Mining in Zambia: A History Lesson

Zambia’s mining history and the potential still to be unearthed.

Anita Kruger

ZAMBIA-MACIG-BLOG
Zambia is a landlocked country with a total area of 752,614 km2 bordered by eight other countries in sub-Saharan and central Africa. Over the last decade, the country has achieved an average annual growth rate between 5% and 6%, with a drop in inflation from 20% to below 7%, making it one of the 10 fastest growing economies in sub-Saharan Africa in 2012. Accounting for 46% of copper reserves of what is known as the Central African Copperbelt, the largest and highest grade copper deposit (with an average grade of c.2,7%) known in the world, copper production in Zambia is poised to boom over the next few years. More than one billion mt of ore has already been mined in this region with further estimated reserves of at least two billion mt that have not yet been exploited.

To understand Zambia’s mining landscape, the country’s rich mining history plays an important role. In 1964 Zambia attained independence from British rule that had lasted for 70 years and in 1969 Zambia’s first president, Kenneth Kaunda, announced the nationalization of Zambia’s copper mines. At the time, the mines were producing 700,000 mt/y of copper and contributing over 50% of government revenue. At its production peak, Zambia was the second largest copper producer in the world. Unfortunately nationalization did not have the desired affect that the newly independent country and government had envisioned and by the 1990’s the mining industry was producing a meager 200,000 mt/y. The steep decline in productivity, due to mismanagement and the collapse of the copper price in the 1970’s, led to the country’s steady economic decline.

In 1990, Zambia held its first multi-party democratic election and with Frederick Chiluba elected as Zambia’s second president, economic and political liberalization commenced. The liberalization of the economy and privatization of mining companies, including Zambia Consolidated Copper Mines (ZCCM), started to draw much needed foreign direct investment and was the lifeline that saved the Zambian economy from total collapse and bringing Zambia into a new era from an economy 80% controlled by the state to one where the state only controls between 10% and 15% of economic activities.

Zambia’s privatization efforts are continuing to pay off with the country’s copper output, rising to an estimated at 800,000 mt/y in 2012, accounting for 4,8% of global copper production. However, these figures remain controversial as the Zambian authorities are in the process of establishing proper mechanisms in the monitoring and reporting of copper production in the country. Notwithstanding disputes over the reported figures, copper production in Zambia is estimated to reach 1.5 million mt/y by 2016. This means that the mining sector’s contribution to GDP is projected to double to 20% over the medium term, to reach a value of $1.35 billion by the end of 2015. This increase will position Zambia among the world’s top five copper producers, alongside Chile, China, Peru and the US.

Since the privatization of ZCCM, the Zambian mining industry has welcomed foreign investment. Foreign investors are allowed to own 100% of any enterprise registered in Zambia with both international and domestic investors having to adhere to the same general registration procedures and requirements. ZCCM-IH is now listed on the Paris, London, Euronext and Lusaka Stock Exchange, with 12,7% of shares held by private investors and 87,6% held by the government of Zambia. In the mining sector however, ZCCM-IH still holds minority shares in the majority of the mines in Zambia including Mopani, Kansanshi, KCM and Chambishi and 100% of Ndola Lime Company.

The current mining regime in Zambia is a royalty-tax system similar to that found in many mining jurisdictions across the world including neighboring DRC, Botswana and South Africa. With this approach, the government charges a royalty and then imposes the general tax regime. This includes Pay-As-You-Earn tax of 25%-35% and a standard VAT of 16%. Corporate income tax is at 35% with an incentive of a rate of 30% for companies listed on the Lusaka Stock Exchange and foreign companies are taxed only on profits derived from Zambian sources. There is currently no windfall tax and companies can write off 100% of investment against tax as depreciation from 25%. In April 2012, the Zambian government increased the rate of mineral royalties from 3% to 6% in an attempt to attain a more equitable distribution of wealth derived from mineral resources. This puts Zambia’s mineral royalties on par with other mining regions such as Australia and much of Latin America.

As far as Zambia’s mining outlook is concerned the future is looking bright, but ongoing efforts will be required if Zambia is to achieve its ambitious goals. As political instability and corruption remain the main deterrents for foreign investment in Africa, Zambia places 94th out of 185 countries on the World Banks Ease of Doing Business rankings. Although this ranking may not seem very high, in the sub-Saharan African region where the average ranking is 140, Zambia stands out as a stable destination for investors, behind South Africa, Botswana and Namibia.

Although copper remains the driving force of the economy, this is not the only commodity waiting to be unearthed in this relatively unexplored country. The Zambian government is waking up to the danger of the overreliance on a single commodity, especially in light of the decline of the historically high copper prices since the first quarter of 2013. Fortunately, if well-managed and properly exploited, Zambia can weave a safety net from its vast mineral wealth that includes gold, diamonds, coal and a variety of industrial minerals. Zambia also contains an estimated 11 million mt of the highest-grade zinc and lead deposits in the world is home to 20% of the world’s emerald supply with the world’s second largest deposit of emeralds and Africa’s largest deposits of aquamarine and amethyst. With only 58% of the country geologically mapped, there is considerable potential for many further discoveries in Zambia.

This article was produced as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.

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