How Mining has not benefited Zambians

Why Government New Critical Mineral Strategy is the answer

By Mwansa Chalwe Snr

In the 1990s, Zambia embarked on an ambitious economic liberalization journey, privatizing 137
companies within 18 months and eventually 221 State owned Enterprises were privatised. The World
Bank hailed this move as a landmark reform. However, three decades later, ordinary Zambians remain
disillusioned, failing to reap the expected benefits from foreign direct investment (FDI), particularly
in the mining sector. Despite booming copper prices, ordinary Zambians' standards of living have not
improved significantly, with inadequate education, healthcare, and social benefits. Meanwhile, foreign
shareholders have amassed wealth, leaving the resource owners in poverty.
It is not debatable that Zambia’s mineral wealth hasn’t translated into meaningful benefits for its
people, especially in five key areas: job creation, foreign exchange earnings, tax revenue, technology
transfer and promotion of supply chain industries. This harsh reality is backed by credible institutions
like the World Bank

“Zambia is rich in minerals but we haven’t fully managed to convert that wealth for the benefit of the
people. We need to know where to improve and what changes to make so we can harness this wealth
to benefit not only current, but also future generations of Zambians, “ Ina Ruthenberg, Zambia’s
then World Bank Country Manager said in 2016.

JOB CREATION

One of the key expected benefits of foreign direct investment (FDI) like mining, is job creation. In
Zambia’s experience, FDI has not created sufficient jobs to make any impact on unemployment. This
is due to two main factors: improvement in mining technology with machines replacing humans, and
Mining houses not interested in supporting the development of backward and forward linkages
through the mining supply chain, but preferring to import intermediate products from overseas
companies including their associates, effectively exporting jobs.

In order to put mining industry’s incapacity to create enough jobs in perceptive, there are recent
examples that can be cited. First Quantum Sentinel Mine investment of $250 million only created 700
jobs, Kansanshi Copper Mines investment of $1.2billion created 1,800 jobs. This is a drop in the
ocean when one considers that there are 350,000 youths entering the job market every year. According
to the 2022 Zambia Census Report, the mining sector only accounts for 2% of the country's total
employment.

INSUFFICIENT TAX REVENUE

 It is generally agreed that Mining houses are not paying sufficient taxes to cater for social needs such
as health, education, water and sanitation and for development projects. This low revenue contribution
by mines has partly contributed to the Zambia’s accumulation of the high level of public debt, and a
myriad of taxes levied on ordinary Zambians to cover for the revenue shortfall.

In order to put mining contribution to the Zambian treasury in perspective, it is vital to compare
Zambia with two neighbouring countries. In Namibia, mining revenue contribution to government
revenue is about 25%, whereas Botswana mining contribution to government revenue is 45%. In
2022, Zambia’s mining sector contribution to GDP was 11.1%.

There is no doubt that the mining sector has not been paying its fair share of taxes and have been
involved in sophisticated tax avoidance schemes using highly skilled accountants and lawyers. There
are mines that have been here for over twenty years and have never paid any income tax as they
declare tax losses all the time, but in the meantime, their shareholders abroad do receive dividends.
The former Minister of finance, the late Mr. Alexander Chikwanda alluded to this in his 2015 Budget
speech to Parliament, when he bemoaned the lack of benefits from mining.

“Sir, despite Zambia being endowed with vast mineral resources, the country has not realised
maximum benefits from the sector’s potential to support growth and enhanced socio economic
development. The House may wish to note further that the contribution of the mining sector revenue
as a percentage of GDP remains low at 4 percent. Similarly, the contribution of the mining sector to
the national budget has remained minimal even after the Government doubled the mineral royalty rate
from 3 to 6 percent. Further, provisions on capital allowances and carry forward of losses eliminated
potential taxable profits. Mr. Speaker, the tax structure was simply illusory as only two mining
companies were paying Company Income Tax as most of them claimed that they were not in tax-
paying positions,” He said.

INSUFFICIENT FOREIGN EXCHANGE EARNINGS

In theory, copper mining contributes 70% to Zambia’s export earnings. This figure is misleading as
very little comes back in the country as it is retained by the mines. This was confirmed by the
International Monetary Fund (IMF) in 2023, in their First review of Zambia’s current $1.7milion
Extended Credit Facility (ECF).

“Since February 2022, a joint African Department (AFR)-Statistics Department (STA) engagement
with the Bank of Zambia (BoZ) has been undertaken to assess the nature of these outflows. The
missions confirmed that a substantial share of mining export revenues is held offshore, contributing to
the challenges in monitoring cross-border flows. The mission estimated that 50 to 90 percent of
copper exports in 2020-21 were not repatriated,” The IMF wrote in their first review of Zambia’s
ECF.

It is very clear that Zambia has for long time been characterized by large foreign exchange leakages.
These outflows which the IMF estimated to be about 20 percent of GDP in 2012 and 2014, have
contributed to the low level of foreign reserves, the depreciating and unstable Kwacha and the high
cost of living for ordinary Zambians.

