Case Study of Zambia’s Mining Booms and Busts and Government of Zambia
Mining Companies and Community Impact in Zambia
Mine Workers in Zambia
The interconnectedness among Zambia government, Mining Companies, Mine Workers and Community
|4.A.||Research Proposal/Questions||p. 24|
|4.B.||Research Methodology||p. 25|
1. A. Abstract
It is generally assumed that the resource rich countries outperform the socio-economic development than resource deficient countries due to the fact that national revenues from the resource sectors could foster the country development. However, it is paradoxical that many African States with the abundance of resources such as Zambia have been kept under the poverty and failed to implement the national development goals. According to the World Development Report of the World Bank (2003), the developing countries with deficient mineral resources developed 2-3 times faster than the resource rich countries on real GDP per capita between 1960 and 1990 (World Bank, 2003, 149). This adverse relation between the abundance of resources and poor economic performance is resulted in the countries with weak institutions and lack of economic diversifications. This inverse relation is driven or resulted by the hegemonic power of Multinational Corporations, the limited power or capacity of national governments, weak domestic political system and institutions, volatility of international market prices, capturing the benefits from extractive industries; and lack of value-added domestic production and economic diversification.
Therefore, this paper explores a case study of Zambia’s mining boom and bust and analyzes the negative linkage between abundance of natural resources and poor economic performance known as ‘resource curse’. Thus, the paper analyzes the resource curse thesis in Zambia and looks at the roles of the International Financial Institutions such as the World Bank and IMF (International Monetary Fund), the government of Zambia, Multinational Corporations and Mine Workers and scrutinizes the relationships among these stakeholders in driving the country’s economy together with the policy recommendations.
Zambia, Copper Mining, Privatization, Foreign Direct Investment, Multinational Mining Companies, Resource Curse, Boom and Bust, International Financial Institutions.
2.A. Case Study of Zambia’s Copper Mining Booms and Busts; and Government of Zambia
Zambia is one of the most mineral wealth countries with its large source of copper core, which was estimated to be sufficient until the end of the present century. Since the first mine was opened in 1928 at Roan Antelope (now Luanshya), copper mining has been dominating the national economy and basically assumed that Zambia would be able to enhance its economy and support the modernization in the areas of infrastructural and institutional reforms by utilizing its mineral wealth. However, since the discovery of the copper ore, Zambia has been suffering many disadvantages from global economic crisis, the volatile international copper market prices under the weak domestic institutions, political instability and policy failure, lack of technologies and value addition, luck of economic diversification and Dutch Disease. According to Ross (1999), Auty (1997) and Bush (2008), Dutch Disease is described as the appreciation of a state’s real exchange rate caused by resource exploration and increase in sharp exports, accompanied by the resource boom that draws investments away from non-resource sector such as manufacturing and agricultures. Here, the report is going to look at the case study of Zambia’s boom and busts and the role of the governments of Zambia under the theme of national development (Ross, 1999, p. 306, Auty, 1997, p. 658; Bush, 2008, p. 362).
Since the first commercial copper mine was discovered at (the Roan Antelope Mine) Luanshya in 1928, which was owned by two private companies, namely the Roan Selection Trust (RST) and the Anglo American Corporation (AAC), copper mining has been a dominant factor of the Zambia’s economy (Lungu, 2008, 404). After the political independence in 1964, Zambia was seemed as a model to alleviate the poverty and to foster the national economy through the utilization of its revenues from huge copperbelt. According to Auty (1993) and Fraser (2010), Zambia was classified as middle-income country with highest GDP per capita in Africa. During the period, the international copper price was twice of the production cost (Kydd, 1988 and Auty, 1993, 6). Kenneth Kaunda, the first president and head of the United National Independence Party (UNIP), hoped for the long term development and rapid growth of copper industries along with the increase of global copper prices in 1960s and 1970s. During the 1960s and early 1970s, the copper prices were steadily increased with its peak at £1,400 per ton in 1974 before the crisis in 1975 at £500 – £600 per ton (Larmer, 2010, 39). During the period, according to Auty (1993), copper production generated three-fifths of national revenue and the government set up to diversify its revenue sources and mineral stabilization fund to accumulate more revenue.
