PROJECT APPRAISAL AMONG YOUTHS

INTRODUCTION
Zambia was one of the African countries that had a fairly prosperous colonial economy with a well established private sector in an open-market-oriented economy dominated mainly by expatriate business interests, multinational corporations and commercial farmers. The copper industry which was the mainstay of the economy was under the control of two mining groups-Anglo American Corporation and Roan Selection Trust (RST). State participation in the economy at the time was limited to very few activities such as railways, electricity and water.

Soon after independence, the concept of nationalisation was embodied in the economy as a transitional phase aimed at consolidating political sovereignty and economic empowerment of Zambians. This spurred the nationalisation of Anglo-American and RST. By end of 1969, the nationalisation project had covered all aspects of business, including mining, agriculture, vehicle assembly, hotels and tourism, milling, brewing, electricity and water, timber and wood products and bakeries. Even some new ventures established by parastatals sought state protection of the market.

However, state owned enterprises were typically inefficient, a scenario that affected their financial viability, in turn requiring the government to subsidise their operations. The government therefore considered it prudent to reverse the status quo by promoting strong private sector participation in the economy supported by economic liberalisation and democratic principles. As part of its economic reform, soon after the Movement for Multiparty Democracy (MMD) came in power in 1992, government embarked on a major privatisation project. Although the progress of the project was initially slow due to the inertia associated with the start-up activities and general opposition from interested parties, the programme gained impetus in 1995, culminating in rapid divestiture of public enterprises. The Zambia Privatisation Agency (ZPA) was established to manage the privatisation project.

It is against this socio-economic and political background that the core thesis of this essay is based. The essay sets to critically analysing the assertion that “privatisation as a government project involves balancing economic and political goals. What is possible also is shaped by the specifics of the business involved and other country economic circumstances.” Practical examples will be draw from different sectors to support the paper.

DEFINITION OF KEY CONCEPTS
Privatisation according to Weiner (1964: 861) refers to the selling of state-owned assets to the private sector so that the public benefits from the improved efficiency of the enterprise concerned and from the more appropriate use by government of the resources which have been realised. On the other hand, a project is a unique set of coordinated activities with a definite start and finishing point undertaken by an individual or organisation to meet specific objectives within defined schedules, costs and performance parameters. Further, business is a commercial organisation such as a company, shop or factory, (ibid).

ANALYTICAL FRAME WORK
Privatisation was the critical reform and adjustment policy which the country expected to transfer the dominant state sector into private ownership with the expectation that such transfer of enterprises and assets would bring about injections of the much needed capital and better management systems into the operations of the enterprises. In due course, privatisation was expected to yield increased economic activities as well as attracting fresh investments into the economy with beneficial impact to employment and supply of goods and services. According to Matale at el (1999: 34), “in the view of privatisation, the MMD came into government with political and economic platforms of pluralism and open market economy which spiced privatisation with trade liberalisation (at macro-economic level) and exchange rate stabilisation (at micro-economic level) through the abolition of exchange control and lowering of inflation by removal of excess liquidity and subsidies.” The objectives of such measures were to enhance efficiency in the market place as all players will highly utilise and collect resources into and from productive sectors of the economy. It also entails that privatised industries would not experience political constraints objectives as they lose the state monopoly privilege. Thus, for them to stay in business, they must be efficient enough to compete with others on the free market system.

However, privatisation did not take place uniformly. The framework and approach under which it was conducted combined the structure of the industry privatised, particular divestiture, and steps needed to be taken in preparation for the sale and how to manage the sale negotiations. Government had to retain control of strategic sectors like utility providers such as water and sanitation, energy or road network system, which could not be supplied by the private sector as their accessibility would be impossible to a common man because they would be too expensive. Therefore, managing the privatisation process involved balancing the nature of a particular business and the need for political transparency. The sale process considered the complexity of the business (and its attractiveness to potential buyers) and government’s desire to be seen as being fair.
According to Matale (1996: 03), “in early history of Zambia, the mining industry occupied a unique position in the political economy of the country as the largest single enterprise upon which the entire economy was anchored.” Because the sector was the anchor of the Zambian economy, there was agitation to the sale of Zambia Consolidated Copper Mines (ZCCM) with due haste. ZCCM was a sensitive and critical enterprise in the Zambian economy that its sale would either be instant or only when due. As a result, the two contending views arose on the modalities of privatizing ZCCM, either by unbundling it or sale it as unitary state. The main argument for the unbundling of ZCCM was that it has large influence on the national economy, and if the state surrenders such economic power to one investor, the entire economy would crumble if the investor for example decided to shut down the mines because the realisable returns on the investment is lower than expected. Additionally, it was argued that the value realisable from the sale of the company would be lower than if the components were disposed individually.

