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Alba Iulia
Saturday, March 6, 2021

Zambia’s response to its debt hole is to keep digging

Economy Zambia’s response to its debt hole is to keep digging

Zambia mortgages the future by taking over Glencore copper debt

State-owned Zambia Consolidated Copper Mines Limited (ZCCM) this week agreed to take on $1.5bn of debt and pay a nominal $1 to take over a 73% stake in Mopani Copper Mines from Swiss commodities trader and mining company Glencore.

The agreement adds to the debt liabilities of a country that in November became the first African country to default during the COVID-19 pandemic. ZCCM will repay the loan by giving Glencore creditors 3% of Mopani’s revenue to 2023, which then rises to between 10% and 17.5%.

That’s on top of quarterly interest of LIBOR plus 3%, and a requirement for ZCCM to pay 33.3% of earnings before interest, taxes, depreciation and amortization (EBITDA), less some deductions.

Glencore will retain rights to copper produced at Mopani until the debt is repaid, which Zambia to take between 10 and 17 years, depending on copper prices.

A requirement is ZCCM will have to pay 33.3% of earnings

So Glencore keeps the upside if production and copper prices are strong. For Zambia, the deal “owes more to short-term political calculations than long-term sound economic reasoning,” says Nick Branson, director at Gondwana Risk in London. “Additional liabilities will merely add to the gross public debt, undermining Zambia’s chances of convincing the IMF that its debt can be put back on a sustainable footing.” That will delay access to concessional lending, he adds.

President Edgar Lungu “no doubt views the deal as an opportunity to secure votes on the Copperbelt, where the ruling Patriotic Front was born but has seen its support waning,” says Branson. “The government will be able to boast that Mopani’s “nationalisation” represents both a victory against supposedly exploitative foreign mining companies and guarantees jobs for Zambian workers.”

August elections

The truth is that Glencore has simply been able to offload debt to a government that has both eyes fixed on elections in August.

Glencore temporarily halted copper mining Mopani in April 2020, prompting a threat by the Zambian government to suspend Glencore’s mining license.
Zambia will now seek a new investor in Mopani, and will need about $300m to complete expansion projects started by Glencore. The official timeline for that shows how difficult it will be: ZCCM hopes to identify a new investor by the end of this year.

“Zambia not only added a sizeable chunk of debt to its already unsustainable public debt burden but took on responsibility for a larger share of the mining labour force that it can ill-afford,” Irmgard Erasmus, senior financial economist at NKC African Economics in Cape Town, writes in a research note. Mines Minister Richard Musukwa has said that 15,000 job were at risk.

“In stark contrast to the expected behaviour of a country seeking IMF support and a recipient of debt service suspension relief from Paris Club creditors, the government’s recent actions rather speak of a blatant courting of the popular vote ahead of the August national poll,” argues Erasmus.

The IMF was not consulted on the Glencore agreement.

The move sets the stage for “a more acrimonious debt restructuring process and increases the probability of a protracted economic contraction,” writes Erasmus. “A more nationalist approach to production will weigh unfavourably on efforts to improve the non-interest current account and structural primary fiscal balance, both being critical to placing Zambia on a more sustainable debt path.”

Bottom line

Zambia’s politicians will only listen once the electorate sends a message on public finance sustainability.

Source:Africa Report

18 COMMENTS

  1. This was more a popularist move then an economic one…..

    Lungu could not afford 15,000 miners out of work only months from elections.

    I still think 15,000 workers producing only 36,000 tonnes of copper is uneconomical……the whites know something we do not.

    If the economy was not messed up by lungu and his goons , this would not be a problem……but this rotten economy is messing up everything operating in Zambia…

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  2. This was more a popularist move then an economic one…..

    Lungu could not afford 15,000 miners out of work only months from elections.

    I still think 15,000 workers producing only 36,000 tonnes of copper is uneconomical……the whites know something we do not.

    If the economy was not messed up by PF this would not be a problem……but this rotten economy is messing up everything operating in Zambia…

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  3. The powers that be do not want to see us zambians in charge of our own resources and minerals. This scares them because it means they cannot control us as much. We ask all zambians including diasporans to support this venture. Yes we know we will face challenges that we need to address but it may help to give us your constructive views, opinions and suggestions so that we can achieve and put to shame the imperialists.

    I believe you will all put aside your political loyalties and instead put loyalty into our country by working together with us. HH we still need your economic knowledge and skills on this matter and not politics all the time. You are one of us.

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  4. The PF have a strange way of thinking.
    Imagine someone bragging that he owns a block of flats. When you ask how much of rent he is getting. He surprises you by saying the rentals still go to the former landlord.
    That is what the Mopani and Glencore debt issue is all about.