Along with the increase in copper prices, the government announced the nationalization of the mines as part of the development plan in 1969 because the mining companies remained unchanged in delivering the investment despite the steady increase in copper prices. Then, the one-party state rule was declared in 1972. During and after the nationalization of mines, government forced the companies to give 51% of the shares of all mines to the State (See Fraser, 2007 and 2010). Larmer (2010) stated that the nationalization of the mines was seen to increase the UNIP control over the national economy and politics. However, soon after the nationalization of copper mines, Zambia faced the problem of decrease in world copper prices (up to £500 per ton) after the first global oil crisis in 1974 and 1975; and the government of Zambia had to borrow loans from private banks and international donors in order to maintain its social provisions (Larmer, 2010). During the 1970s, along with the decline in the international copper prices, government spending exceeded the Gross National Incomes. The problem became worse after the second oil crisis in 1979 and Zambia was thrown into debt crisis because of high interest rate. ZCCM production fell from 750,000 tonnes in 1973 to 250,000 tonnes in 2000 and became the 25th poorest country in the world with the decline of 50% per capita in income (Fraser, 2007, 8 and 2010, 9, Lungu, 2008, 405 and Ferguson, 1996, 6).
During the period, sales of all the minerals had to go through the London Metal Exchange (LME) via foreign mine owners – this was inherited from colonial era – that profited the mining companies and provided limited benefit to Zambia. Thus, according to Fraser (2010), being a ‘price taker’ in the unequal global market, the government of Zambia initiated the campaign with other copper exporting countries – Chile, Peru and the Congo – for a New International Economic Order (NIEO) and the Intergovernmental Council of Copper Exporting Countries (CIPEC) in 1976 with the aim of fixing international copper prices and reverse dependence of the richer countries in access to raw materials. However, this effort was not effective because of the facts that copper mining are basically capital intensive and Zambia could not access to the capitals such as technologies. That’s why, Zambia government unavoidably had to keep unequal relationship with its colonial governments and foreign companies to access to copper. Meanwhile, International institutions such as The International Monetary Fund and the International Bank for reconstruction and Development refused to provide financial assistance to CIPEC for stockpiles. Thus, in 1960s, NIEO claimed that the world economic structure is designed to enrich the richer and powerful countries (Fraser, 2010). However, it is said that this was resulted by government policy failure that government nationalize the private enterprises without sufficient safeguard for the effectiveness of resource use.
Nationalization of the copper mines as a development plan without sufficient safeguard for national economic development and volatile international copper prices drew the country into the crisis with heavy debt. When the government could not repay its debts, the government was pressured for economic liberalization by the international financial institutions such as the World Bank and International Monetary Fund (IMF). Under the one party system, Zambia Consolidated Copper Mines (ZCCM) was established in 1982 by combing the two nationalized companies under the ambitious five-year development plans to gain direct profits from copper mines. However, as the result of the decline in international copper prices, during the 1980s, the UNIP reduced the amount of revenue spending in mining industries, mineworkers and their communities; and removed the subsides in 1986 (Larmer, 2010). This led to the mineworkers’ strike and increased the tensions between the government and mine workers. Thus, labor union (Mineworkers’ Union of Zambia) and Chiluba (who became the president in 1991 election) criticized the role of International Financial institutions in managing the economy of Zambia; and stated “IMF is putting African governments on a collision course with their people” and “making the rich richer and poor poorer” (Larmer, 2010, 47).
When the multi-parties election was held in 1991, Multi-Party Democracy (MMD), lead by Frederick Chiluba, a former union leader, won the election in landslide and became the first democratic president based on his promise to liberalize the national economy and privatize state-owned enterprises because they believed that Zambia need to gain trust from international banks and investors to enhance its economy again. International organizations and donors hoped that new government, backed up by the trade union, would lead popular privatization process and develop the investor friendly policy environment under the Structural Adjustment Program.
