By Harry Kalaba
(Citizen First, President)
The Zambian copper mining industry as we know it today had its genesis in the 1920s. Consistent private sector-driven investment in the industry over a period of over 50 years in exploration, mine development and operation, development of mineral processing facilities, building of infrastructure for pyro metallurgical and hydrometallurgical processing, with attendant support facilities, including building of whole new towns, resulted in copper production rising to a peak of 769 000t in 1969, providing over 62 000 direct jobs.
The rising in population in the Copperbelt brought about demand for better services and expanded role of government. This however, is a story for another day. For now, on the onset, let me highlight the genesis of copper mineral and its industrial development in Zambia.
The copper industry was nationalised in 1973 and remained in government hands for just over 24 years. During this period, the industry experienced a serious decline in production levels, reaching the lowest level in the year 2000 when production was 250 000 tones. An average of just under two thousand jobs were lost every year in the 24-year period, reaching just over twenty two thousand direct jobs in the year 2000.
Following the return of Zambian politics to pluralism and liberalised economic policies, the government decided to privatise the mining industry. This process started in 1996 and by the year 2000 all the mining assets had been privatised. The new investors engaged on serious investment to upgrade the assets and to develop greenfield mining projects. Fourteen years later and after more than US$12 billion investment, production levels increased year-on-year to a peak of 763 000 tones in 2013 with direct jobs reaching ninety thousand.
I have deliberately brought the mining sector here because it cannot be denied that plural politics including the revolt against colonialism and one party state begun in the Copperbelt province. Therefore, the contribution of the mines cannot be discussed in isolation of politics. It is obvious there has been a huge impact of the mining industry in Zambia on the economy in areas such as employment, support for other industries, direct contribution to the national Gross Domestic Product (GDP), foreign exchange earnings, and social political modelling as a result of mining in Zambia.
On the historical aspect, the nationalisation of Zambian mines began with the Matero declaration of 1969 by the first Republican President Dr Kenneth David Kaunda. This was when the government obtained a 51% shareholding in the then two existing mining companies – The Roan Selection Trust and Anglo American Corporation, which owned all the operating mines in the country. Prior to the Matero declaration, government had issued the Mulungushi declaration, under which 51% of the shares in all the major industries (except mines) were put under state control. This led to the formation of INDECO as the holding company for the shares.
It is important to note that the mining landscape in Zambia covers production in multiple materials, including op per, cobalt, gold, nickel, manganese, emeralds, beryllium, myriad, gemstones, sulphuric, zinc, cool, ore, uranium, iron ore, steel, limestone, and other platinum group metals, now sungillite etc. Mining has long been a significant primary sector industry and contributor to the Zambian political as well as as to the economy by providing export income, royalty payments, and employment.
The geology and mineral resource distribution covers a large portion of Zambia’s square area stretching across all 10 provinces of the country. The Geological Survey department has made considerable achievements under its statutory obligations to develop cadastral maps for exploration and mining in the country.
Mineral resource exploitation was originally clustered in centers of mining operations along the Copperbelt, like Konkola and Kitwe. In the last two decades, following the issuance of mining and exploration licences by the Zambia Environmental Management Agency (ZEMA) operational large commercial mines have stretched to the Central, Northern, Western, and Southern Provinces. Under normal circumstances, the sector is supposed to see even more significant boost if more accommodating taxation regime was to be introduced and if the flow-on effect of the implementation of the cooperating agreement has to be signed between Zambia and Democratic Republic of Congo (DRC) for the electric vehicle battery value chain that require abundant battery metals and battery precursors.
It is important to note also that in October 2022, the Ministry of Mines and Minerals Development gave 90-days amnesty to all illegal miners to legalise operations. It also setup and opened a cadastre Department and announced that the issuance of mining licenses will be restricted to five per applicant.
One important aspect to note and as already alluded to, is that the mining sector in Zambia continues to play an important national economic role and has in the last two decades experienced tremendous growth and investment, driven mainly by expansion in large-scale mining.
I get to understand that getting ahead, the government is supposed to focus on building a diversified and export-oriented mining sector through regulatory reform as well as embracing strategies to promote exploitation of gemstones and industrial minerals; local and foreign participation in mining value chains and industrialisation; and small-scale mining.
Dealing with challenges facing Zambia’s mining sector
The main challenges therefore are for Zambia to reduce the complexity and impenetrability of mining sector fiscal framework, whilst boosting capacity of government agencies to monitor and collect fiscal contributions from the sector.
One of the key challenge remains the full operationalisation of the various modern statutes and laws over the past years which have been one of the key drivers of Zambia’s rise to become one of the preferred investment destinations in Africa. A few examples in this respect include the Amended Constitution, the new Companies Act, the new Insolvency Act, the Banking and Financial Services Act, the Securities Act, the Mines and Minerals Development Act, the Water Resources Management Act and the Environmental Management Act. All of these generally reflect international best practice for regulation. Some of them have been poorly implemented or not even come into effect, such as the new Companies Act and the new Insolvency Act. This situation poses a challenge to the mining sector as the legislation universe remains in a state of flux and is always transforming.
Other bottlenecks constraining the mining sector’s growth
Notable constraints in the sector relate to the lack of assurance for foreign investors that the legal framework protects their interests in Zambia. From the experience, there are still situations where, depending from where the investment originates and the scale of the project, investors struggle to get the proper support from government. This points to structural issues that the government needs to address. True to mention here that there is no consistency in the application of the strong legal framework that has been prescribed in this country.
