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Friday, 17 April 2009

A lost precious stones industry...

Today's edition of the Times of Zambia carried some interesting comments from the Mines Minister Maxwell Mwale, on the gemstone industry :

Mines and Minerals Development Minister Maxwell Mwale said it was unfortunate that Zambian small-scale miners were busy blaming the Government for not doing enough to help them when mineral rights had been availed to them.

Mr Mwale was speaking in Kitwe on Wednesday when he visited Kagem Mining on his way to Solwezi. He said in an interview shortly after holding a meeting with Kagem and Gemifields chief executive officers Alok Sood and Ian Harebottle that the mere fact that the Government gave locals mineral rights was enough commitment on its part.

Mr Mwale regretted that some Zambians were selling the mines instead of using the mineral rights as equity contribution to develop the mines. He said failure of the emerald industry was caused by Zambians who failed to properly utilise the mineral rights. “The Government saw the need to empower locals hence the decision to give them mineral rights but unfortunately they (Zambians) are the ones who started selling these mines to foreigners,” Mr Mwale said.

The minister said in its efforts to further empower Zambians, the Government and the European Union (EU) came up with a credit facility scheme meant for small-scale miners to access funds for the development of the mines.

So Zambians are just lazy and have only themselves to blame. Naturally being the Government's mouth-piece the editorial picked up the theme :

Precious stones are still fetching attractive prices on the international market despite the global financial crisis. Therefore, medium and small-scale entrepreneurs should scale up production of precious stones for the country to earn the much-needed revenue.

The Government on its part has offered incentives to medium and small-scale entrepreneurs in the mining sector for them to develop their mines in order to keep their operations afloat. Mines and Minerals Development Minister Maxwell Mwale has thus challenged medium and small-scale entrepreneurs to take advantage of incentives the Government has offered such as mineral rights whose process has been streamlined.

It is evident that some emerald mines in Lufwanyama and other parts of the country are lying idle while owners have continued to grumble about Government assistance when incentives are already in place. Some people have sold off the mines instead of developing them. The Government has streamlined the process of acquiring prospecting and mining licences. Zambians should take advantage of the streamlined process and engage in profitable precious stone mining in Lufwanyama on the Copperbelt, parts of Eastern, Southern Provinces and Mumbwa in Central Province.

The production of precious stones such as amethyst and emeralds could earn the country much needed revenue as it diversifies from mining copper whose prices have plummeted tremendously on the international market.

The Government has time and again advised Zambians to engage in precious stone mining, which had not been exploited to the full despite its lucrative nature. In Lufwanyama for instance, many mines have remained idle after owners acquired licences, while a vast area has not been exploited despite the Government streamlining the process of acquiring both prospecting and mining licences. In the past, some people had complained that bureaucracy marred the process but even after the Government streamlined the issuance of mining licences, there has not been any improvement.

In fact, there are reports that some Zambians are obtaining mining licences and giving them to foreigners to undertake operations at a fee. Such activities should be stopped immediately as they can retard development when the Government is in a hurry to empower the locals. We hope the Emeralds and Small-scale Miners Association of Zambia and other stakeholders in the sector will heed the minister’s advice and take advantage of the Government incentives.

Fortunately, in his eagerness to maintain job security the Editor inadvertently made some interesting points, although he forgot the most important one : "Zambia has the world’s second largest emerald deposit after Colombia in South America and also boasts of Africa’s biggest amethyst and aquamarine fields but the proceeds do not reflect this status ", according to an earlier piece. That piece of information coupled with the editorial's inadvertent point that the price of gemstones has remained fairly sound during the global slowdown suggests that the issue is broader than simply enabling ordinary Zambians to have licences.

The issue of licences is actually a misnomer, the larger problem is that this should be an industry that is properly regulated and possibly with a stronger element of state production. The logical conclusion becomes obvious once we recognise that Zambians current approach with licences is rational. Providing licences to Zambians will continue to lose government revenues because the incentives for ordinary Zambians to develop the mines is fairly weak. Simply put, its cheaper and more immediately rewarding for many Zambians to allow foreign production (by charging the "fee") rather than develop the mine themselves. To successfully develop these mines not only do you need credit, but also access to established supply chains. The foreign investor has all these things in abundance and crucially they are able to harness the economies of scale that are associated with pooling licences together. Bizarrely the more attractive gemstone becomes the more foreign investors push out the locals! Unfortunately for GRZ the foreign operators keep their cash abroad where they live!

Zambians are lazy alright, but their laziness is the failure to speak up and get government to stop being perpetually incompetent!

