Two heads are better than one ( Collaboration is key to local content development – Zambia / Namibia

In this second interview with Veston Malango, the Copperbelt-raised CEO of Namibia’s Chamber of Mines ventures into the debate on ‘local content’ in the mining supply chain. Drawing upon his own experiences, he again illustrates how a collaborative approach between Government and Industry produces better outcomes for the nation than lawmaking in isolation. 

Would you say that collaboration between the Government and Chamber of Mines is commonplace in Namibia? 

Indeed, it is. I think the starting point was to establish proper communication and consultation between both sides. If the lines of communication are open, it sets the stage for fruitful collaboration. Maybe ours is an exceptional case, but it stems from the hard work that we’ve all put in to build a relationship based on trust.

When the Namibian Government has ideas on changing mining legislation, the Chamber is always called for discussion, at the very earliest stage of conceptualisation. We’ll have a series of workshops and, after our input goes into the final draft, that’s when the minister takes it to Cabinet. And, when it goes to Parliament as a Bill, we still have opportunities for input – just to make sure that our view is represented before something is formally tabled in Parliament. As they say, there are several routes that lead to Rome, but not all routes will get you there safely.

Unfortunately, the practice in Zambia – my homeland – seems to have moved further and further away from collaboration in recent years. Consulting those who must implement the laws you are designing is not just a question of fairness, but think also of the opportunity that is being missed. How can you design laws effectively if you have not taken the time to absorb the knowledge and experience of those who live and work in the field you are regulating? 

Can you provide an example of what you are referring to? 

Certainly. At the beginning of this year, the Zambian Ministry of Mines and Minerals Development circulated a draft Statutory Instrument, referred to as the Local Content Regulations. Whether it is a draft or not, by the time it was first shared with the sector it already had the look and feel of a done deal. Conversely, by the time Namibia’s Government arrived at a version that resembled this, it would have already had a lot of engagement with the private sector. This would mean getting their buy-in right from the beginning, because nobody in today’s mining industry disputes the need to develop local input to the supply chain. 

Instead, the Zambian Government has ended up with a document that does not take account of reality. It may, in fact, be completely unworkable, and have a host of consequences that they didn’t think of. Government also risks missing out on creative input from the mining industry. I know for a fact that mining companies, both in Zambia and Namibia, have well-advanced supplier development programmes, and a whole host of other local economic development initiatives that Government is unlikely to be fully aware of. Has Government ever asked what it could do – what stumbling blocks it could remove – to help take these to the next level?

In recent years, the Namibian Government has been involved in extensive consultations with the private sector, and other areas of society, on the development of the New Equitable Economic Empowerment Framework (NEEEF). How have these consultations contributed to an improved Framework?

“I know for a fact that mining companies in Zambia have well-advanced supplier development programmes that Government is unlikely to be fully aware of.”

The first and most obvious outcome of consultations was the understanding that ‘the private sector’ is not homogenous, and that each industry had to be treated separately, according to its own unique circumstances. In this, the Chamber has been proactive and drafted a Mining Charter which, over the years, has been tested by the industry to identify opportunities for improvement. In this way, the Chamber has set a standard for other sectors ahead of the NEEEF policy’s implementation.

Not only have we presented a range of opportunities and targets that the Government hadn’t even thought of, but we have already exceeded Government’s expectations in certain areas – simply because not enough was known about the transformation that had already been taking place, quietly behind the scenes.   

One of the more contentious elements of NEEEF was in the transformation of ownership, in favour of ‘previously disadvantaged’ racial groups. The initial blanket approach stipulated 25%, which would simply have been unworkable for a capital-intensive sector like mining. We proposed a minimum of 5% local ownership, a principle that Government has now accepted. Namibia’s financial industry, for instance, proposed a threshold of 45% local ownership of business. That is doable for their industry, but it doesn’t work for most others. Government has recognised our proposed principle of flexibility, and each sector will now devise its own Charter, for presentation to Government.

Of course, due to the nation’s history, local ownership of mines is nothing new in Zambia. Zambians – through ZCCM-IH – own a large slice of the mining sector, with 20% stakes in the likes of Kansanshi and several other former ZCCM units. But this is a new development in Namibia, and we must act with responsibility. Namibia’s transformation agenda is necessary and important; the issue is how to implement it in such a way that investments still thrive, and new investors are attracted to the country.

