It's a scandal for Zambia to be poor - Fundanga

It's a scandal for Zambia to be poor - Fundanga
By Amos Malupenga
Sunday January 20, 2008 [11:30]

Bank of Zambia governor Dr Caleb Fundanga says it is a scandal that Zambia is a poor country and yet it is abundantly endowed with rare natural resources. Dr Fundanga says Zambians can make their country prosper only if they stop to look for Santa Clause for handouts. He observes that foreigners are flocking into Zambia because there is something to be gained.

“Those are the challenges,” Dr Fundanga says. “But we are so luck as a country. If there is one country that God favoured so much, it is Zambia. We have got abundant natural resources; we have copper all over the country, just here in Mazabuka we are mining nickel and yet we have been driving past those mountains for a long time. The emeralds are everywhere, we have been sitting on wealth.

That is why I am saying God was very kind to us. He gave us fine weather, plenty of land, rivers; we can invest in power generation and export to Botswana, Namibia, Tanzania and the whole of East Africa. We are well endowed that sometimes it is a scandal that we are poor.”

Below, Dr Fundanga talks about his life and work at Bank of Zambia in trying to stabilise and improve Zambia’s economy for national development.

Question: I would like to thank you most sincerely for this opportunity you have accorded me after about three years of persuasion. I am glad that finally, you have succumbed to my persuasion and the interview has taken off. In the first place, may I know your brief personal and educational background?
Answer: Thank you and welcome to our home. It’s true that I have refused to give you this interview over the years. But I didn’t mean to be difficult. It’s only that I like to work or do things quietly. As you know, it is very easy to be misunderstood in Zambia.

Having said that, my full names are Caleb Mailoni Fundanga. I was born in Mufulira on 28th February 1953. Thereafter, my parents moved to Mulungushi which is just outside Kabwe. They stayed there all their lives. They are both dead and were buried there; my father, Mr Mailoni Fundanga, having died in March last year. But my mother, Mrs Alita Mutaya Fundanga, died some ten years earlier. Originally, both of them came from Nsofu in Mkushi district but they ended up settling in Kabwe. And really, I can say that is where I grew up.

My father was a trader, he had a small grocery there and my mother was the farmer. She used to encourage us to grow groundnuts, maize, sweet potatoes and others things. My parents were very strong Seventh Day Adventists (SDA). But I am a Catholic except my brothers and sisters who got baptised in the SDA. I never got baptised. Probably that is why it was easier for me to go to the Catholic Church.

I went to school at Mulungushi Primary School in Kabwe rural which is now called Nchembwe. Mulungushi is about 16 miles out of Kabwe. There I did my grade one up to four. We didn’t have grade five there so I had to go to the next school called Imanza Primary School where I did my grade five to seven. This was a weekly boarding school. It was quite hard to learn there but also very interesting. As weekly boarders, we went on Sunday with our own mealie-meal and other foodstuffs and we did our own cooking. On Friday, we returned home.

Q: Why was it a weekly boarding?
A: Because we were coming from far away places. We couldn’t manage to go to school and return home the same day. Because of that, we had to sleep there and return over the weekend. It wasn’t a formal boarding school where other boarding facilities could be provided. Even the houses we lived in were thatched and constructed on an ad hoc basis.

This was challenging especially during the rainy season but we managed to finish grade seven there. Then I went to Mumbwa Secondary School in 1967. It was one of those First National Development Plan schools. I finished my form five there in 1971 after which I went to the University of Zambia (UNZA).

But just when I finished my secondary school before going to UNZA, I worked briefly in Mufulira mines as a staff learner. I used to work in the laboratory, measuring the copper content of the various ores. I stayed there up to the time the form five results were announced. After it was known that I was going to be in the School of Humanities and Social Sciences at UNZA, they transferred me to work briefly at the head office.

We were dealing with education statistics within the mines. I did that for a month or so. Then I left the mines and went to UNZA. I was in the school of humanities but later I managed to get into the school of economics. I was at UNZA from 1972 up to 1976 when I finished.

In those days, we used to have staff welfare programmes at UNZA. I don’t know if this has continued. If you passed well, you got a fellowship and as a fellow, you first started work as a teaching assistant working as a lecturer and later on they sent you abroad for further studies.

In 1977, I went to the UK at Manchester University for my postgraduate studies. I came back in 1980 and started teaching. I was teaching statistics. I taught from 1980 to 1981 when I left for Germany to do my PhD at Constance University in South Germany. I was there up to 1985 together with Dr Situmbeko Musokotwane (the economic advisor to President Levy Mwanawasa). I was sponsored by the Germany government under the exchange programme.

