Green financialization and de-risking in Zambia’s renewable energy transition

By Simone Claar and Franziska Müller

Zambia’s has a history full of hopeful prospects and broken dreams. In the 1980s and again in the early 2010s, Zambia experienced an economic upswing. Labelled as an emerging middle-income country and called the new ‘African Tiger’, a mix of copper extractivism, an aspiring tourism sector, as well as political stability led to an impressive rise. However, the phase was short-lived, as Zambia’s political economy remains fragile: dependent on the price of copper and the world market, it is regularly on the verge of state bankruptcy due to a significant foreign debt burden. A history of structural adjustment programs in exchange for IMF loans and dependency on billion-scale Chinese loans means that Zambia became the first African country to declare bankruptcy in the wake of the Covid pandemic, first asking for a moratorium, and later for restructuring its Eurobond loans and Chinese loans. In this context, Zambia’s dependence on development financing is highly evident and deeply anchored in the state structures. Zambia’s political economy of energy and the ongoing energy transition reflect this tedious situation. Rising energy demands and lack of investment mean that widespread load shedding has become a frequent phenomenon. Climate change and recurring droughts negatively affect hydropower performance, which makes up 95 per cent of installed capacity. The current roll-out of renewable energy is a beacon of hope. Nevertheless, its financial structures give rise to the assumption that Zambia may also be the first African state where the miracle of green capitalism and “white magic” (Girvan 1978) is becoming manifest, resulting in both shiny solar panels and a loss of political and economic sovereignty. Analyzing Zambia’s energy transition’s political and financial toolbox, we delineate how green financialization and de-risking are executed based on blended development finance. 

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Haemorrhaging Zambia: Prequel to the Current Debt Crisis

Following a stand-off with commercial creditors and protracted but unresolved negotiations with the IMF, Zambia defaulted on its external sovereign debt on 13 November this year. While most commentary has focused exclusively on the government’s sovereign borrowing, our own research has detected massive outflows of private wealth over the past fifteen years, hidden away on an obscure part of the country’s financial account. The outflows are most likely related to the large mining companies that dominate the country’s international trade. With many other African countries also facing debt distress, the lessons of this huge siphoning of wealth from the Zambian economy need extra attention within discussions about debt justice in the current crisis. We explain here what we’ve found.

Zambia was already debt-stressed going into the COVID pandemic. The economy was hard hit following the sharp fall in international copper prices from 2013 to 2016, especially that copper made up about 72% of its exports in 2018 (including unrefined, cathodes and alloys). Following a severe currency crisis in 2015, the government entered into negotiations with the IMF but never agreed on a programme. There was some improvement in macroeconomic outlook in 2017 due to rising copper prices, which sent international investors throttling back into optimism. However, international investors again turned against the country in 2018 in the midst of the global emerging market bond sell off, which compounded the effects of severe droughts in 2018-19. As a result, the government was already teetering on the edge of default on the eve of the COVID-19 pandemic. The economic fall-out of the pandemic has since pushed the country over the edge (see an excellent analysis here).

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Lessons from Kaundanomics

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A story is told that a few years after independence in 1964, Kenneth Kaunda, Zambia’s first president, visited one of the mines in the mineral rich Copperbelt Province and was immediately struck by the complete absence of Zambians in senior management positions. He proceeded to ask the mine owners as to when they reasonably thought Zambians would be ready to occupy positions of influence within the country’s mining sector. With straight faces, the mine owners responded “not before 2003, Mr. President.”Read More »