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1. Investment Challenges in Zambia’s Electricity Supply Industry: A Cursory Assessment

Author:
Mwanda Phiri and Francis Ziba
Publication Date:
05-2018
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
During the tide of economic liberalisation in the 1990s, Zambia’s electricity market was liberalised with the aim of stimulating private sector participation. More than 20 years after market liberalisation, the power crisis in 2015 revealed that the industry had failed to attract the envisaged private sector investment required to expand and diversify energy generation sources and meet the increasing demand for electricity over the years. It became apparent that the various reforms taken to liberalise the industry, increase private sector participation and promote competition had fallen short of meeting these objectives. Zambia’s electricity supply industry still remained a semblance of a monopoly dominated by one large vertically integrated state-owned corporation responsible for the generation, transmission, distribution and supply of electricity. Given the important role of electricity in driving economic growth, this paper illuminates the barriers to entry in the ESI and the factors limiting competition. Drawing mainly on secondary sources, the study finds that at the very start, limited access to finance for energy projects potentially prevents the commencement of energy projects. Exacerbating the entry barriers are the below-cost electricity tariffs, the monopoly power held by ZESCO and its vertical integration and an inadequate regulatory framework to promote competition and prevent undue political interference. These findings justify the partial unbundling of ZESCO and the provision of legal reforms that support policy consistency, multi-year tariff adjustments and open and nondiscriminatory access to the transmission and distribution grids.
Topic:
Energy Policy, Regulation, Neoliberalism, Tariffs, and Electricity
Political Geography:
Africa and Zambia

2. Reversing Zambia’s high risk of debt distress

Author:
Florence Banda-Muleya and Shebo Nalishebo
Publication Date:
08-2018
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
A load of unsustainable debt hangs heavy over Zambia. Zambia is part of a list of 25 low income countries considered at high risk of debt distress in 2018. Government’s efforts to reduce the country’s infrastructure gap as well as bring down poverty and inequality have resulted into large spending overruns, a growing subsidy bill and a substantial public sector wage bill over the last five years. Alas, domestic revenues remained low and stagnant. So Government resorted to massive external borrowing to finance arguably unsustainable expenditure. This approach to spending pushed borrowings to about 59% of GDP as at end of 2017, which is in the territory of unsustainable debt levels. In October 2017, the IMF issued a red flag that Zambia was at high risk of debt distress, implying that the country was likely to breach the thresholds for debt and debt service indicators and, should it continue on the same trajectory, it would likely default on its debt service obligations.
Topic:
Debt, Poverty, Economy, and Public Debt
Political Geography:
Africa and Zambia

3. “Blanket” Fuel and Electricity Subsidies Did Not Offer Much Benefit to Zambia’s Poor

Author:
Caesar Cheelo and Rabecca Haatongo-Masenke
Publication Date:
10-2018
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
For a long time the Zambian Government ran a number of consumption and production subsidy programmes. These programmes1 came under considerable strain in 2015 when Zambia experienced a significant economic downturn. In that year, the real Gross Domestic Product (GDP) growth rate fell to 2.9%, from an impressive 7.7% over the ten years before (2005-2014). By the time the 2015 downturn had fully set in, the country was running a budget deficit of nearly 10% of GDP and had raked up a public debt stock of over 50% of GDP (IMF, 2016). With the combined cost of debt service interest payments and arrear payments rising from 17% of the National Budget in 2016 to 23% in 2017 (Cheelo, 2017), the Government was readily hemorrhaging money in the aftermath of the minicrisis. Zambia could no longer afford the multiplicity of subsidies it had been maintaining and seriously contemplated abolishing some of them. The policy intentions of the Government were met with strong anti-abolition sentiments with some stakeholders asserting that the removal of subsidies on fuel and electricity would cause pump-price and electricity tariff escalations. The worry was that these price hikes would hurt Zambia’s poor and vulnerable groups most of all. Generally, these sentiments were not backed by analysis and empirical evidence; they were subjective and had the potential to misinform public policy. This paper offers an alternative perspective to the above motion on anti-abolition of subsidies. We argue that during their existence, the fuel and electricity subsidies had benefitted the poor far less than they had done any other social groups in Zambia. Likewise, the abolition of the subsidies affected the poor less than it did other social groups.
Topic:
Energy Policy, Electricity, Fossil Fuels, and Subsidies
Political Geography:
Africa and Zambia

4. Financing the Economic Stabilization and Growth Programme (Zambia Plus) in the Shadow of the IMF

Author:
Caesar Cheelo
Publication Date:
04-2018
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
In February 2018, the IMF reaffirmed its August 2017 formal withdrawal from negotiations with Zambia over a package of financial support. The strong position to hold negotiations came in the IMF’s Article IV Consultations report of 2017, which concluded that Zambia was at high risk of debt distress, and that whilst financial management and fiscal discipline were improving, the extent of the improvement was not sufficient to mitigate the growing public debt and fiscal deficit. Whilst the IMF deal may be off the table for the time being, the many of problems that drove Zambia to engage the IMF most assuredly remain unresolved. Two to three years after the economic minicrisis of 2015, Zambia continued to accrue sizable new debts, to utilize the proceeds poorly (to fund consumption spending) and to run persistent fiscal deficits – albeit a smaller and seemingly better managed deficit in 2017 compared to 2015 and 2016. These issues remain problematic despite the partial economic rebound, with high copper prices, good rains (leading to good harvests and more reliable power supply), and a stable Kwacha providing a strong platform for improvement. Nonetheless, fiscal performance is lagging behind and Zambia may be missing a window to reestablish prudent public financial management.
Topic:
Infrastructure, Governance, Reform, Macroeconomics, IMF, and Public Debt
Political Geography:
Africa and Zambia