Zambia : an economic analysis
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Meijer, F., & Manen, van, B. (1987). Export orientated production of copper semi-products in Zambia : an economic analysis. Co-Operation Centre Tilburg and Eindhoven Universities.
Document status and date: Published: 01/01/1987
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An e c o n o m i c a n a l y s i s F o n s M e i j e r a n d B e r t ~an Mane~ P r o j e c t : F a b r i c a t i o n o f c o p p e r semi-prod~cts i n Z a m b i a Co-operation Centre
Tilburg and Eindhoven Universities The Netherlands
March 1987
PREFACE
By the end of our studies in economics, we felt that it was time to do some work in the "field". We had already done some studies based on literature. But we wanted to do some research in a real situation and gain some practical experience. Moreover, we wanted to do some research not only for academic purposes but also for the benefit of some people outside the University as well.
These ideas in mind we contacted the Department of Development Economics at Tilburg University. Mr. Vingerhoets, lecturer at this department, brought us into contact with the project for 'the fabrication of copper semi-products in Zambia'. He was working on this project himself.
Our research started in September 1985. We collected information from the libraries at Tilburg University, Leiden University, the Ministry of
Economic Affairs and others. From 1st July until 27th December we
participated in the fieldwork in Zambia. The underlying report is mainly based on the fieldwork. The desk research in the Netherlands, _however, was crucial for this fieldwork.
Our trip was financed by "Stichting WSO" which paid for the travel expenses, the project which paid part of our needs during the fieldwork and our parents.
Our counterpart in Zambia was Mr. Arnold Chitambo, economist at the SADCC Mining Sector Co-ordination Unit in Lusaka. The co-operation was fruitful and Arnold appeared to be a good friend. Professor Yamba, host of the project and Dean of the School of Engineering of the University of Zambia, provided us with a beautiful office and very comfortable rooms. Mr. Marijnissen, co-ordinator of the project in.Zambia, introduced us to
the Zambian way of life and the city in which we were to work for half a year.
We especially want to thank Mr. Vingerhoets for all those hours he spent on us and our work. It was mainly due to him that we could take part in this project and could gain this experience.
We are grateful to Mr. Brekelmans who corrected our work to try and make it readable English and to Mrs. Gerritsen who was so kind to do the typing. We are also grateful for the fact that we could work quite efficiently in Lusaka, thanks to a Honda motorbike.
Finally, Angelique and Ans should be thanked for their mental support.
Tilburg, March 1987
Bert van Manen Fons Meijer
i
il
II
An e c o n o m i c a n a l y s i s F o n s Mei~er a n d B e r t v a n Manen Pro~ect: F a b r i c a t i o n o f c o p p e r s e m i - p r o d u c t s i n Z a m b i a Co-operation Centre
Tilburg and Eindhoven Universities The Netherlands
Chapter 1 INTRODUCTION 13
Part I The economy 18
Chapter 2 ECONOMIC PICTURE OF ZAMBIA 19
2.1 Introduction 19
2.2 The first ten years after Independence 21
2.3 The next ten years; 1975 - 1985 22
2.3.1 Introduction 22
2.3.2 The current account 23
2.3.3 Terms of trade and competitiveness 24
2.3.4 Borrowing and saving 25
2.3.5 Interest rates, inflation and purchasing power 27
2.4 Recent developments 28
2.4.1 Zambia and the IMF 28
2.4.2 New economic policy measures in Zambia 30 2.4.3 Economic and social developments following the new 32
economic policy
2.5 The future of Zambia; a way out ? 37
Part II The market 41
IIA Transport and regional integration 41
Chapter 3 TRANSPORT 3.1 Introduction
3.2 Calculation of the discount
3.3 Transport and the regional market 3.4 Overseas transport
3.4.1 Tazara and the port of Dares Salaam 3.4.2 Shipments to other countries
3.4.2.1 Europe 3.4.2.2 India
3.4.2.3 The Middle East
42 42 43 45 50 50 53 54 54 56
semi producer
4.2 Tariff protection in the PTA region 4.2.1 Theories about tariffs
4.2.2 Effective protection 4.2.3 The PTA Common List 4.2.4 Rules of origin
4.2.5 Tariffs in the PTA countries 4.2.5.1 Zambia 4.2.5.2 Kenya 4.2.5.3 Zimbabwe 4.2.5.4 Tanzania 4.2.5.5 Malawi 4.2.5~6 Conclusions 4.3 The Clearing House
Part liB The regional market
ji
Chapter 5 INTRODUCTION TO THE MARKET
Chapter 6 MARKET STUDY KENYA 6.1 Introduction
6.2 Brief Survey of the Kenyan economy 6.3 Fieldwork Kenya 6.3.1 Company visits 6.3.2 Insulators 6.3.3 Radiators 6.3.4 Motor (re-)winding 6.3.5 Copperwares 6.3.6 Building industry 6.3.7 Foundries 6.4 The market
6.4.1 Bars, rods, sections, wire etc. 6.4.2 Tubes and pipes
6.4.3 Plate, sheet, strip and foil 6.4.4 Stranded wire
6.4.5 Insulated cable, wire and strip 6.5 Conclusions 58 58 59 61 61 62 62 62 64 65 66 67 68 68 69 70 74 74 74 75 75 76 76 77 77 78 78 78 78 82 84 84 84 87
7.1 Introduction
7.2 Brief survey of the Zimbabwean economy 7.3 Fieldwork Zimbabwe
7.3.1 Company visits 7.3.2 Radiator
&
Tinning7.3.3 Aluminium Industries (Almin) 7.3.4 Central African Cables (Cafca) 7.3.5 Wholesalers
7.3.6 Air Conditioning 7.3.7 Refrigeration
7.3.8 Geysers and heaters 7.3.9 Decorative industries
7.3.10 Engineering, electrotechnical industry 7.4 The market
7.4.1 Bars, rods and sections 7.4.2 Wire and wire-rod
7.4.3 Tubes and pipes
7.4.4 Plate, sheet, strip and foil 7.4.5 Stranded wire
7.4.6 Insulated cable, wire and strip 7.5 Conclusions
Chapter 8 MARKET STUDY ZAMBIA 8.1 Introduction
8.2 Brief survey of the Zambian economy 8.3 Fieldwork Zambia
