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Sunday, 3 April 2011

Policy evolution in the Zambian mining sector

By Dan Haglund

In 2007 I spent half a year in Zambia conducting the primary fieldwork for a PhD thesis (embedded below) I was writing at the University of Bath. The primary aim was to understand how mining sector policy evolves in a context of a ‘presidential’ political culture and a diverse set of mining companies (from emerging economies like China and India as well as the ‘west’). A secondary aim was to explore whether organisational learning was leading to convergence across companies’ operating standards.

The key issue areas on the agenda back in 2007 were fiscal regimes (and the inability of government to capture equitable rents from a boom in copper prices), environmental/health/safety regulation and enforcement (or lack thereof), and local content/supplier relations (and the limited catalysing effect of mining companies on development of local suppliers). My thesis looks at these three areas, based on over 100 semi-structured interviews spanning 2007-2009, by focusing on four case study firms (Konkola Copper Mines, NFCA, First Quantum and Chambishi Metals).

I am distributing it through Zambian Economist for the benefit of any scholars, academics policy makers and anyone else with an interest in Zambia and its mining sector. I have made every effort to write in non-technical language wherever possible, and my aim is that this should be a clear and accessible read.

To my knowledge this is the first time a study of this kind has been undertaken, and the issues I discuss remain relevant today. We have since 2007 seen a global financial crisis, a bust in copper prices, and the arrival of another boom, but in many ways the issues stay the same. Debates around the limited tax take of government are once again heating up in tandem with the steady rise in copper prices. Companies are piling in to take advantage of high prices, but there is little if any matching measures to beef up regulatory capacity. Jobs are being created but there is little discussion as to the quality of jobs, with the result that tensions remain (witness the labour unrest at NFCA in Chambishi over the past two months). Even the discussion around earmarking fiscal revenues between local community, local councils, and central government that Chola Mukanga blogged about here was on the cards back in 2007 (with that exact same breakdown between the three) – it was supported by the Chamber of Mines but failed to gain traction, unsurprisingly as this would have meant a direct transfer or mining wealth away from the MMD towards the PF-controlled local governments on the Copperbelt.

The core of my argument is based on the following findings:
  • Government places great emphasis on the private sector as driving economic development, through a discourse that unproblematically links foreign investment with economic progress. This means that labour standards and environmental/social impacts are often played down, and provides space for the state to act as guardian of mining companies (e.g. Mwanawasa castigating workers on strike at Kansanshi by saying they should be “ashamed” of what they were doing). 
  • The emphasis on government as being ‘partner’ to incoming investors requires regulatory agencies to play an accommodating role, to act as ‘enabler’ of foreign direct investment – including commitments to not change the regulatory ‘game’ (taxes, environmental standards, health and safety oversight) without first involving and achieving consensus among the mines (governance as consultation). 
  • In general a consultative approach, e.g. involving the mining companies in discussions of how to reform the Mines Safety Department, is often a good idea: companies know their own business best, and know what the issues are, cost effective ways of addressing them etc. 
  • However when you have a diverse group of international investors, each from different ‘institutional backgrounds’ (Chinese vs ‘western’, in particular), achieving consensus becomes difficult. To illustrate, whilst ‘western’ First Quantum engages directly with stakeholders (community groups) etc. in its pursuit of a stable operating environment, the Chinese management of NFCA do so by cultivating direct ties with the Presidency. 
  • The result is policy stagnation. Although MSD and ECZ reforms were discussed with fervour back in 2007/8, and supported by several mines, they failed to move ahead in part because they were not supported by *all* the mines. 
  • The ‘game’ of policy reform is complicated further by the direct influence that the Presidency and senior government officials carry with the mining companies – this form of neopatrimonial governance persists as an informal negotiating arena as long as there is demand for it among mining companies (most notably from the Chinese who are most familiar with state-led governance from their own experiences in China)
In terms of policy recommendations I’m afraid I can’t point to a quick fix. There are deep-rooted ideological, institutional and economic reasons why Zambia still struggles to secure equitable and sustainable benefits from foreign investment into its vast minerals deposits. Things that would help include greater transparency around contract award and conditions, more capacity at the Zambia Revenue Authority, better-trained and better-paid environmental and safety inspectors as well as a concerted strategy to develop local manufacturing capacity. There are some encouraging signs – e.g. the EITI and donor support for establishing a Large Taxpayers Unit within the ZRA – but much needs to be done. 

More than anything this piece of research is aimed at furthering our understanding of the complexities that play out in the state-firm relations between government and the mines. By doing so it may be able to inform some of the current debates – and those yet to be had –regarding the future governance of Zambia’s resource wealth. 

Dan Haglund Consultant / Oxford Policy Management 
United Kingdom 

More publications and briefing notes on this subject can be found at www.danhaglund.net
Policy evolution and organisational learning in Zambia’s mining sector

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