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January 26, 2015 2:19 pm
Zambia’s copper belt reels as price falls
Andrew England in Kitwe
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Workers at a Vedanta smelting plant in Kitwe in Zambia
The legacy of copper mining on Kitwe, a small but bustling city in the heart of Zambia’s Copperbelt province, is indisputable.
On the city’s edge, a huge blackish-grey slag heap that dates back to the 1930s dominates the skyline, an ugly reminder of the industry’s
long history. Nearby, the hulking structures of Mopani mine, operated by Glencore, tower over a residential area. And a shopping mall,
decked out with South African retailers and banks, acts as a symbol of the boom years the region has enjoyed for much of the last
decade.
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But now foreign and local businesses — from corporate giants such as Glencore to small Zambian
companies and individual Chinese traders who moved there to take advantage of the boom — have been
left reeling by a sliding copper price. This month, it hit five-and-a-half-year lows of about $5,353 a tonne,
below the estimated marginal cost of production of $5,500, though this is higher at many Zambian mines,
which are old, deep and expensive to operate.
“We are having to sacrifice margins . . . we hope it’s temporary,” says Chibuta Mumba, finance director at
Turbo Agencies, a mining services company. “We started to notice the impact eight to 12 months ago. It’s
been gradual but it’s harder now.”
As Chinese growth slows, the slump in commodity prices — from iron ore to crude oil — is being felt
across Africa. In particular, it is hurting sub-Saharan Africa’s eight oil exporters — including Nigeria and
Angola — which account for about 50 per cent of the region’s gross domestic product.
This is largely why the International Monetary Fund last week revised downwards its forecast for sub-Saharan African growth in 2015
from 5.8 per cent to 4.9 per cent. But other commodity producers are also feeling the pinch. Zambia, Africa’s second biggest copper
producer, is a prime example. China accounts for 45 per cent of the metal’s global consumption.
From 1997 to 2013, mining attracted $12.6bn in foreign investment, according to industry figures, helping
the southern African nation become one of the continent’s star economic performers, with average annual
GDP growth of 6.4 per cent over the last decade. Today, mining employs 90,000 people and contributes
about three-quarters of the country’s foreign exchange earnings and 25-30 per cent of government
revenue.
$12.6bn
Total foreign investment in
Zambia’s mining from
1997 to 2013
But as copper’s price has weakened so too has the country’s currency, with the kwacha depreciating to
record lows against the US dollar. The slump in copper’s value is also complicating the government’s
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Zambia’s copper belt reels as price falls - FT.com
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efforts to narrow a wide budget deficit amid slowing growth. The IMF estimates Zambia’s economy expanded by 5.5 per cent last year
— its lowest level since 2002.
“The impact is quite significant and it’s worrying,” says Jackson Sikamo, general manager of the Metorex, a Chinese-owned mine, and
president of the Chamber of Mines.
He does not expect mines to close, but says there are likely to be cutbacks. During the last trough in the copper price in 2008, all but
one Zambian mine restructured, causing “thousands” of job losses, he adds.
“The first thing they [mines] will do is look at operations and evaluate all their costs,” Mr Sikamo says. “They will be looking at only
[retaining] those costs that relate to safety and production; everything else they will start shedding.”
Mining companies say their problems are exacerbated by a government decision to scrap corporate tax and raise mining royalties, with
the royalty on open pit mining increasing from 6 per cent to 20 per cent. Barrick Gold blames the changes for its decision to begin
mothballing its Lumwana mine, which employs 4,000 people. The government insists the changes were needed to ensure companies —
some of which it suspects of tax evasion — pay their dues. Last year, only two of 11 mines paid taxes as most claimed not to be turning a
profit.
Last week’s presidential by-election was narrowly won by Edgar Lungu, the candidate of the ruling Patriotic Front that introduced the
tax changes. Mr Lungu, who will govern until general elections in 2016, has said he would be open to discussions with mining
companies about their concerns.
If you put 10 people
out of employment
what you are doing is
putting 40 people out
of food because that is
the responsibility
miners have
- Chibuta Mumba, Turbo Agencies
Still, the changes have added to the pressures on the industry. At Turbo Agencies, Mr Mumba says they are
receiving fewer daily inquiries and more clients want their fees reduced.
“If the price goes lower then we start worrying about mines laying off,” he says. “If you put 10 people out of
employment what you are doing is putting 40 people out of food because that is the responsibility miners
have.”
Hundreds of Chinese people moved to Zambia during the boom years to work in the copper trade. In a
nearby office in Kitwe Jack Sun, who sells gloves and helmets to Chinese mining houses, says six of his
friends — whom he describes as copper “traders” — have returned to China. “It’s not nice,” says Mr Sun.
“Some Chinese right now are leaving because the price has come down.”
Mineworkers, meanwhile, complain that they have to endure the pain when prices dip, but do not see any upside when prices rise.
“We don’t feel it when it goes up,” says Kelvin Temba, a miner. “But when prices go down companies use it as an excuse to reduce our
increments.”
RELATED TOPICS
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