8.3.1 Company visits 8.3.2 Zamefa
8.3.3 Non-Ferrous Metal Works 8.3.4 Monarch
8.3.5 Decorative Industries
8.3.6 Engineering and electrotechnical industries 8.3.7 Zambia Consolidated Copper Mines
8.3.8 Zesco and PTC 8.3.9 Radiators 8.3.10 Plumbing 8.3.11 Others 88 88 90 90 90 92 92 93 93 94 94 94 95 95 95 97 99 103 109 109 111 112 112 112 113 113 114 115 115 115 115 116 116 116 116 116
8.4.2 Wire and wire-rod 8.4.3 Tubes and pipes
8.4.4 Plate, sheet, strip and foil 8.4.5 Stranded wire
8.4.6 Insulated cable, wire and strip 8.4.6.1 Cables
8.4.6.2 Winding wire 8.4.6.3 Insulated strip 8.5 Conclusions
Chapter 9 MARKET STUDY TANZANIA 9.1 Introduction
9.2 Brief survey of the Tanzanian economy 9.3 Fieldwork Tanzania
9.3.1 Company visits 9.3.2 Radiators
9.3.3 Tanzam Doorfittings 9.3.4 Daikin
9.3.5 Building contractors and plumbing 9.3.6 Engineering 9.3.7 Tanzania Cables 9.3.8 Tanesco 9.3.9 Tanzania PTC 9.3.10 Pemacco 9. 3.11 Tanelec 9.4 The market
9.4.1 Bars, rods, sections, wire etc. 9.4.2 Tubes and pipes
9.4.3 Plate, sheet, strip and foil 9.4.4 Stranded wire
9.4.5 Insulated cable, wire and strip 9.5 Conclusions
CHAPTER 10 MARKET STUDY MALAWI
117 119 120 121 122 122 124 124 124 125 125 125 126 126 127 127 127 128 128 129 129 129 130 130 131 131 134 134 136 136 137 138
CHAPTER 11 CONCLUSIONS OF THE MARKET STUDIES 11.1 Introduction 139 139 139 141 141 142 ·. 143 144 145 146 146 11.2 Transport and the PTA
11.3 Country studies 11.3.1 Introduction
11.3.2 Bars, rods, sections etc.
11.3.3 Wire and wire-rod
11.3.4 Tubes and pipes
11.3.5 Plate, sheet, strip and foil 11.3.6 Stranded wire
11.3.7 Insulated cable, wire and strip
Part III Shadow prices for an economic cost-benefit analysis 148
CHAPTER 12 SHADOW PRICES FOR AN ECONOMIC COST-BENEFIT ANALYSIS 149
12.1 Economic cost-benefit analysis 149
12.1.1 Introduction 149
12.1.2 Determination of shadow prices 151
12.1.3 The numeraire, conversion factors 152
12.1.4 Applicability of the theory 154
12.2 Shadow exchange rate 156
12.3
12.4
12.2.1 Introduction 156
12.2.2 Black market method 156
12.2.3 Comparison of GDP per capita with other countries 157
12.2.4 The elasticity of the demand for foreign exchange 157
12.2.5 Others 162
12.2.6 Conclusions
Shadow interest rate
12.3.1 Introduction
12.3.2 Theory
12.3.3 Zambia
12.3.4 Application
Shadow price of minerals
12.4.1 Introduction 12.4.2 Theory 12.4.3 Zambia 12.4.4 Application 163 163 163 164 164 165 165 166 166 167
12.5 Shadow price of labour
12.5.1 Introduction
12.5.2 Theory
12.5.3 Zambia
12.5.4 Application
12.6 Shadow price of electricity
12.6.1 Introduction
12.6.2 Theory
12.6.13 Zambia
12.6.4 Application
12.7 Shadow price of water
12.7.1 Introduction
12.7.2 Theory
12.7.3 Zambia
12.7.14 Application
12.8 Shadow price of the output
12.8.1 Introduction
12.8.!2 Theory
12.8.3 Zambia
12.8.4 Application
12.9 Conclusions
CHAPTER 13 SUMMARY AND CONCLUSIONS 13.1 Summary
13.2 Conclusions
APPENDIX I INCENTIVES. SUBSIDIES AND TAXES
APPENDIX II THE PRODUCTS
Literature list 169 169 170 172 178 178 178 179 181 182 182 183 183 183 184 184 184 184 186 187 190 190 193 196 199 200
ABREVIATIONS
Almin Aluminium Industries, Zimbabwe
Bhesco Building Hardware and Electric Supply Corporation, Tanzania bln billion
BoZ Bank of Zambia
BTN Brussels Trade Numeraire
Cafca Central African Cables, Zimbabwe CCR Continuous Cast Rod
c.i.f. cost, insurance, freight em centimeter
CRI Consumer Rate of Interest CSO Central Statistical Office Dar Dar es Salaam
DBZ Development Bank of Zambia EC European Community
EEC European Economic Community e.g. exempli gratia, for instance Eurostat European Statistics
EXT Extruded Products f.o.b. free on board forex foreign exchanj;tt-f.o.t. free on truck
FRG Federal Republic of Germany GDP Gross Domestic Product GNP Gross National Product
IDA International Developmene Association i.e. id est, that is
IMF International Monetary Fund
Indeco Industrial Development Corporation, Zambia IRR Internal Rate of Return
IWCC International Wrought Copper Council km kilimeter
kV kilovolt
LME London Metal Exchange Lsk Lusaka
Merna co mln mm NCDP
NTE
OER p.c. PSS+T PTA PTC RSA R&T SADCC SITC SER Tanesco Tazara THA Uapta Unza UK USA vlB Zamefa ZCCM Zesco ZNCF ZSICMetal Marketing Corporation, Zambia million
millimeter
National Commission for Development Planning, Zambia Non-Traditional Exports
Official Exchange Rate per capita
plate, sheet, strip and tubes Preferential Trade Area
Post and Tele-communications Republic of South Africa Radiator .& Tinning, Zimbabwe
Southern, African Development Co-ordination Conference Standard1
'rnternational Trade ClS:ssification Shadow Exchange Rate
Tanzanian Electricity Supply Corporation TanzaniaiiZambia Railways
Tanzanian Harbour Authorities
Unit of account of the Preferential Trade Area University of Zambia
United Kingdom
United States of America World Bank
Metal Fabricators of Zambia
Zambian Consolidated Copper Mines Zambian Electricity Supply Corporation Zambian National Clearing and Forwarding Zambian State Insurance Corporation
CHAPTER 1: INTRODUCTION
The research project on the fabrication of copper and copper alloy semis in developing countries is a co-operation project between Tilburg
University, the Technical University of Eindhoven and the University of Zambia as a counterpart. In general, the project is about the
possibilities of resource based industrialization in developing countries. This means a further processing of raw material in the
developing countries in which these raw materials are found. This should make it possible for the developing countries to earn more by their exports of raw materials and it will make them less dependent on world market prices for raw material.
