Government is allegedly plans to leverage its land and mineral ownership to negotiate a shareholding of not less than 25% in all new mining projects. In an interview with Metal Bulletin, Mines Minister Yamfwa Mukanga says government has no intention of nationalising the sector. Rather it hopes to see its shareholding in future mining projects rising to 35%, but its role in the mining sector will be limited to being a minority shareholder and regulating the mining environment.
I have long argued for this and I am glad the minister is thinking bold and taking this forward. Taking a 25% – 35% on all new projects is a step in the right direction. Presumably through ZCCM-IH. This idea is actually not that new. The MMD had previously hinted at taking a 25% in an effort to “have a stronger influence in decision-making”. But that rationale was weak because as the current Minister notes 25% is a minority interest. It is better to see a minimum stake of this sort as predicated on increasing revenue and encouraging general national control over scare resources.
The Government proposed approach is similar to Angolan mineral resources model. Typically, a mining company in Angola is expected to fund 100% of the capital expenditure although owning only around 40% of the mine. The rest of the equity is held by the Angolan government through Endiama and by nominated private Angolan investors all of whom are entitled to a “free carry.” Once completed, the developer has priority over revenues until the capex outlay is recovered but may still get only about 80% of the initial revenues because of profit share agreements with the Angolans. It is therefore no surprise that Angola is benefiting greatly and growing at a faster pace than Zambia. These resources are paving the way for significant investment in infrastructure.
I see no reason why Zambia should not implement this idea of owning 25% – 35% in all new investments right away. It is a smaller ask than what the Angolans demand. If any investors refuse they can go elsewhere. We don’t have to mine these minerals at price. What we need is a new law that now specifies this – presumably this will need to be a new legislation.
In general we are seeing a positive transformation of the mining sector. The government is to be applauded for its efforts. Many investors will cry aloud and speak of the dangers of lack of investment if this was taken forward. But I do not think we should worry too much about that. The medium and long term demand for copper and other mineral is strong. Most importantly, this is not nationalisation. It is about recognising the boundary of new investments. Even countries like the USA have sectors where ownership is restricted e.g. the airlines industry. This is the way forward. It avoids the politics of existing investments and ensures future investments give Zambians a greater stake.
This article was originally published by author Chola Mukanga on the blog Zambian Economist.