Zambia reaps rewards of positive neutrality and economic diplomacy

Maintaining a balance of international partnerships is critical as foreign powers support domestic infrastructure, mining investment, health, and education.

Expert comment Published 16 May 2023 4 minute READ

African governments are rightly resistant to polarizing views of geopolitics that seek to pigeonhole them into being aligned with the West versus China and Russia.

President Hakainde Hichilema of Zambia provides an important example that non-alignment or ‘positive neutrality’ can be more than just rhetoric and can bring genuine economic benefit.

Hichilema welcomed US vice-president Kamala Harris as part of a charm offensive across the continent to counter perceived Chinese influence. She arrived only one day after US secretary of education Dr Miguel A Cardona led the US delegation to co-host the second Summit for Democracy, an initiative of President Biden. This is only two months after US secretary of the treasury Janet Yellen travelled to Lusaka to re-invigorate the stalling debt treatment process.

But Zambia’s friendships in Washington have not come at the expense of important economic ties to Beijing. Hichilema commissioned the final of five new generators to be brought online at the Chinese-built Kafue Gorge power station, and he emphasized the ‘all-weather friendship’ between the two countries and his desire to further grow the relationship.

Despite controversy over Chinese infrastructure-linked debt, new contracts are still being issued to Chinese companies for construction projects. But under his ‘chief marketing officer’ mantra, Hichilema has secured investment, trade partnerships, and development support from a diversified mix of partners such as Brazil, DRC, India, Japan, Saudi Arabia, South Africa, Turkey, the United Arab Emirates, and Zimbabwe.

It is vital for the legitimacy of both the Hichilema government and international creditors that much-needed economic reforms result in investment and concrete benefits for Zambia’s population

Other countries in the region have been less successful in their attempts to attract investment. For two consecutive years, Hichilema has outshone Ramaphosa on his own turf at Mining Indaba. South Africa’s confused messaging on Ukraine is starting to have economic ramifications, with BP pulling out of aviation fuel contracts for fear of violating sanctions.

What is Hichilema doing right? And should others be following his example? A new report by Chatham House argues there are two key factors driving his international success: he has successfully articulated the national interest in economic terms which has brought investment, and clarity and consistency on non-alignment have not deterred global partners despite geopolitical divisions.

Navigating debt divisions

Maintaining a balance of international partnerships is critical for Zambia’s economic development. Foreign powers play a central role in supporting domestic infrastructure, mining investment, and health and education programmes.

Since his inauguration in August 2021, Hichilema’s foreign policy has focused on renegotiating Zambia’s significant debt burden and attracting inward investment, particularly for the country’s mining industry.

The government inherited an appalling debt situation and progress on rectifying it has been slower than anticipated. International commitment remains strong, in part driven by the view of Zambia being at the interface of Chinese and western influence on the continent. However, credit must go to the Zambian government for taking ownership of its problems and solutions.

In 2020, Zambia became the first country in Africa to default on a debt during the COVID-19 pandemic when it failed to pay a coupon on its Eurobond, and has not been paying off its debt since. In June 2022 a creditor committee was formed under the G20 Common Framework process but, although sovereign creditors have agreed in principle to cooperate on debt treatment, tensions remain.

China prefers lengthening payment terms rather than a cut, and has already written off significant amounts. Its Export-Import Bank (Exim Bank) agreed to suspend interest and principal payments worth $110 million in 2020. Much of the debt accrued by Zambia to Exim Bank was for work undertaken by Chinese companies which received the money directly. Much of the finance never reached Zambia.

The debt was not intended to build strategic leverage over Zambia, although the authorities are cautious of the precedent that too easy a process might set for others. And the participation of private creditors continues to be a hurdle, as many are western-based but wary of the opacity of Chinese loans.

But the Hichilema regime has certainly been assertive in bringing partners to the table and forcing a functional reconciliation between Chinese and western interests in the country. More significantly, the government’s progress on debt renegotiation and its economic reform agenda have been key to unlocking a $1.4 billion loan from the International Monetary Fund (IMF).

A key aspect of this deal is that, unlike the imposed conditions of IMF agreements in the past, most of the economic reform measures that are included in the deal were devised by Zambia itself and were already being implemented.