I continued lecturing at UNZA when I came back in 1985 up to 1987. During that time, I even served as head of Economics Department. But in 1987, I moved into government.

Q: In what capacity did you join the government?
A: I went into government as permanent secretary in the Ministry of Finance. I worked there very briefly. My minister then was the late Gibson Chigaga.

By November of that year, I was transferred to Cabinet Office where I became permanent secretary for economy and finance. I stayed there up to 1993 when I was transferred to National Commission for Development Planning as permanent secretary. I was there up to 1995 when I went to work for the African Development Bank (ADB) in Abidjan, Ivory Coast as executive director for a constituency of Lesotho, Mauritius, Zambia, Malawi, Swaziland and eventually South Africa.

I did my term of three years up to 1988. I was supposed to come back but then I was appointed senior advisor to the president of the Bank until I was invited by the New Deal government of President Levy Mwanawasa to come and work as Bank of Zambia governor in 2002.

Q: What was your experience at African Development Bank?
A: The experience was very enriching. I remember when I finished my term, they gave us a farewell. My comments were that ‘it was as if it was a graduation ceremony, I was graduating with some qualifications in development banking having worked in the board and having been an active member’. There were also some fundamental reforms in which I was fully involved and I got to know how development banks operate.

I must say that it was an eye opener. During my first stint as executive director, I was able to move around and visit all the countries I was representing. So I got to know Malawi very well, Mauritius, Swaziland and South Africa. That gave me a good understanding on how the region works. Later on, I became senior advisor to the president (of ADB). I was also his advisor on English-speaking countries in Africa.

This means that I travelled with the president all over Africa. I remember my first assignment was to East Africa. This gave me a good grounding to understand how African economies work, but also to understand key players in the African economies.

Q: What exactly is the role of ADB?
A: Africa Development Bank is like the World Bank. These institutions were created to finance development in poor countries. To do this, they mobilise resources globally. They borrow from the developed countries’ market and then lend this money to poor countries at favourable rates. They help in the financing of things like infrastructure, health and education. They also try to support private sector development.

Of course there have been questions about how effective these development institutions have been. As you know, countries like Zambia had borrowed quite considerably from these institutions and in the process even got into under-development problems. The ability to service these loans also became difficult. This is what led to HIPC. It was because of the realisation that instead of building out of poverty, they were getting more entrenched in poverty. To some extent, there has been a controversy over the effectiveness of these institutions.

Probably one could also say that effectiveness was hampered by the policies being pursued by the countries themselves as you know for a long time the policy environment in most of our countries was not appropriate. So if the policy environment is not right, you will throw in money and you don’t get what is expected. And you can see that when a country is following appropriate policies, even a bit of money can make a difference.
Q: As you grew up in Mulungushi, what was your ambition? What is it that you aspired to become as an adult?

A: I have always had interest in economic issues. This is something that developed as a result of my intense discussions with my father. My father was a trader and his business started to get affected as government policies deteriorated. There was a time when some wholesalers would deliver goods to his place. Companies like Ndola Milling would always deliver when he wanted them to deliver mealie-meal or cooking oil. Even if my father was not an economist, he understood the constraints brought about by poor policies from a practical point of view.

So those early discussions I had with my father had quite a profound impact on my wanting to know more about how economies work.

Q: Did you think of serving as Bank of Zambia governor one day?
A: I must say that essentially, I was an academic and I wanted to do very well in this field. But fate had it that I was appointed into government at a very early age. In fact, by the time I became permanent secretary, I was not even married. I got married in 1990 but I got engaged to my dear Rosario during this period I was in government. But she went to South Korea for studies. So I had to wait for her to come back in 1989 and on January 20th 1990, we got married.

Q: You married at the age of 37, why the delay?
A: I first wanted to finish my studies...

Q: Well, you finished your first degree, went for the masters and then PhD and you were still not married. I thought you were expected to marry just after your first degree...
A: As an academic, I saw my terminal qualification as PhD. So as long as I was working towards that goal, I thought it would be okay to stay that way. I know a lot of friends who have gone for further studies with large families.

But maybe one can also say that I had not met my lady. So you can’t get married just because you want to get married. I had to meet somebody. And I must say that when I met Rosario, I knew that I had met somebody whom I could stay with forever. Our interests coincided and we could talk properly and I thought ‘this is now the time to get married’.

But she also had her studies to pursue so I said ‘you go and we will get married when you finish your studies’.

