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Sunday, 22 March 2009

Sharing the proceeds of mining, 2nd Edition

It seems like a long time since I put forward A Human Approach to the "Mining Debate" where I set out a three stage framework for ensuring that local mining activity translated into better pay and working conditions for workers and improved local economies. Back then we were fighting for right to get more revenue for our natural resources and in turn transfer that to the locally affected people and their many workers who had poor wages. It also a long time since we were promised the the Environment Protection Fund to deal with local safety and other ills. It is also seems like a long time ago since Nkana Member of Parliament Mwenya Musenge joined our calls for Sharing the proceeds of mining... , where he called for government to immediately establish a mining communities development fund to benefit residents of mining areas. That call like many others before it went unanswered.

Well, the Catholic Church has not forgotten. Last week they returned to our theme by establishing the Zambia Extractive Industries Project (ZEIP) on the Copperbelt and North-Western provinces to ensure equitable benefits from natural resources. Among their aim is to ensure the new Republican Constitution brings on board the social protection for the Zambians from the investors. They have also resolved that there is need for citizens to participate in the formulation of the development agreements so that they know the contents. If thats not enough, they are demanding that the windfall tax in the mining sector be brought back and that the local authority should collect levy from mining companies for each truckload leaving the district. That last demand sounds like a less sophisticated version of what I have argued here.

8 comments:

  1. Well, here's the thing: when you say "better" wages etc, what are you comparing with? I hope not the First World or even schizophrenic South Africa.

    Their wages are unsustainable, which is why South African mining companies are moaning now.

    For Africa, keeping our wages low makes good sense. Our cost of living is generally lower than the richer countries of the west. So we do not need that much anyway.

    BUT, we must also be certain to ensure that the OWNERSHIP of such extractive industries is largely, not solely, in the hands of the people of the country.

    That way, the country has a stake in the industries. Why should we not see several African mining barons join Tokyo and Patrick in the billionaire's club?

    The benefits of our low wages (it will not be forever) is that we will be able, as a country (whatever African country), to get a competitive edge in the world.

    The money, with responsible government, will transform the face of this continent.

    If Japan could rise from rubble to number 2 in the world economy, why are we not able to do it?

    We need to start working smarter, is what I say.

    By the way, what a lovely blog! Excellent intelligent content here, we need more of this in Africa. Let's start talking.

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  2. Hi Denford,

    Welcome and congrats on your first time posting.

    I have to say, that I am so far past neoliberalism that it isn't even funny. So I'm not slamming you, but here is what I think.

    On 'competitive advantages'. It is spelled C.O.P.P.E.R. That is Zambia's competitive advantage - at one point, Zambia exported 25% of the world's copper. We need to take money from the mines, and put it on other economic sectors like agriculture, infrastructure and manufacturing. Our growth will come from: the fact that 80% of arable land is not under cultivation, that only 3% of arable land is under irrigation (particularly relevant with the present flood situation - water is a wasted resource), there is 70% unemployment, there are millions of subsistence farmers and marketeers waiting to be tapped into as a human resource.

    Then, massive infrastructure to make use of Zambia's central geographic position, connecting the Indian and Atlantic Oceans, Southern Africa and the DRC, and West Africa. But that's in the future, and will become even more relevant as these regions themselves develop.

    So we don't need to look for some 'competitive advantage' (Zambia isn't a company), it is pretty obvious what the undeveloped sectors of the Zambian economy are.

    Wages. Zambia does not need more low wages, we've had enough of that already. We need to raise wages, so we can create demand for consumer goods and services, and create local tax bases.

    Well, here's the thing: when you say "better" wages etc, what are you comparing with? I hope not the First World or even schizophrenic South Africa.

    Their wages are unsustainable, which is why South African mining companies are moaning now.


    That I'm afraid to say is nonsense. It are not western wages that are unsustainable, it is supply side economics, and the undermining of wages by outsourcing jobs to low wage countries. That is (among other neoliberal measures such as de-unionisation, corporate raiding and reduction of social programs) why wages and incomes collapsed to the point of the Federal Reserve having to keep interest rates artificially low (1992) to keep people spending, by loading them up with credit and debt.

    But as I said, enough of neoliberalism, because we need a new paradigm.

    If Japan could rise from rubble to number 2 in the world economy, why are we not able to do it?

    Lots of reasons, but I hope you don't still believe that Japan, Korea, Malaysia and Taiwan are examples of free trade, or that they are neoliberal economic success stories.

