Zambia: Riches to Rags

mineBy Khadija Sharife (Pambazuka news)-It’s the Cinderella story told in reverse; a tale of riches to rags. Once upon a time, following decolonisation, Zambia was perceived as Africa’s progress icon. Classified as late as 1979, as a middle-income country by the World Bank, GDP per capita was on par with Portugal, chased the heels of Spain and Turkey, and left African economic powerhouses like Egypt in the wake of its dust.

The dust was coppery, the backbone of Zambia’s monolithically derived wealth, primarily mined from the region known as the Copperbelt, composed of major mining towns including Ndola, Kitwe, Chingola, Mufulira and Luanshya, and further north, the Congo’s Katangan deposit – Zambia’s genetic twin.

The ever-fertile copperbelt yielded an average of 700 000 tons per annum, declining in the early 1970s following the oil crisis of 1973 and the slump in global copper prices in 1975. Wages decreased as food prices increased by 650 per cent, coinciding with the ‘Volcker Shock’ – when the US Federal Reserve raised interest rates to shift the economic crisis to developing regions. Consequently, in an attempt to ensure adequate salaries, subsidies, pension schemes and state services, the Zambian state accepted extended loan facilities from multilateral and bilateral donors on the advice of the World Bank and IMF.

Within a few years, external debt skyrocketed from US$814 million to US$3,2 billion in the 1970s, doubling to US$6.9 billion in the 1980s, draining 83 per cent of every dollar earned through exports. In May 1987, faced with a nation at the edge of itself, Zambia’s lifetime leader Kenneth Kaunda declared that just 10 per cent of export earnings should be diverted to debt servicing. He initiated NERP, the New Economic Recovery Programme, aiming to diversify the economy, reduce dependence on dollar-purchased imports and ensure growth through redistribution. GDP grew at 6.7 per cent, with agriculture and manufacturing growing by 21 per cent and 15 per cent. But Zambia’s strengthening economy appeared to halt the flow of development finance from South to North, threatening to catalyse a dangerous trend. By July 1989, the Paris club (country donors) demanded immediate repayment of debt, if World Bank and IMF reforms were not implemented, and debt servicing resumed.

In that same month, Zambia kneeled, re-engaging the Bank. By this time, the Movement for Multiparty Democracy (MMD) led by trade unionist Frederick Chiluba succeeded in removing Kaunda, after 27 years of lone-ranger rule. By this time, copper production had dropped to an all time low of 250 000 tons.

Chiluba’s 1991 manifesto committed itself to the ‘adjustment’ policies of the bank, specifically privatisation. From 1994-97, 244 of 275 copper mines were sold at artificially depreciated prices by the Zambia Privatisation Agency (ZPA); five Wall Street bankers with salaries financed by the United States Agency for International Development micromanaged the process. The World Bank labelled the privatisation process as the most successful in Sub-Saharan Africa, crediting the foreign private sector controlled ZPA with limited government intervention as the key

But the crown jewel, the Zambia Consolidated Copper Mines, was privatised under the direct watch of the World Bank and IMF, with the aid of bankers Rothschilds and Son, and London law firm Clifford Chance, following Zambia’s qualification for the Heavily Indebted Poor Countries (HIPC) initiative in 1996. Initially, the ‘Kafue’ Consortium – composed of the Commonwealth Development Corporation (formerly titled the Colonial Corporation), Noranda (Canada), Phelps Dodge (USA) and AngloVaal Mining Ltd (SA), representing mining multinationals – offered US$131 million in addition to a welcome investment package of US$1.1 billion.

Chiluba refused, stating that ZCCM ‘should not be sold for a song.’ He shifted the responsibility of privatisation from the ZPA – mandated to handle the transaction – to Francis Kaunda, the executive director of ZCCM from 1973-1991. Under Kaunda’s watch, Anglo-American, operating in Zambia since 1928, emerged the winner, exercising its pre-emptive rights by purchasing 65 per cent of the Konkola Copper Mines (KCM) via Zambia Copper Investments (ZCI) at a cash price of US$90 million, with promised investment of just US$300 million.