Q: So you were a monk before you met Rosario?
A: Yes! (laughter).

Q: Allow me to finish with the family business before I ask about your appointment as bank governor; how many children do you have?
A: We have three children. The first-born is Chipindi. He is actually Caleb but he prefers to be called Chipindi because he doesn’t want to be called Caleb in public. He was born in 1990. Then comes Chai our daughter and another daughter Mwape.

The two girls have pursued French education because they started school when we were in Ivory Coast so we took them to French school. Chai has just branched out of the French education system. She has gone into English school at Banani. She is doing grade nine. But the younger girl is still at a French school here in Lusaka. The boy is now in Canada doing pre-university education.

Q: Just to go back to your marriage; you said when you met Rosario you knew that you had met a lady you would live with forever. What were you looking for in a lady?
A: Well, I was looking for a lady who was self-assertive, somebody I could discuss with issues and somebody who had a good outlook on life. I was looking for a life-long partner. And that you get from somebody who has got her (Rosario’s) character.

I must also say that Rosario has been very helpful to my life. You know mostly when you get married, it’s very difficult for your wife to get along with your mother. But my wife was a greatest friend of my mother. I don’t know how they got along so well. I must say that somehow, she has got the character of my mother and they say usually, that you should find a partner who reflects one of your parents.

My wife has been very good. She is such that I don’t care about my relations. She looks after my relatives. If anybody comes, she looks after him or her very well. She is our minister of the economy in the home. That’s very important when one is doing the kind of work that I do.

Part of that is the character she developed from her learning experiences in Asia. She plays a key role in the family as opposed to where the wife is just lazing around. We have done a lot of things together as a family. I can tell you that even when my mother was dying, she was by her bedside. When my father was dying, the two of us were by his bedside. Even recently when I lost my sister, she slept with her at the hospital. She has been more than supportive.

She is also very religious, so she has helped to bring our young family in a religious way. When we are eating, our children have to pray; everybody has to pray. That is good because the wife is the one who can effectively play that role of developing the children’s character. If there are visitors, the children must not be playing around. I am happy that she has helped to mould our children in this kind of way. She is also very enterprising. Those are things that I needed in a partner. She also has very well-thought-out views and opinions on a number of issues.

Q: Before you found Rosario, how many times did you try and fail to find a lady of your dreams?
A: Because I was not committed to getting married before finishing my studies, I was not in some serious relationships. But Rosario’s was a serious relationship from the word go. When I met her, I was convinced that she was my partner for life and we did not take long to get engaged. Before she left for Korea for studies, we were already engaged.

Q: What did she study in Korea?
A: She is a textile expert, so she went to Korea to do her masters degree in textile technology.

Q: Well, let’s now get back to 2002 when you were appointed as Bank of Zambia governor. How was your first day in the office?
A: Before that, I had to travel to Lusaka from Abidjan to meet President Mwanawasa who informed me that he wanted to appoint me. And may I take this opportunity to Thank His Excellency the President for the confidence he showed in me. I accepted the challenge and so an announcement was made. After that I went to the office. I must say that my predecessor Dr Jacob Mwanza was a very good gentleman. He helped me a lot. You see, Dr Mwanza was also my boss at UNZA. He was a vice-chancellor when I was in the economics department. He actually used to be my lecturer when I was doing my first degree and when I left UNZA to go into government, when I went to Cabinet, he came there and he was the Deputy Secretary to the Cabinet while I worked under him as permanent secretary.

So there wasn’t any difficulty when I came to take over from him because I had worked with him for a long time before. It’s like he was giving me a lecture on how to settle down in the new job. From the transition point of view, everything was excellent and our relationship is very good. He is still my advisor and teacher up to-date.

But I had to return to Ivory Coast to go and formerly resign from my job at ADB. My wife and children remained there because the kids were still in school.

Q: What did President Mwanawasa say to you as he appointed you?
A: He told me that the Central Bank is a very important institution and he was looking up to me to run good economic policies. That time inflation was a big problem, the kwacha was losing value and a lot of people were even quoting in foreign currency. The President said he wanted the economy to settle down and I promised to do the best under the circumstances. He also promised to give me a free hand in doing what I thought was right, that he would not interfere.

And I must say that although we did not have a written rule that Central Bank is independent, the way President Mwanawasa has allowed us to perform our roles, as if there were such a law. That has enabled us to do a lot of things. We have a lot of things without any fear that I will get a phone call tomorrow as to why I did that. This has given us the confidence to do certain things which have brought us to where we are today although we still have a long way to go.