Privatization of Copper Mining
Being under the huge debt, the government of Zambia was under pressure for economic liberalization through the privatization the national firms for the sake of national debt relief. The MMD privatized state enterprises in 1992 under the Privatization Act together with the establishment of Zambian Privatization Agency (ZPA) and the Zambian Privatization Trust Fund (ZPTF) to promote the sale of privatized companies shares. Meanwhile, according to Lungu (2008), the Mines and Minerals Act of 1972, which regulated the nationalized company, was replaced by the Mine and Mineral Act of 1995 to be able to assist companies in the process of setting up and buying the shares of Zambia’s mining. This new 1995 Mine and Mineral act provided incentives for foreign investors with the minimum tax rates and ensured against the nationalization of copper mines (Lungu, 2008, p.406). Also the act allowed the government to enter into the “Development Agreements (DAs)” with specific companies, which offered and granted more incentives in reducing taxes for some mining companies than the Mine and Mineral Act of 1995. According to Adam and Simpasa (2010), taxes, included in the Development Agreements, were that only 25% of income tax was imposed on mining companies though there were 35% income taxes in non-mining sectors and 3% of royalty rate was charged on gross proceeds but only 0.6% royalty rate was received form the new mining companies in practice (Adam and Simpasa, 2010, p.67). Likewise, recurrent and capital inputs were exempted; and interest costs and repatriated dividend income were included tax deductible. Then, loss carry-forward provisions were allowed for 15 to 20 years (Adam and Simpasa, 2010, p.67).
During the early period of the privatization between 1992 and 1996, between 30,000 and 50,000 workers were dismissed because formal sector shrank noticeably and membership of the Zambian Congress of Trade Union (ZCTU) decreased by 43% (Fraser, 2010, 11). In 1992, the public debate over the sale of ZCCM into smaller companies under the provision or assistance of World Bank and IMF was raised because ZCTU, the Mineworkers’ Union of Zambia (MUZ), churches, media press and some cabinet members of MMD opposed to the proposal. In 1993, the Zambia government removed controls over prices, interest rates, foreign exchange rate and foreign currency allocation. According to Situmbeko and Zulu (2004), the word bank (Economic Recovery and Investment Project, ERIP) and the IMF (Enhanced Structural Adjustment Facility, ESAF) extended loan to Zambia government to implement the ESAF framework in 1995 and demanded again in 1996 through ESAC II (Economic and Structural Adjustment Credit) and SAF (Structural Adjustment Fund) in 1996 and 1999. Between 1997 and 2000, ZCCM was unavoidably privatized under the pressure of World Bank through its initiation of HIPC (Heavily Indebted Poor Countries) program in 1996 that included the assessment of performance or qualification on Zambia by international financial institutions to secure the massive debt relief (Lungu, 2008). This massive debt was accumulated because the government with the encouragement of World Bank believed that the decline in copper prices would be temporary and kept borrowing loans for social provisions.
Along with the privatization of ZCCM, the government of Zambia signed secret Development Agreements (DAs) with each of the new mining companies in which campiness were exempted from ZCCM’s liabilities such as pensions for employees and from paying most taxes (Fraser, 2007 and 2010). By 2000, 133 enterprises were privatized out of 144 state own enterprises (Craig, 2007, p.358) and Zambia was marked as one of the most rapid and successful privatization process in Africa (Campbell White and Bhatia, 1998, cited in Craig, 2007). Alongside with the privatization process, according to Craig (2007), the main opposition party – UNIP – criticized and accused that the program of privatization was designed to mainly benefit international enterprises and MMD leaders rather than the citizens of Zambia; and added that the Privatization Act was not implemented adequately because of the lack of transparency. In spite of national economic reform, Zambia experienced negative growth rates, deepening debts and poverty with low record of the world copper price, the sales became worse; and finally Zambia government was loaded with pressures from the donors.
In 2001, however, MMD won the election again because no opposition party provided clear alternative plan for national development; and Levy Mwanawasa became president. According to Fraser (2010), during the period of sale declines because of low copper prices, Zambia also faced another worse situation that two giant investors pulled out their investment – one from Luanshya Copper Mines (LCM) and multinational Anglo American from Konkola Copper Mines (KCM) – leaving unemployment, unpaid bills and pensions and the situation was described as the worst failure of privatization ever in Africa. However, along with the increase in global copper price in 2004 and the discovery of new copperblet in Lumwana, Zambia was in hope again to revitalize its national economy and the number of employment in ZCCM was increased from 22,000 to 31,000 (Fraser, 2010, 14). During the boom period from 2002 to 2008, the copper prices increased six fold from around US$1,500 per ton to around US$9000 per ton and national revenue from mineral sector rose from US$670 million in 2002 to US$4 billion in 2008 (Adam and Simpasa, 2010, 70 and 71). However, this windfall income period (unexpectedly substantial boost to income) was short. By 2004, the Zambia’s debt service reached at US$ 424 million a year that was accounted 8.1% of Gross National Income (GNI); and around 60% of this owed to the International Financial Institutions (Fraser and Lungu, 2007, 60). During the period, the companies have gained huge benefits from it and took advantages over the weak unions and government’s needs to pursue foreign investments. This was out of government control because in the free market economy, the role of the government is to provide better environment such as low-tax economy and light-touch regulations.
