Mining Watch (Fitula)

China Copper Mines Limited has won the go ahead to build a US$100 million (KR530m) copper leach plant on the Copperbelt. The Zambia Environmental management agency (ZEMA), says it has allowed China Copper Mines Ltd to proceed with its copper project in Fitula area about 12 kilometres South West of Chingola town on the Copperbelt.

The project will involve the development of the Fitula open copper pits to produce copper cathode from around five mineral waste dumps. It will leach 600,000 tonnes of ore material to produce about 3,000 to 5,000 tonnes of electrowon copper per annum and about 500 permanent jobs are expected to be created by the proposed project.

As part of the approval China Copper Mines Limited would need to undertake a study to establish the presence and availability of aquatic life in Fitula stream and other water bodies surrounding the project area and assess the significance of the project impacts on aquatic life during the life of the project.

China Copper Mines Limited is a private company, registered in Zambia, owned by Chinese shareholders, and is not publicly listed. The Fitula project will be its first undertaking in the country.

This project has been proposed for a while. It appears to have been carefully evaluated by ZEMA. In the past ZEMA merely rubber stamped political decisions, but now they seem to be doing the job properly.

According to the Environmental Statement (EIA), part of the challenges of this project is that it will cause involuntary resettlement of one household and a church building and there may be some indirect loss of income to some Chingola communities. The company has resolved through the Compensation Resettlement Plan (CRP) to give the affected parties an amount of K100 million for them to construct buildings at the area of their choice. The 200 informal miners who were earning their living on the area also get compensation packages.

Investment Watch (Dangote)

Dangote Cement PLC is apparently looking to open another US400 million cement plant in Lusaka next year, bringing its total investment in Zambia to $800 million. 

Dangote is currently on track to complete the Ndola plant situated in Masaiti which is expected to produced 3,000 tonnes of cement per day. With the Ndola plant, the company expects to corner 40 to 45 per cent share of the local cement market – as construction and mining sector needs accelerates. The Ndola Plant is expected to create direct 1,000 jobs when it opens. Dangote Industries Zambia Limited is part of the Dongote Cement PLC, which is owned by Nigerian billionaire Aliko Dangote.

There are no details yet on precise location and the level of limestone deposits that would enable such an investment in Lusaka. So this may well be simply the case of talking up development. But if it does materialise it would be good development. And of course, the usual note of caution applies on “jobs created” pronouncements.

Funding Higher Education in Zambia

By Chola Mukanga

Without doubt the biggest challenge facing higher education is funding. In many countries it is accepted that higher education delivers benefits beyond the individual and therefore it is susceptible to under-provision if we relied on market forces alone. Until not too long ago for many African nations this meant government shouldering the full cost. Increasingly, we now have other countries following Kenya, Zimbabwe and other countries towards greater role for private funding. The latest comments from Robert Serpell (former UNZA Vice Chancellor) is further evidence that more needs to be done in Zambia to move this issue forward. He is calling on Government to abolish the current bursary system and replace it with a new student loan system :

"The wise thing for the Zambian Government to do is to set aside money upfront for underprivileged students, but also institute measures for recoveries of these funds, when the students graduate and enter the employment sector. Bursaries are not as effective as setting up loans that could be used as a revolving fund. This system has worked in other countries such as Kenya and even the United States..."

Key Facts on Oil Prices

The Government is trying to sort out challenge of high oil prices in Zambia. Vice President Scott recently told the Energy Regulation Board (ERB) to find ways to reduce fuel prices :

"Zambia has the highest fuel prices in the region and I think ERB should find effective ways of ensuring that fuel prices are reduced..." (Source : Times of Zambia)

ERB response :

"Our pricing structure is such that retail consumers subsidise industrial and commercial consumers...the people buying petrol are subsidising those buying diesel. Now the largest diesel users are commercial and industrial consumers that are being subsidised...So the ideal solution to this situation is to mark the product because then you know what product is going to the industry and that going to the consumers...When the marking takes place, we will be able to distinguish the various consumers that are using certain products. This is one of the major ways to reduce petrol prices." (Source : The Post)

Does ERB really think that is the solution? Here are the few facts that we know about the high prices of oil in Zambia (echoed in this Parliamentary Report). 

