Zambian mining reforms struggle after Covid-19

As pockets of violence rock the Zambian capital in the run-up to its fiercely contested election next week, miners have called for a radical shake-up of the country’s mining sector, battered by the pandemic and a climate considered hostile to investors.

In recent years, a hostile policy environment has led several foreign operators to flee the country, putting pressure on the sector that accounts for 75% of Zambia’s exports.

With an election looming on August 12, and copper prices at a ten-year high, economic recovery for Africa’s second-largest copper producer hinges on ramping up production, mining companies say.

Covid-19 ravaged the continent’s mining sector, disrupting operations as mines shuttered amid lockdowns and dampened demand.

Last year a collapse in copper demand prompted one of the country’s biggest miners, Glencore, to suspend operations at its Mopani Copper Mine. The move sparked a backlash from Zambia’s government, which threatened to revoke the firm’s mining licences because it said Glencore did not give enough notice before suspending the mines.

Hours later Zambian authorities arrested MCM’s CEO in Lusaka as he attempted to board a plane to Australia.  He was subsequently released.

The move rattled foreign investors who fear the government is taking an increasingly hostile stance on international mining companies to shore up revenues.

Profligate politics

Taxes on the mining sector, which was privatised before the commodities boom of the 2000s, are among the highest in the world, says consultancy ey.

In May 2019 the government seized the Konkola Copper Mines (KCM), in which it held a 20% stake, handing it to provisional liquidators.

The owners of the mine, one of the country’s biggest employers Indian company Vedanta Resources, were accused of failing to honour license conditions.

A July ruling in London found that the decision to remove Vedanta from the mine was in breach of the shareholders’ agreement.

The forced departure of mining companies comes at a great cost to the country, said one international mining company, who wished not be be named.

“With mining resources being the biggest export of Zambia, the success of the mining industry will play a particularly important role for the country, its economic recovery and its employment,” it said in an emailed statement.

“The government must recognise the importance of the mining industry in the country and consider re-opening access to mines to experts which may ensure efficient and economically sustainable management of the mines,” it added.

Democratic decline

In the run-up to Zambia’s election, President Edgar Lungu, who is running for a second term, deployed the military to the streets on Sunday to quell rising violence. At least two people have been killed so far in clashes between opposing parties using machetes and catapults.

The rising instability is likely to heap further downward pressure on an economy which defaulted on part of its sovereign debt in November.

A recent report by Amnesty International found that Zambia has become increasingly intolerant of dissent since Lungu replaced the late Michael Sata in 2014. Hakainde Hichilema, who poses a serious challenge to the president in this election, has been jailed several times since he started vying for the presidency.

Whoever wins the election will need to dedicate their focus to fixing the economy and reaching a deal with the IMF for a bailout that can help the country restructure its $12.7bn in external public debt, the mining company adds.

Zambia’s Finance Minister Bwalya Ng’andu has said they hoped to reach agreement with the lender over an extended-credit facility ahead of the polls, but this has not yet materialised.

“This can hardly be done without first focussing on creating a more business friendly environment that can attract investment and maintain rule of law,” said the mining company.