Under the secret Development Agreements (DAs), companies have made substantial amount of benefits during the windfall period of copper price increase (2002-2008). Then, the government announced and ratified the unilateral imposition of windfall taxes on mining companies in 2008 by the parliamentary approve to pursue the greater share of the profits. The tax included an increase in income tax, mineral royalty rate, the reintroduction of withholding tax and a reduction in capital allowances (Adam and Simpasa, 2010, 78). As a consequence, tensions between companies and government increased. However, along with the decrease in international copper prices in the half of 2008, windfall tax was cancelled in 2009 because Zambia government realized that the country’s institutions were so weak and incapable of preventing pricing. Soon after the withdrawing the windfall tax on copper prices, copper production massively increased with little profit to Zambian people. Therefore, from this historical perspective of boom and bust of Copperbult in Zambia, it can be seem that Zambia through the different period had been under struggles along with the unstable international copper prices despite its rich mineral resources.
2.B. Mining Companies and Community Impact
Together with the emergence of Copperbelt in the 1890s, the British South Africa Company (BSAC) encouraged white settlement to ensure British influence and rights to search mineral deposit in the northern territories. Then, BASC agreed the deals with the Rhodesian Selection Trust (RST) and the Anglo American Corporation (AAC) to extract the new mine; and developed the accumulation of industries and urbanization. Within the four year of the establishment of the mine, 30,000 men were employed within four years but when the Great Depression hit in 1932, the numbers of workforce were decreased by 7,500 because of the cancelling of some copper mines (Fraser, 2010, 4). Along with the nationalization of two companies after the independence, one giant public company – Zambia Consolidated Copper Mines (ZCCM) – was established and up to 45,000 workers were employed though numbers of employees varied before the privatization (Fraser, 2010, 14).
Along with the political reform under the pressure of the World Bank and IMF, majority of the nationalized companies were privatized. ZCCM was split up into 7 mines and separately sold to seven multinational mining companies including “Anglo-American Corporation (AAC) with a shareholding of 65 per cent at Konkola, the Binani Group of Companies (UK) with a shareholding of 85 per cent at Luanshya, Metorex Plc (South Africa) at Chibiluma, Anglo vaal (South Africa) which bought the Chambeshi smelter, and First Quantum (Canada) and Glencore International (Switzerland) (73.1 per cent) which bought Nkana and Mufulira mines to form Mopani. Others were the Non Ferrous Metals Company (China) at Chambeshi mine and First Quantum (Canada) at Bwana Mukubwa (Lungu, 2008, p. 407).
Many local people expected benefits for the local economy from privatization but it imposed challenges for local business because new suppliers, manufacturers dominated the market and many local suppliers have resulted in losses, as they can’t compete on prices and quality with foreign suppliers. The government also raised this issues and encouraged the new mining foreign companies to focus not only on mining and investment policy but also to ensure that their industrial policy support the local suppliers and local manufacturing base copper processing in Zambia. However the policy failed to support the local businesses and suppliers. The failure was because of the country’s comparative advantages (the investor friendly economic liberalization under the Structural Adjustment Program tied the country to compete with other regional countries in global free trade deal), which prevents Zamia from imposing tariffs and taxes in trading goods and services across the country’s borders. Another reason, as mentioned above, was the involvement of the World Bank and IMF in the dominant position in transformation country economic policies under the reason of country’s dependence on international aid and debt relief; and the commitment of the national government on secret General Agreements which allows the multinational companies to trade the goods under minimal control of tax and payment.
Under the secret Development Agreements between the government of Zambia and private companies, many multinational mining companies gained huge profits from the extraction and production of Copper in Zambia with exempt from covering most of the liabilities such as from paying most taxes and pensions for employees. For example, although “mineral royalty rate – tax paid for copper removed from Zambia” – was originally charged at 3% for large mining companies under the 1995 Mine and Mineral Act, the rate under the agreement was 0.6% of gross revenue (Lungu, 2008, p.406-407).
