1. ZAMBIA MINING INDUSTRY : A PRIVATE SECTOR PERSPECTIVE
SESSION 3
ZAMBIA MINING INDUSTRY : A PRIVATE SECTOR PERSPECTIVE
– DEMOCRATIZING DEVELOPMENT THROUGH SHARED RESPONSIBILITY FOR SOUND NATURAL RESOURCES MANAGEMENT
Dr Sixtus C. Mulenga Founder & Executive Chairman Musamu Resources Ltd Zambia Annual Democracy Forum 2014: Fostering Democracy and Development Through Sound Management of Natural Resources Gaborone International Conventional Centre Gaborone, Botswana November 2014 Organised by the International IDEA and the Government of the Republic of Botswana

2. PRESENTATION OUTLINE
1. Over view of the Zambia Mining Industry Development Framework For Democratizing Development Through Shared Responsibility For Sound Natural Resources Management Achievements and Challenges 4. Suggestions For The Way Forward

3. Private Sector Ownership – Active participation mainly by
The Mining Industry in Zambia is over 100 years old, mining primarily; copper, cobalt, lead, zinc, coal, manganese, industrial minerals and gemstones (mainly emeralds and amethyst). The Industry has gone a full circle of ownership:
Pre – Independence Era to 1964 (74yrs)
Private Sector Ownership – Active participation mainly by
British Citizens
Post Independence Era – 1964 to 2014 (50yrs)
State Ownership – mainly state controlled.
27 years; 1973 to 2000.
Private Sector Ownership – mainly free-market led and participation of both local and foreign investors.
14 years to date; 2000 to 2014.

4. Framework For Democratizing Development Through Shared Responsibility For Sound Natural Resources Management - Zambia Mining Industry
Political Stability – Zambia has been a haven of peace since independence;
Multiparty Democracy – Zambia has changed Ruling Political Party Governments; three times since independence; UNIP for 27 yrs, MMD for 20 yrs and PF current for 3 yrs;
Good Governance and solid Legal Framework – Rule of Law;
Investor –friendly Fiscal, Environmental and Legal Regime;
Private sector driven economy;
Extractive Industry Transparency Initiative – Zambia became an EITI Compliant Country in the first country to become so in Central, Eastern and Southern Africa ;
Mining Companies invest heavily in Corporate Social Responsibility (CSR);
Investment in manpower development – most operations are manned by Zambians;
Clarity in the roles played in the sector between government and mining companies; and
Empowering of local citizenry in the ownership of mines either through Issuance of Mining Permits, and buying of shares in listed companies on the Lusaka Stock Exchange.

5. ACHIEVEMENTS & CHALLENGES OF MINING INDUSTRY
KEY ACHIEVEMENTS INCLUDE:
Having developed a world class mining industry and being one of the top producers of copper , cobalt and Emeralds in the world;
Having developed a world class local manpower skill base;
Mining Industry being sustained as the major driver of Zambian economy and base for economic diversification;
Copperbelt Province – Traditional mining province
Northwestern Province – New frontier
Southern Province – New frontier
Mining Industry being the largest private sector employer in the country;
Mining Industry Corporate Social Responsibility including;
Education, Health, Local Business Development, Community Programmes and Sport & Recreation.

6. Copper production Share of global production Copper production
(Percentage.)
Copper production
(Tonnes.)
Mineral production, dominated by copper, has long been Zambia’s largest non-agricultural sector in terms of economic output
Production volumes experienced a decline from a peak of 700,000 tonnes at independence to only 221,000 tonnes by the year 2000
but these recovered rapidly following privatisation in the late 1990s
Zambia is still a big player in global supply but its market share has not recovered to the levels seen in the 1970s. Its global rankings have slipped from 5th,4th and 5th in mining, refining and smelting respectively back in 1975 to 6th,6th and 10th today.
There are doubts regarding the correct numbers - hence, the Mineral Value Chain Monitoring Project, recently commissioned by ZRA.
The numbers shown in the graphic use International Copper Study Group data for the later years and US Geological survey data for earlier years.
There is a strong suggestion that the Bank of Zambia (BoZ) data seriously overstate the true values. Data from both Wood McKenzie (2012) and the International Copper Study Group show copper production at 672,000 tonnes by 2011 before falling slightly in These numbers compare with a figure in excess of 800,000 tonnes if one uses only the BoZ data.
The key point is that production levels (tonnes) have definitely recovered strongly since about 1999.
Private ownership
National ownership
Private ownership
Source: International Copper Study Group from 1996 onwards (Copper Bulletin March 2012 & April 2013; Yearbook 2006; Statistical Yearbook 2008), US Geological Survey Annual Mineral Reports

7. Mining’s contribution to government tax revenues
Government revenue
(Kw million)
Mining revenues have increased sharply since 2006.
In 2012, mining taxes and royalties were more than 30% of total government tax collections, and 5.9% of GDP.
If PAYE taxes are excluded, mining taxes are greater than 25% of all tax revenues.
The increase over a short period reflects the expiry of capital allowances on the first wave of new investments after privatisation, increased mining production, and higher fiscal rates implemented since 2008.
Recent reforms have led to increased collections both from corporation tax and from royalties.
A great deal of the popular comment on mineral taxes juxtaposes numbers such as the 80% contribution to exports or the >10% contribution to GDP with an alleged much lower contribution to total tax revenues (often 8% which actually is the figure from 2006)
Some of the academic papers refer to the “lost” revenues from the period 2000 to But this misses the point that when new investments are so large (c $10 billion) and also so new, the capital allowances (allowed in almost all mining regimes) will result in low levels of corporation tax for several years. Thus it is not meaningful to compare Zambia ( ) with Chile in the same period.
Source: Zambia Revenue Authority, 2014– includes revised data and latest This data is not in report