    We should learn from them, but we should learn from how they really developed - massive government intervention and ownership (Keiretsu, Chaebol), lots of parastatals, protectionism, universal healthcare and education, national pride in economic thinking - real development.

    But really, what we need is a shift in perception that economic growth is about exporting more raw material or finished goods. What we need is continuous re-investment of profits and costs, particularly by using only local suppliers and, as you suggested, co-ownership of profits, for instance by pension funds, local authorities, etc.

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  3. Denford,

    Thanks!

    I think we are both zoning in on the same problem..how to ensure that we increase the national mining revenue cake but ensure that the pieces are divided fairly.

    Where we differ I suspect is the point of origin. I have previously proposed that the aim should be to ensure that we "guarantee" some share of the revenue cake to local people and their economies, and then consider the appropriate tax rates that encourages increased foreign direct investment, etc....in my model I regarded ownership as irrelevant because the "guarantees" themselves would ensure that whoever owned the mine was tied into an equitable trade-off with the locals and their employees..

    Your suggested approach on the other hand focuses on increasing the national mining revenue cake first by ensuring wages remain competitive..however, the issues of equity or fairness are handled explicitly only through significant indigenous OWNERSHIP...

    I think there's probably a compromise between the two models...where the OWNERSHIP in your model is probably dominated by local investment groups and workers...

    So the wages remain low and there's minimal local restrictions, but both camps are compensated somehow through having shares in the companies... foreign owners would still be important and attracted to lower wages...

    how does that sound?

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  4. First of all let me congratulate the Zambian Catholic Church for once again stepping to the podium, at great risk of yet another confrontation with the govt, and speaking for the voiceless in society. Notwithstanding what faults they may have of their own, the Catholic church has consistently advocated measures against social, political and economic injustice against the disadvantage in Zambia.

    I am not a Catholic, but I do appreciate their fearless effort especially when other faith organisations adopt a "see-no-evil-hear-no-evil" kind of approach.

    On the issue of maintaining (relatively) low wages, am with you on your views that this is attractive, especially to an exporting country. Evidence suggests China/India have largely benefited from this strategy. In any case, low wages should help keep inflation low.

    However, I would call for very specific policies to ensure indigenous ownership and measures to monitor that. Also I have mentioned before about introducing local/foreign partnerships as they have in the UAE.

    As things are, though wages are pretty low for the vast majority, the level of executive pay in some govt departments is beyond belief. Reliable information I have come across suggests that some departments have pegged their pay scales to South Africa! ostensibly to attract and retain skilled professionals. It is not uncommon to find govt execs on $7,000/mo and above. Yes, this is true.

    Well, the social instability in South Africa is for everyone to see.

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  5. Zedian,

    Indeed, I second your kudos to the ZCC for their good works. The individuals involved must take their jobs and mission very seriously, and they are effectively speaking truth to power in this case. On a slightly divergent note, I was concerned a few days ago when I came upon these two articles: http://allafrica.com/stories/200903200330.html, and http://allafrica.com/stories/200903190558.html. Much credit to Foroyaa and their fearless staff for fighting to bring this situation to light.

    Back to the subject of low wages and the number of jobs, I think it is a bit of a chicken or egg type of situation. In my experience, wages are only one part of total worker compensation, and only one factor in capital investment decisions. Presumably both parties are trying to get the best deal that they can for themselves, often these are compatible, sometimes less so. All other things being equal, I think that you are correct, maintaining relatively low wages vs. similar employment in other countries could provide competitive advantage in attracting investment and pricing of exports. Unfortunately, all other things are not equal. In terms of attracting more jobs, I am not certain whether lowering wages is better than lowering investor's perceived risk (and therefore expected return).

    Africa as a whole still has an "image problem" when it comes to investor confidence. Notoriously low yielding Japanese investments have been very attractive to panicky investors of late, pushing the Yen to new highs. There are signs today that that trend is reversing, as calmer heads seek higher returns on their investments. Zambia is still considered a high risk market in general, and as we have all seen, extractive industries such as copper mining can be especially volatile. This leads investors to demand annual returns 10-30 times higher than those "safe haven" Yen-denominated assets would. Debt leverage ratios for many of these companies (the publicly traded ones at least) are typically around 10 to 1, so by the time they have paid off all that debt and provided their shareholder capital with a 20-30% annual return for taking such an "extreme" risk with their money, there isn't a lot of room in the budget to raise worker compensation (or pay taxes).

    I suspect that if the investment pattern were more risk averse, the issue of maintenance of relatively low wages would recede in importance.