Under the agreement, the new multinational companies took only ZCCM’s assets but not liabilities. They claimed that their main business is mining and social provision is far away from their responsibilities and government have to take care of that. For example, according to Fraser and Lungu (2007), new companies had refused to take dam to store toxic leaching, which was part of ZCCM assets, and leaving damaged with the government. Moreover, after the privatization, there also had been some arguments on the issue of providing social infrastructure, lack of local staffs in management positions and providing training to locals.
The most common and serious issues are excess sulfur dioxide emission from smelters, releasing heavy-metal effluents into drinking water and silting of local rivers. For example, the nature of copper mines naturally has been harmful to the environment along the refining process by polluting the environment producing SO2 and Sulfur dioxide, which can cause respiratory illness, acid rain, kills trees; and pollutes air, water and land. Local community in the downward of Nkana, Mufulira and Kitwe smelters were mainly affected because people can’t afford to buy food and can’t grow their own crop either. Konkola Copper Mines Plc. (KCM) recognized the issue and installed technology to reduce emission up to 80% (Fraser and Lungu, 2007, 33). Then, Fraser and Lugnu (2007) described that another common impact on the community was the threatening of heavy metal effluents discharged into rivers, which local communities are relaying on for drinking water.
The impacts or problems of copper mines existed since ZCCM period but at the time the concerns about the environment were not as sensitive as today and even if ZCCM polluted the environment, it was fined or punished by Environmental Council of Zambia (ECZ). Under the agreement, new multinational mining companies were exempted as long as they submitted acceptable Environmental Management Plan to ECZ and agreed to follow the objectives mentioned in the plan. Moreover, under the agreement, multinational companies have also been exempted liabilities in the numbers of areas that ZCCM provided to the community such as access to land and housing, provision of health-care and education.
2.C. Mine Workers
Since the copper mine was discovered and opened, many Zambian have been migrating to copperbelt and started working for foreign owned campiness in copper production before and after the national independence from British colonial. According to Gewald and Soeters (2010) and Fraser and Lungu (2007), there were 62,222 people employed in copper mines in 1976. Starting from 1991, government with World Bank and IMF declared to reduce the workforce during the preparation process of the privatization of copper mines; and the number of employment were reduced to 31,000 by 1997 (Fraser and Lungu, 2007, 21). After the privatization, another one third of workforce was cut and total employment fell to 19,145 in 2001 (Fraser and Lungu, 2007, 21). Although new investments have created some job opportunities after the privatization, there have been some problems in the quality of employment and around 45% of the mineworkers were unable to access to permanent and personable contracts (Fraser, 2010, 14). This is because the new investors refused to take the company liabilities for labors who served for lifetime in mining industry and stated that the government have to take care of them.
The privatization process did not unnecessarily cut of the number of employment but because the new companies did not want to take on the labor liabilities such as paying pensions after working for years that ZCCM did. The new companies preferred to offer mineworkers “fixed-term contracts” without job security and pension; or sub-contracts rather than taking permanent workers. Since privatization, though the numbers of employment increased in copper mines, they have been employed by contracts or sub-contracts. The number of workforce increased from 2,628 in 2000 to 11,536 in 2004 but the numbers of workers working in the mining industries under the direct terms and conditions had been varied over time because of types of contracts offered (Fraser and Lungu, 2007, p. 23). By 2006, the numbers of employees working under pensionable contracts in mining houses increased up to at least 21,000, another 16,000 workers were employed by the contracting firms; and 1,900 were employed by mining companies either under fixed-term contract or as casual labor (Fraser and Lungu, 2007, p. 23). Under fixed-term contract, many ex-miners were hired and asked to work on the same site with lower wages and without proving any liabilities.
Moreover, since the privatization period, the unequal terms and conditions of workers from the similar jobs have caused the significant offenses though the safety record has been increased. Meanwhile, casualization has imposed challenges and difficulties for unions in organizing workers because of sub-contracting companies. Meanwhile, the unions themselves also faced the financial crisis as the number of the mineworkers reduced. This situation was reinforced by the weak labor legislation of Zambia..
