Figure 1. Map of Zambia

I. Economic Overview
Zambian GDP growth averaged a healthy 4.5% over the five-year period ending in 2004, having benefited from a relatively stable political environment, elevated copper prices, and government efforts to privatize industry, curtail corruption and promote trade.¹ However, the solid economic growth in recent years has been counter-balanced by persistently high rates of inflation, which hovered around 20% in 2004 and 2005, and unemployment, which has been estimated from as low at 15% in 1996 to as high as 50% more recently.² As a result, Zambia continues to face considerable obstacles to economic development. Other important obstacles include the need for improved infrastructure, widespread poverty, and the high prevalence of HIV/AIDS, among others. The copper industry plays a key role in the Zambian economy that will be examined in greater detail in Part II of this report. In order to put the role of the sector into proper context, an overview of the Zambian economy by sector, employment, and trade is provided below, followed by a brief description of the government’s role in the economy.

A. Key Sectors
According to Zambia’s Central Statistics Office, the three largest economic sectors in 2004 were agriculture and related areas, wholesale and retail trade, and manufacturing, which together accounted for over half of GDP. In the agricultural sectors, the most important crops (by quantity) include maize, wheat, soya beans, and groundnuts. The next largest economic sectors were construction and financial institutions, which each accounted for around 9% of GDP in 2004, following by community, social and personal services (which include public administration, defense, sanitary services, education, health, recreation, and personal services). The mining and quarrying sector, meanwhile, reportedly accounted for just 3% of GDP in 2004. In addition to copper, key mining resources in Zambia include cobalt, zinc, lead, coal, and emeralds.³

By total employment, however, the mining and quarrying industry was the second largest private-sector employer behind agriculture, employing over 46,000 people – an increase of 32% over a three-year period. With nearly 140,000 employees in 2004, however, the public sector remained the largest employer in Zambia and government expenditures and net lending accounted for 26.7% of GDP.⁴ Other major sources of employment (in descending order of importance) included agriculture and related areas, manufacturing, trade and distribution, finance, transportation and communications, utilities, and construction.

Figure 2. Zambia, GDP by Sector (%), 2004

¹ International Monetary Fund (2006).
² http://www.web.worlbank.org and http://www.ilo.org.
³ Central Intelligence Agency.
⁴ International Monetary Fund (2006).

B. Trade
International trade plays an integral part in Zambia’s overall economic performance. According to the World Trade Organization, Zambia maintains a trade-to-GDP ratio of 72.8 as the government actively promotes the international trade of goods and services, especially as compared to its African peers.⁵ In addition, Zambia benefits from attractive tariffs for its exports and receives preferential access to most markets in the developed world.⁶ As a result, Zambia’s annual export growth has exceeded 12% in recent years. By commodity group, fuels and mining products are the leading generators of export revenue, followed by agricultural products and manufactures. Of note, copper products, which span both mining and manufactured products, have typically accounted for nearly 60% of total export revenues. According to IMF statistics, trade with South Africa, China, and South Korea accounted for just over one-half of all exports in 2005, with the E.U. and neighboring African nations also serving as important export markets.⁷

Figure 3.

⁵ http://stat.wto.org. Trade to GDP ratio is estimated as an economy's total trade of goods and commercial   services (exports + imports, balance of payments basis) divided by GDP, on the basis of data for the   three latest years available. GDP is measured in nominal terms and with market exchange rates.
⁶ International Monetary Fund (2006).
⁷ Ibid.

C. Government Role
While the public sector is the largest employer in Zambia, the role of government in Zambia’s economy has changed dramatically since the nation’s structural adjustment program was inaugurated in 1991.⁸ Among the more ambitious government efforts has been the privatization of Zambian industry, 80% of which had come under national control in the decade following independence in 1964.9 Starting in 1993, however, 138 national companies were initially targeted for privatization, a number which was eventually expanded to 282 firms.¹⁰ Among the key sectors represented by those firms were mining (see below for details of copper industry), power generation, petroleum, and finance, among others. As of early 2004, nearly 260 of the targeted firms had been privatized and additional scheduled privatizations included the Zambia Postal Services Corporation (ZAMPOST) and the Zambia Telecommunications Company (ZAMTEL).¹¹ These efforts, along with government programs to liberalize the agricultural sector, relax capital controls, promote trade, and reduce corruption have generally been applauded by the both the international and local business communities.

