Message Mer 16 Oct 2013 14:27

Zambia: Government seeks to denationalize the copper industr

Zambia has taken further steps towards its move away from nationalization of its copper industry when it announced last week that it was slashing its investment in ZCCM Investment Holdings, the former state mining company. Zambia’s Mines Minister, Christopher Yaluma, announced last week in an interview with Bloomberg that the government would cut Zambia’s stake in the company to under 50 percent from its current 87.6 percent. He justified the move as a continuation of the government’s plans for privatization in the mining industry and its repudiation of its former policy of nationalization of the mining sector.
Production of copper fell drastically during the years of government ownership, costing the country US $ 45 billion in potential income, or US $ 1 million per day according to various estimates. Today Zambia is still the world’s biggest copper producer, and wants to increase production to 1.1 million tonnes per year by 2015. The Zambian government is also looking at how to exploit the entire mining value chain including processing, refining, marketing and sales, in an effort to ensure that the country makes the most of its mining industry.

Zambia’s copper industry accounts for 70 percent of the country’s entire revenue. It is the largest copper exporter in Africa and the seventh biggest copper producer in the world. Zambia’s copper output is estimated at an average 675 000 tonnes per year, peaking at over 800 000 tonnes in 2012 and it has reserves of 20 million tonnes. The copper sector has allowed Zambia to attract over US $ 8 billion in foreign investment since 2000. Mining activity has also been responsible for the creation of around 75 000 jobs in Zambia. The Zambian government is also working on interventions to improve its collection of revenues emanating from the mining industry. According to the Africa Progress Panel’s 2013 Africa Progress Report Zambia only collected US $ 240 million in revenue from copper exports in 2011, when Zambian copper mines produced US $ 10 billion in exports that same year. Under the presidency of Michael Sata, who vowed to ensure fair contributions from foreign investors, foreign businesses now have to put the proceeds from copper exports into Zambian bank accounts. The moves were targeted specifically at Chinese companies, who have been criticized for the way they do business and handle labour relations in Zambia’s copper industry.

All of these changes are being implemented in line with the Revised Mineral Resources Development Policy. The main motivation for the policy is to allow for the increased involvement in Zambians in their mining industry. The plan aims for increased local involvement not just as mine owners but also as suppliers and employees. The new policy also gives the Zambian government greater control over all aspects of mining, as it gives it the power of monitoring everything from the production of minerals to exports, resulting in greater accuracy when it comes to calculating taxes and royalties, and hence better revenue collection for the government. The country has embarked on a campaign of reducing business costs for potential mining investors. It has relooked its education system in an attempt to plug the skills shortage in the local mining industry. Recently it has also started investing in the infrastructure that will make it easier for mining companies to operate in the country. It is working on expanding the capacity of the national power grid and improving the rail and road network. According to expert reports Zambia will need to spend about US $ 16 billion on these infrastructure projects over the next ten years if it wants to stay in touch with other developing countries. The increased mining in Zambia’s copper sector is expected to lead to an over 8 percent increase in the country’s GDP between now and 2016.

Chadwin Harris

c.harris@politicalanalysis.co.za