Fact #1 Zambia’s fuel prices at the pump are high compared to our neighbours, even after accounting for the higher transportation cost due to the land-locked nature of the country.

Fact #2 The high fuel costs are built into the wholesale fuel supply system consisting of fuel imports, transportation, and processing.

Fact #3 The wholesale fuel supply system is dominated by a vertically integrated government monopoly consisting of Tazama Pipelines Limited, the Indeni Petroleum Refinery Company Ltd., and the Ndola Fuel Terminal.

Fact #4 Because there's no competition, this system suffers from operational and structural inefficiencies, therefore high costs, the burden of which is shared by ordinary Zambian consumers and taxpayers (through subsidy meant to keep fuel costs low).

Fact #5. The energy regulator (ERB) is unable to control costs effectively. Indeed, it cannot without sorting out the fuel supply system.

These facts lead us to one inevitable conclusion : Government has to sort out fuel supply system once and for all. That is the only action needed. ERB should stop misleading our people that the fundamental problems have to do with fuel markings.

Reforming our Government

By Chola Mukanga

Zambia’s public sector wage burdern is on the rise. A recent World Bank report observes that, “the relatively high and increasing wage bill—which is rising both in absolute terms and as a proportion of domestic revenues—remains a concern over the medium term. Wages and salaries are equal to slightly more than 50 percent of domestic revenues, substantially offsetting the increased fiscal space generated by the HIPC and MDRI debt reduction programs. On average nominal wages for public employees have been increasing at a faster rate than inflation. The need to expand service delivery in education and healthcare through new hiring has also contributed to increase the wage bill, but rising real wages and the increasing share of special allowances have played a major role” (Source : World Bank, 2011). It goes on to call for the trend to be contained to allow for much needed infrastructure investment and the operation of a stronger countercyclical fiscal policy.

Interestingly, the World Bank assessment was just before the Patriotic Front (PF) took the reins of power. The wage bill had already been rising under the Banda administration. But there's no doubt the situation is even worse now than in 2011 because of various wage increases initiated by the PF administration, as well as its greater emphasis on a bigger role for the State in the means of service provision and production.  These things have their own commendation, but they must be view in light of a larger fact. At more than 50% the share of Government revenue being spent on public sector pay is too large. Indeed, one of the reason we are having to borrow to fund infrastructure spending (aside from the failure to leverage domestic sources of revenue) is because half of the taxpayer money goes on people through many countless boards, government  takeovers, large diplomatic postings, countless new districts and other new areas of public waste. 

Corrupted

Moses Muteteka MP (Chisamba, MMD) recently became the third parliamentarian to face corruption charges over the last month. He was arrested by the Anti-Corruption Commission (ACC) for corrupt practices involving hammer mills, bicycles and solar panels. He was charged with eight counts of abuse of authority of office and one count of theft. Others recently arrested are Ronnie Shikapwasha (Keembe, MMD) and Elijah Muchima (Ikelengi, MMD)

It seems to me that MMD was very corrupt and completely mismanaged the country. Surely we have not forgotten so soon? These arrests are therefore expected. The timing makes sense in so far as the cases needed to be investigated properly. I always thought the early arrests of Mwale and others were premature - and appeared unthought through. Corruption requires proper investigation. It is to be commended that effort continues to be managed to bring culprits to book. 

That said the political dynamics in the country will naturally lead to questions about how politically motivated these arrests may be. The ACC has a credibility problem because it has failed to conclude investigations of current public officials, even when some of these officials have admitted to breaking the law e.g not reporting bribe attempts. There are some a dual justice system that existed under the Banda administration has not been dismantled.

Of course the bigger problem is that regardless of how genuine these cases may be, it is unlikely the alleged culprits will ever be found guilty. The cases will take long. By the time they conclude, the public will lose interest in the case. The jail in Zambia is only for the poor. This is why they have not reformed how corruption cases are dealt with in our courts. Its all part of the political dance.

