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Thursday, November 4, 2021

Rational Resource Nationalism: How Zambia/Africa can benefit from Minerals

HH’s New Dawn administration should make Zambians benefit from our mineral resources

Columns Rational Resource Nationalism: How Zambia/Africa can benefit from Minerals

By Mwansa P. Chalwe Snr

One of the major reasons why Africa has not developed is that most African economies are natural resource driven and the continent is not maximising its benefits from these resources. It is crystal clear that the current economic model with regard to the promotion of foreign direct investment by African countries like Zambia has not produced the desired results and will not do so in the future. And therefore, it needs to be revisited and changed.

It is in this vein, that Dr. Situmbeko Musokotwane, the new finance Minister’s statement, in a recent Zambia National Broadcasting Corporation interview, is rather worrying to critical thinkers and analysts. The Minister’s core strategy to our economic recovery seems to be anchored on increasing yearly copper production to 2 million tonnes by 2026 and 3 million tonnes in 10 years, thereby generate excess foreign exchange.

“We are going to push production of copper by creating a good environment for more investment. You will be amazed how much foreign exchange this country is going to make. You will not know what to do with the dollars that this country will be receiving”, he said.

The increase in copper production by Multinational Enterprises without serious changes in the current mining ecosystem, including the revision of development agreements, will not result in inclusive growth, job creation and poverty reduction as past experience has shown. The GDP numbers may go up and show a rosy picture, but there will be little job creation and poverty reduction. The answer to inclusive growth lies in the twin strategy of making changes to the structure of mining deals and the aggressive promotion of home grown micro, small and medium enterprises. This is what the Minister should be focusing on. The increase in copper production is no panacea.

Africa’s resource sector or primary sector of the economy, entails the extraction and collection of natural resources without further processing. This is what currently drives most of the African economies’ cyclical and non-diversified economic growth. In 2018, this sector comprised more than 15 per cent of GDP of Sub Saharan Africa and only 1 per cent of North America. Under natural resources, we are talking of forestry products like oak trees, farming products like cocoa, cotton etc., and mining products like copper, gold, silver, crude oil etc. which are all being exported raw to the West and China. This has to change if Africa is to develop.

Africans’ lack of benefits from mineral wealth

In the past, governments have taken measures that have been referred to as resource nationalism which is the tendency or an attempt by governments to assert control over natural resources located on their territory. Resource nationalism has naturally been in conflict with the interests of multinational corporations. What should be promoted to ensure that both the multinational Enterprises (MNES) and host countries are happy and in “Win-Win” situation should be what I have coined as: Rational Resource Nationalism (RRN). This requires the need to change the current foreign direct investment model by African countries by pressing a reset button.

Zambia and neighbouring Democratic Republic of Congo (DRC) are clear case studies in Africa that have not benefited from their mineral resources which have been exploited by Multinational Enterprises (MNEs) both from the West and China, recently. Zambia like many African countries, face a conundrum with regard to the exploitation of its resources. The current and past status has been that African countries are rich in natural resources, but they lack capital, operational and technological resources to extract them profitably and want to attract foreign investors. In order to do that, they adopt very liberal legal frameworks and fiscal incentives. In the final analysis, they find that foreign investment is not benefiting the country sufficiently as expected, in terms of poverty alleviation, employment creation, technology transfer, value addition etc. MNEs foreign shareholders on the other hand, end up as the main beneficiaries while leaving gaping holes and the destruction of the environment.
In view of the foregoing, they have been calls by host country critics that it would be better to preserve these resources for future generations by letting them remain in the ground if the foreign investors are not prepared to enter into win-win deals.

In May, 2021, the President of the Democratic Republic of Congo (DRC), Felix Tshisekedi was unhappy about the lack of benefits for the 90 million Congolese from the country’s mineral wealth. He announced his intention to renegotiate mining contracts, particularly those signed with China by his predecessor Joseph Kabila.

