Zambia copper production – a fine balancing act

Many use the history of the Zambian copper industry to highlight the advantages of private sector participation in the mining sector. Production stood at about 700,000 tonnes a year in 1969, when the then President, Kenneth Kaunda, decided to nationalise mining assets. Production fluctuated over the next three decades but in a generally declining trend, slumping to 228,000 tonnes by 1998.

However, in line with more general economic reform and liberalisation, Zambia Consolidated Copper Mines (ZCCM) was unbundled and its various subsidiaries sold off to private sector companies. Production began to rebound and this recovery has been sustained to this day.

This clear correlation is clouded somewhat by rocketing copper prices over much of the past 15 years, largely driven by massive demand from Chinese customers. Even without such wholesale privatisation, Chinese consumption would have boosted Zambian production.

Yet supporters of the liberal reforms will also point to improvements in productivity, which began at roughly the same time as the state began to withdraw from direct ownership of mining assets, in 2001. The market consensus has certainly been that private sector mine ownership and management has driven Zambia’s copper boom and economic recovery.

Sustained production of 700,000 tonnes a year over the period 1969–2009 would have generated $65bn from the sector for the government, instead of the $15bn it actually earned, with the government actually subsidising mining operations in some years.

A report by African mining analysts Eunomix concluded: “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.”

President Michael Sata, who came to power in 2011, has made it clear that unlike the immediate past administrations, he will not allow foreign firms to run roughshod over workers and that the benefits of the industry will go the nation as a whole.

He rounded on firms who have threatened to sack Zambian workers, including 1,500 planned redundancies by mining firm Konkola. Sata threatened to revoke the company’s licences if it dismissed even one worker. Joseph Chewe, the general secretary of the Mineworkers Union of Zambia said: “We asked him to intervene and stop what KCM was doing. And for us as a union we were very glad that he stepped in and defended the workers.”

Speaking at the 20th Mining Indaba in Cape Town in February, the Minister of Mines, Christopher Yaluma, categorically stated that the government had no plans to renationalise the mining industry. He said: “Zambia has gone private and will remain totally private, so take it from me please” and added that both the government’s economic policy and planned new mining legislation would merely seek to make sure that Zambians gained more benefit from the industry.

The government is currently considering changes to its mining investment regime that could encompass increased royalties and/or taxation but it will have to be careful that it does not deter investment and reduce its overall take from existing copper mine operators, such as First Quantum Minerals, Non Ferrous China Africa, Barrick Gold Corporation, Glencore Xstrata and Vedanta Resources.