10 January 2018

Zambia: Calling for Response to Copper Price Rise

ZAMBIA always and keenly follows the performance of two commodities on the international market when it comes to their prices and supply or even their demand.

Of course only a few Zambians are concerned over the prices of gold, motor vehicles or chocolate on the international market.

And rightly so!

However, mention of the reduced or increased prices of oil or copper, you catch the attention of everyone.

This is because oil is important as the economic lubricant for any country and its price determines the cost of doing business especially for a non-oil producing country like Zambia.

Petroleum takes up a big percentage of Zambia's import and, therefore, a great element of the balance of trade.

Its performance, in terms of prices, affect both the macro and the microeconomic system as economic players at both feels the pinch of high oil prices, for instance.

On the flip side, the rise on the prices of copper on the international market boosts the Zambian economy, at least at macro level.

This is because Zambia has remained Africa's second largest copper producer and therefore majorly benefits from the increase in the prices of copper on the international market, at least in terms of foreign exchange (FOREX).

On paper other benefits accrue to the local economy as the result of increase in the prices and volumes of copper on the international market.

In reality, many observers say the benefits do not directly trickle down to the microeconomic levels because most of the proceedings from the export of copper is externalised by the foreign investors.

Notably, at the time of the privatisation of the Zambian mines the prices of copper on the London Metal Exchange (LME) had plummeted to below $4,000 per tonne.

That, unfortunately helped to determine the prices at which some of these mines were sold, or is it given away!

Commenting on the process then, one political leader said that the Zambian mines were "sold for a chorus."

Comparison between the prices at which the mines were sold and the amounts the private investors were to later make since acquiring the mine will either exonerate or condemn such sentiments, but that is not the focus of this article.

As if by conspiracy, following the privatisation of the mine, the prices on the international market have remained fairly on average of above $5,000 per tonne, and once hit $10,000.

Every time the prices of copper are high, all sorts of theories or proposals come up on how Zambia can benefit more from the sector.

At one time, that gave yield to a concept called windfall tax which seems to be dreaded by all mining investors.

It is during the positive performance of copper in terms of prices that people push for the increase in the government shareholding in the mining units in the country.

This, observers say, is the direct way of benefiting from the rise in the prices of the commodity on the international market.

Others see the increase in the prices of copper on the international market as a chance for the government to collect more from the sector in terms of taxes.

For instance with the prices currently hovering well above $7,000 per tonne, the Government projects increased revenue collection through taxes from the mines.

Mines and Minerals Development Permanent Secretary Paul Chanda said recently that Government was happy that copper prices were rising and that most mining companies were now making profits which would lead to Government collecting more money through taxes.

Currently, Zambia uses the sliding scale mining taxation regime which entails higher tax rates at higher price thresholds.

We will, one day, look at this tax regime to ascertain whether it can adequately benefit the host for the mining investments during the price boom periods.

On the other hand, whenever there is a nosedive in the prices of copper, the first casualties who bear the blunt are the miners who are retrenched as a way of scaling down the cost.

During the last downturn of the copper prices in 2015/16 thousands of miners were offloaded for the same reason.

The mining investors said they would not sustain larger workforces because they were halting their expansion programmes.

They reduced their production levels.

With the rise in the prices of copper Zambia has witnessed increased export volumes for the commodity.

For instance last month's Central Statistical Office (CSO)'s bulletin indicates that the country's volume of copper export in November 2017 increased by 32 per cent from 76,250 in October tonne to 100,585 tonnes.

There has, however, been deafening silence from the mining sector on how the investors are responding to this in terms of expansion and, therefore, increase in the number of employees!

With the outlook for the copper prices, which most observers have described as positive, any pressure for the mines to employ more should not be undermined or even faulted.

Investors should share both their woes and their joys with the Zambians through retrenchments, in bad times, and more job opportunities, in good times like now!

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