The contribution of Mining to Zambia’s development

A new analysis of mining in Zambia for the past 100 years shows a clear historical link between levels of mining investment and wider economic development.

This is the key conclusion of a paper, Copper Mining in Zambia – history and future, by Jackson Sikamo, Alex Mwanza and Cade Mweemba. It was published in June 2016 in the journal of the Southern African Institute of Mining and Metallurgy.

The paper identifies three major periods in Zambia’s history when the levels of investment in the mining industry had a pivotal effect on the fortunes of the country.

Before independence (1924 to 1964)

Although copper had been mined by the local population for a long time, it was only in the 1920s, after exploration identified lucrative copper deposits, that sustained commercial mining began and investor capital poured in. “Post-1924 saw the beginning of massive investments in mine developments, led mainly by American and South African companies,” the paper says.

The population of both native Zambians and white settlers rocketed. Mining settlements grew into fully developed towns, support industries emerged, and infrastructure such as roads, hospitals and schools were built.

“Thus, by 1964, when Zambia was born, it had a strong economy driven by the mining sector,” the paper says. Zambia produced over 12% of global copper output.

The average wealth of Zambian citizens, measured by GDP per capita, was nearly three times that of South Korea. Mining drove the growth of other sectors, such as transport, construction and manufacturing. By 1969, Zambia was officially a middle-income country with one of the highest GDPs in Africa.

During nationalisation: 1973 to 2000

Driven by a desire to improve the lives of ordinary Zambians, and not just white settlers, the government nationalised the mining industry and started to use its considerable revenues.

Initially, investments were made in hydropower, railways, roads, schools, hospitals and housing. Investment in education was particularly successful, with high-standard schools being built and Zambians training at top universities overseas.

“The mining skill level of Zambia improved so much that later, when the mines were re-privatised, the new owners did not need to employ many expatriates,” the paper says.

But the government’s development drive came at the expense of continued investment in mining –the source of the revenue on which it depended. Worn and obsolete machinery was not replaced.

Mineral grades were declining, and mines needed to go deeper, but there was little investment in technology. The copper price remained low, while the oil price skyrocketed. Zambia’s mining output declined. Costs soared, and employment fell. Zambia’s economy went into decline, along with its existing infrastructure.

“The business prospects of the mines were bleak, and so were those for the national economy, which was heavily reliant on mining”, the paper says.

Consumer shortages were the order of the day, and political agitation eventually sparked the end of one-party rule. In 1990, the country reverted to multi-party politics, and a new government, which promised to privatise the mines, was voted into office the following year.

Despite this, the process of privatisation did not actually start until 1996, and only concluded in 2000. Whilst acknowledging that there are mixed views on the pace of privatisation, the authors conclude that “with hindsight, one cannot help but think that it should have been faster”.

During the 1990s, production continued to decline, from around 400,000 tonnes per annum in 1990 to 250,000 in 1999/2000, with a commesurate decline in employment levels to just 22,000 direct jobs by 2000.

In the final analysis, during the 24 years that the mining industry was in government hands, Zambia’s annual copper production fell from just over 700 000 tonnes to 250 000 tonnes, and an average of about 2 000 mining jobs were lost every year.

After privatisation: 2000-2015

The nationalised mining industry under Zambia Consolidated Copper Mines (ZCCM) was unbundled and sold to private investors.

“The new mine owners invested massively in the mines, and there was a sudden economic upturn, not only on the Copperbelt but in the country as a whole, with the mining industry as a pivotal contributor,” the paper says.

The statistics show how both copper production and national GDP recovered in 2000 and accelerated in the years thereafter. Importantly, this was some years before the price of copper started to recover from around 2004, which proves that it was the surge in investment which turned around the fortunes of Zambia’s copper industry; a rise in the copper price simply lent force to an existing trend.

These investments went into new machinery, new mining methods, and new mineral processing and metal-extraction technologies. Two massive new mines, FQM Kansanshi and Barrick Lumwana, were started in North-Western province. They used the latest technology to mine low-grade ore. By 2013, after more than $12 billion of investment, Zambia’s copper output had risen nearly threefold to 763 000 tonnes, and direct employment in the industry had reached 90 000.

Conclusion

The geology of Zambia shows “great potential for further investment in mining”, but this has been “undermined” by significant instability in the fiscal regime, particularly during 2015 with a proposed high Mineral Royalty Tax.

The paper praises the government’s new dialogue with the industry, aimed at finding optimum tax levels which benefit government without compromising new investment.

“Investors have welcomed this, and obviously this should translate into a very bright future for the Zambian mining industry,” the paper says. “For its part, government should continue providing policies that will attract capital into the mining industry.”

The key conclusion to be inferred from the paper is that there is a thread that runs between investment in the mining industry, levels of copper production, employment, and the performance of the wider economy.

Consequently, Zambia’s future prosperity hinges on the institution of a more stable mining policy regime, internationally competitive tax rates and an investor-friendly environment to attract capital into current and future mining projects.