Bondmania

By Chola Mukanga

Road Development Agency (RDA) becomes the latest public body to announce plans to sell bonds. It plans to sell $1.5 billion of bonds by the end of the year. RDA has presented a plan for the sale to the Ministry of Finance and expects positive feedback. According to RDA, it plans to securitise the bond with the revenue it generates from a fuel levy. Part of the proceeds of the planned bond sale will go toward funding a US$300m project to repair 2,000 urban roads across the 10 provinces. RDA also plans to start building a toll-gate system across national road network by the end of the year. The plan will be rolled out in June. But it will be key to paying back the bond debt.

Reserve Ratio Reverses

Bank of Zambia (BoZ) plans to increase the minimum reserve requirement that commercial banks must hold from 5% to 8% - effective January 28. It is trying to keep a lid on inflation by mopping up excess liquidity after the rebasing exercise.

Inflation has already been accelerating to 7.3 percent year-on-year in December from 6.9 percent in November, with higher food prices seen as a major factor. This is threatening to continue with the rebasing. The BoZ move should remove somewhere between K400bn - K700bn in the system.

In 2011 shortly after PF came to power BOZ slashed its reserve ratios from 8% to 5% to cut the cost of borrowing. Now with inflation threatening to run out of control, it has put it back up to 8%. At the same time BoZ has now capped lending rates from commercial banks at 18.35%. It appears BoZ may be worried that lending costs going up.

The constant changes are not helpful. Bankers are not happy with capping rates either. It certainly won't comfort those who worry that the current government is attracted to price controls in many different shades.

English, Education and Colonialism

By Chola Mukanga

Proponents of multilingual education have received high profile support in form of Justice Minister Wynter Kabimba. He is calling for local languages to be made more prominent in the education curriculum :

“We have to address this imbalance. As the PF, we are determined to see to it that we eliminate the use of English as a language of instructions in our schools and replace it with our own Zambian languages...What we have is a colonial hangover. If you remember in 1884 during the Berlin Conference to partition Africa, European countries decided to divide Africa especially Sub Saharan Africa. Some African countries were turned into English speaking nations, others became French speaking while countries like Mozambique were turned into Portuguese speaking countries. This was done in order to manage us as Africans.They had to impose this English language on our forefathers but what is shocking is that Zambian intellectuals even those at University have not raised this question that the English language has been used as a tool of captivity.”

The Mealie-Meal Crisis in Zambia

By Elias Chipimo

When NAREP held a press conference on 10 January 2013 to deliver our New Year message, we challenged the Patriotic Front to stop focussing on political domination (for example, through triggering unnecessary by-elections) and to prioritise development actions. We then gave several examples of people’s expectations and pointed out that it was not our intention to see the PF fail because if they failed, it would be the people who would suffer.

Broken Civil Society

"Civil society and the public can be powerful allies in a reform process, generating demand for reform and helping to maintain pressure on politicians...By contrast, an uninformed and uneducated civil society can be a dangerous obstacle to reform"

- Ngozi Okonjo-Iweala

(Source : Reforming the Unreformable)

The Nigerian Finance Minister is spot in that quote from her new book. She is absolute right to point out that civil society can sometimes exert negative energy. Not every voice is productive. Indeed, often African politicians thrive in getting uninformed NGOs a seat at the table because it legitimises their actions.

A Road Accident Fund?

Government plans to establish a road accident fund to help address the challenges road traffic victims face e.g. disability and loss of employment. According to the Ministry of Transport the current third party motor vehicle insurance scheme does not effectively address the post-crash needs. Many motorists see it as "a form of tax that they would avoid rather than a protection for their lives". Government is keen on having a scheme that would facilitate compensation to victims and meet their financial and medical requirements.

The Government has not yet explained the key aspects of this proposal: how will it be implemented or enforced? Is it going to be a voluntary fund people pay into or mandatory? There are no hard proposals on the table. In theory this can only be done in one of four ways:

Intellectual Poverty (Howard Sikwela)

"One asks a question, where would an MP get resources to develop his constituency? Of course it is from the Government of the day. An MP must think development, talk development and dream development. It is with a heavy heart that today I have to announce my resignation as area MP and as a member of UPND”

(Source : Times of Zambia)

Howard Sikwela recently became the the first parliamentarian to abandon UPND in this parliament. But he is coming off the back of recent  MMD defections - Steven Masumba and Gabriel Namulambe, who were MMD parliamentarians in Mufumbwe and Mpongwe constituencies, respectively. It looks like Catherine Namugala may join them - currently suspended.