Q: So what were the biggest challenges when you assumed the office?
A: One of the most important challenges initially was that in this position, you have to be ratified by Parliament. When I was appointed, Parliament had just gone on recess and they were not coming back for some time. The question was ‘should I start work before the ratification or not?’ Of course, it was clear that you couldn’t leave the Central Bank without the Governor so the President said ‘get on the work and when Parliament resumes, we will go on with the ratification’.

I am sure you recall that at that time, some enthusiastic people were even writing complaining that I was getting a salary before being ratified. No, I was not getting the salary. I was just getting an advance to enable me buy mealie-meal and sugar until the ratification process.

Anyway, we went through it and I was ratified; everybody voted for me. During the debate in Parliament, the main issue that came in was that I had started work before ratification. Otherwise, everybody voted for me. This gave me a lot of strength that I had received votes from both the ruling party and the opposition parties. That has been a source of strength throughout my work.

And going back to the challenges; one of the challenges was the issue of polymer notes. There was a problem of their launch which was started way before I went there. But obviously, the launching of the polymer note was correct because it is the way all central banks are going, especially for low denomination notes which wears out so quickly.

We embraced that decision but unfortunately the printing company didn’t do a good job, so the notes were fading very fast. That was a very big challenge to my coming to the Bank of Zambia. We tried everything possible to rectify that and I think polymer notes are now well accepted.

The second challenge was one of people quoting in US dollars. At the time I joined the bank, there was a loss of confidence in the kwacha perhaps because of high inflation. So everybody preferred to quote in US dollars.

This was a big challenge because for me it was unknown that the country could allow such a thing to happen, especially from the central bank perspective because if everybody is going to increasingly use foreign currency in their transactions, the question we asked ourselves that time was ‘how can we credibly conduct monetary policy?’ This was because as central bank we had no influence on dollars. The dollars are an external factor.

So we immediately launched a campaign to discourage this. Of course, there were a lot of other people who joined us with a lot of enthusiasm. I recall that, that year when I went to the annual meeting of the IMF and World Bank, when I arrived in their offices, it was hell, they were asking what it is that we were doing. Some people had been sending them some emails, some of them not very nice.

But we sat down and discussed with our colleagues at IMF and we agreed that it was wrong to allow such a situation to prevail in the country and that what we were telling them was the right thing. I asked the IMF to write back to those people who sent them emails so that they could explain that we had agreed that what we were doing was the right thing to do. And I am happy to say that they wrote to some of those people.

When I came back from that meeting, I called for a meeting the following day among all the players; bankers, ZACCI, farmers’ union. That probably marked the beginning of the end of that problem. On our party, credibility could only come by ensuring that our currency was stable. This was the next issue which we dealt with in 2003. At that time, when we analysed the situation of the exchange rates, we had a situation where people who wanted to sell dollars, for instance if it were over 100,000, they had to bring them to the Bank of Zambia then the Bank of Zambia conducted an auction each day if there was enough. Any amounts below 100,000 were transacted in the inter-bank.

So we did a survey and found that the foreign exchange transactions taking place at the Bank of Zambia only constituted about 17 per cent of the total forex transaction and yet the Bank of Zambia auction was being used as a reference point for the determination of the exchange rate and yet the majority of the transactions were taking place outside the Bank of Zambia. What we also noticed was that some of the people selling foreign currency, there was a perception that they would get a better deal if they sold it in the inter-bank market. If they wanted to sell 150,000, they would break it down into 80,000 and 70,000 and sell it outside the Bank of Zambia.

So when we looked at this, we said ‘why not just allow everybody to trade in the inter-bank market, to unify the market?’ This is the decision which we took in July 2003. We benefited a lot, again, by working together with the IMF who funded foreign exchange trading experts from the Central Bank of India who came and spent sometime with us.

We sat together and agreed on a number of issues and the way forward. The system was thereafter launched. This is the system we have up to date. And since that system started, it has built a lot of confidence because you all know that we are feeding from the same pot, so everybody behaves in a predictable manner, given supply and demand conditions that may prevail at a given time.

With this system, it therefore means that some of those unreasonable pressures that were forcing the currency to move in one direction only were eliminated because it means now that truly supply and demand will be the true determinants. So as we went on, we saw that the kwacha was starting to stabilise.

Of course, the events of November 2005 when there was a steep appreciation of the kwacha, when the kwacha almost touched 3,000 to one dollar, helped our people to realise that indeed the rate can move in both directions because previously there was this strong feeling that it can only move in one direction.

