Copper mining industry in Zambia

Zambia’s economic development since the 1920s has been heavily dependent on the copper mining industry. Copper mining is Zambia’s largest industry and it is responsible for over 60 percent of the country’s foreign exchange earnings. Some 15 percent of Zambia’s total workforce is employed in the copper industry and it contributes over 10 percent to gross domestic product (GDP).
 
Zambia’s copper production jumped by 7.1 percent in 2006 as a result of increased investment in the mining sector: output increased from 459 324 tonnes in 2005 to 492 016 in 2006 and the target for 2007 is 600 000 tonnes. Over the past 30 years, however, the copper mining industry suffered serious setbacks caused by insufficient re-investment, falling production and a world slump in copper prices.
 
The industry went into steep decline, with copper production dropping from an annual output of 700 000 tonnes in the 1970s to about 368 000 in the mid-1990s. The negative impact on the Zambian economy was mitigated to some extent by the government’s decision in 1997 to privatise the mines. This created opportunities for new investment in the industry, but it also created challenges in ensuring that gains from the copper resources benefited the majority of Zambians.
 
Prior to the privatisation process, the copper mining industry was dominated by Zambia Consolidated Copper Mines (ZCCM), which operated ten integrated mines, three smelters,
two refineries and a tailings leach plant. ZCCM was owned by the Zambia Industrial and Mining Corporation (60.3 percent), ZCI Holdings (an Anglo-American subsidiary) (27.2
percent), RST International (7.0 percent) and the public (5.5 percent). 
 
The objectives in privatising the ZCCM were to:
 
  • transfer control of and operating responsibility for the ZCCM’s operations to private sector mining companies as quickly as possible;
  • mobilise substantial amounts of committed new capital for the ZCCM’s operations; ensure that the ZCCM realised value for its assets and retained a significant minority interest in its principal operations;
  • transfer or settle the ZCCM’s liabilities, including third-party debt; 
  • diversify ownership of Copperbelt assets;
  • promote Zambian participation in the ownership and management of the mining assets; and
  • conduct the privatisation as quickly and transparently as is consistent with good order, respecting the other objectives and observing the ZCCM’s existing contractual obligations.
 
However, the above objectives (particularly the last two) have not been met in full. In terms of “realising value”, the US$25 million, US$28 million, US$35 million, US$17.5 million and the US$20 million purported to have been paid by foreign investors for Konkola Copper Mine, Kansanshi Mine, Luanshya Mine, Chibuluma Mine and Chambishi Metals respectively are regarded as low by local industry experts, even taking into consideration the uncertain world market at that time. They argue that at the time of privatisation the quantity of copper ore already mined and brought to the surface was worth about the same as the amount paid by the investors. There are now misgivings regarding the advice that the World Bank and International Monetary Fund (IMF) gave to the government to expedite the sale of the mines. This advice was based on the fact that the government was losing approximately US$1 million a month by subsidising the mines.
 
The objective to promote Zambian participation in the ownership and management of the mining assets has also not been met. There has not been significant shareholding interest by Zambians in any of the privatised mining firms. In addition, the fact that many Zambians are not aware of the contents of the various development agreements and the conditions under which the mines were privatised suggests that the level of transparency was inadequate. And this means that the objective to conduct the privatisation as “quickly and transparently as is consistent with good order” has not been fulfilled either.
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