History of failed Zimco and how it wasted Zambia’s resources

History of failed Zimco and how it wasted Zambia’s resources

The PF regime says it will revive Zambia Industrial and Mining Corporation (Zimco); Sata will be the chairperson and it will create one million jobs through Indeco.
The Zambian Watchdog is of the view that the government is talking nonsense, but that it is not just ordinary nonsense. It is the type of experimental nonsense that will cost Zambia a lot.
In 1990 just before Keneth Kaunda and his humanism or UNIP exited, a parliamentary committee he appointed told him that ZIMCO was inefficient, did not produce anything, had no relevant function, and was an unnecessary drain on national resources.
Here is the history of Zimco and why it failed.
The article below was written in 1991.
The Zambia Industrial and Mining Corporation (Zimco), a holding company for all Zambian state interests, was one of the largest concerns in sub-Saharan Africa. It controls 125 principal companies relating to every major industrial activity in Zambia, including mining, consumer goods manufacturing, finance, transportation, agriculture, energy, and hoteliery. The product of Zambia’s far-reaching nationalization program since its independence from Great Britain in 1964, Zimco dominates the nation’s troubled economy.
Although Zimco was incorporated in 1970, its beginnings date back a decade earlier to a company created by the colonial Northern Rhodesian government. The Industrial Development Corporation of Zambia Ltd. (Indeco), as it was called, attempted to energize the colony’s industry, which lagged behind that of neighboring southern Rhodesia. With only limited success, Indeco vacillated between state and private control. It finally re-emerged as a state-owned company in August 1964, just as the colony was on the brink of independence. That momentous event, on October 24, brought to power nationalist leader Kenneth D. Kaunda. Facing enormous disparities of wealth, owing to the amassing of fortune by a small minority of white settlers who exploited the country’s rich mineral resources, Kaunda set about transforming the economy. In keeping with his socialist philosophy of “humanism,” wealth generated by industry and mining was to be used for the nation’s overall development. Indeco was to be the vehicle for accomplishing this.
The plan got off to a slow start. Kaunda allowed Indeco’s management, comprising conservative white bureaucrats, to remain unchanged. The company’s industrial profile remained static. However, dramatic changes took place in June 1965, when Kaunda appointed Greek businessman Andrew Sardanis chairman and chief executive of Indeco. Sardanis, who became a Zambian citizen at the country’s independence, was one of the few white settlers to have actively supported the black liberation movement. Only 34 years old when he took over Indeco, the dynamic and shrewd Sardanis was to have a major influence over the Zambian economy for many years to come.
As head of Indeco, Sardanis attempted to launch new ventures and encourage foreign investment. But he found that foreign companies, fearing political instability and restrictions on profit, were wary of investing in a socialist African nation.
Kaunda gave Indeco a major boost in 1968 with the Mulungushi reforms, under which the government manipulated 25 leading companies into selling it 51% of their shares. Indeco absorbed the government’s investment in those companies, which fell into four main categories: department stores, breweries, transport companies, and suppliers of building materials. These same reforms made it illegal for non-Zambian citizens to trade outside the city centers, forcing hundreds of Indian residents to sell or shut their rural-based businesses.
A second batch of reforms in 1969 extended state interests into the giant copper mining industry and led to the creation of Zimco. Under the Matero Reforms, under which Zambia’s mines were partly nationalized, the government bought a controlling interest in the two largest mining concerns, one owned by Anglo American Corporation (Anglo) and the other by Roan Selection Trust Ltd. (RST), then a subsidiary of AMAX of the United States. ITM International, a company founded by Sardanis, has since acquired RST. The government subsequently reorganized the companies under the new names of Nchanga Consolidated Copper Mines (NCCM) and Roan Consolidated Mines Ltd, (RCM).

