Conned for her copper: Zambia pays the price for aid

Copper mine workers at NFC Africa Mining shaft in Chimbishi

Copper mine workers at NFC Africa Mining shaft in Chimbishi. Photo credit: Christian Aid/David Rose

Copper underwires the modern world, running through everything from the gas guzzler to the wind turbine. Any country that finds substantial reserves of the metal ought to consider itself to have struck gold. That is, until you let the World Bank decide how your mines should be run…

Weight for weight, copper is one of the most valuable resources in the high-tech world. 75-80 per cent of copper is recycled – one of the highest recycling rates for any metal, and a process that uses just 15 per cent of the energy and materials required to mine fresh ore.

According to Professor Ronnie Belmans at the University of Leuven, Belgium, the efficient use of one tonne of copper in the energy sector can save up to 200 tonnes of CO2 per annum.

Copper itself is known as ‘the green resource’ not simply for its oxidized colour: it is indispensable in renewable energy technologies. It is one of several key components used in what have been touted as the world’s most economically viable solar panels: copper-indium-gallium-selenide panels (CIGS).

Meanwhile, the generator inside a 5MW wind turbine requires 3.4 tonnes of copper in order to convert wind energy into electricity. Despite the march of fibre optics, copper remains the preferred material for technological communications, ranging from the fax ‘coup’ of the 1980s, to the internet revolution of the 1990s.

Such a valuable resource has a volatile global price. During the recent commodity boom (2003-2008), price averages skyrocketed from $2800 per ton in 2004 to $9000 per ton in 2008, before climbing back to $6000 per ton following the economic recession.

Why does this matter? Well, over 70 per cent of copper mined in 2006 was produced by less-industrialised and emerging economies including Chile - the world’s largest producer at 5,361 thousand metric tons - Peru (1,049), China (844), Indonesia (816), Russia (675) and Zambia (509).

The latter has felt the double-edged sword of having extensive copper deposits perhaps more keenly than any other nation.

All that glitters…

Zambia, one of the poorest countries in the world, ranks 163 out of 179 nations in the UN's Human Development Index. Over 75 per cent of the population lives beneath the poverty line, with an average life expectancy of 35 years.

Ironically, Zambia was once considered Africa’s progress icon, courtesy of its rich copperbelt that in 1970s yielded some 700,000 tons of copper each year.

As late as 1979, Zambia was classified by the World Bank as middle-income, on a par (in terms of GDP per capita) with European nations such as Portugal, and ahead of emerging African economic powerhouses such as Egypt.

But the country’s copper fortunes – a financial milking cow accounting for some 80 per cent of export earnings – were not to last.

October 1973 saw the start of the oil crisis, with prices for the black stuff soaring from less than $20 a barrel to nearly over $40, and then to around $70 in 1980 (2008 prices). In Zambia, food prices increased by 650 per cent (1980-1988), real wages decreased, and debt servicing sucked up 83 per cent of every dollar earned through copper exports.

Copper did the opposite. Its price dived from around $5,000 per tonne in 1970 to $2,000 in 1985.

Consequently, Zambia’s total external debt rose from $814 million to $3.2 billion by the late 1970s, before doubling to $6.9 billion in the 1980s. International donors began to worry about whether they would see their money again, and so started to put pressure on the country to privatise its national copper industry, Zambian Consolidated Copper Mines (ZCCM). At stake was $530 million in aid.

According to research by the Scottish aid agency, SCIAF, Zambia’s former finance minister Edith Nawakwi has said:

‘We were told by advisers, who included the International Monetary Fund and the World Bank that, for the next 20 years, Zambian copper would not make a profit. [Conversely, if we privatised] we would be able to access debt relief, and this was a huge carrot in front of us – like waving medicine in front of a dying woman. We had no option [but to go ahead].’

Poisoned chalice

It was a fateful decision. The move would lock Zambia out of billions generated from exported copper less than one decade later, with revenues decreasing by 50 per cent from 1.4 per cent of exports in 2003 to 0.7 per cent (2004). This, at a time when the price of copper boomed, rocketing back to its 1973 levels.

In an attempt to capture some of the money now slipping through its fingers, the state introduced a windfall tax, increased royalties from 0.6 per cent to 3.0 per cent, and corporate tax from 25 per cent to 35 per cent, only to be forced to repeal the moves in 2009 following the recession.

Meanwhile, the companies invited into the country to buy up its national infrastructure could hardly have believed their luck. Thanks to two new pieces of legislation (the 1995 Investment Act and the Mines and Minerals Act), the multinationals were able to do business in the world’s seventh lowest taxation regime.

The influence of mining companies was instrumental in the formulation of the Mining Act. A report by Christian Aid quotes an official in the Department of Mining:
‘The private sector wanted concessions, so in the Mining Act you find provisions for these concessions.’

Mine operators were granted a series of financial sweeteners, including provisions to carry over losses for periods extending for up to 20 years, 100 per cent tax allowances on capital investment, and various customs and excise tax exemptions on machinery, equipment, power and VAT payments, amongst others.

