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Zambia could scare foreign investors

Maxwell Mwale,
Zambian mines minister
Lusaka, Zambia — MININGREVIEW.COM — 23 April 2009 – Zambia’s latest plans to raise equity stakes in its copper mines could scare away foreign investors already unnerved by the global downturn, and could hurt plans to boost the metal’s output in Africa’s largest copper producer

The new plan came as a surprise to copper companies and investors at a time when countries reliant on mining were trying hard to give incentives to attract investment, following the collapse of commodity prices hit by the global financial crisis.

World Bank vice president for Africa Obiageli Ezekwesili said the plan would backfire by jeopardising Zambia’s wider market reforms, hailed by the West as a model for Africa. “The populist reaction is to say let’s take a stake, but do you want to risk capital in a sector where the private sector can take the risks?” she asked Reuters here. “This is an industry better left to the private sector to run.”

Zambia has been among the African countries hit hardest by the global crisis because of its dependence on copper, which contributes more than 60% of export revenues.

The mineral-rich southern African country says it wants to up its stakes in existing and new foreign owned copper mines from between 10 and 20% to 35%, so as to influence decisions, including protection of jobs during the downturn.

The plan has put Zambia in the spotlight, with fears that it could be reverting to the failed nationalisation of copper mines in the past, or could be aping neighbouring Zimbabwe, which has insisted that 51% ownership of foreign firms must be locally held.

London-listed Vedanta Resources Plc, Canada’s First Quantum Minerals, Equinox Minerals Limited and Swiss-based Glencore International AG operate in Zambia. Officials at some of the companies have said privately that they were concerned by the plan to raise equity, and that it had caused uncertainty as they were unsure how it would work.

Zambian mines minister Maxwell Mwale said copper mines such as Luanshya had been poorly run and inefficient. They had shut down costing many jobs, and were blaming the global downturn.

This was why the government wanted even more control.

“We don’t plan any nationalisation of the mines as they will still remain in private hands,” Mwale said. All we want is to have a say in decision-making, after learning from what has happened with Luanshya.”

Zambia nationalised its copper sector in the 1970s, but poor management and lack of fresh capital to develop the mines, led to a near-collapse of the sector before it was privatised again.

Since then it has flourished. Treasury data shows foreign mine owners have pumped in more than US$4 billion (R37 billion) in expansion in the last seven years, while output has soared to 569 887 tonnes in 2008 from record lows of 200 000 tonnes in the early 2000’s.

Analysts are now saying that any move to upset the industry’s momentum would see investors leave and output decline.