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Sunday, 15 March 2009

A greater GRZ mining stake?

The Government's overaching strategy on the mines remains unclear. We have had signals in the past of possible nationalisation and then contradictory statements. The latest signal is that GRZ intents to take a 25% stake in mining companies through ZCCM-IH, in an effort to "have a stronger influence in decision-making". I certainly hope we shall have more detail from Mr Mwale on this because I fail to see how they can be more influential with only 25%. The Indeni model is 50% GRZ ownership. Looking to our neighbours : the Botswana's Debswana model is 50%; Angola's diamong mining framework... is even more radical; and not to forget the Tanzanian approach to "non-performing" privated firms. I am not arguing for higher or lower stakes, just asking Mr Mwale...why 25%?

State ups mines stakes, Nkweto Mfula, Sunday Mail :

Government says it intends to increase its shareholding to 25 per cent in mining companies for it to have a stronger influence in decision-making over problems the mining industry was facing.

And Minister of Mines and Mineral Development, Maxwell Mwale, says Government has lost a lot of revenue in form of mineral royalties and pay as you earn taxes following the placing of Luanshya Copper Mine (LCM) under care and maintenance in December last year.

Responding to questions from journalists after a closed-door meeting with LCM management, Mr Mwale said Government was considering increasing shareholding in LCM and other mines to have more authority in decision-making. Government, through Zambia Consolidated Copper Mines-Investment Holding, is the minority shareholder in LCM with 15 per cent shares.

“We intend to increase our shareholding in LCM from the current 15 per cent to 25 per cent. This will apply not only to LCM but to other mines as well so that Government has influence in decision-making in the mining industry,” he said.

And addressing former union officials, Mr Mwale said there was progress in the negotiations with Enya Limited the investors in LCM on the exit procedures. “Our negotiations with Enya Limited on the exit procedures are progressing well,” he said.

He said Government has also initiated a scheme that would take care of all local creditors’ concerns and would hold a meeting with the stakeholders in April on the way forward before the interested investors takeover LCM.

He said Government was concerned about what was happening on the Copperbelt and would ensure that a solution was found soon. “What is emerging on the Copperbelt is not Government’s doing. This is happening across the globe. We are part of the global village,” he said in reference to the global economic meltdown. He said Government was mindful of the plight of people in Luanshya and could not allow the negative impact of the closure to go on for a long time.

Mr Mwale said that despite the equity markets drying up, other investors with their own resources were interested in taking over Baluba Mine. He said some investors were doing diligence studies on LCM and that data had been availed by the senior government officials’ technical committee that was set up to look into LCM’s problems.

He said that of the five interested investors, three companies - Mandini of Canada, Lions Limited of South Africa and Non-Ferrous Metals of China - have toured the mine.

Mr Mwale said the job losses on the Copperbelt knew no political face. He said people losing jobs were from various political parties and that the challenge required the government and the opposition political parties to work together.

Meanwhile, Roan member of Parliament, Chishimba Kambwili, commended Government over negations made on the dis-investment by the LCM investor. “This is the kind of leadership that we expect,” he said.

Mr Chishimba implored the would-be investor to embrace corporate social responsibility for the community. “We are not against the Chinese taking over as long as they meet our demand of paying the people according to their work and continue with the corporate social responsibility,” he said.

He said, should the Chinese be the preferred bidder, they should allow local suppliers to supply goods and services to the mine. Mr Kambwili also said that LCM lawyers have secured a court stay of execution on its 60 pieces of equipment that were seized by sheriffs on behalf of various creditors.

7 comments:

  1. Cho,

    How about this development model?

    1) The GRZ pays privately or publicly owned mines to mine copper at a cost only basis.

    2) The GRZ creates large reserves of copper. It can hold on to these reserves, until the price of copper rises - the greater the better.

    3) This deflates the currency, because the government now has real assets backing it's ability to get foreign exchange if necessary, or buy gold.

