Nationalisation costs Zambia billions in revenue loss

Lusaka – Zambia lost US$45 billion in mining rents when it nationalised its mining units in the late 1969 at the peak of mineral price realisation on the international metal market, a report has revealed.
According to Eunomix, the organisation that undertook the study, the loss is greater than the foreign aid the southern African nation received over those years.
Eunomix chief executive officer, Claude Baissac, attributes the losses chiefly to the slump in the production of the red metal, copper, which declined to 250 000 tonnes per annum from about 750 000 tonnes produced in the early 1970s after nationalisation.
The losses were revealed in findings that form part of a major study on African economic advancement through resource development based on World Bank data, the Eunomix report says.
The report, which tracks the relationship between economic growth, resource rents and commodity prices, identifies rent sharing in Africa, the role of mining and oil and gas on the continent’s economic growth from 1970 to 2010 as unresolved vexing issues that led to losses.
The study on Zambia reveals that the country was producing 700 000 tonnes of copper in 1969 when government opted for nationalisation of the mining companies.
The nationalisation of various units, which operated independently ‑ including those run by Anglo American Corporation and formed the then Zambia Consolidated Copper Mines (ZCCM) ‑ affected the country’s metal production when the metal price was at its peak.
“Post nationalisation, the country went downhill, with mineral rents declining to a far greater extent than the fall in prices, leading to the conclusion that bad government policy exacerbates the downturn during periods of low commodity prices and results in an anomalous destruction of economic wealth,” says the report.
If Zambia had continued to produce the metal at an average 700 000 tonnes a year over the 40-year period, it would have generated mineral rents totalling US$65b.
“Instead, it (Zambia) eked out only US$15b and suffered opportunity loss of US$45b, which exceeded the international aid it received over the period,” the report says.
“You have that same story country after country in that 40-year period,” the report points out.
The exception was South Africa, where mineral rents exploded.
Although largely due to the gold price, this was also a consequence of a pro-private investment policy framework within the socially and politically abusive context of apartheid.
Baissac advises leaders on the continent to devise policy environments that ensure the proper sharing of resource rents and at the same time allowing investment and production to take place.
Governments, he believes, need to maximise the mineral rents and then use the revenue to create job opportunities for the masses through economic diversification.
It is extremely important for the continent’s policy framework to reflect international best practice so that its resource-rich countries are able to attract foreign direct investment.
“If the resource-rich countries collapse economically, the whole of Africa will collapse with it, as we saw in the 1970s,” Baissac says.
This raises fears that the current resource nationalism trend risks a return of resource sterilisation, which the continent suffered in the 1970s, regrettably, at a time when the continent is viewed globally as a destination of strategic importance.
The Eunomix report further states that Africa is more commodities-driven today than at any time since the 1960s, which makes it more vulnerable to external shocks than ever before. The continent also needs a stable policy environment, the report says, to maximise on mineral rents and defeat the Dutch Disease along with resource curse and economic exploitation.
The report adds that this needs to be achieved through meaningful economic diversification.
While the oil industry model has been effective in generating, sharing and sustaining rents, the mining industry cannot emulate it, as it requires longer timelines and significantly more capital.
 For example, South Africa’s platinum and gold industries spend billions of dollars to replace ounces.

 

April 2013
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