“It is not normal that those with whom the country has signed exploitation contracts get rich while our people remain poor,” said Felix Tshisekedi during a visit to the mining town of Kolwezi. “It was time for the country to readjust its contracts with the miners to seal win-win partnerships. I’ve really had enough! I’m very harsh on these investors who come to enrich themselves alone. They come with empty pockets and leave as billionaires. It is also our fault. Some of our compatriots had badly negotiated the mining contracts. Worse, the little that goes to the state, they put in their own pockets,” he accused the corrupt Congolese officials.

In Zambia, upon being sworn in, the new Mines and Mineral development Minister Paul Kabuswe complained about the lack of benefits from the mines. He claimed the mines are not giving Zambians due financial returns.

“I have grown up on a mine and I know that the mines are not giving us what is due to us as a country. We are going to move in with vigour and make sure that Zambia benefits from the mineral resource that God has endowed with,” The new Chililabombwe UPND law maker said in September, 2021.

In recent years, there have been a trend of ad hoc resource nationalistic practices by African countries like Democratic Republic of Congo (DRC), Tanzania, Zambia, Kenya, Mozambique, and South Africa. They have implemented fiscal (including taxation) and regulatory measures with a view to extract more benefits from their countries’ natural resources. These current trend of ad hoc and cyclical measures are not good for both the investor and the host country. To the investors, it creates uncertainty and fear of eventual nationalisation. There is need to have predictable standardised laws, rules, regulations and to make the resource exploitation playing field level.

Concept of Rational Resource Nationalism

The concept of Rational Resource Nationalism (RRN) entails the situation where both the MNEs and the host country are benefiting from the extraction of the minerals. The MNEs ought to earn sufficient returns on their investments but not supernormal profits, the host country ought to benefit across board in multiple ways. Instead of relying on the tradition benefits of direct job creation, foreign exchange earnings, taxation; the concept of rational resource nationalism entails aggressive pursuit of business linkages (backward and forward linkages),corporate social responsibility and the promotion of artisan ‘out-growers’ mining entrepreneurship, while ensuring that the country’s environment is not ruined. The involvement of locals in the exploitation of resources is key in the rational resource nationalism model. It should be noted that investors want the African resources as much as Africans want the benefits from their resources. It should be a partnership based on mutual respect, trust and benefit. Africa should not be pleading for investors but rather negotiating deals which are mutually beneficial.

Botswana is one of the few exceptions in Africa which has avoided Africa’s resource curse. It has immensely benefited from its mineral resources. It is a practical example of the concept of rational resource nationalism. It has reaped huge developmental dividends. The Botswana model of cooperation with De Beers in diamond mining, is one that African countries should consider exploring and copying in some ways. Botswana and De Beers have 50-50% share in diamond mining. They also negotiated with De Beer to relocate diamond beneficiation from London to Gaborone. The main reason why Botswana has been successful in dealing with foreign investors is partly because their political leaders and bureaucrats have not been motivated by individual wealth accumulation through corruption. Many African political leaders and bureaucrats have negotiated bad deals due to personal benefits at the expense of their countries, the environment and future generations.

Business linkages benefits

The tackling of multinationals’ the supply chain ( backward linkages) for both Chinese and the Western companies, especially the issue of captive suppliers is crucial in ensuring that Zambia benefits from foreign Direct investment. It is one of the components that is at the heart of rational resource nationalism. Captive mining suppliers should be compelled to relocate to African countries by mining houses who have so much sway on them. Foreign investors import most of the materials used in the exploitation of African resources. Zambian mines import 90% of their supplies. Both Chinese and Western multinationals have the same model.

In terms of promotion of forward linkages, governments like the DRC and Zambia should also consider head hunting investors in the car electric batteries industry to relocate factories to their countries as raw materials in terms of copper, cobalt and manganese are in abundance. China is at the forefront of the renewable and electrical car industries. Zambia should head hunt Chinese private sector in these industries to come to Zambia. It makes no sense for DRC for example, not to have factories producing cell phone components or batteries when cobalt, copper and coltan which is used in these products is almost exclusively mined in DRC.

