Watch out, Democratic Republic of Congo (DRC) – we’re catching up and will soon regain our top spot as Africa’s leading copper producer.
That was the sentiment expressed by Mines and Minerals Minister, Chris Yaluma, during an exclusive interview with Mining for Zambia.
“We’re close, very close,” said Yaluma, alluding to the possibility that Zambia could soon reclaim its top spot. “I don’t see any reason why we can’t. It’s all about stable policies, and finding new ways to encourage Zambian mines to perform even better.”
Yaluma said he was forecasting copper production in Zambia of at least 800 000 tonnes this year – which he described as a conservative estimate. “We will reach that,” he said emphatically.
Statistics show that in 2013, the DRC overtook Zambia to become Africa’s largest producer of copper, with output of 942 000 tonnes. The DRC suffered its first decline in production in 2015 after several years of steady growth, but production was back up to just over 1 million tonnes in 2016.
Yaluma said the DRC’s key investor attraction was very rich grades of copper, not unlike the grades that once existed on the Copperbelt long ago. However, a key investor weakness is a chronic lack of power, which prevents the full exploitation of the country’s mineral resources. An even more serious weakness, Yaluma reckons, is political instability.
“It has been a problem since 1960. There has never been peace in the Congo. People are dying. Commercial entities like banks and hotels don’t function very well. That’s political stability – and investors know this.”
If political stability is a problem in the DRC, it has traditionally been a big strength for Zambia, Yaluma said. Zambia has always been “at peace”, and has none of the ethnic or tribal violence that has been such a serious problem in various other African countries. The “friendliness” of its people is widely acknowledged. The country has regular elections, and can count five new elected presidents in the past 25 years.
“In Zambia, we kick governments out through a ballot, and not the barrel of a gun,” Yaluma said.
Nevertheless, according to recent media reports, official opposition leader, Hakainde Hichelema, was subjected to police harassment at his home, and faces arrest on treason charges. Does Yaluma not worry this could undermine Zambia’s reputation for political stability?
“That’s an understatement – it is a big source of concern. Not just for me, but for President Edgar Lungu too,” said Yaluma. “All that President Lungu says is: let the law take its course.”
It is precisely because this kind of political development is so unusual in Zambia that Investors and international observers will be carefully watching developments in this case, and how the courts will deal with it.
While admitting the seriousness of the situation, Yaluma dismissed any suggestions that Zambia was becoming politically unstable or prone to violence.
“I can assure all potential investors that they can come and put their money here, and not have to worry about some insurgency or coup d’état,” said Yaluma.
Yaluma highlighted Zambia’s other key strengths as an investment destination – abundant and varied mineral resources that include base metals, precious metals, gemstones and energy metals such as uranium; a competitive mining tax regime and stable policies; a well-educated, English-speaking workforce; and an open economy with no restrictions on expatriation of profits.
A key investor strength for Zambia relative to the DRC is its political stability, Yaluma says
Yaluma said it hadn’t always been easy for the mining industry in recent years, and that it had taken government a while to face up to various challenges and correct them.
“Even up to three years ago, we were still grappling with inconsistent policies, changing tax regimes and moving the goalposts. The 20% Mineral Royalty Tax regime really frustrated investors. That’s when we realised that we must start talking and dialoguing with the Chamber of Mines. We never really consulted them adequately. It’s like we were doing our own thing.”
The new spirit of dialogue has led to a better, more accommodating sliding-scale MRT regime based on the prevailing copper price. Yaluma is cognisant of the fact that the overall tax burden on Zambia’s mines is still high by international standards, and has not ruled out further reductions when circumstances permit it. “Tax rates are highly competitive, and you have to do the right thing to keep yourself afloat in this business,” he said.
VAT refunds owing to the industry was another issue that had frustrated mines and tied up their money, he said. Linking the refunds to the provision of paperwork showing the copper had arrived at its intended destination had turned out to be problematic. “That also frustrated the mining industry. Our intentions were good, but they sprang out of suspicion.” He said the VAT backlog had largely been cleared.
This improvement is good news for the mines. However, so long as there remains a backlog and there are amounts still owing, it will be a point of contention for the mining industry.
Yaluma’s candid admissions of past policy mistakes suggest that lessons have been learned on both sides; and although things are not perfect, they are at least now moving in the right direction. The mines are seen not as adversaries, but as partners in national development.
“The mines’ contribution to the economy is supreme,” said Yaluma. “They sustain us. We get tax proceeds, but they must also make a profit. When they succeed, we succeed.”
The biggest challenge currently facing the industry is the power deficit, Yaluma readily acknowledges. Indeed, he reckons Zambia’s annual copper production would currently be closer to 1.5 million tonnes if it hadn’t been for the twin factors of the power crunch and the long slide in the copper price in recent years.
“For quite some time, Zambia never managed its power requirements, and that was a major shortcoming,” says Yaluma. “However, today I can assure investors that many new power generation plants are coming on stream – such as Maamba, Itezhi-Tezhi and Kafue Gorge Lower. There is now a masterplan, not just for power generation, but also for transmission, reticulation and distribution.”
The greater availability of power from these new generation plants will no doubt be welcomed by investors; however, they would also want to be reassured that it will be affordable, and competitively priced.
On the issue of cost-reflective tariffs, Yaluma suggested that the findings of the Cost of Service Study, which is currently under way, will be central in determining the level of future tariffs. As regards current proposed tariff levels, Yaluma suggested these were more of an immediate imperative, and that in the longer term, the Cost of Service Study would be “the redeemer” for the industry.
This will no doubt be welcomed by the mining industry, which has consistently argued that tariffs must ultimately be based on the cost of producing electricity efficiently, transparently and competitively – and in line with international benchmarks.
Yaluma concluded by highlighting a number of reasons why Zambia should feel positive about the mining industry in the short to medium term.
“One, the copper price is doing better than it has been for many years, and workers laid off during the recent slump are starting to be rehired. Two, there has been substantial exploration activity taking place in Zambia over the past few years, which holds out the promise of new mineral finds,” he said.
“Three, a highly advanced technological survey of the country’s mineral resources, oil and gas is being conducted, so that investors can immediately evaluate the potential of new ventures. Four, there has been substantial investment in new shafts by underground mines such as Mopani and Chambishi. And five, there has been increasing amounts of copper concentrate arriving from the DRC for smelting in Zambia, which is prompting plans for further investment in additional smelter infrastructure.”
Despite continued challenges that cannot be glossed over – particularly around power – the investment case for Zambia does appear to be better today than it has been for many years. If the reform of the power sector can be managed in the long-term interests of both business and residential consumers, with the aim of powering economic growth, Zambia’s investment case will be considerably enhanced. The country will then be one step closer to regaining its top spot as Africa’s leading copper producer.
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Main image courtesy of Daily Nation