In fact, after this some people who had long been insisted on being paid in foreign currency were now insisting on being paid only in kwacha. But this appreciation of the kwacha was not something that everybody was going to be happy about. It was too big an appreciation.

Q: In fact, a lot of people said the appreciation was artificial...
A: Yes, people said that but it was not. In fact, I had been warning people earlier on. I recall earlier in that year I had gone to Kitwe where I was invited by the Kitwe Chamber of Commerce. And I warned people that ‘now that the price of copper has started to pick up; the food situation had been good, the market was starting to function properly and traditional exports were going up, the way forward will be a stronger kwacha’. And I warned that ‘this is a reality’. But people just brushed that aside. I recall that someone who attended that meeting was uncharacteristically quiet. I asked him why he was not talking and he answered that he was just studying the phenomenon.

And when the kwacha appreciated, some people asked the government to intervene. This is why I told you earlier that we owe whatever we have done or achieved to President Mwanawasa because he allowed us to do what he thought was right at any given time.

People rushed to the Minister of Finance asking him to fix the exchange rates but he refused saying this was market determined. They went to State House and the President refused. He said ‘all the time we have been saying that this needs to be determined by the market, so do we only want the market to determine when the currency is moving only in one direction?’

The appreciation obviously hurt or hit some people because any movement in the currency does that. The only thing we were saying was that an appreciation can be very injurious if we use it to import consumer goods. But if we use it to import capital goods, it will not be injurious. Since that 2005 appreciation of the kwacha, the performance of our non-traditional exports have been growing.

This gave us an opportunity for people to learn that there were ways which we can protect ourselves; through hedging. Now, we monitor the market and see hedging operations. If you expect that you will get your dollars at a particular time and you don’t know the exchange rate, if you think today’s rate will help you to cover whatever, you are able to buy your dollars forward. You will pay for dollars which you will receive in future or you can enter into a transaction to sell your dollars at the rate which is obtaining today. We have organised workshops to try and teach our exporters these things. These are the things which you will have to learn as you embrace the market economy.

Q: The inflation rate is now single digit, what role did the central bank play in this milestone achievement?

A: From our point of view as central bank, money supply is what we see as contributing a lot to inflationary pressures. There are various sources of that money supply. When people bring dollars in the country and we buy them, we take the dollars but we are pumping kwacha into the economy, so if there is excess kwacha, it can also be inflationary.

But another important source is the government spending. If the government is spending more money that its revenue, where is the additional money being spent coming from? It is pushing more money which is not backed by goods and services. Clearly, if you have more money than goods, the prices will go up.

So our role is to ensure that this mismatch does not occur. It therefore means that if the government is spending more, we have to withdraw that money through monetary operations. We can withdraw money through various ways, but the one we use often is open market operations where we sell some short-term instruments to the commercial banks at favourable interests to get the money out of the banking system so that the money in circulation is reduced and therefore, reduce inflation.

Sometimes we buy the dollars and also try to mop up the kwacha so that there isn’t excess liquidity. To do this, requires a very well monitoring banking system. You can tell the levels of liquidity in the system, and we use usually reserve money to see how much is in circulation etc.

And each year there is a programme that we have to follow which is commensurate with what we see as the level of inflation and the kind of circulation of currency which will be compatible with that. If we think that this is beyond our programme, then we have to act to reduce the liquidity.

But to do this requires very good information gathering; statistics, data, deposits in the banks, what government is spending and so forth. That is why we have to ensure that we have officers who are trained and that the systems for data capture are good to enable us have statistics we need to guide our actions.

But let me also say that much of the success has been as a result of the fact that government spending or fiscal management has improved tremendously. The revenues are ok and they will improve now with this mineral taxes which were recently announced. Also the expenditure has been reduced very considerably, emphasis on procedures has also improved. Therefore, government’s deficit spending has come down to below two percent. It used to be 10 per cent and above in those early days when we had parastatals. Most of those parastatals were just being supported without generating anything of value. Some of those were not real jobs, they were just jobs supported by government subsidies.

But I must say that government now has been running finances well because reckless spending has now reduced. This has also been assisted by international goodwill. You know that donors have forgiven debt; much of our debt has now been cancelled. Even in the foreign exchange market, the biggest customer we had was government because they had to get the dollars to go and pay off the debt. And since most of our debt has been forgiven, there is no pressure for the government to look for dollars to pay off that debt.

