Find us on Google+

Friday, 17 October 2008

In search of Zambian mining entrepreneurs...

Anthony Lipmann (Minor Metals Trade Association) has an interesting piece for Reuters, where he argues that the global slowdown may provide an opportunity for Zambian mining entreprenuers, to take more shareholding in developing mines.

Can resource-rich Zambia keep more wealth? Anthony Lipmann, Reuters, Commentary :

Can "resource rich" but "infrastructure poor" countries such as Zambia ever obtain a fair share of their country's wealth?

The last few years, after copper prices rose from $0.62 per lb in the late 1990's to about $4 per lb July this year should have been good for a copper-rich country like Zambia.

But was it good enough?

This is the question that lies behind Zambia's announcement in April 2008 of a 25 percent windfall tax on mining house profits and arguments today about its possible deferral.

For a country that has in the last 12 months exported about 600,000 tonnes of copper worth $4.5 billion and 4,000 tonnes of cobalt worth about $300 million, but may only have received net revenues of $650 million, it is a legitimate question.

This is a country which depends upon copper and cobalt for more than 65 percent of government revenues.

But what are the choices available?

State-owned mining following independence in 1964 was not a success. So, in the late 1990s concerted efforts by the World Bank and the International Monetary Fund thrust privatization onto the country as the only route out of poverty.

The President at that time, former Union leader, Mr Frederick Chiluba, made deals whose hand stretches out to today and beyond, with tax free concessions made to miners in return for massive investment.

While the state holds, 20.6 percent in Vedanta's Konkola, a 10 percent stake in First Quantum's Kansanshi open pit mine and similar stakes in Mopani and others, these are relatively small crumbs from the bounteous bread basket that has been copper income during the commodity boom.

Clearly, in one sense, Zambia might not have much of a mining industry today were it not for the investment from the foreign mining houses.

But can it be right that a sovereign government be inferior in strength to a global mining house or to the mining giants of resource-hungry powers such as China ?

There are other models to observe which show it need not always be this way -- KGHM in Poland is still more than 50 percent government-owned and Codelco in Chile, the state-owned copper miner, is still the main source of that country's wealth.

Perhaps now that the commodity boom is drawing to its natural close, there will be a chance to redress the balance in preparation for the next cycle (whenever that might be.)

My prediction is that next time around, as global miners retreat because of balance sheet problems in other areas, the state or Zambian entrepreneurs will have a chance to grow local shareholdings.

Zambia today is unlike it was under Frederick Chiluba. The late President, Dr Levy Mwanawasa, who was born in Zambia's oldest copper town of Mufulira, led a government of reform and appealed to this largely Christian country to have the highest standards of public service and to resist corruption.

In Zambia, a trained middle class has grown up which should command greater credibility in the money markets and so reduce the old dependence on IMF and World Bank loans which led to debt-laden central governments across Africa in the second half of the 20th century.

In short, what is needed is home grown Zambian entrepreneurs; a Zambian Richard
Branson for example, capable of proving that local interests can succeed in one of Africa's most democratic countries.

I mention these matters today, ahead of London Metals Week (Oct 13th - 17th) in which almost every copper and cobalt interest in the world will be represented in one way or another.

I hope they will listen and encourage.

For our part, The Minor Metals Trade Association will be raising funds at our dinner for exchange trips of students and teachers who have been travelling between Mufulira in the Copperbelt and Castle Cary in Somerset since 1991, work that is going towards building that all important educated middle class, so essential to raising the living standards in Africa.

There's no doubt this issue remains the most pressing for any government. I do not think the current government has answered it effectively - the fiscal regime it created appears to have collapse. More importantly, it appears there's no mining strategy beyond the tax adjustments earlier this year, especially one that links mining to wider goals on reducing poverty levels and empowering Zambians in general.
That said, the article above appears a little short on what government can actually do to help. But more importantly, I am not persuaded about this "window of opportunity". The issue really is about access to funding, and the role government can take to help local mining entrepreneurs (and Zambians abroad) to grow in the industry. There are several ways this could be done, including tax breaks for firms willing to give Zambians larger stake, encouraging more development of the ZANACO model for new emerging mines, where workers and Zambians in general are offered a stake. Another idea of course is to look at how chiefs at the local level can have a stake in these mining iniatives (e.g. through royal development corporations of sorts). I do think there's something special about "new mines", and it is unfortunate that government has not quite grasped that.
The real question is whether the little fiscal space generated by the new fiscal regime (which unfortunately appears to be in tatters), can partly be used for such in initiatives? Clearly that requires a proper assessment of the various alternatives (e.g. a stabilisation fund), but we do need to consider how some of the additional funds can be ploughed back in the industry, especially with a view of encouraging more participation by Zambians.

On Zambians abroad, I believe this to a significant source of capital, and partly why I think initiatives such as Zambia Diaspora E-Conference 2008 , needs to be encouraged. There's a real need to eliminate "coordination failures" among Zambians abroad and use the diaspora more effectively as a source to further of entrepreneurship that powers the Zambian economy.

No comments:

Post a comment

All contributors should follow the basic principles of a productive dialogue: communicate their perspective, ask, comment, respond,and share information and knowledge, but do all this with a positive approach.

This is a friendly website. However, if you feel compelled to comment 'anonymously', you are strongly encouraged to state your location / adopt a unique nick name so that other commentators/readers do not confuse your comments with other individuals also commenting anonymously.