Mismanaging Water

Government recently fired the entire management at Chambeshi Water and Sewerage Company. Government has also suspended the company's operating license with immediate effect because of poor service delivery. Housing Minister Emerine Kabanshi announced yesterday. She says government is worried and concerned at the levels of the company's breach of the Water Supply and Sanitation ACT. Ms. KABANSHI said the PF Government will not condone non performing utility companies at the expense of provision of adequate and quality water and sanitation services to the public.

Chambeshi Water and Sewerage Company Limited, is a company allegedly owned by various northern councils. Its principal activity is allegedly "to provide high quality water and improved sewerage services for high standard of living for the population of the districts of Northern Province".

Don't laugh!

But here is a serious point. The company cannot deliver water because since time immemorial it has been riddled with corruption and poor management. It also frankly has no money. The last audit by the Auditor General concluded it was failing to meet its debt obligations. The bottom line is that this company cannot survive without grants - foreign aid grants passed through the Devolution Trust Funds (DTF), National Water Supply and Sanitation Council (NWASCO) and Ministry of Local Government and Housing.

The bigger problem is that our 11 Commercial Utilities (CUs) providers are all in a deplorable state. They all suffer from the same problems. NWASCO the regulator is also hapless. No one seems to know what to do about the poor water delivery issues facing the country. It had largely been left to the donors to worry about it. Well, may be Ms Kabanshi plans to change things. One thing is clearly firing the management may be the start, it certainly wont be enough to stop the mismanagement. Radical solutions are desperately needed!

From China with debts, 2nd Edition

More borrowing from China. China recently signed a K65m ($13m) interest-free loan towards the "poverty reduction projects". To sweeten the deal, an additional grant of K16m ($3m) was added. The Ministry of Finance says the funds will be utilised to eradicate poverty and finance other projects, which will be mutually agreed upon by the two governments. More detail via Daily Mail. 

Intellectual Poverty (Humphrey Mwanza)

Humphrey Mwanza MP says that it is sad that the PF government has not appointed anyone from North-western Province to full cabinet position. He says it is critical that the province is represented in Cabinet because most developmental discussions are done by the Cabinet. 

Source: ZANIS / Zambian Watchdog

This is poor thinking at many levels. The key to development is not more regionally representative cabinet level discussions. Development won't come by talking. Development comes by the local community owning the development agenda. It is bottom up not top down. Mr Mwanza should be focusing on getting local people have a say in the development process by arguing for greater fiscal decentralisation and participatory budgeting.

The other problem with Mr Mwanza's point is that he does not seem to understand how government works. PF runs not the Executive. It is only one branch of government. It sets development priorities, but it is the legislature that approves the priorities. So government is already regionally representative through MPs. If people feel they are not well represented they should direct their effort on e during the Legislature is adequately representative and is holding the Executive to account.

Which brings us back to the pressing issue. We should push for greater efforts to devolve power from the centre. The BIG issue here is devolving governance. We must look at the current system of governance and dream of better and more coherent system of governance, where people are able to get involved in shaping their destiny. It is my view that the cries for regional and tribal balancing within the Executive are not only fuelled by ignorance but also desperation - people don't feel they are being heard in policy making. A key way to begin to resolve this to devolve more power to the local level.

The Burden of Zambia

The graphic above summarises Zambia's burden. Zambia is growing and at some incredible pace. In 2012 it is estimated to have grown by 7.3%, with only Angola and Tanzania growing better (8% each). Far higher than the Sub-Saharan average 4.8%. The other point is that neighbouring countries are all growing at fast rate, which bodes well for regional infrastructure investment. As a landlocked country our economic prospects are heavily tied to those of our neighbours. The future looks bright on the growth side.

Unfortunately, the reality is that despite all this growth, it has not delivered reduction in poverty. 2 in 3 Zambians are living below the poverty line. These  measures become even worse when we speak in terms of “human development” or use alternative measures of poverty. For example, an alternative household vulnerability measure shows poverty levels in our rural areas at about 80-90%. We have a situation in Zambia in which the proceeds of growth has not been shared. We have growth but no development. Across income groups and across regions Zambia is becoming more unequal.

