Despite thousands of retrenchments in late 2015, employment in the Zambian mining industry actually increased slightly in 2016, absorbing and making good on the losses of the previous year.
That’s according to figures by the Zambia Chamber of Mines, published in the recently released 8th annual report by the Zambia Extractive Industries Alliance (ZEITI).
Given that challenging market conditions, in terms of reduced international demand and local energy and policy constraints, continued unabated, what could be responsible for this surprising, positive outcome?
“This welcome increase in employment is the result of the ramp-up in production of First Quantum Mineral’s new Sentinel Mine in North-Western province. The investment decision to build Sentinel was taken several years ago, when taxation, energy supply and the general investor environment presented a more favourable outlook,” says Chamber of Mines president, Nathan Chishimba, commenting on the finding.
“There are two conclusions to draw from this: firstly, because of the long-lead time in the mining industry between investment and production, the consequences – both positive and negative – of policy decisions taken today are felt 5-10 years down the line. So, whilst these figures might appear to be immediately positive, they reflect a good example of the benefits that come with maintaining conditions which existed a few years ago, where policy stability and a positive investor outlook prevailed – this is a key point for today’s policy makers to bear in mind. Secondly, these figures highlight the critical importance of continued investment, so that Zambia can be assured of continued production, growth and employment long into the future. The jobs and production we expect to see in Zambia after 2020 depend on investment decisions taken today.”
The Chamber of Mines had initially projected a reduction in employment in 2016 because of the low copper price and reduced power supply, the ZEITI report shows. Instead, thanks to the economic activity associated with the ramp-up in production at Sentinel Mine, there was a net gain in employment, of both employees and contractors, of just over 1700.
The giant $2.1 billion Sentinel Mine is situated in the North-Western province town of Kalumbila. Construction of the mine started five years ago, and the first production was in September 2015. Sentinel is currently producing around 150 000 tonnes of copper a year, and expects to reach full production of up to 300 000 tonnes in 2017, of both concentrate and plated copper.
Chishimba acknowledged that the government had made progress in creating a more investor-friendly environment – for example, by introducing a sliding-scale Mineral Royalty Tax (MRT) regime in 2016 and fostering a more positive relationship with the industry. However, the country’s overall tax rate is still high by international standards, energy supply is both increasingly expensive and unreliable, and the country’s regulatory institutions are not as effective as they should be.
“Mines are hesitant to undertake massive, long-term investments in today’s uncertain environment. The question we have to ask is – would anybody commit to building a Sentinel today?”
The ZEITI report shows that since the privatisation of the industry around 2000, Zambia’s major mining companies – FQM, Konkola, Barrick Lumwana, Lubambe and Mopani – have invested $13.1 billion in new and expanded mining ventures.
This has created a steady upward trend both in both mining employment and earning power, resulting in steadily increasing personal income tax (Pay as you Earn, or PAYE) by mine employees and contractors, 98% of whom are Zambian.
PAYE receipts in 2015 totalled K1.54 billion, or 17.3% of government revenues, the ZEITI report shows.
The K1.54 billion figure is more than double what it was five years ago, in 2010, when it was only K0.750 billion. A contributing factor is the growth in the earning power of mining-sector employees. The average monthly pay of a unionised Miner in Zambia is currently around K10 500, more than 18 times higher than in 1998, according to Eustus Munsaka, Financial Director of Chibuluma Mines, quoted in an earlier Mining for Zambia article.
“At this level of salary, miners can afford to invest in home ownership, cars and private education for their children,” says Munsaka.
The most significant contribution mining makes in national economies is employment
The ZEITI figures support various studies done worldwide which show that the most significant and sustainable contribution that mining makes in national economies is in terms of employment – not just from the investment and construction of the mine, but also its day-to-day operations.
A recent study by the International Council on Mining and Metals (ICMM), Role of mining in national economies (2016), shows that not only are employees, both direct and indirect, the largest financial beneficiaries of a mining operation, but many more jobs are created throughout the local economy thanks to the multiplier effect. Employees spend their wages and salaries; the mine procures products and services from local suppliers; the employees of supplier firms in turn spend their wages; overall disposable incomes increase – even among those who are not connected with the mine. A World Bank study cited by the ICMM found an employment multiplier of “more than five” at FQM’s Kansanshi Mine in Solwezi.
This means that for every direct job at the mine, five additional jobs were created in the local economy.
“Employment is the lifeblood of the communities where our mines are situated, and we in the industry are fully cognisant of the importance of continued investment in order to create it,” says Chishimba.
SEE ALSO: Sentinel mine a game-changer