In the project, the economic and technical aspects of resource based industrialization are analysed by researchers from Tilburg and Eindhoven respectively. In Tilburg, Mr. Vingerhoets, lecturer in development
economics, co-ordinates the economic part of the research, whereas Mr. van de Ven, lecturer in industrial engineering in Eindhoven, is
responsible for the technical and industrial engineering part.
The research will be carried out in case-studies. The project selected copper as the raw material to be analysed. One of the reasons for this was that the different stages of the processing of copper can be clearly identified. Copper is an important export product for a number of
developing countries. Copper
from these countries is mainly exported as unwrought copper (cathodes or wire-bars).
For the fieldwork, two countries were selected; Zambia and Peru. Zambia. among others, because of its landlocked position and Peru because of its different stage of industrialization compared with Zambia.
By the time we joined the project, some preliminary research had already been done in the Netherlands and, during a short period, in Zambia too. The results of that research proved quite promising and further
research, including fieldwork in Zambia, was needed to get a good idea of the opportunities for Zambia.
The research focuses on the possibilities for Zambia to increase its production of copper and copper alloy semi finished and possibly some finished products. In practice, the research aims at a pre-feasibility study on the production of these products. This research has been split up in three parts:
a technical part; about the (technical) lay-out of the proposed production facilities;
an industrial engineering part; about the efficiency of production in Zambia and an analysis of the financial costs and benefits of the production;
an economic part; about the economic situation of Zambia, the transportation possibilities, regional integration, the regional market and the economic cost-benefit analysis (shadow pricing). It will be clear that there are strong links between the different parts of the project. Information about the size of the market (economic part) was one of the major inputs for the technical study. The financial costs and benefits (industrial engineering part) are necessary for an economic cost-benefit analysis. These financial costs and benefits, however, can only be obtained with sufficient information derived from the technical study. The industrial engineering part forms an intermediate between the technical and the economic part of the study.
At the moment, the Zambian economy is in a very bad shape. Zambia is one of the largest exporters of copper in the world. For about 90
%
of its export earnings the country depends on copper. Fluctuations in the world market price for copper have a great impact on the Zambian economy. This became very clear after 1974 when copper prices on the London Metal Exchange (LME) dropped dramatically. In 1984 the export earnings ofcopper were (in real terms) only 30 % of the export earnings of copper in 1970. After 1974 there was no growth in real GDP and the net investments decreased. Fallen copper prices and decreasing production implied lower government revenues and also caused problems in the Zambian balance of payments. The Zambian foreign debt increased and in 1981 Zambia started negotiations with the IMF. Consequently, measures such as austerity on the government budget and devaluation of the Kwacha were taken. In 1985 Zambia accepted a package of measures from the IMF. This resulted in a new economic policy to restructure the economy.
By this project we hope to contribute to this restructuring. It will be clear that it is of great importance for Zambia to diversify its exports in order to decrease its dependency on world market prices for raw
material (copper). This dependency may decrease if copper raw material is transformed into copper and copper alloy semis. The export earnings of semis are less dependent on world market prices for copper. Moreover, for these semis new customers may be found which will decrease the risks of export. The value added for semis is higher than for raw material and Zambia may thus earn more from its copper.
Apart from exports, the production of copper and copper alloy semis may also substitute imports of semis into Zambia and into the region. Many of the products are imported into the region from Europe or South Africa. Although the production process makes an intensive use of capital goods, it may have some favourable effect on the employment in Zambia. Forward linkages may imply additional employment.
The export orientated production may also have some less favourable effects in terms of uncertainty and dependency. There is, however, little choice for Zambia. It has to export its copper to get foreign exchange for the imports of oil, spare parts and food and to service its debt. Zambia should optimize its export earnings by adding value to the copper raw material with the production of copper and copper alloy semis.
Local production of semis may also increase tax revenues for the
government. These tax revenues may be used for the development of other sectors in the economy. It will be clear that the product~on of copper and copper alloy semis should not be at the cost of developments in other sectors in the economy like the agricultural sector. The development of the agricultural sector should get the highest priority in Zambia. The economic part of the research deals with the feasibility of the production of certain copper and copper alloy semi finished products in Zambia from an economic point of view. This formulation of the problem includes all semis. For practical reasons, powders and flakes, pipe fittings and castings were left out in a later stage of the research. The quantities involved were too small to justify the research. The semis which we studied may be classified in four different product groups according to differences in production process (see appendix II): - wire and wire-rod
- rods, bars, sections, shapes, etcetera - plate, sheet, strip and foil
The question arises which of these products, in which varieties and in which quantities may be produced in a feasible way in Zambia. As will be clear from the fo~ulation of the problem, this study is done to look for possibilities of pt-oduction in Zambia. This study, however, may also be used for the SADCC. In that case a more neutral formulation may be needed.
We already started the research in the Netherlands by looking at the market for copper and copper alloy semi products and cables in the region of Southern Africa. It had been decided to focus the attention on four countries: Zambia, Tanzania, Kenya and Zimbabwe. These four countries were chosen because they are the most important trading partners in the region. From these countries the largest demand is expected for copper and copper alloy semis.
During the research in the Netherlands, trade statistics concerning the imports and exports of the countries involved were studied. Figures for the exports of co~ntries of the EEC to Ke11ya, Zambia, Zimbabwe and Tanzania already gave an idea of the imports of these products in these countries.
Furthermore, the industrialization and production capacitities in the same countries were studied from literature. This research may be seen as a preparation for ;the fieldwork in Zambia.
The research for the economic part was expected to take half a year. We went to Zambia on 1st of July 1986. During previous trips to Zambia, by members of the research team, Zambian counterparts were found to take part in the research. Prof. Yamba, Dean of the School of Engineering of the University of Zambia, took part in the technical research. So did Mr. Lombe from the School of Mines. Also the SADCC Mining Sector Unit, which is co-ordinated by the Ministry of Mines in Lusaka, took part in
the research. The objective of the research partly corresponded with one of the research proposals of SADCC for 1982- 1987. SADCC provided
special assistance in the economic part of the research. We worked together with Mr. Chitambo from the Ministry of Mines. The industrial engineering part was done by Mr. Wright of the School of Mines and Mr. Koolen. The overall co-ordination was done by Mr. Marijnissen, who was attached to the technical part.