However, significant economic challenges remain, including the persistently high level of public debt, which as of last year was estimated at over 65% of GDP.¹² According to a recent IMF study, additional areas of concern include the government’s inconsistent regulatory and labor policies as well as the need for improved infrastructure.¹³ These three areas – government regulation, labor law, and inadequate infrastructure, are of special importance to the copper industry and will be discussed in greater detail below.

⁸ International Monetary Fund (1999). 9 http://www.zpa.org.zm.
¹⁰ International Monetary Fund (1999) and http://www.zpa.org.zm.
¹¹ Ibid.
¹² Central Intelligence Agency (2007).
¹³ International Monetary Fund (2006).

II. Copper Sector

A. Historical Development
The copper industry has made a vital contribution to Zambia’s economic performance throughout its history and the Zambian government has, in turn, played a critical role in determining the size and scope of the copper industry. The British South Africa Company, which had collected royalties on copper production in the former Northern Rhodesia as far back as 1889, signed over its mineral rights to the new government at the time of Zambian independence in 1964.¹⁴ As early as 1968, the Zambian government had signaled its intention to obtain majority holdings of the remaining major foreign-owned mining companies and in 1970 the operations of the Anglo American Corporation (including the companies operating the Nchanga and Bancroft mines and the Rhokana mine and refinery) were reorganized as the Nchanga Consolidated Copper Mines (NCCM).¹⁵ In addition, the Rhodesian Consolidated Mines was reorganized as Roan Consolidated mines (RCM) and NCCM and RCM were subsequently merged in 1981 to form Zambia Consolidated Copper Mines Ltd (ZCCM).

The lack of fresh investment in the mining sector and concomitant volatility of world copper prices contributed to Zambian copper mine production plunging 63% over the 1975-2000 period. With the structural reforms that began in 1991, however, the copper industry was targeted for privatization and by the year 2000 most of ZCCM’s assets had been divested.¹⁶ As a result, the mission of ZCCM evolved from that of a mining company to that of an investment holding company, which was reflected in the name change to ZCCM Investment Holdings plc (ZCCM-IH) in 2001.¹⁷ The privatization process experienced a brief setback in 2002 when some foreign firms withdrew their equity in Konkola Copper Mines (KCM), necessitating the re-privatization of KCM in 2004 with the sale of 51% of the company to Vedanta Resources plc.¹⁸

Mining activity in Zambia is currently regulated by The Mine and Mineral Act of 1995, while a series of published Environmental Protection and Pollution Control Regulations has created an environmental framework for mining that is administered by Director of Mines Safety.¹⁹ In earlier efforts to attract investment in the sector, the Zambian government lowered the tax burden for copper firms in 2002, including a reduction of the royalty on the market value of minerals (minus certain processing, insurance and shipping charges) from a rate of 2% to 0.6%.20 In addition, copper exporters are taxed at a corporate tax rate of 35%, although a number of special deductions for capital expenditures, prospecting and mining expenses exist in certain circumstances. These tax rates are currently be revisited in light of the spike in copper prices in 2006. (See “Outlook” section below for further details.)

With the liberalization of the copper sector and the recent rise in copper prices, copper production and export shipments have been on the rise since 2000. Along with the recent run-up in prices has been a surge of overseas interest in Zambia’s copper resources, with the government reporting that, over the last three years, approximately US$1.4 billion have been pumped into the mining sector by new ownership.²¹ Most recently, China has become a major investor in the Zambian market, with the two countries having announced a new economic-partnership zone around the Chambishi copper mine in February 2007.²²

¹⁴ Bureau of Mines (1964).
¹⁵ Bureau of Mines (1970) and http://en.wikipedia.org.
¹⁶ Mining Journal Special Publication (2006).
¹⁷ Ibid.
¹⁸ U.S. Geological Survey (2004) and http://www.kcm.co.
¹⁹ http://www.zambiamining.co.zm.
²⁰ Mining Journal Special Publication (2006). 21 http://www.statehouse.gov.zm.
²² Associated Press (2007).