So the little that is there can now be used to address key issues such as health, education etc. And if we can improve our public funds through taxable economic activities, we reach a situation where our primary and secondary schools will be properly positioned. You have seen, for instance, the recruitment of teachers and medical personnel. As the ratio of teacher-pupil improves, the quality of education will also go up. As the number of doctors and nurses in hospital increases, the quality of medical care is bound to improve.

But the phase where we are now, we must acknowledge that the emergence of China and India as new economical giants has been very beneficial to the global community, not only us. Sometimes when I listen to some people talking, they think that the Chinese have only come to Zambia. If anything, the main beneficiaries of the Chinese emergence are the big countries like the United States. Globally, the growth of China and India has led to increases in commodity prices of copper, coffee, oil etc. For the developed economies, China is now the engine of the factory of the world. If you go to the US and you want to buy a suit, chances are that every second suit you will look at might be coming from China.

I remember when I went to Japan, I wanted to buy a Sony product. I was told that most of the Sony products were made in China but if I wanted to buy a Sony product made in Japan, it would be very expensive.

To some extent, this China factory is also benefiting workers in the industrial countries because they are producing these goods cheaply. This is helping to bring down inflation. This is the way to look at global economy. You have seen some Chinese companies are coming here, they are in mining. I remember recently when I was interviewed in Shangai, they were saying we have given all the mines to the Chinese but I said no because the Chinese own one of the smallest mines. Others who are benefiting are Australians, Canadians, even the Swiss are now active in Zambia.

If you look at the statistics, a lot of copper is supposed to be going to Switzerland. But those are some of the misunderstandings that people have about what is going on.

Q: That said, and in your view, how can the government support Zambian businesses without derailing the economy or fiscal discipline?
A: Well, there are many ways. Just having good policies is the very first step. Everybody, foreign or local player, will require an enabling environment where everybody can compete without feeling disadvantaged; there should be no preferred businesses. Government should also provide licensing and other things in a very equitable manner. You have seen sometimes that if a foreign applies for a licence, he will quickly get it when a Zambian is queuing for months outside, not even been taken seriously. They will say ‘ha, he is just wasting our time, let those who have come with dollars be...’

There are also other things like access to finance; sometimes foreigners have easy access. What we are trying to do now is to expand the financial system so that everybody has access to finances so that those who have got good bankable ideas, when they go and present them to banks, they will be able to obtain the kind of financing.

But we also know that there has been the history of delinquency here. If you look very carefully at delinquency here, there are two categories. If you look into the agriculture sector, those who have sometimes defaulted are not local farmers because most of them do not even access to the loans. Sometimes these expatriate farmers have defaulted in millions and therefore change the statistics very drastically. Sometimes in the past, we have had the well-connected Zambians who easily obtained loans and defaulted. Because they were well connected, they were not pursued and they ended up creating a bad image even for those who would have used the money properly had they obtained it.

We are trying to address this through the Licensing of a Credit Reference Bureau, which we licensed last year. Through this, all the credit histories of individuals and corporates will be known. If you want to borrow money, wherever you will go, they will ask this bureau for the history of that borrower. If they find out that you have loans with Zanaco and Stanbic which you are not servicing, they will find it difficult to give you another one. This is what happens in all the developed countries, but here it was not done. I am now happy to say that we have a Credit Reference Bureau. It should be able to remove the bad eggs from the lot of us.

Q: If tomorrow President Robert Mugabe phones you and says ‘Caleb, you have done very well for the Zambian economy so I would like you to come to Zimbabwe and do the same’, what would be your response?
A: That will not be possible because I am not eligible.

Q: I know, but what I am trying to say in short is that if you were the bank governor in Zimbabwe, what would you do to reverse the trend?
A: Let me prefix my reply by saying that we have had some good engagements with our counterparts in Zimbabwe either through regional bodies like the SADC committee of central bank governors, COMESA and also through other forum like the Export and Import Bank.

What is very clear that fiscal management in Zimbabwe is at the centre of the problem. The Reserve Bank of Zimbabwe writes a lot about this which they share with us very freely. We can see clearly budget deficit spending. In recent times, we have being hearing of salary increments of 600 per cent. Where is the revenue coming from to pay that 600 per cent?

This means that you are going to print money and that becomes a source of inflation. Obviously, if salaries are increased by 600 percent, you can expect inflation rates to be in thousands.
There are other well-documented sources of the problems in Zimbabwe provided by Zimbabweans themselves, including the central bank of that country. One of them is the subsidy of grain. Generally in a bid to encourage production of maize, the Grain Marketing Board offers farmers a good price. But on the other hand, because they want workers not to agitate for high salaries, when the marketing board sells maize to the millers, the millers are buying at price which is lower than the price at which the marketing board bought the maize from the farmer. Already, there is a gap there which has to be filled by the government.