8. CIVIL SOCIETY ORGANISATIONS.
A MULTISTAKEHOLDER GROUP COMPOSED OF EQUAL REPRESENTATION FROM THE
MINING INDUSTRY, GOVERNMENT AND CIVIL SOCIETY.
A TOTAL COUNCIL MEMBERSHIP OF 18.
CHAIRMAN SHIP = GOVERNMENT & VICE CHAIRMANSHIP = CIVIL SOCIETY.
FULL TIME EITI SECRETARIAT IN THE MINISTRY OF MINES.
ZAMBIA EITI COUNCIL
MINING COMPANIES
(6 Members)
GOVERNMENT
(6 MEMBERS)
CIVIL SOCIETY ORGANISATIONS
(6 Members)

9. . AN EITI PUBLIC BILLBOARD SHOWING AMOUNT OF TAX PAID
BY MINING COMPANIES TO GOVERNMENT

10. Foreign Direct Investment Gross Domestic Product
Overview: Macroeconomic contributions of mining
Typical share in low and middle income mineral-driven countries
Zambia
2012
Foreign Direct Investment
Exports
Government Revenue
Gross Domestic Product
Direct
Employment
>
86%
60 – 90%
80%
>
30 – 60%
>
>25%
3 – 20%
>
>10%
3 – 10%
Zambia conforms closely to the inverted pyramid pattern of contributions seen in other MPD case study countries.
At the top of the pyramid we see that FDI in Mining has completely dominated that for all other sectors in the past decade.
Mining accounted for 86 % of all FDI inflows in For comparison, agriculture accounts for less than 3% of FDI inflows.
Looking down the pyramid, mining’s export contribution in Zambia is exceptionally high by international standards (UNCTAD data).
Its contribution to government revenue has recently (post 2008) averaged over 25% of government revenue, which is also high by international standards (ZRA and IMF data, discussed later).
The GDP and employment contributions are similar to what is seen in other countries where the Toolkit has been applied (CSO data).
>
1.7% 1%
Source: ICMM MPD Toolkit analysis

11. Key Challenges : Procurement of goods and services
Mining industry procurement
(2012 data extrapolated from sample, to represent total industry procurement; US$ million)
Zambian produced
Imports bought from Zambian companies
Imports bought from Zambian companies
Based on the sample data aggregated from four mines*, services are procured mainly from Zambian companies, but goods are mainly imported. It should be noted that no official statistics exist and that definitions differ among companies. The numbers constitute a best effort based on information from the companies concerned.
Barriers to increasing local procurement include:
Costs of Zambian supplies
Transport (Zambian manufacturers have to import most inputs)
Taxes(corporate taxes are higher than in other countries in the region)
Labour (wages are high and the minimum wage was increased recently)
Land (difficult and expesnive to acquire)
Regulations (Zambia ranks 94 on the World Bank’s ease of doing business index – South Africa is 39, Botswana 59 and Namibia 87)
Access to credit for suppliers
High interest rates
Lack of collateral
Skills
General management skills
Technical training
Regulations (foreign exchange), adds to the cost of doing business with a Zambian supplier rather than a supplier abroad: mining companies earn dollars which they convert to Kwacha to pay domestic firms which convert them to dollars to buy supplies from abroad
*OPM has analysed and aggregated current and forward looking data from four mining operations: Mopani Copper Mines (Glencore), Konkola Copper Mines (Vedanta Resources), Lumwana Mine (Barrick) and Kansanshi Mine (FQML).
Direct imports
Source: Four mining companies data and OPM calculations

12. Suggestions For The Way Forward
Encourage and nurture growth of local entrepreneurs in the Mining Industry so as to create a local base of industrialists that can own mines and work side by side with international mining companies, so as to create a firm base for growing and sustaining the mining industry;
Promote local manufacturing of inputs on the upstream side of the Mining Supply Chain and downstream value addition, so as to expand local employment base, reduce unit cost of production and maximise value derived from mineral resource endowment.
Governments and Private Sector should continue working together as partners in enhancing and consolidating growth in the mining sector;
Governments to continue maintaining investor friendly policies necessary for attracting both Domestic and Foreign Investment in the sector and Mining companies to ensure that they practice tenets of good corporate citizenry;
Governments and mining companies to consolidate the framework that ensures that the benefits of mining investment is visible and transformational in the local communities in which the mining companies operate and in the national economy at large;
Mining companies to continue embracing best global practices in CSR and Community engagement to ensure that there is meaningful and tangible development in the local areas they operate in and have social licence to operate.
Governments to expand the EITI Framework to further embed Economic Democracy in the country.
Have clarity of roles played by both governments and mining companies in growing and sustaining the mining industry to ensure achievement of sustained wealth creation for both the countries and the shareholders.

13. MUSAMU RESOURCES LTD
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