B. Production

i. Mining
After having peaked in 1969 at 748,000 metric tons (mt), copper mine production in Zambia bottomed out at 249,000 mt in 2000.²³ Similarly, Zambia’s share of world copper mine output declined from as high as 15% in 1965 to less than 2% in 2000. As indicated, volatile copper prices had a dampening effect on mine investment and production during those years. (The average LME Grade A cash price remained below US$2,000/mt for much of the 1970’s, hitting a low of $1,067/mt in 1971, and for much of the 1980’s, as compared to the average price of $6,727/mt in 2006.) Since 2000, copper mine production has steadily advanced and is estimated to have exceeded 500,000 mt in 2006 (although well below the Zambian government’s earlier forecast that copper production would reach 600,000 mt last year).

Figure 5. Copper Production In Zambia: Mine and Refinery, 1964-2006 (thousand metric tons)

By capacity, the largest mining firm in Zambia is Konkola Copper Mines (51% owned by Vedanta, 28% by ZCI, and 21% by ZCCM), which owns and operates the Nchanga mine, Nchanga tailings facility, and Konkola mines, which in 2007 are estimated to have a combined annual capacity of 316,000 mt.²⁴ The next largest mining company in the country is Mopani Copper Mines plc (73% owned by Glencore, 17% by First Quantum, and 10% by ZCCM), which owns the Nkana Copper and Cobalt mines and the Mufulira mine with together currently have a capacity 210,000 mt per year.²⁵ In addition, First Quantum Minerals Ltd owns 80% of the Kansanshi mining project which has a total capacity (concentrates + SXEW) of 164,000 mt per year. Other firms with significant mining operations in the country include J&W, NFC Africa Mining (85% owned by China’s Non-Ferrous Metal Mining Co.), and Metorex.²⁶

Zambia ranked 11th in world copper production in 2004. But based on current expansion, development, and exploration plans, Zambia is expected to have the 6th largest mining capacity by 2010. Those plans include expansion of output at the Baluba, Chingola Refractory Ore, Konkola, Mufulira, and Nchanga tailings facilities, development of new or refurbished mines by Puku Minerals and Equinox Minerals, and exploration activity by firms Zabezi Resources and Mufumbwe Zimbabwe.27

Figure 6. Zambia: Share of World Copper Mine Production, 1964-2006 (%)

²³ International Copper Study Group database.
²⁴ International Copper Study Group (2007).
²⁵ Ibid.
²⁶ Ibid.

ii. Smelter & Refinery
Similar to the trend in mine production, smelter and refinery production reached their highest points in the 1960s and 1970s before declining to their nadirs in 2000 at 180,000 mt and 227,000 mt, respectively. Since then, smelter and refinery production are estimated to have rebounded to 290,000 mt and 456,000 mt of copper, respectively, in 2006. And with considerable capital currently being invested in Zambia’s copper plants, that trend is expected to continue.

Zambia Mine, Smelter, and Refinery Production, 2000-2006
Thousand Metric Tones

At present, there are three copper smelters operating in Zambia and two more under development. The largest operating smelter is Mopani Copper Mines’ Mufulira smelter, which is currently being expanded to a capacity of 240,000 mt per year. Konkola Copper Mines’ Nkana smelter is the second largest with a capacity of 150,000 mt of copper per year, and finally the smelter at Mopani’s Nkana Cobalt Plant is capable of smelting 20,000 mt of copper per year after a recent upgrade. In addition, Konkola Copper Mines is developing the Nchanga smelter, with production scheduled to start by the end of 2008 with an expected total capacity of 150,000 mt per year. China’s Non-Ferrous Metal Co. is developing its Chambishi flash smelter which is also scheduled for start-up in 2008 with an initial capacity of 100,000 mt per year. With the addition of these two new smelters, Zambia’s smelting capacity could jump by over 60% by the year 2010.²⁸

