Zambia continues to vex its mining sector
Today’s tensions over Zambia’s mines cannot be blamed solely on their new owners or previous administrations. The current government creates a climate in which the mines struggle to thrive.
The government has introduced an impossible tax system, withheld $ 1.6 billion in unpaid sales tax, and accused the mines of tax evasion. It has also deliberately destabilized the energy sector, making electricity costs and transmission unpredictable.
Glencore, owner of Mopani Copper Mines (MCM) since 2000, is struggling to get government approval to close the mines for care and maintenance, despite announcing the move in April. Then came the ridiculous detention of the MCM CEO. Another blow hit last week when bailiffs of Kitwe City Council raided their offices out of the blue over an alleged dispute over property prices.
The privatization of the mines did not go smoothly for Zambia. Although the need for foreign investors and experience was clear at the time, previous Zambian governments have struggled to strike the right balance between private property and public supervision. Tackles in public liability forgiveness and the lack of a stable tax relationship have fueled tensions and explained the chaotic legislative approach that has since been taken to address these issues.
The recent government takeover of Konkola Copper Mines (KCM) and the delay in corporate insolvency proceedings, as well as the irrational expropriation of Copperbelt Energy Corporation’s infrastructure suggest that something else may be happening.
Are these all signs that the Zambian government is considering reversing the privatization of its mining sector? Possibly. But under the current circumstances, they would be crazy about it.
Last month’s discussions with the International Monetary Fund (IMF) were not easy. Zambia is facing rising levels of debt as mining revenues fall, foreign currency reserves deplete, and the Kwacha depreciates. The IMF is rightly insisting on stringent conditions on future lending.
With copper revenues as its main source of hard currency, the international lenders are unlikely to be pleased by the government’s interference in the mining industry. Surely, they will have told the government to stabilize the mining sector and create the right conditions for foreign investment.
FDI is unlikely to materialise for now. The government has successfully created an ever-increasing hostile environment. Canadian owner, First Quantum Minerals Ltd (FQM), which had reportedly been weighing an investment of $1bn at the Kansanshi mine, confirmed in June 2020 it had begun arbitration proceedings against the Zambian government. The company has been embroiled in a dispute with the Zambian government after being handed a $5.8bn bill for unpaid import duties last year.
Zambia’s foreign creditors are also lining up ahead of Zambia’s restructuring of some $11bn in sovereign debt, a task being undertaken by Lazard, the multinational asset management firm. A coalition of international bondholders, holding roughly 35% of the debt in Eurobonds, formed a creditor committee in June. China has hinted that debt relief might be on the cards for some African countries, but it is unclear whether Zambia is a candidate. A third of Zambia’s foreign debt is held by China.
Zambia’s Finance Minister, Bwalya Ng’andu, acknowledged in May that after years of “over ambition”, Zambia’s debt has surged to unsustainable levels. He described the restructuring as a “liability management exercise”.
So why antagonise the international mining companies and the foreign investors? The government has no recourse to additional borrowing for investment and it does not have the same know-how as the international mining companies. Zambia cannot get to it alone.