Nationalisation is not an Option

It should be made crystal clear that the pursuit of rational resource nationalism is not proposing nationalisation in any shape or form. African governments should never think of going the nationalisation route as a way of benefiting from resources. This policy has been tried before, and it failed miserably. The proposed new model entails some of form of partnership. As the former Editor of the defunct Zambian Post Newspaper, and now the President of the new Socialist Party in Zambia, Fred M’membe, correctly observed, nationalisation is not a good policy option for countries to benefit from mineral resources.

”The last 60 years of observing nationalisation in the world have taught us something, has made us a bit more wiser about what works and what doesn’t. It has taught us to be cautious and patient. Moreover, it is said that there are many ways to skin a cat. We simply don’t have the capacity to run these financially troubled and technologically complicated mines. We don’t have enough mineral scientists, mining engineers, mining economists, lawyers with adequate mining knowledge, the financial expertise to mobilise capital for our mines and market the minerals we have mined”, he said commenting on the former Zambian PF government’s decision to buy the Glencore owned Mopani Copper Mines 100 per cent for $1.5 billion in the Mast Newspaper. “What the Socialist Party in government will do is to ensure that it collects fair taxes from the mines to pump into education, health and peasant agriculture. And also make the transnational mining corporations pay for the training of our people in various mining skills. With such well-trained people we will be able to exploit the remaining two-thirds of our mining potential on our own or under more beneficial joint ventures with others.”

21st Century Scramble for Africa

African countries with natural resources should also realize that in the 21st Century, the ball game has changed. There is now competition for natural resources in the international investment market between China, Western investors and many others. The West is no longer a monopoly for foreign investment and capital. The competition for the African market is not only between China and the USA. There is a sort of a new scramble for Africa at the moment. The are many countries that are eyeing the African market in terms of trade, investments and influence apart from the USA and China. These include the following: Russia, India, Turkey, Israel, United Arab Emirates, Japan and the European Union. If one was to research, the numbers are astounding about the stealth scramble for Africa that is taking place. But the owners of the continent- leaders and their citizens – do not realize what is going on so as to strategize properly and negotiate the best deal for their countries from the competitors!

The whole essence of the proposed rational resource nationalism model is to ensure that both the foreign investor and the host country’s ordinary citizens see and feel the benefits. This will ensure certainty, stability and security in the relationship. There will be no constant changes of policies and reversals of deals as is the case with the $6billion Chinese contracts signed by former President Kabila in the Democratic Republic of Congo which President Felix Tshisekedi is currently reviewing.

And so for African Presidents, this article provides the free blue print for staying long in power. They need to ensure their people benefit from their God given resources and simply take care of the economy. That is the only way for a political party to stay in power as long as a Botswana Democratic Party (BDP) has done – 56 years – and still going strong. And they have been winning clean elections! No rigging!

The writer is a Chartered Accountant and Author. He is a retired international MSMEs Consultant and an independent financial commentator. He is also an Op-Ed Contributor to the Hong Kong based, Alibaba owned, and South China Morning Post (SCMP). Contact: [email protected]

The contents of this article are abridged excerpts from my book whose link is below.
CHINA-WEST BATTLEGROUND IN AFRICA: DEBT RIDDEN ZAMBIA: Why U.S. May Lose Geo-Economic Competition to China https://www.amazon.com/dp/B097DVXBKH/ref=cm_sw_r_wa_api_glt_7PR5H7YBZZ14FCDNT54Y

16 COMMENTS

  1. You can have all the best policies ready…….

    But thieving leaders we elect render any good policies meant to benefit the masses useless ……….

    Until Africa introduces the death penalty for corrupt thieving leaders, we are going around in circles ……..

