Posted on Monday, 21 October 2013 17:06

Hannibal on the Slowdown in the Zambian mining sector

By Hannibal, The Africa Report

Photo©ReutersWith new regulations frightening investors, miners are threatening redundancies, which could cause widespread labour unrest.


Investors in Zambia are dragging their feet. Mining firms have stopped ramping up output, as declining prices and the government's attempts to introduce control on export earnings have them scared.

Copper output in the first quarter of 2013 declined to 212,591tn, down from 217,524tn for the same period in 2012.

Since coming into power in 2011 after campaigning on populist promises, the Patriotic Front (PF) and President Michael Sata have debated imposing new regulations that would increase tax collection to fund an expansionary budget.

The PF regime resisted calls to introduce a 25% windfall tax on base metals but is implementing regulations that will compel mining firms to keep some export revenue in local banks.

The government, which says that tax avoidance is rife, wants to improve the scrutiny of exports.

The regime's decisions to force companies to temporarily repatriate foreign exchange earnings and to implement a rule that empowers the central bank to monitor the balance of payments are frightening investors.

They are trying to cut production costs, which have been driven by increases in fuel and electricity prices, rising labour costs and fiscal policy changes, including a doubling of royalty rates on copper from 3% to 6% in 2012.

Zambia remains vulnerable to fluctuations in copper prices.

The dual headache of turbulence in prices – three-month copper futures fell 16% so far in 2013 – and the new regulations have cast a pall over the industry.

Firms are threatening to cut employment levels. In May, Konkola Copper Mines (KCM) – a subsidiary of London-listed Vedanta Resources and one of Zambia's largest copper producers – announced plans to lay off 2,000 workers or about 10% of its workforce.

The government immediately halted KCM's plans.

Industry sources tell Hannibal that if the retrenchments take place, workers at KCM are likely to go on strike and labour unrest could spread to other mines.

The sources say KCM is not an isolated case, and miners may resort to silent retrenchments instead.

Some miners are putting on a brave face, projecting to increase output. Danny Callow, the chief executive of Mopani Copper Mines, says it will continue to invest.

Politicians have brushed off criticism. "Some sectors feel we are going backwards by claiming that we are introducing exchange controls," says Zambia's vice-president Guy Scott.

"This government was not elected by the people of Zambia to extract 750,000tn of copper a year but to see to it that the minerals are beneficial to the people."

The government will have to work hard to limit the knock-on effects: the kwacha weakened by 3.9% against the dollar this year, making it the continent's sixth-worst performer. ●

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