/ 14 December 2008

Zambia in copper crisis

Free-falling global copper prices are causing panic in Zambia, one of the world’s largest copper producers, the economic growth of which in recent years has been propelled by earnings from exports of the commodity.

”This is going to affect our economy badly. Already mining companies have started cutting down on further investment programmes because they are making less money and they are cutting down on their employment base, which is not good for our economy,” said Robert Sichinga, an economist and former parliamentarian who served on the parliamentary mining committee.

Since the beginning of the credit crunch in the United States copper prices have tumbled from record highs of nearly $9 000 a metric ton between 2005 and 2007 to about $3 000 a ton amid concerns that the global economic slowdown could cripple demand. Copper is a key metal in the electronics and buildings industries.

”We now have some mining companies advocating for the cancellation of the new tax regime because they feel the market is no longer favourable for such taxation, which is very unfortunate for the country,” Sichinga said.

Copper accounts for 80% of Zambia’s foreign earnings and has helped deliver sound economic growth of 5% in the past six years. Earlier this year the Zambian government projected more than $415-million in revenue from copper exports after revising mineral royalty taxes from a paltry 0,6% to the global standard of 3% and introducing a windfall tax triggered by higher prices of copper.

The government’s decision to introduce the new tax regime came after years of sustained criticism from the labour movement, Western donors and business organisations for charging one of the lowest royalty taxes in the world and awarding lengthy tax holidays to foreign investors in the mining sector.

Oliver Saasa, a consulting economics professor at the University of Zambia, told the Mail & Guardian: ”This situation is putting a lot of pressure on the government. As it is now, there is a reduction in government revenue and also no windfall profit because of the low prices. The windfall tax is applicable only where prices are high. Because of the reduced resource base government will face problems in social investments for such critical sectors as education and health.”

This week a number of mines were rumoured to be preparing to cut their workforce, with labour officials confirming that Canada’s First Quantum Minerals had already laid off 286 workers.