Times of Zambia | 15 October 2009

Zambia: Economic Partnership Agreements - for the Rich Or Poor?

The signing ceremony of the Economic Partnership Agreement (EPA) between the European Union (EU) and the East and Southern Africa Bloc (ESA) to which Zambia belongs, raised some eyebrows, but also drew attention to something deeper when Zambia and other members refused to sign.

If the statements from the Minister of Commerce Trade and Industry, Felix Mutati and COMESA secretary general Sindiso Ngwenya are anything to go by, the most telling signal is that the EU does not want an EPA that would genuinely cover development concerns raised by members of ESA.

If the EPA is an instrument for promoting development, the Jesuit Centre for Theological Reflection (JCTR) is broadly in favour of the essence of what the EPA proposes with regard to improved trade prospects, regional integration and the fight against poverty.

Of course this does not go without the concerns and pitfalls that we have observed over the past few years and have never been shy of raising with both the Government and the EU in different fora.

Among the serious concerns are the aspects of liberalisation of sectors and the time frame to further open the economy. This is because Zambia, like most of the countries that have liberalised in the past 20 years, has also experienced an increasing level of inequality.

Although absolute poverty has been found to decrease, the level of inequality has in fact increased.

A 2005 World Bank report concludes that during the 1990s countries with rapid economic growth and trade liberalisation achieved absolute poverty reduction but experienced increased inequality.

The Zambia’s Living Conditions Monitoring Survey (LCMS IV) illustrates that overall poverty reduced by six per cent from 70 per cent during the period 1991 - 2006.

But the Central Statistical Office (CSO) figures suggest that there is a contrasting level of poverty in the rural areas, where it stands at 80 per cent as compared to the urban areas at 36 per cent.

More importantly, the LCMS III shows Zambia has a significantly high level of inequality prevailing where some 50 per cent of the population claims 15 per cent of national income and only 10 per cent claims 48 per cent of total national income.

Throwing caution to liberalisation

The liberal economic system is failing to deliver on equitable distribution of resources.

Recent studies establish that increased trade has tended to benefit elites in both rich and poor countries, thus increasing income inequalities.

This suggests that the national and international economy is structurally biased to the wealthy and the powerful.

This subsequently means that market failure is occurring and that there are no comparable policies or institutional support to address it.

Thus, this market failure will need to be addressed by Government intervention at the national level and inter-governmental agency intervention, i.e. , institutions like COMESA and the EU at the international level.

Market failure manifests in socio-economic inequality. Unless it is addressed, the economic system will not reward on the basis of merit or equity but on the basis of accumulated wealth and influence.

As countries have further adopted neo-liberal systems, least developed countries like Zambia find that they have limited resources to redistribute in order to address this inequality.

This situation is due to excessively bias liberal reforms that benefit the rich and powerful.

The pressure to reduce or eliminate tariffs, without a plan to compensate for reduced revenue, puts extreme pressure on the budget and the Government’s ability to fund social programmes crucial for equitable development.

With a range of competing socio-economic and infrastructure needs, few can argue that the incentive in the global economy to develop sectors through comparative advantage in a free-market is undermined.

This is because even with EU support, the trade imbalances that exist in the EU economy will continue to persist. Since May 2009 over 13 billion Euros (£11 billion) - about a quarter of the £47.5 billion spent under the EU’s Common Agriculture Policy (CAP), not only goes to farmers but is also found to go to big business and industry.

The Jesuit Centre for Theological Refelection (JCTR) thinks that an EPA for development would require the EU to extend significant domestic support that really matters for Zambia and other countries in the regional bloc.

This is because Zambia and the region fundamentally lack complementary supportive institutional and structural mechanisms to ensure collective and strategic action at home and regionally.

Secondly, even with a significant level of domestic support extended, there would still need to be remedies in the broader international economy to make a real difference.

Therefore, the EPA does provide an opportunity to unintentionally break the cycle of patronage and other impoverishing practices by dominant companies currently in the market.

Provided the EPA is understood and to extend beyond supporting goods into supporting regulations to remedy the occurrence of inequality in a liberal economic system; it could unintentionally lend itself to some positives for development in Zambia and other African countries.

The author, Humphrey Mulemba Jr is programme officer - trade policy and capacity building debt, aid and trade programme, JCTR