We will start this report with a survey on the state of the Zambian economy at the time we carried out the research. This will be done in order to make clear what the position of the project may be in such an economy. But general information on the economy is also needed in part three of this study; the determination of shadow prices. Although we found a very dreary economic situation in Zambia, for economists the things that happened in this country and with this economy were very interesting.
In part II A of this study (chapters 3
+
4) two subjects that determine the access to the regional market will be discussed. The regional market is regarded as the home base for an imaginary Zambian producer of copper and copper alloy semi finished products. From research in the Netherlandsit was already clear that the market in Zambia was too small to make production of these items feasible. On the other hand, access to overseas markets could be difficult due to the landlocked position of Zambia which makes transport costs high.
Consequently, the regional market is of great importance for the project. In chapter 3 the access to the regional market will be analysed in terms
of transport. In this chapter the advantage of Zambia of having copper will be compared with its disadvantage of being landlocked, from the
transport point of view. Transportation to overseas markets will be taken into account as well.
In chapter 4, access to the regional market is expressed in terms of tariffs. The Preferential Trade Area (PTA) provides some regulations to encourage trade among the PTA member states. Under certain circumstances, an imaginary Zambian producer of copper and copper alloy semis may
benefit from these regulations. Tariffs, for example, may be in favour of Zambia, compared to competitors from outside the PTA.
In part II B the regional market for copper and copper alloy semi finished products will be analysed. In this part conclusions from the previous chapters concerning the access to these markets are taken into account.
During the research in Zambia, and even before that, it became clear that the possibilities for new production facilities of semis were limited in Zambia. Wire, wire-rod, cables and certain types of extruded products were already made there. The research had to focus on the product
categories 'tubes and pipes' and 'plate, sheet, strip and foil'. During the fieldwork, which included a trip to Zimbabwe, it appeared that Zimbabwe had just invested in the production of copper and copper alloy tubes. Thus, the emphasis was laid on the market for flat-rolled products like plate, sheet, strip and foil. However, the general formulation of the problem as mentioned before, was maintained. So, despite the lower priorities that had been given to the research for other than flat-rolled products, we continued the total market survey. Lowest priority was given to research in the field of cables since these are end-products.
In the market study, some of the work of the Zambian counterparts is expressed. For fieldwork in Zambia and Zimbabwe we worked together with Mr. Chitambo. Chapter 8 on the market situation in Zambia is based on his report. Mr. Yamba went to Kenya for the project and his conclusions on the market situation there are incorporated in chapter 6.
Finally, we will come to the determination of shadow prices for an economic cost-benefit analysis in part three.
An
economic cost-benefit analysis determines the costs and benefits of the project for the country as opposed to the financial cost-benefit analysis which determines the costs and benefits for the company. The economic analysis is a necessary step in the process of project appraisal.An
economic benefit analysis must be based on a financial cost-benefit analysis. Financial prices (market prices) must be converted into economic prices (shadow prices) to derive the economic profitability. We calculated shadow prices for several inputs of the project and will give conversion factors for the application. In part three this will be done for the following inputs: foreign exchange, minerals, electricity, labour, water, interest rate and for the project's output.When a financial cost-benefit analysis is made, financial prices should be converted into economic prices. This will give a better idea of the desirability of the project for the country.
An
economic benefit analysis should be followed by a social cost-benefit analysis. In this kind of analysis, elements like income distribution, urbanization and the valuation of luxury goods is takeninto account. The impact, however, of this project on these items appeared to be very small. Therefore, the relevance of a social
cost-benefit analysis for this project is also very small. So we did not quantify the social elements as mentioned above.
In chapter 13 the conclusions of the total study will be made. These conclusions will not be very optimistic. The possibilities in Zambia for increased production of copper and copper alloy semi manufacutres are limited.
The landlocked position of Zambia plays an important role in this. This position forces Zambia to concentrate its efforts on the regional market. This market, however. turns out to be quite small. This is partly due to
the unstable situation in the region on account of South Africa. This situation makes it very hard to deal with countries like Angola and Mozambique.
On the other hand there is a significant competition from Zimbabwe. This is one of the most industrialized countries in Sub-Sahara Africa.
Another factor is the technical know-how that is needed for the proposed production. It will hardly be possible to find the skilled manpower in Zambia needed to supervise the production process.
CHAPTER 2: ECONOMIC PICTURE OF ZAMBIA
2.1 Introduction
This chapter intends to give some information on the economy in which the project takes place and about the role the project may play in this
economy. In a later stage of this study the results of this chapter will be used to come down to shadow prices for the economic cost-benefit analysis (chapter 12).
The economy can be characterized by its export orientation. Exports used to be 60 % of gross domestic product (GDP) in the 1960s but have gone down to 30 % in 1985*. In 1984/1985 exports consisted for 60 - 70 % out of copper cathodes and wirebars. The whole group of traditional exports (copper, zinc, lead and cobalt) made up 95 % of the export earnings of the country. The mining sector provided 15 % of formal employment. The importance of copper makes the copper price the major indicator for the development of the economy. Many other indicators like GDP, terms of trade, wage level and inflation are related to the value of the copper exports. The value of these exports, however, is determined on the world market, which is mainly formed by the industrialized countries. It is in
these countries where the major markets for copper raw material are found. The dependent position of Zambia in relation to these
industrialized countries becomes clearer when it is realized that Zambia imports most of its manufactured goods from these countries. Needless to say that Zambia inherited this one-sided dependent economic structure from the colonial period. In the years after the Declaration of
Independence, 80 % of Zambian imports came from the Sterling Area and 95 % of exports consisted of mineral raw materials.
In table 2.1 the indexed copper prices and Zambian copper earnings are presented and they play a dominant role throughout this chapter. In the table we see high and sometimes rising copper prices in the period after the Independence until 1974. At the end of 1974 there was a sharp decline and with the exception of 1979 and 1980 there was a continuous
deterioration in (real) copper prices. This made us decide to split up the period of 1964 to 1986 in three phases. The first period is from 1964 to 1974 when copper prices were high and the Zambian economy was growing (paragraph 2.2), the second is from 1975 to 1985 when the economy was stagnant (paragraph 2.3) and a third phase is added to analyse recent developments, that is, new policy measures (paragraph 2.4). The measures are mainly based on the program of the International Monetary Fund (IMF) for Zambia. Liberalization of the economy should encourage export
orientated industrialization and make repayment of the foreign debt possible. The future of Zambia will be discussed in paragraph 2.5. The consequences of the new economic policy will be discussed and also the role this project may play in this new policy.