    Corruption by those who lead is a mass death sentence for countless vaunrable citizens

  2. I do not know how old you are Chalwe but if you are old enough you will remember that prior to 1991, Zambia had lots of value addition industries. We privatised them and then they all flopped. The New Dawn government has picked a multi pronged approach. There is a ministry of small scale businesses as well as boosting copper production. Stop comparing with Botswana which has a population the size of Lusaka and 3/4 desert. There is no electrification or sanitation needed in a large geographic region of Botswana because there are no people there. Let us do our own thing and create our own solutions. This idea of ‘look at Botswana’, ‘look at Malaysia’ etc should stop. Look at Zambia and deal with its unique situation.

  3. The question you must ask your self is why is it that countries which do not have mineral resources have developed? Its not mineral resources which develop the country. Even if Zambia got half of the revenues from all the mines it can never develop? Nigeria, Angola etc get more money from oil then we can get from copper why have they not developed….?
    Africa lacks version not resources. I should not even mention corruption which is printed in the African DNA

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  4. Need i add that the western government system which facilitates development is to complicate for African who have still think in a village setup were a president is a chief who is responsible for everything…
    Take the moron Lungu who would work up and create a district

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  5. There some valid points raised in this article. I wonder why our government allows raw materials to be exported cheaply but I’m no economist. With the little knowledge I have on economics, export of raw materials such as copper should be very expensive to force investors to process locally while easing the pain of import duties on mining equipment. HH’s government should not cut deals in a haste with investors that should not benefit Zambia. It’s best to keep our resources in the ground than give it away to for the sake of creating few jobs and close to zero tax returns.

  6. There is need to have a proper Terms of Trade stratergy to restructure the imports and exports composing of our Terms of Trade (export more refined) copper or mining producets that import more of capital equipments on our capital accounts and reduce the cost of Financing on the Financials to record longterm favourable balance of trade on the Mining sector as oppossed to current The has to be a change and re stratergising the share of total consumption in copper and other metal products locally in electrical and telecommunication ,transport,consumer durables ,builing and costruction,general engineering toools and supplies including metals used
    in processing indutsries Our consumption in undstrial…

  7. @ Napthali

    Did you know that Australia is one of the largest export of iron ore? Does Australia produce steel? The answer is NO
    So why do you think value add will change anything? Even when Zambia exports copper wire were will that money endup?
    Lets not talk about things in theory or try to reinvent the WHEEL

  8. You first need to change the system of
    – How government money is spent
    – How governemnt money is accounted for
    – what investment is needed for development and what develoment

    With out that you can collect as much money as you want, you will never see any development.

  9. Go to Australia, roads to some towns is still gravel roads upto today. Why? Because putting a tired does not mak economic sense.
    Thats how people who have their head screwed to the shoulders think despite how the country is rich.

  10. @TheEngineer
    I would like to agree with you. I saw a report that said Nigerians have stolen $29 trillion since 1961 when the country got independence.

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  11. The quality of some of the comments on such a high quality Op-Ed and important pan African topic leaves much to be desired.Zambia will not progress with such low level comments. The main reasons for the continent’s resource curse and why we do not get benefits from our resources are:

    1.Corruption by politicians and Bureaucrats who look at personal interests rather than their countries.
    2. Lack of expertise by negotiators who lack negotiation skills and knowledge of the industry.No merit in choice of negotiators
    3.Lack of political will at Presidential level.Magufuli proved how political will can turn the tables against MNEs.
    The reference to Angola and Nigeria are clear cut examples to above weakenesses.The Botswana example is still appropriate because as a small country with…

  12. The writer is wrong here. Rwanda ,Ethiopia and Kenya have no minerals yet they go toe to toe with mineral rich Nigeria/Zambia and in some cases exceed them.

  13. This is the only way for Africa to develop otherwise the so called investors will only create more holes in the soil than any meaningful development.

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