According to Peter Sinkamba of the NGO Citizens for a Better Environment, Anglo used their position on the board of ZCCM to sabotage negotiations with the Kafue Consortium. One example was the separation of the Mufulira smelter from the Nkana mine package, rendering the bid incomplete and unattractive to potential buyers. PriceWaterHouseCoopers criticised Anglo’s position and preferential treatment; mining corporations such as Chambishi Metals descried Anglo’s tax exemptions, extending to safety, labour, health and environmental protection; they demanded similar treatment such as lower corporate tax rates, matching Anglo’s 25 per cent.

Anglo’s package included a bundle of mines such as Nkana and Nchanga, producing over 50 per cent of Zambia’s copper, and ZCCM’s glory – the Konkola mine. Previously, Paris Club donors refused to release US$530 million balance of payments until the sale of Nkana and Nchanga mines.

Two years after acquiring KCM for ‘a song’, Anglo sold the mine. ‘The coming of Anglo to Konkola Deep was like a sinking man clasping at a serpent…not that Anglo is a serpent,’ said Anderson Mazoka, former Anglo’s head in Zambia.

Martin Potts, an analyst with London-based brokers Williams de Broe stated, ‘Given Anglo’s past history in Zambia, it’s questionable whether they took the interest out of economic motivations, or if it was simply history and ego.’

Anglo’s move, as Abel Mkandawire then-chairman of Zambia’s Chamber of Commerce would later state, ‘was as good as closing Zambia.’

In October 2004, UK-based corporation Vedanta Resources acquired 51 per cent of shares in ‘the world’s largest mine’ for US$48 million cash. In the three-month period that followed, the company registered profits of US$26 million from the Konkola Copper Mines, Zambia’s largest employer following the state. A call option secretly negotiated in 2004 also allowed the company to exercise the right to purchase ZCI’s 28.4 per cent shares, effectively granting Vedanta a 79.4 per cent monopoly. The stock, purchased for US$213 million, was described by the director of South African-based investment company Southern Charter Wealth Management Bruce Barclay as, ‘Control of KCM has fallen into the hands of foreign investors and thereby ensures the current loss of millions if not billions of US dollars in value to Zambia, her citizens and ZCI Ltd shareholders.’

The Zambian government aided in the process, by removing the Competition Commission to enable Vedanta to become the majority shareholder. The sale, stated Southern Charter, amounted to ‘robbing Zambia of control of its most prized copper deposits for at least thirty years to come.’

But the roots of Zambia’s diseased political economy, indebted to 30 per cent of GDP, dependent on similar figures for strategic rents (foreign aid), is rooted in its failure to diversify the country’s political economy following ‘flag independence’ Instead the state continued along economic colonialism, rendering the country an export-oriented ‘rentier’ state dependent on multinationals for externally supplied income from liquidated finite resources.

Zambia itself was colonised in the late 1880s by the British South Africa Company (BSAC), a multinational formed by Cecil Rhodes, the corporate-magnate who proceeded to ‘conquer’ much of Southern African through royal charters granted by the British ‘Crown’. By 1920, major concessions had been secured by Rhode’s agents like Frank Lochner, the namesake of the Lochner Concessions. The latter provided Rhodes with all mineral rights in North-Western Rhodesia. BSAC’s desire to control Zambia’s copper-cobalt belt was so ardent that the company refused to hand over mineral rights on independence in 1964, ceding only when the Zambia government threatened to expel the company.

Come privatisation, and two critical pieces of legislation – the 1995 Investment Act, and the Mines and Minerals Act – were created to ensure that resource revenues, derived chiefly from taxes such as royalties (mineral taxes) and corporate taxes, were significantly eroded. More than a decade after privatisation, Zambian MPs, relevant ministries and even tax administrations and unions have yet to get a glimpse of the secretive development agreements, splitting ZCCM into seven units.

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