On the other hand, the arguments for privatising the company as a whole were based on the grounds of the technicality and economic significance of the merger of Nchanga Consolidated Copper Mines Limited (NCCM) and Roan Consolidated Copper Mines Limited (RCM) in 1981, (ibid). The reasoning behind this argument was that the Copperbelt ore body was one; hence ore from one mine blended with that from another mine would lead to efficiency and optimum benefits and recovery of by products. Furthermore, it was argued that economies and savings were realisable from utilisation of common facilities for smelting, refining, marketing, procurement and engineering.

However, in whatever manner privatisation took place, its rationale mainly falls along two principal dimensions of macro (broad social) and micro economic goals (industry specific). At macro economic level, privatisation aims at extricating government’s objectives from financial commitments of running industries, and focus scarce resources on education, infrastructure, and social welfare. It also aimed at promoting the development of the private sector by leveling the playing field for better competition on the market. Additionally, it meant to broaden share ownership so that the public has mechanisms for saving money and participating in the economies of their countries. This increases the quantum of capital in the economy. This capital increases levels of productivity, which reciprocates in more employment opportunities, savings and the general economic growth. The availability of savings in the economy provides a pool of loanable funds for more investment in other sectors. The savings can be realised from household savings, corporate taxes or government savings from different types of taxations. Barro (1990: 56) claims that if local investment is encouraged, it can systematically spread investments through-out the country and further can extend intersectionally for the ultimate benefit of the whole economy. This entails that increased investment has a multiplier effect.

In Zambia for example, there is an influx of intersection businesses like financial service provision to offer banking and money transfer services for ease handling of the funds the economy generate. Some of such services are electronic money transfers for quick business transactions, booming in the transport sector for speedy delivery of goods and services, improvement in the communication system by allowing other players like Celtel and Mobile Telecommunication Network (MTN) beside state controlled Zambia Telecommunication (Zamtel) for improved delivery in the industry to be realised.

Additionally, competition which is distinctly different from ownership greatly improves productive efficiency as it facilitates the achievement of profit maximisation objectives that lead to higher performance among all players. Todaro (1992: 163) argues that monopoly is a great enemy to good management which results from free competition that forces everybody to have recourse of it for the sake of self-defense. For example, as a result of competition brought into being by the splitting of Zambia Breweries PLC and Northern Breweries PLC, Zambia Breweries has improved the quality of existing brands of beer and introduced several competitive brands on the market for it to remain relevant in the business.

Competition also attracts foreign direct investment (FDIs) which brings in creativity and innovation in the market. An economy that offers fair competition woos FDIs that in turn generates more income in the system. FDIs are very instrumental in injecting additional capital in the domestic economies’ development programmes. According to Chanda and Sakala (1999: 31), “the promotion and attraction of private sector investment is essential in achieving economic objectives of creating productive jobs, poverty alleviation and enhanced economic growth goals.” This shows that the sale of state enterprises and the accompanying inflow of fresh capital and technology have important offshoot benefits through the general upgrading of product quality and services. For example, ICI explosives, a firm that purchased Kafironda Limited demolished the obsolete nitroglycerine plant and replaced it with a new plant based on the emulsion technology that enable the company make better products. The new technology means more investment in Research and Development (R&D), whose technical know-how can be of paramount benefit to locals or can be integrated into other industries for more productivity.

For example, Zambia Sugar Company (Tate & Lyle) has a programme of attaching Zambian managers to their world wide operations where they are trained how to use certain technology that could not be presently available in the country. The transfer of knowledge and technology are crucial instruments for economic growth as they create a knowledge-based economy characterised by high levels of innovation and creativity on management and manipulation of resources for the betterment of society, (Nowergian Ministry of Foreign Affairs Report No 35 2003/04: 71). This means the interplay of mass applications of new technological innovations lead to increased stock of scientific knowledge whose results are often more wealth in the domestic economy. According to www.oneworld.net, “investment coupled with well integrated technological packages can ignite massive improvements in existing physical and human resources especially when national policies are tailored to provide a basis or preconditions for continuous economic actors to aim higher in relation to existing natural resources.” Precisely, this means higher output can be achieved with the same quantity of labour (or capital) inputs with technological progress of either labour or capital saving in nature. This kind of technology involves the use of computers, automatic textiles looms, higher speed electric drills, tractors and mechanical ploughs and other state of the art mining equipment.

Afil Engineering Limited is another example of a company with the policy of training its employees and other personnel from other engineering companies in order to provide apprenticeship, aimed at upgrading skills for the engineering workforce. The company’s mechanical and engineering divisions expanded its capacity and facilities after acquiring the former Lusaka Engineering Company (LENCO) in 2004, (Mumba, 2008: 10). The skills employees acquire are cardinal in the addition of value to local products, which fetch higher price than unprocessed goods. This generates more returns to the domestic economy through the revenue government collect. LENCO was a lose-making parastatal before it was privatised, but the new company contributes US$1.3 million for rates to the local council, $1-2.3 million road levy, $8,000-1.2 million corporate tax, and $1.7-2.2 million customs duty to government revenue, (ibid).

