A case-study in privatisation: Has Zambia benefited from a privatised Chibuluma?

The best time to measure the overall contribution of a mine to society is when it is about to close, and Chibuluma Mine on the Copperbelt is an ideal case-study.

That’s according to an article posted today on the industry website www.miningforzambia.com.

Chibuluma was one of the first Zambian mines privatised in 1997, and after more than 18 years of operation, it is nearing the end of its working life.

“Unless our ongoing exploration finds a new copper deposit worth exploiting soon, Chibuluma will probably close sometime between 2020 and 2022,” says Eustus Munsaka, Head of Finance. “All mines have a natural lifespan, and we are about to reach the end of ours.”

Has Chibuluma benefited Zambia? Was it right to privatise the mine? Or would it have been better to leave it as a nationalised entity, under the control of Zambia Consolidated Copper Mines (ZCCM)?

When Chibuluma was being considered for privatisation, the nationalised mining industry was struggling. Production had plummeted, employment was down and the technological base of the industry was depleted from lack of investment. ZCCM was losing money and government was not getting any mining tax revenue. So the decision to privatise Chibuluma, and other ZCCM Mines, is perhaps easier to understand within the social and economic context of that era.

Immediately upon privatisation, Chibuluma’ s new shareholders, Metorex of South Africa, poured money into developing the mine and renewing its technology base. This capital expenditure programme has continued unabated ever since, and has been running at more than $15 million a year since 2008.

The next element of Chibuluma’ s contribution is the money that has flowed directly to government, starting with the $17.5 million purchase price of the mine. Then adding the various taxes paid over the years (corporation tax, Mineral Royalty Tax, windfall tax, Value-Added Tax and Pay-As-You-Earn tax by employees), the total comes to $252 million – or about K2.4 billion at current exchange rates.

“Significant as these payments to government are, they overlook the larger social and economic benefit the mine has had on the community and the local economy,” says Munsaka.

Employee spending power is significant. Then there is the multiplier effect – every direct job at a Zambian mine such as Chibuluma creates up to 5 jobs indirectly in the local community and the broader economy. This is easy to understand when one considers the millions of kwacha released into the local economy every month through employees’ wages and salaries.
The community has benefited too, thanks to the company’s Corporate Social Responsibility (CSR) programme. Since 1998, Chibuluma has spent in excess of $3.7 million building schools, roads and houses; donating computers and laboratory equipment; awarding scholarships; teaching farmers how to grow crops more efficiently based on conservation farming skills; and providing medical care. In 2013, the mine handed an entire 100-bed hospital to government.

So when all the various contributions – both direct and indirect – are taken into consideration, the answer to the question “Has Zambia benefited from a privatised Chibuluma?” has to be an emphatic “yes”.

The only downside is that this substantial social and economic contribution has almost certainly created a culture of dependency, which will be sorely tested in the years ahead. All stakeholders will feel the economic effect of the loss of spending power and tax revenue from the mine.