Mopani, KCM, the Mining Industry and the future of the Zambian Economy
National Management Committee Member
United Party for National Development (UPND)
The Zambian government through ZCCM-IH has taken over Mopani Copper Mines from Glencoe. The take-over transaction is through a debt equity swap under which the former owner, Glencoe, will be paid $1.5 billion. The government is also pitched into legal battles to take control of another mining company, Konkola Copper Mines from Vedanta.
What do these spates of take-overs mean for the mining industry? And for the economy at large, now and in future?
Mining will continue to be the mainstay of the Zambian economy now and in the foreseeable future. Whilst economic diversification to reduce the dominance of copper is necessary, that is that objective is best achieved when the mining sector is expanding and thriving. Not when it is declining because mining helps to provide the resources that are required for diversification.
The performance of the Zambian economy has been closely intertwined with that of the performance of the mining industry. Generally speaking, when mining is performing well, the economy tends to do the same, and vice versa. Economic managers must therefore at all times pay attention to the performance of the sector.
In the few years after independence, copper production was fairly high, exceeding 700, 000 MT per year. In those years, the population of the country at around three million people was fairly small. The level of copper production and the attendant benefits through taxes and jobs generally yielded resources that on average supported rising social-economic progress.
After the nationalisation of the mines in the early 1970s, there was a clear downward trend in mining production. Also, copper prices fell while petroleum prices spiked, creating severe imbalances between export revenues and the import bill. In an attempt to sustain living standards amidst the growing external financial gap, the country went into a borrowing spree with the hope that when prices recovered the debts would be repaid. It did not happen: the prices did not recover and mining output continued falling.
As external earnings declined, combined with high public indebtedness, the authorities were forced to print money for public expenditure. Together with misalignment in the Kwacha exchange rate, this led to some of the nasty economic experiences of those days such as near hyper-inflation, shortages of foreign exchange and commodities. About 35 years later from that period, there is risk that aspects of those sad experiences could repeat themselves.
Chart 1 (Source: Chamber of Mines) is a graphical presentation of copper production over the years. The following facts emerge. Firstly copper production as mentioned above fell within a fews years after nationlisation. Secondly, after privatisation at the turn of the century, copper prroduction has been rising fairly fast. Within a decade, production had almost returned to the peak levels of the 1970s. The drop in production took thirty years but the recovery took only ten years. Thirdly, Zambia’s share in the world production of copper has fallen as her own output declined (see the green line in the chart, whose scale is on the right hand y-axis). Around 1967,
read more in the attached PDF document…Mopani and KCM-2