Modern Mining August 2016

COMMENT

SAIMM paper outlines how privatisation has re-energised Zambian mining

G iven the sporadic suggestions in this country that our mining in- dustry should be nationalised, it’s worth recalling what state owner- ship did to Zambia’s copper min- ing industry over a roughly 25-year period starting in the early 1970s– and how the return of the mines to private hands in the late 1990s has re-energised and transformed mining in that country. Some hard facts and figures on the damage done by nationalisation and the subsequent recovery of the Zambian mining industry as a result of privatisation are given in a recent paper – published in the Journal of The Southern African Institute of Mining & Metallurgy – by Jackson Sikamo, Alex Mwanza and Cade Mweemba entitled ‘Copper mining in Zambia – history and future’. All three authors are in the employ of Chibuluma Mines and Sikamo, in particular, is prominent in Zambian mining circles. He is Chairman of Chibuluma Mines (and Country Manager for its owner, Metorex, now part of the Jinchuan Group) and served in 2014/15 as President of the Zambia Chamber of Mines. According to the paper, Zambia’s for- mal commercial copper mining industry – launched in 1908 when a small mine was established at Kansanshi – was responsible for 12 % of global copper production in the 1960s, propelling Zambia into the middle-income country bracket with a GDP bigger than South Korea. The peak of production came in 1969 when the country’s mines – all then owned by RST and Anglo American – produced 720 000 tons of copper. The nationalisation process was imple- mented between 1969 and 1973 and the mines remained in the Zambian government’s hands (from 1982 via ZCCM) until the 1990s. The effects were generally catastrophic. The govern- ment used revenue from the mines to fund its national development agenda, with the result that the mines themselves suffered severe under-capitalisation. As the authors write, “There was little invest- ment in technological upgrades, despite the increasing difficulties in mining and processing as mining proceeded deeper and the mineral grades leaner and more complex. Inevitably, production output declined while production costs were soaring. Employment levels reduced as the mines downsized their labour forces.” Under nationalisation, roughly 2 000 jobs in mining were shed on average each year and production declined to about a third of what

it was in 1969, reaching a low of a quarter of a million tons in 2000. The authors point out that not all the ills of the Zambian copper mining industry in the 1980s and 90s can be directly attributed to nationalisation, as the copper price declined substantially from the highs of the 1960s over this period. They also note that one of the ben- efits of nationalisation was an emphasis on the training of Zambians. “Gradually, the gap left by the white set- tlers in areas of skilled manpower was greatly reduced. The mining skill level of Zambia improved so much that later, when the mines were re-privatised, the new owners did not need to employ many expatriates,” they write. The decision to privatise the mines was taken in the early 1990s and was implemented between 1996 and 2000. Despite some stum- bles, it has generally been highly successful. “The new mine owners invested massively in the mines and there was a sudden economic upturn, not only on the Copperbelt but in the country as a whole, with the mining indus- try as a pivotal contributor,” say the authors. “Investments went into new machinery, new mining methods, and new mineral processing and metal extraction technologies. There were also massive greenfield projects at Kansanshi and Lumwana, both in the North West Province of Zambia, which brought newer technologies into the industry.” By 2013 production had reached a level of 763 000 tons per annum, surpassing the record set in 1969, and total direct mining employ- ment had risen to 90 000 from a low of 22 000 in 2000. Critics of the privatisation programme, of course, would argue that all the benefits of the process have mainly gone to companies domiciled outside of Zambia but the figures pre- sented by the authors don’t support this view. If one just takes tax revenues, for example, taxes paid by the mines constituted just 1 to 2 % of total tax revenues during the final years of public ownership of the mines. By 2011 the position was transformed with the mining con- tribution to the total tax base rising to 35 %. Readers can probably get a copy of this very interesting paper from the SAIMM but a shorter route might be to go to the website www.miningforzambia.com which has a link to download it. This website, incidentally, has only recently been established and is an ini- tiative of the Zambia Chamber of Mines. It is designed to promote mining in Zambia and is well worth a look. Arthur Tassell

“The newmine owners invested massively in the mines and there was a sudden economic upturn, not only on the Copperbelt but in the country as a whole, with the mining industry

as a pivotal contributor.”

August 2016  MODERN MINING  3