6 comments:

  1. In fact, there are reports that some Zambians are obtaining mining licences and giving them to foreigners to undertake operations at a fee.Are these 'Zambians' perhaps better described as members of the MMD?

    Just wondering.

    This is an interesting article though, and you wonder if there is room for actual development of a small mines, with relatively little overhead.

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  2. This is an important article, and confirms what I have long believed, which is that the foreign ownership of Zambia's mines is what has undermined the Kwacha. I believe it was 113K/$ in 1991, today it is around 5000K/$. Obviously, privatisation in 1999 has not done any good for the Kwacha, despite the mantra that the private sector is 'more efficient' than the government.

    ‘Kwacha has not benefited from rising copper prices’
    Written by Florence Bupe
    Friday, April 17, 2009 2:23:14 PM

    ASSOCIATION of Bureaux de Change Paul Kalumba has observed that the kwacha has not benefited from the rising copper prices because the mines have continued to be controlled by foreign investors.

    In an interview, Kalumba said the performance of the kwacha on the foreign exchange market was not correlating with trends on the international market because there were no measures in place to ensure that profits were retained within the internal economy.

    “Prices of copper have over the last few weeks gone up, but we haven’t seen a correlation in the performance of our local currency,” Kalumba said. “We have a situation where copper prices have gone up by about 30 per cent from January to date, yet the kwacha has continued to be under pressure, and this has left the market confused.”

    Kalumba, who is also Golden Coin Bureau de Change director, said for as long as Zambia lacked measures that ensured that revenue from the mines was circulated within the economy, the upcoming positive trends on the international commodity market would have little or no impact on the strength of the kwacha.

    The local currency has over the last few months come under a lot of pressure from the greenback, and is currently in the range of K5,600 and K5,700 against the US dollar.

    Kalumba said there was need for financial market regulatory bodies to be more involved in intervention steps to save the kwacha from further collapse.

    “When our currency is pressed, the Bank of Zambia intervenes, but the question is how sustainable this intervention is considering our low reserve levels of just over US $1 billion,” he said.

    Kalumba advised that measures should be put in place to ensure that the performance of the kwacha matched market trends.

    And Kalumba said it was not prudent for banks to consider raising base rates when the country’s inflation rate was reported to be declining.

    “The bank lending rates should show a relationship with the current inflation rate. So for banks to start talking of raising base rates when we are saying the rate of inflation is going down is not right,” said Kalumba.

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  3. MrK,
    I told a friend of mine at Bank of Zambia that I found it weird that the BOZ Governor was always appealing to commercial banks to reduce interest rates. I told him all the BOZ needed to do was set up a monetary policy committe to give direction on interest rates. I was told that they cannot do that because Zambia is a free market economy. Presumably all the OECD countries are not free market economies. Reminded me of Deepak Patel then Commerce Minister in the 90's. Mark O'Donnell then MAZ Chairman had complained of Zimbabwean trade practices and tariffs that were hurting Zambian industry and exports. Deepak's retort was that Zambia was a freemarket economy and was not in the business of negotiating trade deals with anyone.

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  4. The story of precious stone mining in general and emerald mining in particular is a sad story. I have had the priviledge to travel to the parts of the Copperbelt where emeralds are mined, the lack of development there is unbelievable. All you see are holes which are a blight on the environment. In fact, there is equally nothing to show for the "stones" in Kitwe, Ndola, Kaluslushi or any other of the towns to show infrastructure that has been built as a result of emerald mining. Correct me if I am wrong, but all you see are bars and taverns where young men and women buy and sell beer like there is no tomorrow because "balibeula". I mean, I have seen Zambian emeralds being touted as some of the best in the world on UK shopping channels, but they are definitely not the best to a Lufwanyama resident who still has no hospital, has to travel to Kitwe to buy cooking oil and live under "koloboyi". The same is true for Mapatizya, Lundazi and similar places where gemstones such as amethyst, aquamarine and toumarine are extracted. It is sad.

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  5. That also goes with the learned professors at UNZA who have not provided advice to GRZ. At least I have seen a Professor Sinkala from there who unfortunately has turned expert in Jatropha promotion when he should have been in the forefront to ensure that oil ventures are given an impetus rather than jatropha which has a million years to provide any development for Zambia.
    We therefore have a challenge because we also do not have the desire for technological advancement. While we could laugh at those poor illiterates who sold their mines we need to understand that they would not have made it anyway, not with pick na fosholo. So again it goes down to how we value use of modern technologies, which I doubt UNZA or CBU can provide for the mining sector.

