduction—as well as Zambia’s regaining of middle-income status in 2010 and sustained economic growth stemming from high copper prices—raised its sovereign credit ratings to a B+ in 2011. More success in mobilizing domestic resources also meant donor support as a share of revenues declined from 40 percent in the 1990s to 2 percent in the 2000s.
Global investors believed in Sata and roads. Between 2012 and 2015, Zambia issued three Eurobonds, totaling $3 billion. China arrived after 2011 with a mix of dollar-laden warm smiles and hardened infrastructure-building expertise. Chinese contractors lobbied Zambian government officials for contracts, promising loans that would finance road construction.
The 2012 8000 Zambia Accelerated National Roads Construction Program (ANRCP) promised to rehabilitate or upgrade 8,000 kilometers (4,970 miles) of roads to meet international standards. The aim was to turn Zambia into a “highly road-linked” country by 2017. Roads constituted 42 percent of all expenditures on non-financial assets between 2011 and 2017. Zambia’s seventh National Development Plan, released in 2017, promised that “investment in improved transport systems and infrastructure will drive wider economic benefits, including supporting growth and creation of jobs, raising the productive capacity of the economy, driving efficiency and boosting international competitiveness”. It all seemed well-planned and a sensible policy response….
The IMF was wrong! The 2011 Zambian road-building program was appropriately not ‘overly’ ambitious. Sata was correct in 2011. Road building could tackle a deep-lying constraint on economic growth in Zambia – the geographical problems of being a landlocked country in Sub-Saharan Africa. Zambia had ample fiscal space to pay for road building. Foreign investors, the hardnosed market kind in Europe and the long-term state-backed in China believed in Zambia’s road project. What went wrong?
While wrong in one way the IMF were right in another way. The crisis of 2022 was a home-grown one manufactured in Lusaka. The crisis needed a big response from domestic policymakers. Would the IMF diagnosis of more taxes, less spending, and shelving of the road-infrastructure project return Zambia to a sustainable path of economic development?
Wait for,
A Long and Winding Road to Economic Development Part II: Fiscal Austerity (IMF) and Bad Governance in Zambia (China) who is to blame?