3.A. Interconnectedness among government, companies and mineworkers
After looking at historical background of Copper Mining Boom and Bust, Government of Zambia, Multinational Corporations and Mineworkers, it is obvious that Zambia, with its huge mineral reserve, has been through good and more possibly harder periods since the British colonial ear along with the fluctuation of global copper prices. Throughout the period, Zambian was never able to fulfill their hope and dream of industrialization, modernization and urbanization. Here, the report scrutinizes the interrelations and interconnectedness between Zambia of government, multinational companies and mineworkers and analyze whether the notion of resource curse valid in Zambia or not. Then, I will also look at the linkage between the abundance of resources and poor economic performance in the case of Zambia together with the limitation to the government.
Since the discovery of copper belt, mining industries and copper production were regarded as the strategic to the national economic growth. Since the independence, Zambia had been dependent over the primary commodity and this caused the country the least developed country. In the case of Zambia, there was never been positive relationship between the wealth of mining industries and prosperity of Zambia. Thus, the relationship between the government of Zambia and the mining companies will be discussed.
Since the copper belt was found during the late colonial period between 1950s and 1960s, there was a competing vision on how to utilize the wealth generated from mining for the development. Colonial authorities supported the agricultural activities while Zambia nationalists were eager to use the same revenue from the copper mines for the development activities for their supporters. During the early period of independence under the UNIP, transferring of mining and expansion of the mining industries were successfully negotiated with international mining companies; and shared the profit carefully. However, this cooperation between the government and mining companies broke out after the nationalization of mining industries in the late 1960s during the first Republic of Zambia. The nationalization of mining as part of the development plan was not successful because of the technical, capacity and policy failures along with the declining foreign exchange earnings, falling copper prices and mines’ capacity to purchase necessary inputs in the 1970s. It can be seen that establishment of ZCCM and state centralism under the weak institutions created opportunities for political manipulation over the mine revenue; and it is said that foreign currency borrowed by ZCCM was used for politically prestigious projects and the consumption of senior politicians (Larmer, 2010, 41).
The triangular relations of the mineworkers – the state – the mining companies also need to be considered in relations to the national development and political transitions in Zambia. This relationship mainly has shaped and has been shaped by the contested distribution of revenues from mining activities throughout the history of Zambia. According to Larmer (2010), “mineworkers, their families, the wider Copperbelt, rural areas were linked by kinship and migration to mining communities; and the nation as a whole” (Larmer, 2010, 42). One significant effort was the riot of mineworkers under the colonialism in 1935 and 1940s in negotiating the labors’ wages through the establishment of AMWU (African Mineworkers’ Labor Unions) in 1949 that is related with the huge profits of the foreign-owned mining companies and with the question of self-determination (Larmer, 2010).
During the post-independence period, there were also the confrontation regarding the distribution of revenue between the government and the mineworkers. According to the Seer report, the main issue was “not the continued profit of mining companies but rising wages of the mineworkers, threatening the accrual of income to the state” (Larmer, 2010, p.43). This attempt to reduce the wages of mineworkers for the national development fund by cooperating between the state and companies resulted in labor strikes. However, after the nationalization of mining companies, government took control over both the natural and human resources by establishing MUZ (Mineworkers’ Union of Zambia) in 1967. Along with the copper prices decrease, the government reduced the amount of revenue spending on mining communities and removed the food subsidies in 1986. Mineworkers were discontent regarding the nationalization of the mining companies and dissatisfied over the leadership of MUZ in failure to raise the needs of mineworkers. This resulted the major strikes in the entire Copperbelt and UNIP was pushed into the opposition by voting MMD in 1991 election with the aims of addressing the issue of decline wages. Since that time, the union movement was weakened because of good relationship with MMD and President Chiluba.
Thus, if we look at above case study and the interconnectedness of the mentioned stakeholders, the development in Zambia has been mainly dependent over the mining sector under the assumption of modernization by utilizing the revenues from mining sectors. However, it was apparent that Zambia was never been fortunate throughout the history despite being a mineral wealth country. This adverse relation between the abundance of resources and poor economic performance, known as ‘resource curse’, has been resulted in Zambia because of the numbers of factors. First, according to Szeffel (1982), was the centralized political system and process after independence and nationalization of the copper mines that encouraged the corruptions and abuses of offices for private ends. Moreover, the centrality of the state formed the clientelism and relations of patronage in Zambia that undermined the capacity of the political and economic institutions (Szeffel, 1982). Secondly, as discussed above, the volatility of international copper market prices (especially decline in copper prices after the nationalization) had drawn Zambia under heavy debts for its social provisions. Then, the commitment and over reliance on extractive industry as a development strategy led to Dutch Disease, that Ross (1999), Auty (1997) and Bush (2008) described as the appreciation of a state’s real exchange rate caused by resource exploration and increase in sharp exports, accompanied by the resource boom that draws investments away from non-resource sector such as manufacturing and agricultures (Ross, 1999, p. 306, Auty, 1997, p. 658; Bush, 2008, p. 362). When the international copper prices declined, Zambia could not sustain its economy under heavy debts for social provisions because of the over-reliance over the primary commodity production and lack of economic diversification.