ZCCM-IH Strategic Plan 2012-2016

The full strategic plan for ZCCM-IH is now embedded below. Many thanks to another reader who sent this across for information. 

ZCCM-IH Strategic Plan 2012-2012 

ZCCM-IH is back on track!

Important developments at ZCCM-IH last month. They appear to be getting their house in order. As well as the statement below, their website is now more functional. The 2012 financials are critical. These are not yet available. We grateful to our esteemed reader who tracked down this statement for us.

ISSUED BY ZCCM-IH MANAGEMENT

11 DECEMBER 2012

a) What are the Aims of the Strategic Plan 2012-2016

The Board and Management of ZCCM-IH fully appreciate the importance of preserving shareholder value. This is the reason why the Strategic Plan was revised to focus on the following strategic areas, among others:

1. Strategic Focus Area1: leveraging and consolidating existing investments in the copper mining sector and pursuing other copper assets:

i. Maintain investment in the existing copper mining companies;

ii. Search for and Invest in other copper assets;

iii. Encourage Zambian participation in the mining sector.

2. Strategic Focus Area 2: Diversifying into other minerals:

i. Invest in gemstone assets;

ii. Invest in Small Scale Mining Operations;

iii. Invest in Gemstone Value Adding Programs;

iv. Invest in exploration activities;

v. Invest in other mineral assets;

3. Strategic Focus Area 3: Investing in mining related sectors

i. Carry out exploration works for Oil & Gas;

ii. Invest in new power projects.

Chaos at ZAWA

There has been more chaos at Zambia Wildlife Authority (ZAWA) in the new year.

Tourism Minister Sylvia Masebo on before the dawn of 2013 fired the ZAWA management team, including Director General Edwin Matokwani, for alleged corrupt practices in awarding Safari hunting concessions. Ms Masebo said ZAWA had awarded hunting concessions to a family cartel, among others, which had significant potential to promote money laundering. She has since reported the fired individuals to the ACC.

Now it gets confusing because ZAWA also has no board. The board was constituted in April 2012 by Minister Given Lubinda. Only to be fired in August 2012 by new Minister Sylvia Masebo. Now there's talk of places being advertised for the new board (unlikely). When the new ZAWA board is in place - they will then hire new management to run ZAWA.

In September Ms Masebo revealed that ZAWA had a debt of over K2 trillion (old Kwacha). We were also told that the reason for the ‘black hole’ is that ZAWA only receives about K4 billion (old Kwacha) annually when it requires more than K10 billion. In short, ZAWA's business model is not sustainable

We have previous touched on the rampant corruption and mismanagement at ZAWA here, here, here  here and here. How to sort out ZAWA? Answers on a postcard! 

Poverty of CSR

"Though multinational firms in the mining industry have been preaching elaborate Corporate Social Responsibility (CSR) programmes, some of these initiatives are cosmetic and fail to satisfy the local communities. Mining firms, by any measure, make super profits and are capable of contributing more to the national Treasury as well as to the communities in which they operate.....Zambia should craft a tax regime that will be able to capture sufficient revenue from the mining firms without stifling production and profit levels. The country’s poverty levels can go down if the tax regime was worked out to seal all loop-holes that give rise to evasion...The country is richly endowed with mineral resources and holds about six per cent of the world’s known copper reserves..... But it is sad that the majority of citizens particularly those in the countryside live in abject poverty to the extent that some families are surviving on about $1 a day..."

- Times of Zambia  

It was good to pick up the  seems people are finally waking up to the arguments we have advanced time and time again. CSR is a bribe that no serious patriot should ever rely on to satisfy our country. The idea of sorting out Zambia Revenue Authority is also a pipe dream because globally multinationals always avoid profit based taxes. Zambia is not unique.

Zambia has two options :

a) Increase revenue based taxes that guarantees returns (i.e. restore windfall tax, or introduce a new infrastructure tax)

b) Follow the Angolan / Botswana models - 50% share in all new mining investments and stronger requirements on Zambians being employed in those ventures.

What other options should we pursue?

Bondmania

The success of the $750m Eurobond is leading to various public sector bodies to consider more bond debt to finance various infrastructure. 