    4) This deflation of the currency is used by the government to print an equivalent amount of money, re-inflating the currency to the old level.

    5) This money is then used to invest in other economic sectors, build infrastructure, schools, etc.

    The beauty of this model, is that it requires no foreign loans, no green light from the IMF, creates money which is then used only for productive purposes, and is complete non-inflationary.

    The copper reserves can even be used to make money by writing call options against some of it, which at worst would result in the forced delivery of some the reserve. At best, it more than pays for storage and other costs, or offset the interest paid on any low interest loan.

    It would also keep the miners employed throughout economic downturns.

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  2. MrK,

    The wrinkle in the scheme that I think may be there, but am not enough of a commodity trader to put into anything as precise as numbers, is that the traded price for copper goes down the larger the reserves held by producers. How much of this phenomenon has to do with the high debt loads carried by most private mining operations, which limit their ability to hold reserves indefinitely, I do not know. It is an intriguing idea, but that is as far as I get before running into variables that I don't really know how to pin down.

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  3. All we need to do is make all mining comanies list on the Lusaka stock exchange and offer 49% of shares to the Zambian public. This way we would avoid the Glencore shenanigans.I laugh when I hear people talk of the 'succesful'zambian privatisation programme. It was a rip-off. For example Illovo bought sugar companies in Malawi, Swaziland and Tanzania. In all these countries Illovo was only allowed a 55% stake while 45% stakes were sold to the public in the respective countries. Illovo bought 90% of Zambia Sugar with only 10% going to Zambian investors. It is the same story for Lafarge.

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  4. Yakima,

    " the traded price for copper goes down the larger the reserves held by producers. "

    I think the impact of copper prices will be minimal, if the market understands that the Zambian government is not selling everything all at once. If it is clear that the GRZ is simply holding reserves to deflate and then re-inflate it's currency at a profit, it is clear they are not going to dump copper on the international market.

    Also, the very act of keeping large reserves of copper off the market would itself raise prices, the way OPEC manipulates the price of oil.

    Plus, copper can also be swapped for gold, oil, diamonds, etc., which would reduce the negative impact on world copper prices a little.

    So the GRZ's option to sell it's reserves would only be a measure of last resort.

    Frank,

    " All we need to do is make all mining comanies list on the Lusaka stock exchange and offer 49% of shares to the Zambian public. This way we would avoid the Glencore shenanigans. "

    But then we have to chase down how much profit they really made, and whether they declared all of it. And with bribes being paid by the mines routinely, that might not happen at all.

    If anything has become clear about the mining industry, is that you cannot trust them or take their word for anything at all. Their reputations for honesty and integrity are nonexistant. They can't even be trusted to pay their taxes.

    " I laugh when I hear people talk of the 'succesful'zambian privatisation programme. It was a rip-off. "

    Facilitated by their buddies, the IMF, who ensured Edith Nawakwi that 'copper prices would not rise within her lifetime' - this is when copper was $1000 per tonne.

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  5. For example, let's say for convenience's sake that the cost of production is $2000/tonne. The market price is $3000/tonne. The government can now print money or write loans for $1000 x the number of tonnes of copper they have in reserves. They can even use the $1000 difference to buy put options, to ensure them against a drop in price, and only write loans against $990,- per tonne, and pay $10,- in premium, locking in the market price at $2990/tonne, if they anticipate a drop in prices.

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  6. MrK,
    I am intrigued by your scheme. At least it doesn't rely solely on the 'socialistic model' you are so much attracted to (assuming I have read you correctly). The model you are proposing (I hope someone can write a mathematical/computer program for it), has got a lot of free-market flake in it. That is good. We need to avoid reliance on "African Big-Men" influences. As we've seen in Zambia's case, as soon as the strong man (KK) disappeared from the scene all the small rats started running in all sorts of directions. In a free market, at least some of this - out of hand behavior is kept to a minimum. Please keep on thinking!

