Zambia: Old Enemies, New Friends?

Zambia’s new President, Michael Sata, fought his campaign largely on an anti-Chinese ticket. The Chinese had threatened to disinvest totally if he was elected. But now that he is in the top seat, how have the Chinese reacted?

Michael Sata, Zambia’s new President, has consistently fought his political campaign around the thorny issue of foreign companies and how they treat native Zambians.

His victory in Zambia’s fifth election has come thanks largely to his ability to tap into support from the working class and urban voters by channelling anger and resentment about foreign companies, particularly Chinese ones, for allegedly not doing enough to create jobs and development and for breaching labour laws.

Tensions rose in the run-up to the elections with allegations of violence against Sata’s Patriotic Front party and allegations of foreign powers (rumoured to be the Chinese) bankrolling the Movement for Multiparty Democracy of incumbent President Rupiah Banda. There was some rioting and arson following delays in announcing the result, but when Banda accepted defeat in late September, the situation calmed down. Zambia’s economic growth has averaged 5.6% since 2001 and last year hit 7.6%. Nevertheless there is a perception in Zambia (as in South Africa and Zimbabwe) that mining wealth is not being adequately distributed, thus presenting opposition politicians with a populist theme around which to rally support. But the demands of opposition are different from the demands of
government.

The legitimate desire to ensure fair value for the people of Zambia from their resource wealth has to be balanced with the need to attract investment. Already Sata’s former harsh rhetoric while in opposition has been replaced with the government language of diplomacy. The President has already indicated that the minimum wage will rise from its current $90 per month level but has not announced a precise figure. He has also raised the retirement age from 55 to 65.

China and Sata

Some of Sata’s pre-election bellicose statements such as: “The Chinese are scattering all over the world, but there is no such thing as Chinese investment, as such. What we’re seeing is Chinese parastatals and government interests, and they are corrupting our leaders” made to the foreign media in May 2010 caused nervousness in some quarters.

Clearly these statements rattled Beijing since, prior to the 2008 election, a Chinese official threatened to cut ties with Zambia if Sata were elected. For China to deviate from its stated policy of not interfering in African politics suggests his remarks were taken very seriously. The shooting of mine workers last year by their Chinese manager was the second incident in which people died and naturally severely damaged relations between the two countries. Human Rights Watch (HRW) recently published a report critical of both Chinese mine management and the Zambian government.

Despite these tensions, the incoming Mineworkers Union of Zambia president Oswell Munyenyembe has spoken supportively of Chinese investors, telling the Zambia Daily Mail, “We cannot wholesomely (sic) condemn the Chinese-owned mining houses. Remember when we had the global crisis, no worker was retrenched at any Chinese mine. Yes, they have their own problems like mistreating workers and not following labour laws, but other mining houses are also culprits in this area. It is not only the Chinese mining companies.”

China Non-Ferrous Metals Mining Corp (CNFMMC) operates four mines in Zambia and according to HRW, workers are being forced to work hours in excess of the 48-hour limit decreed by Zambian law and in conditions that are unsafe – claims the Chinese embassy rejects. A two-week shutdown at CNFMMC by workers seeking a raise from around $220 per month to $400 saw the operators initially try to fire the 2,000 workers before the government intervened.

China has invested $2bn in Zambia since 2007, a very significant figure relative to GDP in 2010 of $16.19bn.

Despite President Sata’s criticism of Chinese companies in the run-up to the elections, he has since taken a more conciliatory line as he seeks to attract further investment and meet Zambia’s goal of producing 1.5-2mt of copper a year by 2015–16 – a goal that will require investment in the region of $5bn.

Having dwindled from 700,000t in 1973 to 226,000t in 2000, copper production last year rose to 820,000t – worth around $6.15bn – and is expected to approach 900,000t in 2011.

Cobalt production stood at 8,800t in 2010, with a value of around $330m, 50% up on the previous year (when production was depressed due to two mines being closed).

A Chinese delegation recently visited the country and Sata has dispatched ex-President Kenneth Kaunda as goodwill ambassador to Beijing. Given the mutual importance of good relations, it is likely any frostiness from before the election will now thaw.

Trade between the two countries has grown from $100m in 2000 to $2.8bn last year, with 300 Chinese firms operating in the country, creating some 25,000 jobs. Two of China’s six African Special Economic Zones are in Zambia, in Chambishi and Lusaka. First Quantum Minerals, Barrick Gold, Glencore, Vedanta Resources and South Africa’s Metorex all operate in the country. China’s Jinchuan’s takeover of Meterox has received a waiver from the government regarding its 15% interest in the company’s Chibuluma mine – further evidence of the government’s pragmatic attitude.

Mining

Ex-President Banda had dropped a proposed 25% windfall tax on the mining sector, which Sata has pledged to reinstate. While in opposition, he also called for higher taxes on the mining sector. New Mines Minister Wilbur Simusa has background as a mining engineer and is regarded by the industry as a safe pair of hands. It is expected that mining taxes, which are relatively competitive, will rise but that precipitous change, such as nationalisation, is not on the menu. Under the previous two presidents,mining royalties fell from 3% to 0.6%. Currently, copper accounts for around 75% of export earnings but only 10% of the country’s tax take.

Simusa said on his appointment:“The money we are getting from the mines in the form of tax is not adequate and we are going to sit down with them and discuss so that we reach a win-win situation.”

The moderate language employed and negotiated approach proposed has calmed nerves. President Banda pointed out in March that some $200m was owed by the industry in overdue taxes. Zambia suspended copper exports at the start of October for two days, over concerns that duties were not being paid in full. All exports are now being permitted only after first being cleared by the central bank and new regulations are expected to be announced shortly. Copper prices are currently around 20% off this year’s high of $10,000/t – at the end of October they had been as low as $7,000/t.

Additionally, the mines minister has indicated that he would like the country to take larger stakes in mining projects, in the region of the 35% recently proposed by Guinea. He told Reuters: “We just want to have more benefits from the mines. There is no cause for apprehension, because nothing will be done without consulting the mining companies.”

Foreign overtures

President Sata has been busy on the foreign policy front, dispatching ex-President Kaunda to Angola to apologise for Zambia’s support for Unita. However, there has been friction with Zimbabwe over debts dating back to the 1950s. Zambia, it is reported, is withholding cooperation on the $2.5bn, 1,650MW Batoka hydroelectric plant (whose output is to be shared 50/50) on Victoria Falls.

Malawi, Zambia and Zimbabwe were previously part of the Federation of Rhodesia and Nyasaland and it is claimed that assets belonging to Malawi and Zambia remained in Harare after the Federation was dissolved on the last day of 1963. The Zimbabwean government agreed to pay the principle of the $260m debt but not any interest.

President Sata has replaced the central bank governor Caleb Fundanga, whose tenure since 2002 had seen inflation brought under control. The President has also created a new anti-corruption agency, overhauled the board of four nationally owned companies and rescinded FirstRand’s takeover of Zambia’s Finance Bank.

Zambia is also looking to develop a local metal exchange and to seize more of the copper value chain by vertically diversifying into local processing of copper rather than simply exporting the raw metal. The government is exploring legislative options to this end .  

The stability of the currency, the kwacha, since Sata’s election indicates that markets have confidence in him. The country is forecast to see a modest budget deficit of 3.5% this year and a current account surplus of 2.5%. His key challenges are diversifying the economy, developing industries vertically along the value chain and generating development for his citizens.