ZESCO has been on the road looking to acquire $2 billion debt to fund new investments. The company sent managers to the U.K. and the U.S. in a bid to raise the money from investors. South Africa's Standard Bank Group Ltd is advising the company, which has meet investors in London, Boston and New York. According to Mr Chitundu (ZESCO CEO) the company may also sell a Eurobond similar to the $750 million raised by the government in September 2012, “We are probably talking $1 billion, probably even $2 billion". 

Lusaka City Council (LCC) is pressing ahead with the $500m municipal bond proposal. It has called for the expression of interest for a book runner and legal advisor. The appointment will be made in February. When the money is raised, it will be used for construction of 3,500 high rise housing units.  In the case of LCC, a municipal bond when bought is equivalent to offering a loan to the local council that promises to pay back at maturity and pays interests at set amounts annual / semi-annual. In truth to call these "bonds" is simply a matter of custom, these really are "debentures" (unsecured promises to pay). The local councils cannot pledge public assets as security but can pledge certain revenues.

That is where the problem starts with our councils. Future revenue is not guaranteed for many reasons including corruption, mismanagement and general failure by tenants to pay back debts. So we can expect, this new LCC bond to be guaranteed by Government in some way. Government will eventually bailout Lusaka City Council due to rampant fiscal irresponsibility. This issue therefore goes beyond LCC. We have touched on alternative ways of local finance here. 

In general, securing debt is not necessarily a bad thing  if we are spending money on important projects and we have a coherent debt management strategy in place. Unfortunately  at present there's no parliamentary oversight over Zambia's growing debt accumulation. Parliament continues to be sidelined because no clear debt management strategy exists. There should be a halt to all external debt procurement by public bodies until that is resolved - not least because Zambia has not fully capitalised on leveraging domestic sources of revenue. It seems we want to become more indebted before we see the need to plan better. Not very wise. 

Your Companies

A comprehensive list of companies that you own (and some that you, through those you have entrusted to run them on your behalf, have failed to manage properly – so they are currently under liquidation):

State Owned Enterprises :

• African Reinsurance Corporation
• Afrox Zambia Limited
• Contact Haulage Limited
• Development Bank of Zambia
• Engineering Services Corporation
• Indeni Petroleum Products Limited
• Indo-Zambia Bank Limited
• Kagem Mining Limited
• Kariba Mineral Limited
• Lusaka Trust Hospital
• Medical Stores Limited
• MOFED (London) Limited
• MOFED (Tanzania) Limited
• Mpulungu Harbour Corporation
• Mukuba Hotel
• Mulungushi Village Complex Limited
• Mupepetwe Engineering Company
• Nanga Farms PLC
• National Airports Corporation
• National Housing Authority
• National Savings and Credit Bank
• Nitrogen Chemicals of Zambia Limited
• Tazama Pipeline Limited
• Tanzania Zambia Railways (TAZARA)
• Times of Zambia
• Zambia Forestry and Forests Industries Corporation (ZAFFICO)
• Zambia – China Mulungushi Textiles of Zambia
• Zambia Daily Mail
• Zambia Education and Publishing House
• Zambia Electricity Supply Corporation Limited
• Zambia National Broadcasting Corporation
• Zambia National Building Society
• Zambia National Commercial Bank
• Zambia Printing Company
• Zambia Railways Limited
• Zambia State Lotteries Board
• Zambia Telecommunication Corporation
• Zamcapitol Enterprises
• Zambia Postal Services (ZAMPOST)
• Zambia Consolidated Copper Mines (ZCCM) – Investment Holdings (IH)
• Zambia State Insurance Corporation (ZSIC) Group

State Owned Enterprises in Liquidation :

• E.C. Milling
• Exim Bank
• Lima Bank
• Lint Company (Lintco)
• Livingstone Motor Assemblers
• Mansa Batteries
• Mulungsuhi Investments Limited
• National Home Stores Limited
• Reserve Minerals Corporation
• United Buses of Zambia (UBZ)
• Zambezi Sawmills
• Zambia Airways Corporation Limited
• Zambia Emerald Industries Limited
• Zambia Steel and Building Supplies
• Zambia Mining and Industrial Corporation (ZIMCO) Limited
• Zambia National Oil Company (ZNOC)

(Source: Ministry of Finance)