Furthermore, it can be seen that there also had been the limitation to the government in managing the resource sector. The first obvious obstacle to the government of Zambia was the limited control over the copper prices as the sales goes through the London Metal Exchange (LME) via foreign mine owners. Then, since mineral extraction is the capital-intensive activity, the technological limitation was also main challenge for Zambia. Another limitation was the imbalanced power relations between Multinational Mining Companies and the government of Zambia, the influential position of International Financial Institutions over the government. At the same time, the government failed to collect the maximum amount of revenues from the mining sector during the boom period between 2002 and 2008 because of the Development Agreements (Das), investor friendly policy and the lack of institutional capacities. Thus, it can be argued that the notion of resource curse is valid in the case of Zambia and the commitment on extractive industry alone could not develop the national economy.
4.A. Research Proposal – Zambia
With the maximum national revenues from the resource sector, copper mining and production sectors have hugely dominated the Zambia’s economic development. Copper mining was seen as a vehicle to drive Zambia’s economy developed in the early period of political independence.
During the first Republic, Zambia’s first president, Kenneth Kaunda, nationalized the mining companies to gain more national revenue from mining sector and tried to alter the distribution of benefits from copper mining and production in the global scales through the Intergovernmental Council of Copper Exporting Countries (CIPEC) but it failed because of the imbalanced power relations with western wealthy countries (Fraser, 2007 and 2010).
In the 1990s, Zambia was liberalized under the Structural Adjustment Program by the pressure of the World Bank and IMF to relieve its debts, and it was remarked as one of the most efficient and successful privatization process but the national economy was kept downward because of the declines of global copper prices and unjust secret Development Agreements which favored the multinational corporation maximize the profit (Auty, 1993).
Though it has been around 5 decades of its political independence, Zambia remained one of the poorest countries despite its abundance of mineral resources. In this regard, research questions are considered in the following:
- Is the notion of resource curse valid in the case of Zambia copper mining and what are the limitations of resource curse thesis?
- To what extent does the notion of relationships between resource abundance and poor economic performance acceptable in the case of Zambia mining industry?
- What are the consequences of boom and bust on the Zambian copper belt and limitations to good governance?
- To what extend does commitment on extractive industry as a development strategy under the structural adjustment program contribute for the national economic development?
4.B. Research Methodology
As the research aims to find out the linkage or relationship between abundance of resources and poor economic performance; and the resource curse in the case of Zambia’s copper mining and production, the research methodology focuses on the development of wider linkages among resource boom, investment and national economic policies. Then, the research analyze the perspectives of different stakeholders and organizes fair analysis of scholarly articles and reliable data available from different sources. This research would be better suited if being funded by the university or non-governmental organizations, as this is an independent and scholarly article.
In order to carry out this research, I would like to propose a field trip to Zambia to conduct ground interviews for six months. During the period, a mixed method of research approach will be used. A mix method of research approach includes both qualitative and quantitative techniques.
The qualitative techniques include analyzing stakeholders, gathering information from the reliable sources and ground investigation – open-discussions and interviews with different responsible stakeholders. These open-discussions would be organized by using ‘semi-structured interview techniques, which ensure the best practice and allow the interviewers certain flexibility regarding the facilitation of interesting areas of enquiry’ and ‘lead to wider and more rigorous data collection’ (Flick, 1999:76, cited in Bush, research proposal, 21).
The quantitative method is comprised of collecting reliable statistical data through on desk research and local non-governmental and governmental organizations. Indeed, participants and stakeholders need to be informed and get agreement before the interviews and ground investigation.
