Investing in Zambia: as good as it sounds?
On Wednesday 26th March, Nick and Tommy headed to Westminster Parliament in London to meet the Deputy Minister of Mines for Zambia, Hon. Richard Musukwa MP at an event sponsored by the UK Trade & Investment (UKTI) department. The meeting was held in an oak panelled room overlooking the London Eye just off the bustling corridors of the House of Commons and included attendees from all areas of the mining industry who had an interest in Zambia.
After an introduction, the Deputy Mines Minister got up and spoke about his position and his office in Africa. One thing was clear from the start, Mr Musukwa is proud of his job—and with reason. In 2012 Zambia produced more than 800 000 tonnes of copper, and its mining industry currently accounts (directly and indirectly) for more than 50% of the country’s GDP and for more than 80% of Foreign Direct Investment. The responsibility of Zambia’s development rests firmly on this mans’ shoulders.
Mr Musukwa is proud of his ministry’s progress so far. He cited three major projects that once completed by the end of 2015 will nearly double the country’s annual output to 1,500 kt. However, he is aware the country still has a long way to go and he needs to sustain growth and foreign investment into its mining industry. “We are open for business”, he proclaims. Mr Musukwa believes that what makes his country’s mineral wealth an attractive investment prospect is: a democratic government with a zero tolerance policy to corruption, corporate tax concessions for mining projects, Its S&P B+ rating (that helped secure the $750m Euro bond in 2012), a recent history of peace and a high acceptance among its population for extractive industries.
This is in contrast to the contiguous copper riches over the northern border in the Katanga copper belt of the Democratic Republic of Congo, where sovereign risk is substantially higher from a history of asset confiscations, legal title inconsistencies and corruption.
The Mines Ministry also sees it as their responsibility to support mining communities as well. Mr Musukwa emphasised that mining companies working in his country should obtain “social license” by having a Corporate-Social Responsibility (CSR) programme which invests in its local communities and receive their acceptance. This approach has become more important in recent years after the formerly Chinese owned Collum Coal Mine was expropriated by the Government because of poor safety standards and community opposition. Zambia was also the first African country to become compliant to the Extractive Industries Transparency Initiative (EITI). The initiative ensures governments transparently disclose where revenues are from and where they are spent.
Among the attendees of the talk was First Quantum’s President Clive Newall, who has worked closely with Mr Musukwa on the expansion of First Quantum’s Kansanshi mine, which is due to hit its new annual production rate of 400kt of copper in 2015. First Quantum is also working with Zambia to upgrade the university programme at the Zambian School of Mines to improve skilled workforce.
So is this all too good to be true? It is hard to think of a single African country that hasn’t challenged investors in one form or another over recent years. Zambia rose corporate taxes in 2011 from 25% to 30%, and the following year royalties were doubled to 6%. Added to this, the rail network infrastructure is poor, and there were claims during the discussion that the country is very expensive to do business in. However, despite these issues, mining has been able to return to its former glory since privatisation of the industry in the early 2000's. In 2012, copper production surpassed its previous annual peak of 700,000 tonnes set in the 1970s.
Mr Musukwa ended the talk with a pledge to ”reduce the cost of doing business”. Upgrading the railway network might seem like a sensible place to start, with US$122m earmarked for a 127 km upgrade of the system. However, there was no mention of the pending energy deficit expected as early as next year, which might test Zambia’s ambitions of being a 1500 kt copper producing nation by the end of 2015