*
This percentage may have gone up after that time because of the depreciation of the Kwacha which makes exports more valuable in terms of kwacha (provided that the inflation percentage is lower than the depreciation).Table 2.1 Copper prices and Zambian copper earnings at constant 1980 values
LME copper LME copper
Zambian Value of Indexed
Year price $/ton price exports exports value of
$/ton
$
million exportscurrent $ constant $ '000 tons constant $ 1980=100
1960 677 2359 558.2 1317 88.6 1961 633 2168 546.4 1185 79.7 1962 644 2168 531.8 1153 77.5 1963 646 2212 575.5 1273 85.6 1964 968 3248 681.0 2212 148.8 1965 1290 4300 683.0 2937 197.5 1966 1530 4920 599.0 2947 198.2 1967 1138 3624 601.0 2178 146.5 1968 1241 3978 643.0 2558 172.0 1969 1466 4470 730.0 3263 219.5 1970 1413 4049 684.0 2770 186.3 1971 1080 2935 635.0 1864 125.3 1972 1071 2678 711.0 1904 128.1 1973 1786 3849 670.0 2579 173.4 1974 2059 3644 673.4 2454 165.0 1975 1237 1970 641.2 1263 85.0 1976 1401 2199 745.7 1640 110.3 1977 1309 1870 666.6 1247 83.8 1978 1365 1696 589.2 999 67.2 1979 1985 2177 651.8 1419 95.4 1980 2183 2183 681.1 1487 100.0 1981 1742 1733 551.8 956 64.3 1982 1480 1516 606.6 920 61.8 1983 1592 1652 570.6 943 63.4 1984 1377 1454 530.3 771 51.9
Source: Paul Jourdan, 1986; Commodity Trade and Price Trends, World Bank 1986. Copper prices in the second column are deflated with the Manufacturing Unit Value Index (MUV) of the World Bank.
2.2. The first ten years after Independence
The colonization of Zambia got going after 1920 when the demand for
copper in the industrializing countries increased. The British from South and the Belgians from the North were both interested in the copper
reserves in the area that is called the Copperbelt now. Until 1965, Zambia was under British colonial rule and was called North-Rhodesia. Together with South-Rhodesia (Zimbabwe) and Nyasaland (Malawi) a Federation was formed in 1953. In this Federation Zambia and Malawi provided the means for the development of South-Rhodesia. To a certain extent the manufacturing sector in South-Rhodesia was based on primary products from the North. The North also provided a market for products from the South. The labour force in the South was partly recruted from Nyasaland. The benefits from the copper mining activities were used in the South. Development in North-Rhodesia depended on South-Rhodesia and most of all on South Africa which was (and is) the most industrialized country in the region. Many South Africans went to the North via
South-Rhodesia to exploit the mineral resources for South African companies.
Under the leadership of Kenneth Kaunda, North-Rhodesia became independant in 1964. The ideology of Kaunda was inspired by Christianity and became known as Zambian Humanism.
In the years a'ter the Independence, efforts were made for
Zambianization , improvement of infrastructure and some diversification of the economy. Based on the ideas of Humanism, emphasis was laid on education and public health care. Both services were free of charge in Zambia. There were, however, only few people who had the opportunity and the skill to give direction to the development of Zambia. Apart from that and in spite of Zambianization, large parts of the economy remained in the hands of foreigners.
The mining sector provided the foreign exchange (forex) and the
government income.
As
has been seen from table 2.1, copper prices were high during this period. The country realized high real growth rates. Real GDP increased by more than 10 % in some years. Manufacturing output as part of GDP increased from 6 % in 1964 to more than 13 % in 1974. The relatively high government earnings were partly used to obtain majority shares in key sectors of the economy, amongst others the mining sector. The diversification of the economy, however, took place mainly in the mining related industries. The mining sector was the major importer inZambia and it is not surprising that import substitution started here. This kind of development hardly changed the obligue character of the economy. Especially the agricultural sector was neglected, although the majority of the people depended on this. Extensive land ownership and low productivity (by the small farmers) did not change.
Nowadays another factor that is mentioned for the continuation of the one-side development after Independence is that high copper prices discouraged developments in other sectors. The money came in relatively easy and Zambia even became a net capital exporter up to 1970. There was obviously a lack in feasible opportunities in the country to invest the money. Apart from that, foreign capital owners repatriated part of their capital, mainly in the form of redemption of shares. We will return to this subject later on.
As mentioned before, in the second half of the 1960s, the government's budget relied greatly (for about 40 %) on mineral revenues (including
income tax). When the copper prices fell in 1971, the revenue immediately tumbled down to 10 percent of the original and has not recovered since, in spite of the high prices in 1973 and 1974.
In the years under review, the development of Zambia was affected by independence struggles in neighbouring countries like Angola, Mozambique and Rhodesia Angola and Mozambique became independent in 1974. During the struggle for freedom in Angola, Zambia could not use the Benguela railway to the port of Lobito in Angola. By that time this was the main route for the copper exports of landlocked Zambia. This even forced Zambia to
export copper sometimes by air in order to earn foreign exchange.
In 1965 Ian Smith declared Rhodesia independent from Great Britain, and this was internationally regarded as an illegal act. International sanctions followed which had a negative impact on the Zambian economy as well. A great deal of the imports and exports were transported via Rhodesia, which became more and more difficult. Zambia tried to change its transport routes, and this was a costly operation. Rhodesia closed the oil pipeline from Beira through Rhodesia to Zambia. Zambia boycoted Rhodesia and cut back imports from the South. It also supported the Rhodesian liberation movement ZAPU.
2.3 The next ten years; 1975 - 1985 2.3.1 Introduction
In this paragraph the economic situation in Zambia from 1975 to 1985 will be discussed. This period may be characterized by stagnation. The more or
less prosperous developments in the first ten years were (among others) badly affected by deteriorating copper prices and the war of freedom in Rhodesia. This war took five years, from 1975 to 1980. During this period no trade with Rhodesia was possible and Zambia was hit by Rhodesian
attacks because of its support to the Rhodesian freedom fighters. In 1976 the, Chinese built, railway from Zambia to the port of Dar es Salaam (Tazara) was ready. The railway provided a very important export and import route for Zambia (but also a very favourite target for
Rhodesian attacks).
