28 June 2006

Zambia: Record Copper Prices, But Mine Region Yet to Benefit

Lusaka — Record world copper prices should brighten hopes of recovery in Zambia's Copperbelt region after a decade of mine closures and job losses.

Since the beginning of the year, prices on the London Metal Exchange have shot to nearly US$10,000 per tonne - double the average last December - on the back of strong demand from China and India in particular.

"The good copper prices have encouraged mining companies to double their production capacity. As government, we are optimistic that this will translate into positive developments on the mines and the communities in which they are operating," mines minister Kalombo Mwansa told IRIN.

The wheels came off Zambia's economy in the 1980s, when copper prices slumped under the weight of a global recession. A new free-market government privatised the mines in the mid-90s, with inevitable job losses, and the mineral-rich central region slipped further into decline.

But the current good copper prices may not yet translate into a wider recovery of the area and its two million inhabitants, impoverished by the redundancies and the loss of state mine-funded schools, hospitals and housing.

"We may not see much transformation on the Copperbelt because our mining investment agreements were entered into at the time Zambia was desperately looking for investors. Unless they are revised, the Copperbelt will not experience any tangible benefits from the current rising copper prices," said mining engineer Andrew Kashita.

Mining investors are entitled to a host of incentives under Zambian law. Foreign firms pay a small 0.6 percent royalty tax - the world average is between 3 and 5 percent - and are exempted from customs duties on machinery and equipment. There are no restrictions on the amount of profits, dividends or royalties that can be externalised.

President Levy Mwanawasa's administration has come under increasing pressure by labour unions and parliament to increase royalty payments but, according to mines minister Mwansa, "we are cautious because if royalties are too high, investors can be discouraged".

Navin Agarwal, the India-based chairman of Zambia's largest copper mining firm, Konkola Copper Mines (KCM), has advised the government not to tamper with the tax. "Government must take a long-term view on the issue of royalties, not based on the current high copper prices," he said during a recent one-day visit to the country.

KCM, which owns four mines in Zambia, has invested more than US$750 million to increase production from the current level of 250,000 tonnes to 450,000 tonnes by 2010. Agarwal told IRIN the record copper prices had enabled the company to create 1,000 new jobs.

The president of the Mine Workers Union of Zambia, Rayford Mbulu, said the region needed better paying jobs as prices improved. "It is not just a matter of employing more people ... it is the question of how much they are being paid. Most miners are paid as little as [US$230] and yet we have repeatedly said the lowest paid miner should get [US$ 890] as a monthly salary."

At its peak, Zambia produced about 750,000 tonnes of finished copper, before dropping to 200,000 tonnes in the 1990s. Output rose to 440,000 tonnes last year.

[ This report does not necessarily reflect the views of the United Nations ]

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