The privatisation project promoted multi-sectoral economic growth by creating investment friendly business climates even in parts that investment had not reached. The recent phenomenon that encouraged the evenly spread of investment is the declaring of certain areas as free economic zones like Kabwe. Investing in such areas attracted no tax. The country benefits from such investment through the provision of employment to locals. This improves people’s purchasing power and by that they indirectly contribute to the national economy through value added tax when they purchase good and services.

Privatisation furthermore promoted the growth of capital market in the country. The establishment of the Lusaka Stock Exchange (LuSE) 13 years ago is a clear example of efforts to promote capital markets, which allows companies to trade on this market. Its establishment was as a result of a capital market project with initial capital support from the international financial institution\World Bank, the united national development programme and the government of Zambia. As a mutual organisation owned by stock brokers, the LuSE facilitates the raising of cost-effective long term capital by companies. According to Tembo (2008: 12), “LuSE serves as a vehicle for creating new wealth and empowering Zambians economically through the buying of shares from government holdings in parastatals.” It is a shop window for local and foreign investors for buying shares and a barometer for gauging capital growth and enhancing good corporate governance.

The rationale of establishing the LuSE comes against the backdrop that the country’s financial system excluded the capital market in the first 30 years of independence. It was observed that this omission was responsible for many business failures due to the mismatch of short-term borrowing to finance long-term projects. Since lending rates by commercial banks were/are on the high side, borrowing for long-term projects are unsustainable. Shareholding can translate into interest-free capital for expansion, rehabilitation or purchase of new equipment to improve productivity.

But since privatisation does not take place in a vacuum, the project impacted negatively on the privatised firms’ employment levels mostly in the short-term. It is argued that the decreases in employment levels for privatised firms, (particularly in the manufacturing and mining sectors) has been because of higher levels of investments in new technology in the two sectors resulting from the higher capital investments made. Additionally, most companies carried excessive staff levels prior to privatisation and were therefore affected by the rationalisations embarked on by the new owners. That is, most parastatals over employed especially that some personnel were appointed on political grounds rather than qualification and efficiency. Consequently, as the private firms restructured the workforce, there were massive short-term job loses. Because of these unintentional shocks, government came up with social mitigation measures to cushion the negative impacts of privatisation.

According to Kaitisha (2008: 15), “… the pace at which the privatisation process was implemented was so quick that new firms had to hire labour…and this had repercussions of souring unemployment and destitution forcing government to form the Zambia Privatisation Trust Fund to facilitate share buying.” Additionally, through the establishment of Employee Share Ownership Plans by companies like Bonnita, Chilanga cement, Zambia Sugar and others that sold shares to management and employee buy-out teams, Zambian workers became shareholders in a number of profitable and growing privatised enterprises, (ibid). Furthermore, LuSE created a platform tailored to the needs of smaller growth companies and shareholders called LuSE Alternative Investment Market to encourage local and foreign investment in shares. This initiative is meant to increase the availability of loanable funds to another business ventures in the country, which reciprocates into more job opportunities. It is assumed that this would have a multiplier effect of increasing investment levels in the country equitably as investment was spurred by the availability of loanable funds.

These mitigations dealt with social concerns such as reshaping social services and social safety nets to ease the pain of transition through addressing extreme poverty, promoting health and education and helping workers to adapt to the needs of the market system, and other challenges such as growing globalisation and competition. There is no transition economy in history that has succeeded in its transformation efforts without adhering to the reforms of freeing prices and entry to markets from state control and intervention while stabilising the economy. This means liberalisation, decentralisation and macroeconomic stabilisation. Many examples demonstrate that the main reasons for difficulty or failure lie in ignorance of this set of reforms as a balanced and integrated process.

In the final analysis, it is a truism that every change has repercussions that has to be handled cautiously. It is because of these unforeseen consequences that the privatisation project has been overtly blamed for the untold miseries Zambians are facing in many quarters. Retrenchments as consequences of privatisation for example cannot be blamed for unemployment per se, but for government failure to foresee the consequences of retrenchments and plan for them well by establishing safety nets that would meaningfully mitigate the impact, (ibid). Comparatively, privatised firms conformed to the salient need to operate efficiently, quickly increasing their sales turnover, profits and productivity. They mobilised more working capital to undertake new capital investments. This increases on capital in terms of both working capital and new investments hence downsizing of labour uptake. Principally, in economics, labour and capital substitute for each other, as firms aim to achieve profitability through changing the mix of their inputs. That is, by using more capital and less labour for them to maintain output at reduced cost (or become technically more efficient). This means higher returns and reinvestment.