The millers are also very smart. They realise that the could actually also own some grinding mills, some hammer mills and they could be buying maize very cheaply from the marketing board on the pretext that they are going to mill it. But instead they sell it back to the marketing board after they put it in new bags and make more money as a result. A cycle like that works to reduce even the availability of maize on the market because they will only be interested on reselling back to marketing board instead of milling, and in the meantime there is no mealie-meal for people to buy.

All I am trying to show is that this is how a policy can be exploited to the detriment of the whole economy. There are many areas you can cite, price controls for example. You remember that not long ago the Zimbabwean government threatened to arrest shopkeepers who were not selling at a state determined price. What was the consequence? The goods disappeared from the shelves. So who is the victim there?

If some of these issues could be addressed, you will see a big change in Zimbabwe. Zimbabwe is a very strong economy, even today as it goes on suffering; it is still much stronger than the average African economy. I always say that whereas we are struggling to build hotels, Zimbabwe has all the hotels. The only problem is that there are less people sleeping in those hotels.

One can also see what policy can do if you look at hotels. In Zimbabwe, if you go to the hotel, the room rate is usually fixed in US dollars for foreigners but when you go to the restaurant and bar, the rates for food and drinks are fixed in local currency. And if you go by the official exchange rate, you will pay a lot more for the meal or drinks. You can buy a meal which will cost you US $200 if you paid using the official exchange rate. Now, what are the consequences of that?

The consequences are that if you went into a Zimbabwean hotel, people are buying Zim dollars from the black market because the black market rate will enable you to buy that expensively priced food in the hotel. Now, the hotels which are supposed to be forex earners are now the conduit for fuelling the black market in dollars.

That is what happens when policy is not right. Ordinarily, I should go into a hotel and just sign for the food and drink and it goes to my account and at the end of the day I will pay using the normal determined market exchange rate. If you have a situation as is obtaining there where the market rate is not determined, the tendency is for people to look for the other rates which are favourable. This is a fundamental problem. But these are the issues which are understood because I remember sometime back reading a statement issued by our colleagues and it was even mentioned that the current situation is fuelling the growth of the black market. Those are the issues to be addressed.

If you look at export statistics, Zimbabwe looks liked it is exporting very little. But in reality it is exporting a lot. There are no things in the shops in Zimbabwe but you will find them selling here in Zambia. How is that possible? This is because the mechanism there does not enable the seller get what they think is the right price.

So it is just a question of policy. Some people will tell you that it will take years for the Zimbabwean economy to recover, but from what I know it will not take long. If they have the right policies in place, even one year will lead to very drastic improvements. The mazoe that you drink here is all made in Zimbabwe, the jam that you eat here is all made in Zimbabwe but these are not in the supermarket in Zimbabwe. So if the right policies are in place, how long will it take for these goods to be on the market in Zimbabwe? In my view, it will take overnight.

Q: We all record successes and failures in whatever we do, what failures have you recorded as bank governor?
A: Really, it is even very difficult for one to talk of successes in an economy like ours; we are a poor country with a long way to go. The fact that we are struggling is an indication that we need to do more not only at Bank of Zambia but also almost in all departments. The development challenge is a big one. As central bank, we have always said that we need to concentrate on our core functions, not to be doing everything under the sun.

There is a lot to be done in this country which can help us achieve a bit more. I think the infrastructure deficit is one. Our railway system is not functioning properly. With the mines picking up, we have seen things which should ordinarily not be moving on our roads are being transported there. What are consequences of that? Further damage to the roads! And with the rains like this, it will be very terrible.

If I had my way, I would probably like to build a motorway from Livingstone to Solwezi. As the economy expands, roads are getting congested and this is affecting how business is done because some people are spending more hours on the road. It will be a backbone of the country to have a motorway.

We still have big deficits in our cities. Only recently, I had an interview with one of your reporters when I pointed out that these mushrooming of unplanned settlements in urban areas are really not necessary because if you had a council which runs its affairs properly, it could easily survey the area, determine the services they want to put and cost them and go and borrow from a bank. Within twelve or eighteen months, they could put all the roads, electricity and sewage. Then cost these things including the interest and just announce to say ‘we have got 1,000 plots and each one is going at K120 million’. People will scramble for them and pay cash. Then the council can go to the bank and pay so the question of finance does not arise.

