Zambia has no intention of nationalising its mines – NOT AGAIN

 

Lusaka – Zambia has no plans to nationalise its mining sector, specifically the copper industry ‑ not now or in the near future, says Mines Minister, Christopher Yaluma.

Speaking to delegates at the 20th Mining Indaba that was themed: “Investing in African Mining” that was held in Cape Town, South Africa, from February 3 to 6, 2014, the Zambian minister dispelled suggestions of mine nationalisation by some stakeholders.

Minister Yaluma argued that the government does not intend to nationalise the mining industry through the Mining and Minerals Act 2008, which is currently under review, but aimed at embracing various players in the sector to ensure Zambians benefit from the country’s mineral wealth.

He explained during a ministerial forum that the new Mineral Development Act that is expected to come into force later this year would not address nationalisation of the mines.

“Zambia has gone private and will remain totally private, so take it from me please,” he said.

In the past until the 1990s, Zambia nationalised its mining sector and bundled mining operations together under the Zambia Consolidated Copper Mines (ZCCM). However, this backfired on the government, as it could not capitalise the various mining units, resulting in the country spending an average US$1 million daily to sustain them.

When the late Frederick Chiluba took over the Presidency from Kenneth Kaunda in 1991, Zambia started liberalising the economy, allowing the private sector was to play a leading role in the governance of the economy.

During the time, Zambian mines were unbundled and units sold to various multinational companies that sought to invest in Africa’s top copper producer.

To date, the country has seen an inflow of over US$8 billion in direct foreign investment into the sector. This has seen copper production rise from a low 250 000 tonnes per annum in the early 1970s and later 550 000 per annum in the mid-1990s to over 800 000 tonnes per annum on account of new mine projects being recapitalised by owners.

Among the foreign multinationals operating in Zambia are First Quantum Minerals, Non Ferrous China Africa, and Glencore Xtrada, owners of Mopani Copper Mines and Barrick Gold.

Incidentally, Zambia’s nationalisation of the mines did not come without costs as the country lost US$45 billion in mining rents when it nationalised its mining units in 1969 at the peak of mineral price realisation on the international metal market.

This loss is greater than the foreign aid the southern African nation received over those years, according to a study on Zambian mining nationalisation by Eunomix, a specialist in de-risking mining and resource projects in Africa.

Eunomix chief executive officer, Claude Baissac, notes that the losses were attributed 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 adds.

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 mines.

The nationalisation of various units, which operated independently ‑ including those run by Anglo-American Corporation and formed the then Zambia Consolidated Copper Mines ‑ 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,” the report further notes.

If Zambia had continued to produce the metal at an average 700 000 tones a year over the 40-year period, it would have generated mineral rents totaling US$65 billion.

“Instead, it (Zambia) eked out only US$15 billion 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 believed, needed 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 in his analysis.

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.

Africa 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. 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.

February 2014
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