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  6. Hi Yakima,

    You're very right in pointing out that wages are but a small part of the picture. There're indeed other factors which deter would-be investors doing business in Africa.

    In my last post I alluded to the Indian and Chinese benefits from the wage disparity with the West, but that's not the whole story. There were other factors too such as the enabling environments created by their respective governments.

    A while back, at the peak of the initial dotcom boom when outsourcing was not as common a phrase and practice as it is now, I met a guy from Compaq (remember them?) while on a trip to the Silicon Valley. We got to talk and he told me he was just coming from setting up some outsourcing business unit for his employer in India. It was a very new thing to me then and I told him they could consider places like Zambia where there were loads of fairly educated and hard working young people willing to do the work for fairly low wages. His response was something like "Do they?"

    A decade later, there are still lots of fairly educated and hard working people on low wages in Zambia, but no outsourcing businesses, yet. And that's because of a lack of investor confidence. I'm not sure enough has been done to change that. The current power blues in the region only exacerbate the problem.

    However, there's an emerging new type of investor; the diaspora.

    As a matter of fact, in the case of India and China, their diaspora played a significant role in taking Western investments and outsourcing businesses back home!

    Unlike totally foreign investors, the diaspora are more familiar with their old environments and can put the risks into perspective. The element of an "image problem" is not so significant, I think.

    Therefore, I would urge the Zambian government to take the diaspora very seriously, which to some extent they're beginning to. The Finance Minister Hon. Situmbeko Musokotwane is leading that change in attitude and promising to assist Zambians (as well as former Zambians, btw) who wish to invest back home.

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  7. Zedian,

    Indeed a lot more could be done to encourage IT and call center outsourcing businesses in Zambia. I'd say that the number one factor inhibiting that is the international telecom bottleneck, but even with competitive rates, a lot more could be done to enable rapid investment in the sector. You are so right that power shortages and load shedding don't help one bit. High school english electives in computer programming slang can be surprisingly effective, especially if combined with sufficient lab time with reasonably advanced hardware and up to date compilers of course. Perhaps someone could hit up the Gates Foundation for a grant and a few experts in windows-compatible development, if not, there's always Linux. For call centers, hit up some missionaries from the US, Nebraska is ideal, and teach the accent. That's what all the top Indian call centers do.

    You are also spot on when you call attention to the emerging potential of the diaspora to act both as direct investors (Who in many cases are willing to accept lower average annual returns than most FDI, in order to provide greater measures of "empowerment" or "development".), as well as conduits for arranging partnerships with existing overseas customers and distributors. Certainly diaspora members are not fooled by aspects of the "image problem" which are the result of false stereotypes or misinformation, and seem rather determined in fact to overcome those aspects of actual risk (such as the power problems you reference) which also deter many institutional investors. Diaspora investors are more likely to arrange for alternative power sources to be included in project designs as an accepted facet of doing business, rather than seek an alternative location with more abundant existing electric power resources. Let us hope that the Hon. Finance Minister's views will prevail throughout the Government and a framework put in place that will enable and encourage diaspora involvement in developing the country.

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  8. Yakima,

    "I'd say that the number one factor inhibiting that is the international telecom bottleneck, but even with competitive rates, a lot more could be done to enable rapid investment in the sector."

    And this is where the govt could have come in had they seen the opportunity and helped create the "enabling environment" by liberalising the international gateway (early enough), allowing VoIP, and perhaps assisted with funding the international bandwidth. But what did they do? Made law banning this very stuff! And I'm not using hind-sight wisdom; these are things we've been singing about for years!

    As a sign of progess though, a source at one of the top ISPs in Zambia informed me yesterday their company is looking at beefing up their international bandwidth to a record 44Mbps next month! This will be made possible by Zesco's fibre link to Namibia which has not only boosted bandwidth, but also lowered the cost resulting in savings of 35-50% compared to VSAT. That is significant. In fact things are bound to get even better when the SEACOM fibre project on the East coast of Africa is completed later this year. He did say, however, that VSAT costs had been falling but had shot up recently after a failed satellite launch. It is rocket science after all, isn't it?

    The fibre links to the coast have brought tremendous benefits to the internet in Zambia and Africa as a whole, so much so that ISPs in Zambia are now offering Quality of Service (QoS) guarantees, and Value Added Services!

    Now lets see wht we can do with the internet in Zambia.

    We may have missed the boat with outsourced call centre businesses which are in decline in this recession. But there are other opportunities.

    I will do a whole blog on this at my website as soon as I gather more data.

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