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  7. Hi Kaela,

    First off excellent presentation on the Radioblog program, about basically directing a single aid donor to a single province. It would be an improvement over the present model where everything goes through Lusaka.

    Why do so many people want to decentralize to the provinces though, and not local councils? It seems to me that the farther out executive decisions and budgets are decentralized, the more responsive the organisation is going to be.

    MrK, I am intrigued by your scheme. At least it doesn't rely solely on the 'socialistic model' you are so much attracted to (assuming I have read you correctly).

    If anything, I am a Social Democrat (capitalism with safety nets, universal healthcare and universal education). I believe in the local reinvestment of profits and costs many times over, because this is how wealth is accumulated and it has the greatest Multiplier effect. Spending costs locally and reinvesting profits in local companies has the greatest effect on the economy, jobs, incomes and wealth creation.

    Therefore, what I am against is the present Neoliberal model, which is really about corporate capitalism, creating a global corporate free trade zone.

    The allocation of capital to the country with the highest interest rate. The reallocation of entire companies to the countries with the lowest wages.

    My understanding of the economic situation is this.

    These policies are at the core of the economic meltdown we are witnessing today, because it was the destruction of wages through asset stripping and de-unionisation back in the 1980s under Ronald Reagan, that destroyed demand side (wages and incomes) of the US economy, and created misallocation of capital by the rich to the traditional bubble sectors - the stock market and real estate.

    So after the Crash of 1987 came round, by 1992, the demand and the economy were still not coming back because jobs had disappeared and workers had much less ability to keep salaries high because of deunionisation and the downward pressure placed on wages by the increase in the number of unemployed. So what the Federal Reserve did, was pretend that incomes had come back, by keeping interest rates artificially low for a prolonged period - this resulted in lower income Americans taking on record levels of credit card debt, and wealthier Americans to taking out another mortgage on their homes.

    Keeping interest rates artificially low has resulted in record levels of consumer debt. When the music stopped, demand almost completely collapsed. Add to that deregulation of the banking industry, and you get a situation where banks have all kinds of exotic instruments on their books that no one has the courage to deleverage.

    And you can reduce it all to the Neoliberal ideology: privatisation, deregulation and (corporate) free markets.

    I am for the production of goods, and lowering the cost of goods by increasing production, not simply international arbitrage of the price of goods produced in low wage countries or arbitrage of labour - which is what we have been seeing, and FDI and 'Free Trade Zones' as they have been applied are examples of that.

    The model you are proposing (I hope someone can write a mathematical/computer program for it), has got a lot of free-market flake in it. That is good.

    I am for free markets in raw materials, just not in those goods that can be produced domestically. If we are going to get production going, we have to protect infant industries and local producers, including farmers. That means tariffs, labour unions, etc.

    We need to avoid reliance on "African Big-Men" influences. As we've seen in Zambia's case, as soon as the strong man (KK) disappeared from the scene all the small rats started running in all sorts of directions. In a free market, at least some of this - out of hand behavior is kept to a minimum.

    I completely agree, we have to move away from a charisma driven politics, and towards policy and governance driven politics.

    Complete decentralisation to the local council level would take regionalism out of national politics.

    We need to create legal frameworks that are flexible enough to adapt to various scenarios, but rigid enough to prevent abuse of public funds.

    I think a lot can be done legislatively, by creating a clear separation between the civil service and politicians (state and government), and professionalize the civil service. Once policy makers can depend on an independent and corruption free civil service, a lot of things become possible.

    The state can actually be effectively used to build and maintain infrastructure, and provide services to people they can't afford individually (like healthcare and education) by spreading the cost across society - whether through taxes or inflation. Services which however pay off in the long term through greater productivity - people who have higher levels of education or own businesses pay more taxes.

    Cho,

    I'm looking forward to your review of Ha-Joon Chang's Bad Samaritans, which deals with a lot of these issues and goes into depth how the West really developed, contrary to the mythology created by the Neoliberals.

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