Mine nationalisation lost Zambia $45bn, Eunomix study finds

Copper-endowed Zambia lost $45-billion in mining rents by nationalising its mines, an amount considerably greater than the foreign aid it received in those years, Eunomix MD Claude Baissac calculates in a just-completed major study on African economic advancement through resource development.

Dealing with the vexing issue of broad-based mineral rent sharing on the continent, the study – based on World Bank data – analyses the role of mining and oil and gas in Africa’s economic growth from 1970 to 2010 and tracks the relationship between economic growth, resource rents and commodity prices.

The case study on Zambia points out that the country was producing at a rate of 700 000 t of copper in 1969, the year it decided to nationalise, which was also a year of price peak.

Post nationalistion, the country went downhill, with mineral rents actually declining to a far greater extent than the fall in prices, leading to the conclusion that bad government policy exacerbates the downturn during periods of low commodity prices and results in an anomalous destruction of economic wealth.

Baissac points out in the accompanying Mining Weekly Online video interview – see attached – that Zambia would have generated mineral rents totalling $65-billion if it had continued to produce at a rate of 700 000 t a year over the 40-year period.

Instead it eked out only $15-billion and suffered opportunity loss of a $45-billion, which exceeded the international aid it received over the period.

“You have that same story country after country in that 40-year period,” he points out.

The exception was South Africa, where mineral rents exploded. Although due in large part to the gold price, this was also a consequence of a pro-private-investment policy framework, albeit within the socially and politically abusive context of apartheid and therefore not sustainable.

Now needed on the continent, says Baissac, are policy environments that ensure the proper sharing of resource rents and at the same time allow investment and production to take place.

Governments, he believes, need to maximise the mineral rents and then use the revenue to create job opportunities for the masses through economic diversification.

He sees it as extremely important for the continent’s policy framework to reflect international best practice so that its resource-rich countries are able to attract foreign direct investment.

“If the resource-rich countries collapse economically, the whole of Africa will collapse with it, as we saw in the 1970s,” Baissac recalls.

Baissac fears that the current resource nationalism trend risks a return of resource sterilisation, which the continent suffered in the 1970s.

Regrettably, this would take place at a time when the continent is being viewed globally as a destination of strategic importance.

The Eunomix analysis shows that Africa is more commodities driven today than at any time since the 1960s, which makes it more vulnerable to external shocks than ever before.

The continent thus needs a stable policy environment, which allows the mineral rents to be maximised and Dutch Disease to be defeated, along with the resource curse and the political economy of exploitation.

This needs to be achieved through meaningful economic diversification.

While the oil-industry model has been effective in generating, sharing and sustaining rents, it cannot simply be emulated by the mining industry, which requires longer timelines and significantly more capital, exemplified by South Africa’s platinum and gold industries having to spend billions of dollars to replace ounces.

Governments are not very good at being on cycle. Their policies are very often negatively counter cyclical, Baissac adds.

Share this post