Zambia – lessons from a state of misfortune

Zambia – lessons from a state of misfortune

Few of us look to Zambia from Namibia or the rest of Africa as a country from which there is terribly much to learn. Sometimes much can be learned from misfortune of others, and that Zambia has had in abundance. Good decisions made at the right time are the stuff of what really makes for good luck and progress for a nation. Copper in Zambia has been mined mainly from the Copperbelt region for nearly a century. It has been the foundation of its economy though much to its credit Zambia has diversified in the last few years towards more agricultural production and has become an increasingly important regional exporter of basic food stuffs.

There are those who believe that it is possible to trace Zambia’s misfortune to copper itself. But copper has not been a misfortune for Chile, the world’s largest producer. The problem is the comparisons that are made in the region are invariably with one’s neighbors. South Africa got gold which has now just about finished. Botswana got diamonds but never had the will to diversify and DRC got every mineral in the periodic table but never had a leader who did not plunder and pillage his people without mercy. Now Tanzania has gold in abundance and has discovered off-shore oil and gas, and Mozambique got gas and coal and hydro-electricity but Mozambique is certainly not blessed with good government. Of Zambia’s neighbors only Malawi is more poorly endowed with minerals and natural resources than Zambia.

But the problems of Zambia are far more man made than the result of acts of God and nature. Its problems began almost immediately after it became an independent nation in 1964. In 1969 President Kenneth Kaunda, the father of the nation announced the intention of the country to nationalize the copper mines which it proceeded to do. In Chile the mines were also nationalized at the same time. The profound difference between Chile and Zambia is that successive governments in Chile allowed the state owned company Codelco to operate largely beyond political interference in an otherwise commercial manner. Even under the dictator Pinochet no-one dared move to privatize the copper mines as there existed a national consensus on the issue.

This was never the case in Zambia.  Copper and the state owned copper companies became political footballs and were certainly not managed in a commercial manner. By 1998, after thirty years of nationalization it was estimated that Zambia through ZCCM, the state owned mining house, was losing US$1-1.5 million per day from the nationalized mine. From the outset of nationalization, Zambian copper production and employment fell dramatically in the mines from the 1970’s to the 1990’s when Zambia was forced to privatize by the World Bank and the IMF.

Between the price peaks that occurred at the time of nationalization and the eventual privatization in the 1990’s the price of copper had fallen by three quarters in real terms i.e. after taking into account inflation. This sealed the fate of Zambia and President Kaunda as incomes collapsed.  Zambia had a real GDP/capita of $1519 at independence in 1964. Income collapsed and the real GDP per capita of Zambia did not recover to that level until 2010 and even now after the copper price boom its real GDP/capita was $1615, a mere 8% higher than at independence. While Zambia had performed badly during nationalization the economy grew rapidly after 2010 as copper prices recovered and remained high. From a long term perspective few non-conflict economies in Africa have had such poor economic results. Zambia remains what the UN calls a least developed country even though it was middle income at independence.

In order to attract investors back to Zambia at the beginning of the century the country had to offer a taxation regime dictated to it by the World Bank. That regime was so beneficial to the mining companies that it gave almost all the benefits of any price increase to the mining companies and not to Zambia. Of course the low copper prices of the 1990’s soon recovered as China began to accelerate its industrialization at the beginning of the current century. But what had been done by the World Bank to Zambia had been done throughout much of Africa. It was precisely the incredibly generous terms that the World Bank imposed on African countries that was the cause of the backlash that is now called ‘resource nationalism’.

The World Bank mining policy along with the China boom caused one government after another in Zambia to try to prove its muscularity by being tough on the mining companies and trying to renegotiate the terms of the agreement with government. Between the onset of privatization and 2019, there have been some 10 attempts by various Zambian governments to renegotiate the taxation terms with the privately owned mining companies. Some like the privatization were badly timed and coincided with economic downturns. At times government would raise royalties only to revise them downwards as the copper price fell. This was the case particularly in 2008 when  the government imposed a windfall tax, only for it to be revoked the following year under President Banda’s regime as prices collapsed.

Finally, in 2018 the Zambian government introduced a fairly comprehensive but high tax reform of the mining regime. It came into effect in 2019. One hopes that a stable regime remains in place that gives the Zambian government a fair share of the earnings of mining companies without dissuading investors.

Zambia’s nationalization in the 20^th century and the endless changes to its mining laws in the current century have cost it dearly.  If there is a lesson for the rest of Africa it is that we need to negotiate fair laws that attract investors and not repel them but at the same time guarantee the state a fair stake of revenues. Constant change in an industry like mining where investments are long terms and stability of tax regime is necessary is simply a man-made misfortune.

But what Zambia has done right has been its progressive shift to agriculture. Over the last 15 years Zambia has become a significant exporter of a wide range of agricultural goods including tobacco, cotton, sugar, maize and fodder. Countries like Namibia which still harbor unrealistic dreams of industrialization should learn from that part of Zambia’s development experience.

These are the views of Professor Roman Grynberg and Mr. Fwasa Singogo, Research Fellow and the not necessarily UNAM.