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  6. Frank,

    MrK, I told a friend of mine at Bank of Zambia that I found it weird that the BOZ Governor was always appealing to commercial banks to reduce interest rates. I told him all the BOZ needed to do was set up a monetary policy committe to give direction on interest rates. I was told that they cannot do that because Zambia is a free market economy. Presumably all the OECD countries are not free market economies.A rather radical interpretation of what 'free market' means.

    No one is accusing the United States of being 'communist', and their bank lending rates are set by the Federal Reserve (which by the way, is a privately owned company; their shareholders are other banks, but it is a mystery which those banks are).

    Also, it is more than time for everyone to stop and wonder what this 'free market' has done to the Zambian economy.

    It has simply been a return to colonialism, with a continuation of the colonial economy, where Zambia exports raw materials, without turning them into finished goods, or even being allowed to tax the exported raw materials. It is no mystery why there is no development and so much poverty.

    Reminded me of Deepak Patel then Commerce Minister in the 90's. Mark O'Donnell then MAZ Chairman had complained of Zimbabwean trade practices and tariffs that were hurting Zambian industry and exports. Deepak's retort was that Zambia was a freemarket economy and was not in the business of negotiating trade deals with anyone.I have read Mark O'Donnell's articles, and he is a freemarketeer too.

    The problem with them, is that they don't really care what happens to the economy at large, as long as their business is doing well.

    What Zambia needs to do, is let go of all these free trade deals, leave the WTO, and create it's own industrial policy, to promote production of agriculture and manufacturing within it's own borders.

    Countries will still buy Zambia's copper, but on our terms.

    Gershom,

    The story of precious stone mining in general and emerald mining in particular is a sad story. I have had the priviledge to travel to the parts of the Copperbelt where emeralds are mined, the lack of development there is unbelievable. All you see are holes which are a blight on the environment. In fact, there is equally nothing to show for the "stones" in Kitwe, Ndola, Kaluslushi or any other of the towns to show infrastructure that has been built as a result of emerald mining.How about this setup. When a mine is discovered, the local government hires a mining company (western or Zambian, with Zambian being preferred), and divides the proceeds up as follows - after cost:

    50% to the GRZ
    40% to the Local Council
    10% as incentives for the mine company

    There is no reason why a mining company should be allowed to keep all the profits.

    Those 50% to the GRZ should then become part of the 50% of national revenues that state pays out directly to all local councils. This would distribute the proceedd from mining evenly across the country.

    Anonymous,

    While we could laugh at those poor illiterates who sold their mines we need to understand that they would not have made it anyway, not with pick na fosholo.I remember that it was Chiluba, under massive pressure from the IMF, who gave in to the 'privatisation' (forced sell-off at any price, because it was policy to sell off the mines, not because it made business sense).

    This by the way is what happened in Russia too. This is why a few oligarchs could become billionaires overnight.

    The creation of tiny, extremely wealthy elites is not some unfortunate phase we are supposed to pass through. It is the intent of neoliberalism, which is what the IMF and World Bank have been forcing on any government in the world they could get their hands on, to put all the money into the hands of as few people as possible, so they could make decisions for the rest of us. 'Trickle Down' economics is about the concentration of wealth in a few hands, so they can down 'trickle down' some of it when they create jobs.

    That is the whole idea of neoliberalims - creat a tiny elite, and let them create jobs.

    This is why the MMD keeps saying 'they will bring jobs'.

    Because that is the entire extent that we are supposed to benefit from this setup.

    Not by sharing profits. Not by development. Just 'jobs'. And as true neoliberal freetraders, they of course enforce no protection of what those 'jobs' mean - no minimum wage, no unlimited 'casualisation', no labour rights whatsoever.

    What we need instead, is to raise total incomes.

    - Minimum Wage
    - Unionisation
    - Free of charge education and healthcare
    - Reinvestment of profits and costs locally or within the national economy as a policy
    - Taxation of the mines to the max, so that sector can capitalize the other sectors - infrastructure, agriculture and manufacturing
    - Government creation of business incubators for local SMEs, so they can step up operations and hire more people
    - Use of Zambian SMEs only, as suppliers to non-Zambian companies
    - Decentralization of government - the maximimum amount of subsidiarity, right down to the local council. (There no longer is an external military threat that would justify the present level of concentration of power; internally, if there is complete subsidiarity to the local council level, it will take the issue of regionalism off the table.)

    On decentralization, today there are 29 or so ministries, where there should be 10-12. If we directly payed out half of national revenues ($550 million in 2004) to local councils, they have the money to massively increase the services available to local people.

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