With copper in the midst of a supercycle, and the recent ousting of Zambia’s former President Edgar Lungu and the election of President Hakainde Hichilema, the potential for rapid reform to increase production and “seize what remains of the supercycle, should not be overlooked”, says law firm Beech Veltman CEO Warren Beech.
Despite being a country rich in copper deposits and having an economy predominantly built on mining copper ore, the Zambian government had, he said, on several occasions, forfeited the full benefits of copper price surges, owing to a combination of its legislation, the burden of the tax regime and its constrained infrastructure.
However, in line with the outcome of the recent elections, “the market has already responded positively to the ousting of Lungu, and the expectation that Hichilema, widely regarded as a successful Zambian businessman, will take necessary action to fix Zambia’s ailing economy”, says Beech.
Zambia is, and has been, in the “eye of the perfect storm” of adversity combating opportunity – with current, global copper prices touching on $9 000/t. Simultaneously, the country is peppered with inhibiting challenges such as constrained local beneficiation, high taxes and the Covid-19 pandemic – which has severely inhibited the ability to export copper, owing to border closures – he comments.
Ironically, the pandemic has also contributed significantly to global demand for copper and the significant increase in copper prices. Yet, current copper supply from Zambia cannot meet this demand. Copper also remains a vital component of the green economy, which has driven global demand.
There are growing expectations that Hichilema, leader of the United Party for National Development, will encourage investment through a reformulation of the Mines and Minerals Development Act and other Zambian mining laws, including the taxation laws, Beech enthuses.
Hichilema must aim to end the burden of one of the highest tax regimes in the world, which comprises income tax, value-added tax, mining and mineral royalties and export tax, all of which have retarded copper production and deterred foreign investors.
With the easing of Covid-19 border regulations and without the looming threat of re- nationalisation of the mines by Lungu, the mining sector should also gain more traction from renewed foreign investment, notes Beech.
“Zambia’s history has included State ownership of mining assets, until privatisation in the early 1990s. The various nationalism measures implemented, since, primarily, 2011, could be regarded as a move towards de-privatisation and this will be a key challenge for Hichilema.”
Beech says, with major unemployment among the youth, the new President can expect initial pressure to nationalise major assets, including mines.
The Zambian economy is on the road to recovery, with China restructuring Zambia’s debt, reviewing the tax regime and acquiring new funding. Stakeholders in Zambia’s mining sector are hopeful to begin new mineral exploration, expansion projects, increase investment in existing projects and, most urgently, address and increase the country’s local beneficiation capacity.
Zambia also has vast reserves of gold, which, with investment, could provide great opportunity for the mining sector, Beech tells Mining Weekly.
Large-scale unemployment, in conjunction with exploitation on artisanal and small-scale mining (ASM), remains an issue that the future government will need to address, but with increased mining production and legislative reform, local employment should rise in the coming years.
“It will be vital for Hichilema to reform the mining laws to accommodate the including decriminalisation and incentivisation, which could, in turn, assist in addressing modern slavery.”
The global demand for copper is likely to remain extremely high as the world transitions to the green economy, with demand in Zambia, despite the latest presidential developments, likely to outstrip production.
Zambia is perfectly positioned to derive some benefit from this increased demand, provided Hichilema can speedily address the regulatory and business environment, concludes Beech.