LACK OF FORWARD AND BACKWARD LINKAGES

The majority in the mining sector have also not been interested in the development of backward and
forward linkages, through the mining supply chain. Mines have not actively promoted the
establishment or expansion of indigenous firms that might supply them with intermediate products but
instead opt to import these goods from overseas.
In 2016, the World Bank Mining Investment and Governance (MInGov) Study, observed the
following: “Throughout the survey, key stakeholders noted the need for the mining industry to more
effectively use local products and services. Currently there is no national supplier development policy
for the industry. Consequently, 95% of goods and services used by the mining industry are imported,”
The Survey concluded.

NEW PROPOSED GOVERNMENT MINING POLICY

Drawing inspiration from resource-rich countries like the Gulf Cooperation Council (GCC), the New
Dawn Administration is making a strategic shift, informed by best international practices. It aims to
redefine Zambia's mining landscape through: smart partnerships, increased state participation,
enhanced regulatory frameworks, local content development and value addition and beneficiation.
This new approach is contained in the “Critical Minerals Strategy 2024-2028’’from the Ministry of
Mines and Mineral Development which is the basis of the new mining policy and new law.

Despite the abundant mineral resources such as cobalt, coltan, lithium and copper. Zambia has not
been able to fully exploit these resources to help in the economic transformation of the country for the
benefit of the Zambian people. It is against this background that it has become necessary to pay
attention to all the stages of the critical minerals value chain. As the global demand for critical
minerals escalates, many countries have looked to Africa's abundant reserves of cobalt, lithium,
copper and other minerals vital to green energy transition and modern technologies such as electric
vehicles, rechargeable batteries, semiconductors, fibre optic cables and defense aerospace among
others. Zambia has therefore developed a strategy to derive maximum benefits from its critical
mineral resources. The strategy is consistent with the 2022-2026 Eighth National Development Plan
(8NDP) and 2022-2027 National Mineral Resources Development Policy,” The document states.

Zambians should note that the new strategy is a result of the extensive trips that His Excellency
Hakainde Hichilema has undertaken where his team has been exposed on how other countries have
developed their countries using their natural resources. The deal that Zambia struck with
International Resources Holdings (IRH) on Mopani Copper Mines (MCM), where they took 51%
ownership and Zambia, 49% ,may be one of the inspirations for the new mining policy.

President Hichilema’s administration has realized that its previous mining policies were not
unsustainable and uninformed and not in the best interests of Zambians. This realization was recently
made crystal clear by the President’s Special Assistant for Finance and Investment, Jito Kayumba.
“For many years Zambians have felt short changed when it comes to realizing full value from the
resources we have. First and foremost we want to ensure that there is sufficient local content. Local
content in supplies, local content in running of the mines, senior management levels, shareholding.
We have been seeing an enhancement on the part of Zambian government in negotiating increased
shareholding within the Mines.

“Government will definitely will play its role in having shareholding in businesses by way of
commercial engagement. And this something we have to appreciate because we as government have
awareness, understanding of corporate structures, corporate finance , valuations and the
commensurate earning on the part of our exposure to mines through the equity investment that we
take. Of course there should be an aspect of free carry because we are the owners of these assets. And
this is something that should never be misunderstood.

“ We are as a country and as a government, wants to ensure that part of our exposure to the mining
sector and to benefit from the minerals that are extracted from the country is that we must be involved
in the marketing, in the trading of these minerals. Having access to actual commodity is very
important. Because we can have participation in the value addition and the margins associated with
the trading of commodity. This is something that we are doing in the way that is not disruptive to
industry,’’ Kayumba said.

As is expected, the Zambian Chamber of Mines, has opposed the progressive policy changes by the
government, and want to maintain the status quo, which is unacceptable to Zambians. They are
complaining and accusing the New Dawn administration of undoing all the “ good work “ achieved
since 2021.

Conclusion

To maximize the benefits from mining and ensure that Zambia's natural wealth is used for the benefit
of its citizens, the country must not compromise on the progressive and strategic approach the New
Dawn government has recently adopted, which is supported by one of the major mining houses,
International Resources Holdings (IRH), Zambia’s new partners in Mopani Copper Mines.
During the handover of Mopani Copper Mines in Kitwe on the 21st March,2024, the IRH Chief
Executive Ali Alrashdi said that they intend to collaborate with their Zambian partners in order to
bring meaningful change in the Zambian mining industry, including bringing transparency through out
the mining value chain from mining the copper up to when the money goes into the bank.
“This Partnership is not just about business, it is about people, communities and sustainability,” He
said.

The experience of other countries like China, Gulf Cooperation Council (GCC) countries, as well as
those in Africa – Botswana and Tanzania- show that if you stand your ground to the arm twisting and
blackmail by investors, they are ready to negotiate win-win deals as they need us, as much as we do.
The Western Mining houses ought to realize that they now have competitors with deep pockets from
the GCC and China, who badly need critical minerals for the green economy, and therefore they need
to adjust their approach and strategies in how they treat host nations in far as sharing their resources
are concerned.

The writer is a Chartered Accountant and Author. He is an independent finance and economic commentator/analyst.