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  5. We have said it before, PF regime is incapable to do anything sensible, The Financial world too, is sceptical that PF government will not explain to Zambians finance sustainability of this mortgage.

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  6. Whether politically motivated or not, the taking over of Mopani mines by the state is a good thing and has the potential to contribute massively to the economic growth and social development of all Zambians – but only IF managed wisely. It will have to take a lot of discipline and strict adherence to management and accountability principles on the part of ZCCM-IH if this move is to be a blessing and not a curse.
    The figures of the debt should not worry us, what should worry us more is that for way too long now, Zambia’s copper has been enriching everyone else involved it’s extraction except Zambians.

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  7. Take on more and more debt while your economic growth is getting weaker and weaker.Logical conclusion = PF economics makes no sense.

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  8. It is disappointing to see so many unpatriotic bloggers here. Diasporans we have extended an olive branch but it appears your loyalties lie with the very same people we are trying to retrieve our resources from. Yes we will need to pay for these resources but we are not doing this for our own immediate benefits. We can repay these in 17 years and it means our children can proudly own and manage their mines. I hope you can all see beyond your self political interests. I will pray for you as I love you all. Seek God

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  9. This country is in deep deep trouble from three viruses: Covid-19 virus, unsustainable Debt virus, and the Lungu/PF virus. In my considered opinion, the first and greatest pathway in addressing these present tragedies is first to remove the most dangerous virus of all: Lungu/PF. Lungu represents the most dangerous virus of all. Get rid of Lungu/PF, and the five-year dark tunnel of wasted years Will light up so we can address the other twin viruses: Of debt and covid-19. Lungu is the most incompetent clueless individual to have faked himself to the presidency anywhere on earth.

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  10. A father was heavily in debt and no bank could lend him money. He devised a plan. He sent his dependent grown child instead to borrow from the back. The child, though more than 18 years of age, lives in the same house and contributes to the general upkeep in the house. When told that the household debt has increased, the father denied. He claims that his son’s debt is not his but he benefits from more debt money in the poche familiale (PF) or family pocket (FP).

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  11. @ Nine Chale Your statement ” but only IF managed wisely. It will have to take a lot of discipline and strict adherence to management and accountability principles on the part of ZCCM-IH if this move is to be a blessing and not a curse.”
    What has pf managed wisely? Mulungushi textile? Nitrogen Chmicals, Zambia Railways?
    Lets look at the way Konkola Copper Mines is being run, Is there discipline and adherence to management and accountability principles?
    Under pf, it’s a lost cause.
    Oh We are waiting for the 5th reopening of Mulungusshi textiles.

  12. “…Regarding the payment of the US$1.5 billion transaction debt by Mopani to Glencore, Mr Kaluba said that the debt was the burden of the mining company itself and not the State…” IDC Chairman.
    The above report is an imperialistic agenda-YOU AFRICANS CANNOT RUN THE MINES. Regardless of political affiliation, Zambians should not be distracted by such reports.

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  13. All the *****s still not seeing that this is a senseless act wake up. Ask Chileans what the best model of running mines is. Alternatively a small country in Asia called Laos! Leaders there use brains unlike Lungu snd PF dundarheads with broke Habazoka and pretentious Kansans.

  14. And the PF monkeys still think that those 3000 jobs will be saved? In your own imagination, where did u see Government, especially PF government pay even 1000 pipo on time? So, here is what’s going to happen; yes, government will retain all the employees at Glencore,but they ll simply not get paid. Hahahahahahahahahahahahaha!

  15. This is just Populism which ignores Economic Considerations. This Deal makes Zambia’s Debt position worse and possible IMF Debt Restructuring negotiations have evaporated. ECL is desperate to win Elections in Kopala in August 2021 and hopes this deal will give him votes. This is unlikely to work becoz Kopalas are tired of this PF Govt and want a change of Govt on August 12,2021. Which way for Zambia in August 2021? U can put lipstick on a frog but the frog will never win a Human being beauty contest. The writing is on the wall.

  16. Your Economy was messed up the time you gave them away in the 90s. The !d!0t kleptoh² knows it, and every elite Zambian knows it. We have all long been mesmerized by cosmetic economic numbers dictated by the infestors. The problem is that there to much pretense and naivety here.
    Yes we are capable of running our Mines, yes we are taking Mopani over.
    We can’t let the merciless capitalist infestors get on the path of indirectly wanting to be influencing who we should choose as our National leaders in the most vividly stunning arm twisting tactics. Like 2020, go to hell Glencore.

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