Kaunda and Sardanis

Kaunda and Sardanis

Now, for the first time since white colonials in the 1920s began mining the copper belt stretching along Zambia’s northern border, the majority of the country’s population was to benefit from its most lucrative industry. Moreover, the government’s move came during a record year for copper production, in which 12% of the worlds’s copper—more than 700,000 tons—came from Zambia, making it the third-largest producer.
A new company, the Mining Development Corporation (Mindeco), sprang up to manage the state’s mining investments. With two major holding companies, Indeco and Mindeco, the government wanted to put an overall holding company in charge. Zimco was created to fulfill that function. As the government expanded into even more industries, it created new sub-holding companies to manage related businesses, all under the authority of Zimco.
Ideally, the creation of Zimco was to have minimized political interference in the running of state-owned businesses by serving as a buffer between the government and its investments. In reality, government officials exercized direct control over Zimco, which was a company on paper only and had no executive management. Managers of sub-holding companies reported directly to the relevant government ministries, which in turn reported to Kaunda, who retained the title of chairman.
Zimco faced problems almost from the start. Its genesis marked the end of the high world copper prices that had characterized the 1960s. In the financial year 1971 to 1972, prices fell drastically. The following decade revealed the volatile nature of the world copper market, as prices rose and fell dramatically.
The health of the Zambian economy rose and fell correspondingly. More than 50% of the nation’s revenue came from tax on copper earnings. In addition, the country relied on copper for foreign exchange, which in turn is vital for the maintenance of industry. So the decline that began in 1971 and was to dominate the next two decades signalled economic ruin for the nation.
The government has reorganized the mining industry several times. In 1973, the same year as a major mining fire, it declared itself unhappy with the 1969 mining buy-out agreements, which allowed the original owners to manage themselves under the supervision of Mindeco. Abolishing those agreements, it put Zambians rather than foreigners in charge of the companies. As a kind of compensation, it simultaneously announced that 8- to 12-year bonds issued in 1969 as payment for the buy-outs could be redeemed immediately. The government took out costly loans to make good that promise.
In 1981, falling copper prices did not stop the government from upgrading its interests in the mining companies from 51 % to 60%. The following year, the government attempted to strengthen the industry by merging its two companies, NCCM and RCM, creating Zambia Consolidated Copper Mines Ltd. (ZCCM). Zimco held 60.3% of the shares, Anglo held on to a 27.3% interest, through Zambia Copper Investments, and RST International had a 6.9% interest. Private concerns in the United States and the United Kingdom held the remaining shares.
Meanwhile, Zimco itself was also going through a metamorphosis. In 1978, amid one of many economic stabilization programs launched under the advice of the International Monetary Fund, Kaunda for the first time gave the company a full-time board of directors, with former government minister Jameson Mapoma appointed director general. Kaunda, who remained chairman, filled Zimco’s ranks with civil servants and trade unionists.
Over the years, Zimco’s management positions continued to be filled by political appointees, a feature that was later to bring the company under attack. Mapoma was succeeded in the mid-1980s by Evans I.L. Willima, a member of the government’s Central Committee. In 1978, in an attempt to streamline Zimco, Kaunda abolished all the sub-holding companies other than Indeco and the National Import and Export Corporation Limited.
The depressed copper prices of the 1980s, and the resulting economic chaos, led to further changes. In the early 1980s, in one of several austerity programs, Zimco sold off its smaller companies to private interests. In 1986, after six years of mining copper at a loss, Zimco began to lay off employees. By March 1988, thousands of jobs had been lost.
All the while, Zimco ostensibly attempted to diversify its interests and reduce its dependence on copper. Indeco, the second largest employer after ZCCM, accounting for 75% of the country’s manufacturing activity, proved of less help than had been expected. After the initial buy-out of 25 companies, Indeco continued to acquire interests in industrial companies.
Indeco helped generate new ventures, including plants for manufacturing vehicles, chemical fertilizer, glass bottles, and copper wire. It later launched a K300 million (US$6.5 million) expansion of its fertilizer plant, Nitrogen Chemicals of Zambia, the largest project undertaken by Zimco outside of the mining arena.
However, Indeco’s progress was slowed by several factors. Limited access to foreign exchange—which plagued every sector of Zambia’s economy—prevented manufacturers from importing the spare parts they needed. The manufacturing sector was never able to reduce its dependence on such goods from abroad. Serious errors of judgement, such as an extensive steel and iron project which had to be abandoned after it was found to be unfeasible in 1979, wasted massive amounts of money. Firms closed and production slowed. By 1985, some firms were operating at only 30% of capacity.