More than a decade later, these agreements remain secretive save for leaked copies.

Taken together, these deals have seen huge sums of money disappear from the impoverished country. Though Zambia’s exports doubled between 2005 and 2006, totaling $2.78 billion, data from the country’s Chamber of Mines uncovered by the NGO MineWatch Zambia, shows that in 2005, the mining industry contributed a paltry $75 million to the national coffers. In fact, MineWatch’s research indicates that the industry contributes less to Zambia’s economy than its telecommunications sector, and the World Bank’s International Finance Corporation admits that the cumulative impact of all these exemptions means that the mining companies effectively pay a rate of ‘zero’.

The British connection

The country’s largest copper facility, and its second largest employer, is the Konkola Copper Mine (KCM), purchased by UK-based Vedanta Resources plc in 2004 for just $48 million in cash. In the three month period that followed, the London Stock Exchange-registered company posted profits of $26 million from KCM.

Vedanta quickly became the main shareholder of the ‘world’s largest copper mine’ at 79.4 per cent, thanks a Government gagging clause on the national Competition Commission, enabling the buy-out.

According to Vedanta’s KCM corporate profile (2006), the company accounted for one-sixth of Zambia’s GDP and a third of total exports, also employing over 14,000 workers. Estimates contained in KCM’s own records indicate that almost 50 per cent of the company’s tax contribution to the government is drawn from employee contribution (via ‘pay as you earn’) accounts.

Though KCM owed the government just $6.1 million in royalties in 2006/7, from revenues of over $1 billion, SCIAF’s report claims that there is no record of royalties having been paid.

Environmental cost

The legal clout of Zambia’s Environmental Council (ECZ) is very weak when it comes to regulating the behaviour of multinationals, and SCIAF researchers believe that ECZ lacks the resources to implement even those regulations that do exist.

Instead, corporations like Vedanta are supposed to be bound by their own Environmental Management Plan (EMP) – conditions negotiated in the original buy-out deals. While some aspects of plan are progressive, the original agreements between the companies and the Zambian government forbid the latter to raise environmental standards, or make them ‘more onerous that those specified in the Environmental Plan or statutory instruments.’

This hamstrings action intended to deal with existing problems, such as silt contamination of water supplies that pollute agricultural fields, and one notable incident in 2006, when the Vedanta-owned KCM mine burst a slurry pipe, turning the local river blue and raising copper contamination of drinking water supplies to levels 1,000 per cent above acceptable limits, with levels of manganese and cobalt 77,000 and 10,000 per cent above respectively.

Local people reported falling ill, and attempts to boil the contaminated water simply rendered it brown.

The incident was not an isolated one: local officials report that the mine also spent a whole week during 2006 pumping mine effluent with a pH of 1.5 into a slurry dam – close to that of pure battery acid (pH 1.0). Without the required lime being added to neutralise the mix the pipes carrying it dissolved, spilling the acid into the river. The municipal town clerk, Charles Sambondu, describes the incident as ‘pollution… done willfully, knowingly’.

Despite such incidents, on-the-spot fines for environmental infringement are limited to just £17. Such inadequacies have lead the World Bank’s Copperbelt Environment Project to describe the ECZ as ‘very weak... existing regulations are seldom enforced’, adding that ‘the regulatory dispositions for the mining sector is currently so weak that they do not deter polluters’.

Human cost

Mining is dangerous, dirty work, but mine-workers in the industrialised world are usually fairly compensated for the risks they take. Not so in Zambia.

Subcontracted labourers at Vedanta’s KCM mine receive an average of £63 a month, but often less. With no company pension or entitlement to healthcare, workers have little chance to save to cover these costs. The SCIAF report details allegations of employment without contracts, unpaid overtime and protective clothing that the workers must provide themselves.

There are also reports that the pursuit of profit leads to dangerous cut corners. Contractors are paid ‘by the metre’, so some will drill ahead in tunnels as fast as they can to maximise their wages, without stopping to properly reinforce the roof sheets, leading to collapses and rock-falls.

‘[Sub-contracted workers] are [employed in] very inhumane conditions,’ Rayford Mbulu, the president of the Zambian Mineworkers Union (MUZ) told the authors of the MineWatch report. ‘These conditions are basically intended to maximise profit by putting capital above labour.’

A blind eye

Despite the paltry royalties paid by the mining companies, the environmental damage caused and the human cost exacted, the international actors oiling the wheels of such operations seem unconcerned.

In 2004 the World Bank’s Foreign Investment Advisory Service advised the government to retain its ‘incentive’ scheme as a means of attracting further overseas investment. This is despite reports by the likes of global consulting firm McKinseys, which argue that:
‘Popular incentives such as tax holidays, serve only to detract value from those investments that would likely be made in any case.’

Anger towards the mine operators in Zambia’s copperbelt is said to be growing. It is not surprising. In the words of MineWatch Zambia’s authors:
‘…simply stating that Zambia is a model free market economy in which companies and Government work together to deliver poverty reduction does not make it so.’

Khadija Sharife is a freelance journalist

Useful links
MineWatch Zambia
Christian Aid

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