From the former paragraph it already appeared that copper prices
dominated the Zambian economy. This became very clear when copper prices went down. Export earnings decreased and caused a deficit on Zambia's current account (paragraph 2.3.2).
The situation changed for the worse by the increase in oil prices in 1972 but even more so in 1979. Imports became more expensive while export earnings decreased (paragraph 2.3.3). This made the situation on the trade balance worse and forced Zambia to borrow abroad. In Zambia, savings fell short to allow for sufficient capital formation (paragraph 2.3.4) the money for which had to come from abroad as well. The effect of these developments on the inflation and interest will be discussed in paragraph 2.3.5.
In these paragraphs on the period of 1975 till 1985 figures from previous years are also used for the analysis.
2.3.2 The current account
In 1974 there was a sharp decline in copper prices and with the exception of some years, prices did not rise again. In later years the volume of Zambian copper exports also fell, which made the situation even worse. From the last column in table 2.1 it may be concluded that since 1964 the export earnings from copper have fallen by 65 % in real terms.Compared with 1970, only 28 % of the export earnings from copper remained in 1984. The dramatic decrease in export earnings forced Zambia to decrease its import expenditures as well. In terms of volume, Zambia succeeded to do so, to a certain extent, but the value of the imports increased (see paragraph 2.3.3). Total expenses on imports, therefore, remained about the same. In 1975 GDP dropped by 23 % and the trade balance became negative, which before had not happened, as may be seen in table 2.2. The current account was not only affected by an unfavourable trade balance but also by high spendings on services. High expenditure on services mainly consists of transportation costs, due to the landlocked position of Zambia. It was impossible to cut down these expenses,
especially in a time when the oil prices were rising.
The deteriorating position of the trade and serices balance caused a downward pressure on consumption. Borrowing abroad (see table 2.3) was one of the main sources that kept the economy going.* A growing debt resulted. The growing expenses on debt servicing will be discussed below. Table 2.2 Current account K' million in current prices and exchange rates
Year 66 68 70 72 74 75 76 78 80 82 84 Exports 431 534 673 543 898 516 742 665 1149 880 1660 Imports -251 -353 -348 -405 -509 -610 -482 -495 -879 -932 -1108 Trade Balance 180 181 325 138 389 -94 260 170 270 -52 552 Services -60 -90 -144 -191 -298 -291 -276 -246 -394 -267 -376 Investment -58 -52 -33 -74 -86 -75 -109 -100 -229 -219 -375 income Unrequitted -10 -25 -104 -96 -81 -80 -80
-so
-139 -36 -9 transfers Current Account 53 14 44 -223 -76 -540 -205 -226 -492 -574 -208 Source: CSO, 1974, 1979, 1985, Bank of Zambia, 1985.1975 shows a current account deficit of 539 million Kwacha. With the exception of 1979, when copper prices went up again, the deficit remains high, although it seems to recover a bit after 1982.
Adding up services and the trade balance, the outcome would still be positive for most of the years. The positive trade balance compensated for the negative savings account. The balance on the current account, however, is also influenced by investment income. This figure turns out
to be negative throughout all the years under review.
*
The downward pressure on consumption levels could partly be survived because a great part of the population still earned a living in subsistence agriculture and was, therefore, for its consumption less dependent on imports and marketed goods.85 2517 -1761 756 -545 -512 -16 -317
Investment income consists of interest payments on foreign debt,
repatriation of profits, payments to foreign minority shareholders and management contracts. Until 1974 these payments used to be about 10 % of the entire export earnings. In 1984, however, this percentage had risen to 23 % and in that year the amount exceeded the expenditure on
transportation. This growing figure for investment income is mainly due to increasing interest payments on Zambia's growing foreign debt. The other part of these payments may partly be regarded as a remainder of the colonial period and reflects the foreign capital that is still in Zambia. The repatriation of profits may give an indication of the confidence of foreigners in the Zambian economy. If the new economic policy, started in 1985, succeeds in reducing these payments and in encouraging reinvestment in Zambia by private companies, this will immediately have positive
effects on the current account balance. 2.3.3 Terms of trade and competitiveness
Looking more closely at the trade balance, it turns out that, although the bulk of imports started to decrease after 1974, spendings on imports remained high. (The volume index of imports decreased from 94 in 1974 to 63 in 1976 whereas the unit value index went up from 174 in 1974 to 241 in 1976 (1969 = 100).) This is mainly due to the rising oil prices at
Figure 2.1 Terms of trade
indeJC Ji{_, 196¥100 ilj(' dC r.(() I I 110 I I "'(! r I (~ <Jc· Jo
fO
k',,-o
i.(C·*'
I I /\,/
I I / '\ /6/I
'\"
.,
a:r/<Y /j c"o c:f'; (i.; c:.f!:s
indexed copper p.riaa
,_
'
I \ I \ ' .__,I \, tenas of " ' - ' _...., tradeSource: own calculations from CSO, World Bank figures and table 2.1
cl}'
that time which caused a sharp increase in the unit value index of
imports. In 1974 the high copper prices compensated the trade balance for the rise in oil prices. As said before, rising oil prices forced the country to spend more money on transport which affected the current
account in a negative way. The share of imports of petroleum products and petroleum in the total expenditure on imports of goods rose from 5 % in 1972 to 20 % in 1982. (As a percentage of exports of goods this was 3 % in 1972 and 21 % in 1982.)
This brings us to the terms of trade in Zambia, as shown in figure 2.1. It is clear that the situation looked very bright until 1969. Not many developing countries were in a position to show improving terms of trade after Independence. This is of course mainly caused by the rise in copper prices. After 1969 copper prices went down and this immediately had a downward impact on the terms of trade. Although copper prices recovered in 1973 and 1974, the tems of trade improved only slightly because of the oil price increase due to the first oil crisis. It is striking how the trend in copper prices is reflected in the terms of trade. After 1975, however, the rise of import prices (mainly of oil) exceeded the fall in copper prices and the terms of trade deteriorated further.