The participants for research questions are divided as follows:
- The Government representatives
- Representatives of Multinational Corporations
- Representatives of Local Mining Companies
- Mine workers
- Local Communities on Copperbelt
- Civil Society Organizations
- Labor and Trade Unions
- Mining and Copper Market experts
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Fraser, A. and Lungu, J. (2007). For Whom The Windfalls? Winners and losers in the privatization of Zambia’s copper mines. Zambia: Civil Society Trade Network of Zambia (CSTNZ).
Rosser, A. (2006). The Political Economy of the Resource Curse: A Literature Survey. The University of Sussex (UK): Institute of Development Studies.
Situmbeko, L. C. and Zulu, J. J. (2004). Zambia Condemned to debt: How the IMF and World Bank have undermined development. London: World Development Movement.
Chapters within Books
Adam, C. S. and Simpasa, A. M (2010), The Economics of the Copper Price Boom in Zambia. In: Fraser, A. and Larmer, M. ed(s). Zambia, Mining, and Neoliberalism: Boom and Bust on the Global Copperbelt. The United States: Palgrave Macmillan Press, pp. 59-90.
Fraser, A. (2010). Introduction: Boom and Bust on the Zambian Copperbelt. In: Fraser, A. and Larmer, M. ed(s). Zambia, Mining, and Neoliberalism: Boom and Bust on the Global Copperbelt. The United States: Palgrave Macmillan Press, pp. 1-30.
Haglund, D (2010). From Boom to Bust: Diversity and Regulation in Zambia’s Privatized Copper Sector. In: Fraser, A. and Larmer, M. ed(s). Zambia, Mining, and Neoliberalism: Boom and Bust on the Global Copperbelt. The United States: Palgrave Macmillan Press, pp. 91-126.
Larmer, M. (2010). Historical Perspectives on Zambia’s Mining Booms and Busts. In: Fraser, A. and Larmer, M. ed(s). Zambia, Mining, and Neoliberalism: Boom and Bust on the Global Copperbelt, The United States: Palgrave Macmillan Press, pp. 31-58.
Auty, R. M. (1997). Natural Resource Endowment, the State and Development Strategy, Journal of International Development, 9(4), pp. 651-663.
Auty, R. M. (2000). How Natural Resource Affect Economic Development, Development Policy Review, 18(2000), pp. 347- 364.
Bebbington, A., Hinojosa, L., Bebbington, D. H., Burneo, M. L. and Warnaars, X. (2008). Contention and Ambiguity: Mining and Possibilities of Development, Development and Change, 39(6), pp. 887-914.
Bush, R. (2008). Scrambling to the Bottom? Mining, Resources and Underdevelopment, Review of African Political Economy, 35(1), pp. 361-366.
Bush, R. (2013). Making the 21st Century its own: Janus Faced African (Under) development, Afrika Focus, 26(1), pp. 51-65.
Carmody, P. (2012). Zambia, mining and neoliberalism: boom and bust on the globalized Copperbelt, Review of African Political Economy, 39(1), pp. 391-392.
Craig, J. (2007). Evaluating privatization in Zambia: a tale of two processes, Review of African Political Economy, 27(85), pp. 257-366.
Davis, G. A. and Tilton, J. E. (2005). The Resource Curse, Natural Resource Forum, 29(3), pp. 233-242.
Hilson, G. and Potter, C. (2005). Structural Adjustment and Subsistence Industry: Artisanal Gold Mining in Ghana, Development and Change, 36(1), pp. 103-131.
John, J. D. (2008). Oil abundance and violent political conflict: A critical assessment, The Journal of Development Studies, 43(6), pp. 961-986.
Lungu, J. (2008). Copper Mining Agreements in Zambia: Renegotiation or Law Regorm?, Review of African Political Economy, 35(1), pp. 403-415.
Lungu, J. (2008). Socio-economic change and natural resource exploitation: a case study of the Zambian copper mining industry. Development Southern Africa, 25(5), pp. 543-560.
Lungu, J. (2009). Mineworkers in Zambia: Labour and Political Change in Post-Colonial Africa, Review of African Political Economy, 36(120), pp. 301-310.
Ross, M. L. (1999). The Political Economy of the Resource Curse, World Politics, 51(2), pp. 297-322.
Szeftel, M. (1982). Political graft and the spoils system in Zambia – the state as a resource in itself, Review of African Political Economy, 9(24), pp. 4-21.
World Bank (2003), World Development Report 2003: Sustainable Development in a Dynamic World, New York: World Bank/ Oxford University Press.
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