I gave the example of Mass Media in Lusaka where the council gives out plots for very little with no services. Tomorrow, the same plots are changing hands at K120 million. So why didn’t the council just get that same K120 million and provide services and have a decent residential?

For me, one of the biggest deficits we have currently is the failure to emphasise on the importance of civic leadership; local government. In a lot of countries, people who want to aspire for national leadership, they must have demonstrated their capacity elsewhere. You have seen even in the US, some people who have been mayors and on the basis of their performance can now say ‘look, I have done this to my city so I can do this to my country’.

But here, local government is not given the importance it requires. I am mentioning this because the banking system can provide funding. The councils can borrow from the banks. This is what happens in other African countries. In Abidjan where I spent almost eight years, this was an everyday business. It’s just a question of knowing how to use our financial system.

Q: In the last few years, Zambia has seen or witnessed an economy that is steadily stabilising. For how long is this likely to go on?
A: The economic wellbeing is not something you can ‘I have fixed and it will remain fixed’. You will have to be vigilant every day. You can have the money supply alright today, if you do something tomorrow, the economy will be destabilised. So economic management is not a one-off thing. Everything that we do every day must be right if the economy has to remain stable. We must be on guard every minute, all the time. There is nothing like ‘we have done it so let us now enjoy ourselves’. There is no time for a party.

Obviously, there are disappointments down the road because people are asking where the jobs are. But even China which has been growing at the rate of 10 per cent, they still have a lot of people unemployed. There will always be some people who will be out of employment due to structural reasons; others are on the move to better opportunities so they are temporary out of the job.

But in Zambia, we have so many people who are out of employment so we have to be vigilant to ensure that the little resources that we get are applied judiciously, not recklessly.
And one can argue that if we want to create employment, agriculture is the way to go, not so much the mines because technology is fast advancing so less human power will be required to work on the mines. But we have so much land in this country which can be utilised for agricultural production. However, we have to do first things first. You can’t settle someone in the jungle and expect that they will be prosperous.

Those are the challenges. But we are so luck as a country. If there is one country that God favoured so much, it is Zambia.

Q: How?
A: We have got abundant natural resources; we have copper all over the country, just here in Mazabuka we are mining nickel and yet we have been driving past those mountains for a long time. They are saying there is uranium here and there end even here in Chongwe there is copper. The emeralds are everywhere, we have been sitting on wealth. That is why I am saying God was very kind to us. He gave us fine weather, plenty of land, rivers; we can invest in power generation and export to Botswana, Namibia, Tanzania and the whole of East Africa. We are well endowed that sometimes it is a scandal that we are poor.

Q: In conclusion, I would you to comment on some people’s views and observations that although there is so much talk about Zambia’s economy improving or doing fine, there is nothing to show that this improvement is real...
A: You see, statistics are statistics! You can’t run away from that. If you have exported copper, you can’t deny the fact that you have exported copper. And if the volume of exports has increased by a certain margin, you can’t deny that. Some people are saying ‘there are still some people on the streets so how can you say there has been growth?’

But you should know that five percent growth is not enough to absolve everyone, even China which is growing at 10 per cent still has a number of unemployed people. What we must do is to remain focused on doing something for ourselves. This question of saying somebody has to do something for us is what is leading to that mentality. Let’s not depend on the government to do everything for us.

Some of the jobs which have been created have been created by Zambians and not foreigners. Not a single Zambian owns a mine here and yet we are sitting on copper; no single Zambian can boast that he is running a mine. Why can’t we do these things? These are the questions we must be asking ourselves. We can only own a mine through the state, not through our own collaborative efforts. Is it because we do not have money? These people who have come to do mining here, what money did they come with? Didn’t they use financial markets? These foreigners are not billionaires when they come here but they have got brains, they plan.

These are the things we must be learning in Zambia. Not that there is Santa Claus to dish out jobs to all of us. We are lucky to have the land, the weather and all these good things. Should we again expect to receive handouts? When others come here, we start to insult them that they are taking away from us. So what do we want? Our mindset has to change. These are the challenges.

It’s only Zambians who can make a difference, not foreigners. But we need to have good projects to capitalise on these resources that we have. If we fail, we run the risk that others will come. And this risk around Lusaka is very apparent. Why is it that foreigners are flocking to this country in large numbers if there is nothing to be gained? I think that is the warning signal. These people coming have seen that the opportunities are there. So let us seize these opportunities ourselves before we lose what we have.

Q: Well, thank you so very much for this opportunity.
A: I hope you are now satisfied because you have bothered me for this interview for a long time now.