Although the current account showed a growing deficit (and the terms of trade deteriorated) the kwacha rate to the Dollar was not adjusted. In the years before 1975, the kwacha rate quite well reflected the balance of payments situation of Zambia. The deficit on the current account after 1975 forced Zambia into a more restrictive import policy in the form of import licencing. By doing this, the Kwacha was kept high without
allowing excessive current account deficits. These measures, combined with a high inflation rate in Zambia, caused an overvaluation of the Kwacha after 1974. The first substantial devaluation, however, was not effected until 1983. The competitiveness of the non-traditional export sector is not reflected in the exchange rate of this copper dominated economy. The value of the kwacha made competition of non-traditional exports hardly possible. The non-traditional sector could have played a significant role in providing a substitute for the mineral exports if the value of the kwacha had not been that high after 1975.
The availability of foreign exchange became increasingly restricted. This caused a stagnation in the whole manufacturing sector. Companies could import less inputs than was necessary for their production, on account of import licences and distribution of forex by the Bank of Zambia. Capacity utilization dropped and manufacturing output fell by 21 % between 1974 and 1984.
2.3.4 Borrowing and saving
Current account deficits (and negative savings) forced Zambia into a net borrowing position. On the other hand it may be argued that the copper ore reserves made it very easy for Zambia to borrow money. The country was solvent and could maintain a certain level of imports and a deficit on the current account. The solvency of the country, owing to the copper ore reserves, did not force the country to restructure its economy. From
table 2.3 it may be seen how the foreign debt of Zambia increased
throughout the years. The debt increased substantially in the years from 1975 to 1977 and from 1978 to 1980. Private non-guaranteed debt decreased after 1978. Part of it may be guaranteed by the government after that time. In 1984 the total foreign debt is nearly $ 4 billion, which is almost twice the value of GDP in that year.
Table 2.3 External public debt $ million
Year 70 73 75 77 78 79 80 81 82 83 84
Long term debt Public and
623 704 1147 1407 1464 1849 2185 2230 2378 2618 2779 publicly guaranteed
Private non-guaranteed 30
-
120-
150-
87 50 45 25 23Use of IMF credit 0 69 89 116 319 422 393 731 635 666 698
Short term debt
-
-
-
-
645-
580 581 586 429 388Total debt 2578 3245 3592 3644 3738 3888
- : unknown from statistics
Source: World Debt Tables, World Bank, 1985 and 1983
From 1964 to 1974 the net borrowing position of Zambia changed year by year. For example; Zambia borrowed money in 1967, '68, '71 and '72 but repaid more money than it borrowed in 1969, '70 and again in '73 (see table 2.4). This again corresponds with trends in copper prices and terms of trade (with the exception of 1970).
The situation of borrowing in some years and repaying (part of) the loans in other years, changed after 1974. After this year the net borrowing position became structural. As mentioned before, this position was mainly due to the lower copper prices which caused problems in the balance of payments.
Table 2.4 Capital transactions k'million in current prices
l:.ear 64 66 68 70 72 74 75 76 78 80 82 Savings 9-7 238 258 281 133 484 -65 118 -29 -115 -474 Consumption of 28 41 60 134 195 219 243 268 300 fixed capital 339 406 Finance of gross 125 279 318 415 328 703 178 386 271 224 -68 accumulation Gross fixed 76 176 265 350 445 502 602 445 137 capital form. 558 618 Net borrowing -75 -39 33 -62 189 92 509 153 262 490 680 Net fixed capital 48 135 205 216 250 283 359 177 ·163 219 212 formation
Source: Bank of Zambia, Annual Reports, 1980, 1981, 1984, C.S.O., December 1985. 84 -158 630 472 623 -7
These problems in the balance of payments, were also caused by the phenomenon of negative savings that have occurred since 1975 (with the exception of 1976). This implied that savings could no longer finance
85 -190 832 642 603 -229
investments (from domestic sources). Capital had to come from abroad to compensate for these negative savings.
Both factors (decreasing export earnings and negative savings), caused structural problems on the balance of payments. The solvency of the country made it possible to maintain the deficits on the current account and to borrow money from abroad.
This foreign capital was only partly used for investment purposes, the other part of it was spent to allow for growing consumption expenditure. The rise in private consumption expenditure was at the cost of savings and, therefore, investments. With a population growth of more than 3 %,
at least 10 % of GDP is needed for savings to allow for new investments. If Zambia had saved 10 % of GDP, this would have been K 200 million (in 1982) and borrowing would not have been necessary.
Private final consumption rose from 60 % of the national disposable income in 1976 to 80 % in 1985, while the government's final consumption expenditure was about 30
%
from 1976 to 1985. (The 10 % surplus shows the negative savings.) These figures give the impression that especially the growing consumption of the private sector forced Zambia to borrow money abroad. It is, however, unknown from the Zambian statistics what the amount of savings was in the private and government sector. In general it may be concluded that the money Zambia has borrowed since 1974 was partly used for consumption purposes.This consumption, however, generated no income and so created no possibilities of repayment of the money. Both Zambia and its money lenders must have noticed this. In Zambia, however, there was a strong belief in an improvement of copper prices on the short term. At the time
the high liquidity of the financial institutions in Europe and the United States made them less critical to what country and for what object they lent their money to. Apart from that, some of the money that came from abroad was borrowed in the form of tied aid and was intended for
consumption purposes. (For example in 1986, the United States lent $ 10 million to Zambia for which Zambia had to import 37,000 tons of grain and 7 million tons of vegetable oil from the United States.)
As may be seen in table 2.4. the situation became even worse after 1984. In 1985 and 1986 consumption of fixed capital exceeded gross fixed capital formation, which means that even replacement of investments can no longer be realized as a whole. Disinvestments take place in a country where new investments are badly needed to earn forex or to substitute imports. It is very likely, however, that in Zambia, for a long period already, net capital formation in relation to total fixed capital formation has not been able to keep pace with the growth in population. 2.3.5 Interest rates, inflation and purchasing power
The phenomenon of negative savings, as mentioned in the previous
paragraph, may partly be explained by the decreasing purchasing power in Zambia. In a depressed economy, the ability to allow for savings
decreases. It may even force people (and companies) to use their savings for consumption purposes.
Another explanation for the negative savings can be found if the nominal interest rate is compared with inflation figures in Zambia (see table 2.5). The real interest rate has already been negative for a long time. When the revenues from minerals decreased, repayment of government loans became more and more difficult. To make repayment possible, the
government kept the official interest rate artificially low despite high inflation figures. The government was actually subsidized by companies like ZSIC (Zambia State Insurance Company) who lent the money. In the period shown, the inflation rate always exceeded the nominal interest rate. This negative interest rate discouraged savings.