How do these transformation objectives in Namibia differ from those being pursued in Zambia, which does not share the same socio-historical context?

Namibia and South Africa share a relatively recent history of disenfranchisement, unlike Zambia which achieved independence in 1964. There is very arguably a need to ‘correct’ for past exclusionary policies in South Africa and Namibia, but in Zambia the Government corrected for that decades ago by nationalising the economy – albeit without success in a capital-intensive industry like mining. But we are now past that era. For Zambia, the question should rather be: how do we grow the economy and develop opportunities for the greater economic participation of Zambia’s citizens? Framed that way, it is an invitation to those in the mining sector to harness their considerable skills, experience, and capacity to benefit the country that is hosting them. This is an endeavour that most really do want to contribute to. 

Which other aspects of NEEEF did Namibia’s mining sector provide input on?

Another of the initial five pillars of Namibia’s mining transformation Charter [within the NEEEF framework] is Procurement and Enterprise Development. This is the area that Zambia’s draft SI focuses on predominantly: working with local suppliers of goods and services. In many cases – and I’ve seen it in Zambia, too – mining companies support the establishment of hundreds of local businesses – creating legal entities and providing people with skills like financial management. Because the mining companies nurture them, these companies tend to start small and can grow substantially to offer goods and services to the industry. I consider the creation of a large base of local suppliers as an obvious means through which the mining industry can have – and is already having – an enormous impact in backward linkages and in growing the economy via job creation beyond mining. This is the essence of ‘local content’.

“For Zambia, the question should rather be: how do we grow the economy and develop opportunities for the greater economic participation of Zambia’s citizens?”

Unfortunately, not nearly enough is known about existing programmes – what is already being done, and the scale of it. The Chamber ought to share information more widely about what Zambia’s mining companies are already doing across the industry. In my opinion, that’s one of the ways of creating a harmonious relationship with Government. When the discussions over NEEEF arose, we had to comprehensively show what we were doing as an industry in Namibia and, after collaboratively agreeing on certain benchmarks, Government has come to realise that we’re actually exceeding them already. In fact, in our industry Charter we’ve set ourselves higher benchmarks in this area than the national NEEEF targets. 

That’s a positive outcome. 

Indeed. Zambian mines should make Government aware of the benefits that they are already creating, beyond taxes. I wouldn’t be surprised if they are even exceeding the targets that Government has set in the draft SI! Has industry been proactive in embracing local content without legislation, for instance? It is advisable to remind Government that benefits do not only show up in the form of taxes. 

You mentioned that the current draft of the local content regulations may not be workable. Could you give us an example of a provision that does not strike you as feasible or sensible? 

One example, of many, that comes to mind would be in the proposed establishment of a Community Development Fund. Firstly, a blanket contribution of $500 000 towards the Fund ignores the fact that miners are both great and small; this amount could be a serious burden for junior miners, and a high hurdle for new entrants. My second issue is that the contribution be paid to a Fund, with an oversight committee appointed by the Minister of Mines. Advocating that Ministers are involved in the set-up is not the right governance approach. But again, this has transpired because Government was sitting alone in the boardroom when they drafted the SI without anyone from the private sector to say that it wouldn’t work.

Regarding CSR or training contributions, my question is: How do you make it more attractive for companies to buy into this? Because this is a major cost. As such, expenditure of this nature should be tax deductible.

Could you elaborate?

These targets are mandated in pursuit of a national development agenda, they are not commercial decisions. Mines already pay taxes, royalties and other contributions, so unless these significant additional expenses are tax-deductible, they really amount to a further tier of taxation. This then inevitably impacts investment decisions. Which is why these are details that can only be negotiated by both parties. Otherwise, you end up with regulation which is one-sided and superficial. If both parties sit together to draft an SI that really benefits them, Government is also far more likely to reach its overall objectives.

“If both parties sit together to draft an SI that really benefits them, Government is also far more likely to reach its overall objectives.”

With the benefit of your experience, what should happen next?

The Zambian Government ought to go back and bring the mining companies themselves on board, so that they can give input as to what is feasible and what is not, to find a workable solution. There’s no point in legislating something which is already set for failure from day one.

Ultimately, if a truly collaborative approach is used to achieve the objective of realising far-reaching, material benefits to Zambians, then any costs along the way may come to be regarded as investments, and the local content element of this transformation agenda would be embraced by the mines.