For instance, we are still dealing with situations where an exploration company may have invested money in defining a resource, but, for one reason or another, their license is rejected at the point of renewal. On the other hand, during that very short period of rejection and appeal, you may find another foreign company puts in an application which moves very quickly towards approval. It is difficult to call what it is if this is not corruption, or maybe a weakness in the structure. Arguably, it will take the government putting in place better training or appraising the standards for the people working in government licensing and regulatory institutions to ensure the country does not earn a bad name because policy is not implemented transparently and objectively.
PROGRESS MADE ON RESOLVING ISSUES IN THE MINING SECTOR
Under current circumstances especially in the past few years, the country’s mining code has significantly been violated, particularly in terms of determining disputes. The 2015 Act provides for the mining disputes tribunal where people with technical expertise can give their input on the matter at hand. If the case does still go to court, there is a record to demonstrate that a proper assessment of the situation has been made.
Politically, people do not understanding the operationalisation of the mining sector because in terms of investment laws it has proven to be beneficial for foreign investors. It now expressly recognises investment law as advantageous law for investors, so government has in the past year been running away to apply international investment law and customs when handling investors. All the current dialogs coming from the government implies that it wants to partner with the private sector rather than merely regulate it.
Some of the hidden costs for example, a mining exploration license holder, after significant investment, does not achieve a renewal of its license in good time, largely due to the slow pace of the renewal process, thereby opening a window for abuse. Although this usually gets corrected or normalised in favour of the original holder, it is nevertheless at the expense of time and cost.
Additionally, some revenue-collecting regulators are known to push for collection upfront, even for hopeless cases or situations, knowing full well that there will be some delay by the time the investor goes through the administrative and court appeal processes after which the regulator would then be seeking an out of court settlement. This could be after a few months to a few years without the regulator accounting for the cost of money held up in its system during that period. Other hidden costs include simple situations such as a regulator exceeding its powers in administering a law which could have far-reaching consequences by the time the situation is corrected.
Most of such incidences occasioning hidden costs would normally require a deliberate policy and effort by the government to create a sustainable, predictable and transparent structure to support the implementation of modern legislation. This would include equipping the administering authorities with proper skills that promote administrative justice and an appreciation that both the law and the regulators are created to facilitate an orderly, conducive, efficient and effective environment for conducting social and economic activities as opposed to stifling, discouraging or frustrating such activities.
THE FUTURE FOR THE ZAMBIAN MINING SECTOR
Most of what is currently driving the country is determined by government policy. Unless the government starts treating mining as the most important economic activity in the country, and also a deliberate shift in stance towards promoting mining and value for money to the state, as was provided for under the Seventh National Development Plan (7NDP) as well as the Eighth National Development Plan (8NDP) identifying mining as the major strategic sector for economic diversification and job creation. The mining industry will forever be beneficial to investors and few individuals only than the state. The government should realise that although it needs to work with the private sectors and to assist them to grow and mature, it should as well view them as a source of revenue. Therefore, while mining is still expected to grow as an important activity in the country, we see the emphasis shifting to private sector resource mobilisation for government.
Therefore, our expectation is to see growth in the sector as being strategic, and certainly think for now that mining will not cease to be dominant for some years to come. But again, as things seem to be, However, the pace of growth in mining is as quick as the lightening due to advancement in technology and as such, the objective of government on mining needs to be clear. Currently, there is seek and hide.
Important to note that the primary law governing the mining sector in Zambia is the Mines and Minerals Development Act No. 11 of 2015 of the Laws of Zambia (MMDA) as read together with the Mines and Minerals Development (Amendment) Act No. 14 of 2016. The MMDA became effective on 1st July 2015, although the date of assent is 14th August 2015.
CONCLUSION
The geology of Zambia shows great potential for further investment in mining. The past few years has witnessed significant hidden fiscal regime and this has undermined new investment into the sector. Thereby eroding citizen confidence in the value of their minerals. The challenges of the current fiscal regime have resulted in copper production to have uncertainty, particularly following the uncertainty brought about by the Mineral Royalty Taxation regime. It seems that the government has not shown serious desire to engage in dialogue to arrive at optimum levels of taxation which will ensure that government continues to receive taxes from the mines, and also that the mines continue to thrive and invest, on a sustainable basis. Clearly this is the way to go. Currently, the state of affairs by government, is that it is not committed to putting in place a taxation regime that is stable, predictable, consistent, and transparent.
Investors have welcomed this laxity and obviously this should translate into a very poor revenue generation for the Zambian mining industry. The mines performed badly during the period of nationalization, since they lost focus from their core business. Continuous re-investment in machinery and new technology is very important for increasing productivity. Investing in human capital is another area that is very important and new mine owners will do well not to neglect this aspect. It is important that the mining companies operating in Zambia take all the important aspects of mine development into consideration, and the results should be visible. For its part, government should continue providing policies that will attract capital into the mining industry while guaranteeing revenue generation from the sector. These policies should be dynamic in nature so that the country remains competitive with other major players on the global market. The key here is continuous engagement with stake holders so that the government is abreast of the changing challenges and other requirements in the industry. To counter the legacy of prolonged undercapitalisation of the old mines, particularly regarding modern machinery and technology, government should encourage greenfield projects that are able to build low-cost mining operations that can withstand the constant shock of copper price fluctuations.
The policy shift option, could be to select and nationalise some mines on an incremental basis.
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Mr Harry Kalaba, is the Citizen First, President. He has vast experience in the civil service and rose to various ranks until he became Minister and saved in various Ministries including the Ministry of lands and Ministry of Foreign Affairs.