Economic interests

Hichilema has made a clear case for the primacy of private enterprise and business-driven economic growth. This underpins the regime’s approach to economic reform, institutional capacity-building, and fiscal consolidation, despite negative domestic and global headwinds.

A central part of Hichilema’s regional economic diplomacy has been a reversion to Zambia’s approach of securing international support for agreements with neighbours and regional markets, and triangulating investment and partnerships.

The Kazungula Bridge Project, originally announced in 2007, is an important example of national ‘buy-in’ to the use of blended financing for regional projects, with Zambia and Botswana both contributing to parts of the project which is financed by the Japan International Cooperation Agency (JICA) and the African Development Bank.

In April 2022, Zambia signed a memorandum of understanding (MoU) with the DRC to facilitate the development of value chains in the electric battery and clean energy sector. The MoU reflects the desire of both governments to capitalize on their endowments of minerals required for developing batteries.

Industry figures are sceptical, viewing the agreement as a wish rather than a plan for action. But the initiative was given further support through the signing of an additional MoU between the two countries and the US on the side of the Africa Leaders Summit, in a move indicative of the US’s imperative for securing critical mineral supply chains.

As a producer and a transit route for other regional deposits, Zambia is critical to the supply of minerals required for the global energy transition. It aims to produce three million tonnes of copper per year, which may seem excessively ambitious especially as legacy issues at Konkola Copper Mines (KCM) and Mopani (MCM) hamper current output.

But the commitment to the industry, a clear vision of what the country wants to achieve from it, and most importantly a willingness to engage with companies to overcome obstacles, has resulted in significant investments with more in the pipeline.

The government has provided clarity on outstanding tax issues and expended significant effort in fixing its cadastre system. Although concerns remain, particularly around coordination between ministries and agencies on strategy and policy including local content and empowerment, the revived engagement and improved relationship with firms has markedly increased confidence.

Hichilema’s foreign policy has focused on renegotiating Zambia’s significant debt burden and attracting inward investment, particularly for the country’s mining industry

In 2022 First Quantum Minerals (FQM) announced expansion at their Kansanshi mine, the development of a Nickel project, and a major solar plant to power their operations. Other major players are looking to follow as Anglo-American and Rio Tinto have joint venture exploration projects in the country.

A conducive business environment is only the first step. This needs to be followed by investment, which takes time to translate into material benefit for the population, especially if it is via the mining industry. But this requires significant investment in infrastructure to transport the material and a reduction of non-tariff barriers such as border-post inefficiency.

Beyond infrastructure, reviving the mining industry and supporting economic diversification will require tangible cooperation and collaboration between ministries, national agencies, and companies across the region.

Domestic political constraints

As with many governments in the region, the Hichilema administration had difficulty communicating long-term benefits of structural reforms and international partnerships to an impatient young population demanding change and improved socio-economic conditions.

It is vital for the legitimacy of both the Hichilema government and international creditors that much-needed economic reforms result in investment and concrete benefits for Zambia’s population. This requires structures and systems to strengthen the country’s capacity to absorb international investment and development assistance.

Combatting corruption is the first step towards ensuring that citizens have an equitable and sustainable stake in the nation’s strategic industries, especially mineral production. Adherence to international norms and standards offers protection to Zambians as well as investors.

These standards do not need to be prescriptive. Zambia can demonstrate leadership and build regional alliances and lobbying blocks within international organizations to shape these standards. Domestic institutional development strengthens the investment environment, demonstrates credible commitment to upholding agreements with investors, and allays fears of resource nationalism.

Zambia reaps rewards of positive neutrality and economic diplomacy 2nd part

There is also a need for structures and systems to strengthen the absorption capacity for international investment and development assistance.

The government would also benefit from better promotion and acknowledgement of the importance of non-Chinese and non-western partners, especially those from the global south. This would help de-polarize its international relations and also de-mystify domestic allegations of neo-colonialism.

The patient pursuit of institutional reform and rejection of populist quick-wins requires continued support from Zambia’s citizens. Transparent communication and consultation are vital to ensure ordinary people have a sense of ownership of the country’s future, and understand the benefits they accrue from Zambia’s foreign relations.

This article was originally published in the Daily Maverick.