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Resource Nationalism from the Other End of the Telescope

Some Mining Journal readers may know of the industry link formed a few years ago between the Minor Metals Trade Association (MMTA) and the copper belt town of Mufulira in Zambia – a place that has, for us, come to symbolize all metal-centric communities.

Mufulira is the town where the British discovered copper in the 1920s and was one of the first brands I learned when entering the metal trade in 1979. It was, and still is under its name MCM, one of the finest copper brands, low in impurities and suitable for electronics manufacture. By 1933 the British had opened the Golf Club. The Rugby and Swimming Clubs were shortly to follow. Wide tree-lined groves built by the British still dominate the fresh-aired East side of town. The road in which I am staying, called Julius Nyerere, is named after Tanzania’s saintly first post-Independence President. When I first visited in 2009 only the letters ‘J’ & ‘E’ remained as a clue on the road sign. In 2012 these two remaining letters have also passed on.

It is a good place to view the subject of ‘Resource Nationalism’ which is a phrase making so many headlines. Today, in Mufulira, where Glencore Intl AG own 73% of the mine as well as the heap leach and smelter operations something like 200,000 mt of refined copper passes through. This is as much as the whole of Zambia produced in 2000 when Glencore acquired its share. Since then, Glencore has invested in a new ISA Smelter, anode plant and ‘In Situ’ Heap leaching operations, is now replacing old converters and adding a second acid plant to recover fugitive sulphur.

In the 1930s copper ore near the surface graded about Cu 5% while now at around 1400 metres depth it averages 2% (which to my mind compares favourably with the Chilean average of 0.5%). In a sense the cost of deep mining is cheapened as the cost to reach these depths was amortised at privatization. Copper ore across the border in the DRC is being found at Cu 10%.

The issue for Zambia as a whole is whether or not it is getting its fair share of the action during a period when copper prices have been their highest in history. Taking into account the revenues from by-product gold and silver, during 2010 the value of metal leaving Mufulira must have been close to $2 bln. The problem for Mufulira is that this is not a town that looks as if this is the case.

After Independence in 1964, Dr Kaunda’s ZCCM took over responsibility for the copper industry so that Zambians came to identify copper as inextricably linked to their national interest. As people within the community have said to me, they accepted to some extent the pollution that went with this industry because at the same time the Zambian Government was providing everything from houses to hospitals, roads and schools.

But by 2000, with copper prices below $1 per lb, and Zambia unable to feed itself, it was forced to privatise this industry under pressure from The World Bank and IMF in return for loans. Nationalisation of the copper industry had failed. The cash cow was dying and without the intervention of outside agencies all that would be left would be its bleached bones.
But the story of failed nationalisation obscures the problem that exists today. This is not an issue between ‘nationalisation’ on the one hand and ‘private’ or ‘multi-national’ mining interests on the other. It is much more about ‘fairness’ and the due processes of international law as well as international standards of behaviour. This includes behaviour, I should say, of the Zambian Government which has been found to be lacking at times since 2000.

With the date of acquisition coinciding with a period of intense weakness in copper prices, mining houses, residing in low tax areas, enjoyed the double blessing of tax relief on their operations in the country of production via what were called ‘development agreements’ as well as the under 10% in tax payable on corporate profits in places like Zug. Furthermore it is generically true of all commodities’ businesses operated from overseas that to retain cost in the country of production and profit across the water is not an impossible mission. Naturally, with copper prices as high as they have been, countries like Zambia have felt they have been short changed and, to add insult to injury, they have had to cope with pollution, poor roads, run-down schools, under-invested hospitals and lack of infrastructure to boot.

Zambia, though, is not Zimbabwe. This nation of 12 mln in September last year held the most peaceable and democratic elections ever seen in Africa. The winner was a 75 yr old who had once swept the platforms at Victoria Station in London and who is seen as too old to be corrupt. His Vice President, Dr Guy Scott, is a white Zambian who chose Zambian nationality at Independence in 1964. It is this face of Zambia that I see as being the template for the way forward. As an incoming government they have of course made noises about the inequitable relationship between the value of resources leaving the country and Zambia’s tax share of the revenue. But the approach to solving this issue is likely to come from stronger government and better governance. With the world watching, this country is in a hurry to make up for lost time. It seeks to build up institutions of civil society which are the basis for good governance – that means Zambians holding their own government to account through Press and Parliament, to scrutinise the way in which they monitor and collect tax on resources, the type of deals struck with foreign miners and collection of accurate statistics on exports and toll conversions without which tax cannot effectively be collected. Funnelling efforts into producing government that will be accountable to its people and passing on the collected taxes down the empty pipeline into schools, hospitals and infrastructure is the challenge.

Resource Nationalism, if it were to come in Zambia, would simply be the price for failure. In Zambia there is absolutely no need for this – but, to avoid it, the foreign miners need to work with their Zambian counterparts much more openly, transparently and co-operatively to demonstrate they are good neighbours in the community – something which has not always been the case.

Anthony Lipmann April 5th 2012
A shorter Version of the above article was published in Mining Journal 27th April 2012