In the wake of this dismal year, Indeco attempted to revitalize its subsidiaries by bringing in outside management and investment. This approach has shown encouraging results. Zambia Breweries has been especially successful and Indeco’s overall profits climbed to a record high in the financial year 1988 to 1989.
Kaunda targeted agriculture early on as one of the primary areas in which Zimco was to expand. He inherited at independence a country that had been underdeveloped deliberately, in line with an agreement between its colonial rulers and those in Southern Rhodesia, with whom they were linked through the Central African Federation. Northern Rhodesia was designated the market for excess produce from its southern neighbor and thus could not produce too much of its own.
Zimco ventures into agriculture had yielded poor results. Export restrictions, price controls, inadequate financing and recurrent drought constrained its tea processing and packaging plants, and its farms, dairies, and ranches, all of which consistently operated at a loss. As it had done with manufacturing, in the late 1980s Zimco sought foreign investment to stimulate growth. Partnerships with several European nations—coupled with the relaxation of state restrictions and controls—have fostered a turnaround. Increased productivity helped Zambia meet its food requirements for the first time in 1989.
The latter part of the 1980s brought other encouraging signs for Zimco. In mid-1987, copper prices began to rise again and hit a record high of £2,000 (US$1,052) a ton on the London Metal Exchange in 1988. For the first time since it was formed, ZCCM in mid-1989 announced a dividend for that financial year. In the following year, the company showed a record net profit of K2.6 billion (US$56.5 million). The good news was not to last. Copper prices took a further downward turn in 1991, once again underscoring the unpredictability of the market. Yet even if prices were to stabilize at a high rate, an economic recovery seemed unlikely.
While a market turnaround once would have led to overflowing coffers, copper revenue is now limited by ZCCM’s low production, which has dropped by 40% over the past two decades. 1989 showed an improvement, with production rising 7.9% to 448,468 tons. However, Zimco’s longterm future is uncertain, even if production rises markedly.
This is so because Zambia’s copper industry—the mainstay of the economy—is expected to last only 20 more years before its reserves are depleted. Moreover, the decrepit conditions of the mines themselves, which are decades old, makes it difficult to extract the copper that is left. The lack of foreign exchange, too, prevents the installation of more modern equipment.
In the face of all this, ZCCM has undertaken a plan to make the mines more efficient. In an attempt to reduce its reliance on expensive imported parts, it has acquired a foundry and stepped up production. It also hopes to counter chronic delays and disruptions in copper transport by purchasing additional wagons and locomotives for Zambia railways and Tazara railway, leading to Dar-es-Salaam in Tanzania. New technology imported from Chilean mines is to upgrade Zambia’s largest smelter. Several mines, including the Nachanga open pit, the second largest in the world, are to be rehabilitated.
Dramatic events in Zambia over the past year—rioting over food price rises, an alleged coup attempt, and persistent calls for a multi-party system—have led to a political liberalization which will have important ramifications for Zimco. It could even lead to the abolition of the company.
In May 1990, Kaunda announced plans to set up a stock market in Zambia, on which up to 49% of shares in Zimco would be sold to private interests. Three months later, a parliamentary committee looking into Zimco’s affairs resolved that Kaunda’s proposal had not gone far enough. Lambasting the company for inefficiency and top-heavy management, and saying that it was a company that did not produce anything, had no relevant function, and was an unneccessary drain on resources, the committee called for its dissolution. The committee also recommended that Indeco be streamlined, that the appointment of managers in government companies no longer be political, and that the privatization of these companies be effected quickly.
The outcome of these recommendations is as yet unclear. Zimco is still in existence, its partial privatization waiting for the establishment of a Zambian stock market. It is likely that the International Monetary Fund, which is overseeing a new restructuring program, will have some influence on its future.
Zimco is to divest fully of its shareholding in seven companies: AFE Ltd., Consolidated Tyre Services Ltd., Crushed Stone Sales Ltd., Eagle Travel Ltd., Mwinilunga Canneries Ltd., Zambia Clay Industries Ltd., and Zambezi Saw Mills (1968) Ltd. This divestment is part of the Zambian government’s overall privatization policy. Public offers and stock schemes will follow once the infrastructure is in place. The privatization program is to rejuvenate the Zambian economy through greater competition, liberalization of the business environment, attraction of foreign investment, and the encouragement of ownership of shares by Zambians. The sales will be by competitive tender. Other enterprises will therefore be offered for sale in accordance with the government’s established timetable for privatization.
COURTESY OF International Directory of Company Histories

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