Additionally, the quality of services being provided in about 70 percent of companies privatised has improved because of presence of better-qualified and skilled labour, greater motivation (such as ownership of shares), better machinery and heavy capital investments, (Chiwele 2004: 134). The improved productivity has increased turnover and profitability in real terms, thus paying more revenue to the central treasury. A number of privatised companies are pursuing aggressive export strategies-for example Bonnita which exports milk to South African plants at a low cost, thus earning Zambia more foreign exchange.

Privatisation also created a favourable environment for more investment in the country as the market forces controlled the operation of the market, reducing the distortions that were caused state control. For example, following the privatisation of ZCCM, government identified Vedanta Resources Plc of India as the Strategic Equity Partner in Konkola Copper Mines Plc (KCM). KCM embarked on key projects that have increased the life span of its mining activities to more than 30 years after privatisation. The main projects KCM is developing are the Konkola Deep Mining Project (KDMP), the construction of the ultra modern Nchanga Smelter, Konkola Concentrator and the green field project, which is a new open pit mine called Fitwaola, (Ndumingu, 2008:03). These expansion projects involve an investment capital of over US$1 billion. KCM is rated as one of the major contributors to Zambia’s tax base with an estimated tax of US$75-80 million per annum, (2007, Parliament Estimates).

The conducive investment conditions in the country after privatisation spurred more investments in the mining sector, such as Albidon Mines in Mazabuka and Lumwana Mines in North Western Provinces. The projected annul revenue from the sector through mineral royalty is more than US$420 million, (The Post, Thursday May 15 2008: 12). The revenue rebates some of the economic shocks and failures of privatisation that resulted from unforeseen externalities.

The provision of financial services has equally tremendously improved. New financial institutions have been spurred in the country to utilise the favourable prevailing economic conditions. Financial Services Limited of Nigeria is one of the examples, (ibid). Such investments provide other investors with a pool of loanable funds for more investment in different sectors of the economy. Employment opportunities are also created as new investors need huge labour force at different levels to increase productivity.

The privatisation project also empowered Zambians and allowed them to take part in their economy. Most Zambian workers are shareholders in many profitable enterprises through several mechanisms that have established capital market initiatives. Furthermore, through the flotation of shares of many companies like Chilanga Cement, Rothmans of Pall Mall, Zambia Sugar Company, Zambia Breweries, recently Celtel Zambia, which floated about 2,500 billion shares on the Lusaka Stock Exchange among others, many citizens are able to take part in making economic decisions as shareholders in these companies. In this line, privatisation has significantly contributed to the development of the capital markets that are for companies to raise long-term investment capital. Several other companies are scheduled to be floated onto the Lusaka Stock Exchange after finalising all logistical works.

In the agriculture sector, privatised agro-based companies are expanding Zambian smaller holder agricultural schemes as in the cases of Zambia Sugar, with several hundred sugar-out growers; Clark Cotton and Lonrho Cotton jointly with over 100,000 small holders, Food Corp, Bonnita Zambia with dairy farmers in Southern, Copperbelt and Lusaka provinces, (op.cit.). Thousands of spin-jobs have also been created, for example Zambia Sugar Company whose capital expenditure programme has increased the number of sugar out-growers, thereby creating additional jobs for farm workers, working on the sugar estate, and the service industry and maintenance sectors.

However, suffice to note that when firms became private entities, the extent of their social consideration decline. These entities begin to make purely commercial business decisions, to the extent that if they need to lay off workers to become more commercially viable, they do it (usually) irrespective of the social and political consequences. This is because these business firms are motivated by profit or sales maximisation objectives, not social or political motives. In that regard, it is the responsibility of other aspects such as liberalisation and investment policies and programmes to foster the filling of the unemployment situation created by privatisation.

In conclusion, although privatisation can be shaped by specifics of a particular business, it involves balancing economic and political goals for development and economic growth to be effectively felt in the economy. The project brings efficiency in resource use and promotes economic growth and development, which can spread evenly across sectors and the country if well planned and integrated into the system. Privatisation allows the ‘invisible’ hand of the market forces of demand and supply to take charge of the economy. These forces pressure industries to be efficient enough to generate profits to stay in business.

The spiral effects of efficiency and productivity are more returns and availability of savings through which loanable funds can be accessed. The availability of loanable funds spurs more investment and re-investment in different sectors of the economy that spell profitability. The net effects of these economic activities are more job opportunities and revenue to the economy. Other citizens benefit from such propelling economic gains in different ways like provision of services like road networks, education and health care among others. Some of these benefits have been realised in Zambia with the implementation of the privatisation project in various facets.
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