Table 2.5 Interest and inflation rates (in
%)
Year 76 77 78 79 80 81 82 83 84 85
Interest 6 6 6~ 6~ 6~ 7~ 7~ 10 12 14~
(Bank of Zambia
Inflation 25 17 10 11 11 14 14 24 24 58
(low income group)
Source:
c.s.o.,
consumer price statistics 19 June 1986.Bank of Zambia, annual report 1984, quarterly report September 1985
The high inflation rates in this period also caused a deterioration in the purchasing power of the majority of the people. The government's decision was to 'freeze' the wages between 1975 and 1979. The
mineworkers, however, succeeded in getting an annual increase in wages of 18 %. In other sectors real wages deteriorated since they were not
corrected for inflation. In 1980, increases in wages were possible again, but in the same year the government increased prices for maize meal. In 1983 the maximum increase in wages was fixed at 5 % and later on changed into 10 %. In 1984, free bargaining was possible, but inflation, caused by a shortage of consumer goods and import restrictions, depressed the purchasing power.
2.4 Recent developments 2.4.1 Zambia and the IMF
As has been shown, falling copper prices (and rising oil prices) caused problems in the balance of payments of the lop-sided Zambian economy. The idea that copper prices would go up again made Zambia's reaction to these developments quite inappropriate and inadequate. The country borrowed money from outside sources (see table 2.3) which was partly used for consumption purposes.
Developments in other sectors of the economy (other than mining) were not strong enough to substitute for forex earnings that were lost because of falling copper prices. The situation remained bad because (among others) of the overvaluation of the Kwacha and because the landlocked position diminished the international competitiveness of Zambian exports. Apart from that, forex problems in the industrial sector made it very difficult to get spare parts and other inputs necessary for production.
Zambia's foreign debt increased year after year and this pushed the country into the arms of the IMF.
In 1983 it became clear that copper prices would not go up again. In that year Zambia got its first conditional assistance from the IMF.
The IMF provides assistance in case of structural problems in the balance of payments (deficits). The policy of the IMF is designed to restructure the economy in order to prevent further problems in the balance of
payments, to prevent increasing debt and to allow for repayment of the foreign debt. For that purpose the IMF outlined conditions for debtor countries. Assistance can only be obtained if the IMF conditions are met. These debtor countries have to restructure their economies according to the IMF requirements.
Since the debt service is in foreign exchange this restructuring must result in an export orientated economic policy regardless of the social-economic priorities of the country. The conditions generally include a devaluation of the local currency, a freeze in wages and decontrol of prices. For all countries under IMF control this means a severe
deterioration of purchasing power and in the standard of living for the population. This is done to make exports cheaper on the world market and thus stimulate exports. It means, however, that these countries become more dependent on the world markets. More domestic resources will be allocated to export orientated production. Every price fluctuation on the world market will have a reinforced impact on the domestic economy. Apart from this, the major exports of many debtor countries are primary
products. The position of these products on the world market is often weak. Many debtor countries are engaged in the same primary products and
compete with each other on the world market by devaluating their
currencies and decreasing real wages. All try to export to improve their trade balance and economic situation. This competition again results in lower prices on the world market. It is, therefore, the industrialized countries who are the beneficiaries of this proces.
Chile, for example, is a country with a high foreign debt. The main source of foreign exchange in Chile is the export of copper. In order to repay the foreign debt and to allow for decreasing copper prices, Chile expanded its copper production. Consequently, copper prices on the world market further deteriorated. This did not cause more problems for Chile only, but also made the situation worse for Zambia.
From the past it has been learned that prices for primary products tend to decrease. Developing countries mainly produce primary products, so the terms of trade of most of these countries are continuously under
pressure. The above mentioned factors can only make the situation worse. Under pressure of the IMF, the producers of primary products will have to
increase their exports continuously to earn the same amount of forex. This again forces the countries to take additional measures in the field of wages, government spendings and exchange rates.
The IMF prescribes the same type of measures for all debtor countries although the economic problems in these countries are quite different. The landlocked position of Zambia, for example, causes very specific problems in an export orientated strategy.
For Zambia it was politically hardly possible to meet all the IMF requirements. For example the limit on increases of wages of 5
%
only, was altered in 10 % in 1983. Consequently, Zambia did not get the IMF assistance that had been promised. In 1984 it had to negotiate with the Paris Club and the IMF once again, but no agreement was reached. In themeantime, Zambia only got small amounts from the IMF and depended heavily on bilateral assistance. In 1985, the IMF came up with a new package of economic measures to be taken in Zambia, including the auctioning of foreign exchange. Zambia had no choice but to accept these measures. Many Zambians were opposed to the program but the Zambian government did not see any other viable alternatives.
2.4.2 New economic policy measures in Zambia
In this paragraph the main points of the IMF program that Zambia accepted will be discussed.
Auctioning of foreign exchange.
This is the most important measure taken by the Zambian government under pressure of the IMF. Every week, a predetermined amount of dollars is auctioned by the Bank of Zambia (BoZ). The highest bidders in terms of Kwacha get the foreign currency. The last bid that is successful is called the marginal bid. This bid reflects the cut--off rate. The cut-off rate is the official exchange rate for the week following the auction. There used to be $ 13 million available
to be auctioned: every week of which
$
9 million were actually auctioned. By the government $ 4 million were allocated for predetermined purposes. These purposes are:*
Party and government imports and other payments*
Bank of Zambia*
Medical and educational supplies*
Specific projects and companies.Part of the money that is actually auctioned ($ 9 million) is allocated within the auction for specific purposes. These bids are always successful and the exchange rate is the prevailing auction rate.
These purposes are:
*
Crude oil imports (by Zimoil) and related port charges*
lATA payments by Zambia airways*
Debt payment (pipeline)*
Working balances of commercial banks.•
In the second half of 1986 the sources of forex desiccated (IMF and donors withheld their supply) and the amount of forex that was freely auctioned ($ 9 million) decreased to $ 5.5 million.
Forex is allocated outside the auction system to companies that are net exporters. Via the new retention scheme, these companies retain 50 % of their forex earnings for import purposes. This is one of the main incentives for Zambian companies to start or increase exports. Otherwise, companies have to go (more often) to the auction where it may take several weeks to bid successfully. After being successful
it may take about 10 weeks until the forex is obtained (see also appendix I). How this auction-system works out will be discussed in paragraph 2.4.3.