Of the ten active copper electrolytic and electrowinning refineries in Zambia, by far the largest is Mopani Copper Mines’ Mufulira electrolytic refinery which has a capacity of refining 265,000 mt of copper per year. (Of Zambia’s 740,000 mt of refinery capacity, 60% is electrolytic and 40% is electrowinning.) The next two largest refineries are owned by Konkola Copper Mines: the Nkana electrolytic refinery, with current capacity of 180,000 mt per year and the Nchanga TLP refinery which has a capacity of 100,000 mt in 2007. Two significant electrowinning refineries owned by First Quantum are Kansanshi (82,000 mt capacity) and Bwana Mkubwa (45,000 mt capacity). Additional electrowinning refineries are owned by Meterox (Chibuluma and Sable Zinc), J&W (Nkana Slag Dumps/Chambishi Cobalt Plant), and China’s Non-Ferrous Metal Mining Co. (Chambishi). Half these ten plants are currently scheduled for expansion, the most ambitious being Konkola Copper Mines’ plan to increase production at the Nkana facility by 120,000 mt to 300,000 mt by the end of 2008. Expansions are also planned for the Chingola Refractory Ore, Kansanshi, Nchanga TLP, and Sable Zinc refineries. Based on current capacities and planned expansions, refinery capacity in Zambia is expected to increase by nearly 25% by 2010.²⁹

In 2004, Zambia’s smelter and refinery production ranked 15th and 13th in the world, respectively. With the on-going expansion in plant capacities, however, by 2010 Zambia is expected to have the 8th largest smelter capacity and 7th largest refinery capacity in the world.

²⁷ Ibid.
²⁸ Ibid.
²⁹ Ibid.

C. Usage
Due in part to the developing status of its economy, domestic demand for copper has typically been low in Zambia, as evidenced by the high proportion of Zambian copper production that is exported. While data on first usage of copper (where first use is defined as “…the production of semi-fabricated copper products using unwrought copper materials such as refined copper or direct melt scrap as raw material feed”) is limited, usage is estimated to have increased four-fold over the period 2000-2006 to 27,000 mt.³⁰ The rise is largely attributable to increased capacity at the Zamefa wire rod plant operated by the Metal Fabricators of Zambia (51% owned by PD Wire and Cable), which has been operating since 1982 and was expanded in 2004.³¹ Zambia’s total first use capacity for copper alloys was estimated at 40,000 mt in 2005.³² Other first users of copper in Zambia include the Non-Ferrous Metals Works Zambia, the Copper Alloys Rolling Mill, Zambia Aluminium, and Raj Metals.³³

Figure 7. Zambia: Mine Production and Refined Exports, 1996-2006

Figure 8. Zambia: Refined Copper Usage 2000-2006 (Thousand Metric Tons)

D. Trade
Following the national production trend, Zambia’s export shipments of refined copper peaked in 1976 at nearly 738,000 mt and steadily declined thereafter to a low of 200,000 mt in 2000. Since that time, exports have surged by almost 235% to an estimated 467,000 mt in 2006 (a time period during which world copper prices more than tripled.) Tracking export shipments by destination is complicated by the fact that the Zambian statistics office does not always track shipments by final destination. For example, trade data from the United Nations’ Comtrade database show that 54% of Zambia’s copper exports were shipped to Switzerland in 2005, while China accounted for less than 1% of Zambia’s exports that year.³⁴ In contrast, China’s import data reveal that nearly 51,000 mt of refined copper arrived from Zambia in the same year, likely a more accurate figure that would represent nearly 13% of Zambia’s exports.

The revenues generated by Zambia’s exports continue to play a critical role in the domestic economy. Not surprisingly given the trends in copper shipments and prices, copper exports as a share of total Zambian exports have also been on the rise, increasing from 45% of exports in 1998 to 58% in 2004.³⁵ Meanwhile, according to Zambia’s Central Statistics Office, exports of copper and copper articles accounted for 68% of total Zambian exports (by value) in the fourth quarter of 2006.³⁶ In terms of volume, Zambia was the third largest copper exporter of refined copper in 2004 (behind Chile and Peru and slightly ahead of Kazakhstan) but accounted for just 5% of world refined copper exports, down from the lofty levels of the 1960s and 1970s when Zambia on average accounted for one quarter of world refined copper shipments. In 2005, Zambia’s copper shipments as a share of global exports are estimated to have edged slightly to 6% of world exports.

Figure 9. Zambia Refined Copper Exports: Total and Share of World Exports, 1964-2005

³⁰ International Copper Study Group (2006) and International Copper Study Group database.
³¹ International Copper Study Group (2006).
³²Ibid.
³³ Ibid.
³⁴ http://comtrade.un.org.
³⁵ International Monetary Fund (2006).
³⁶ Zambia Central Statistics Office (2006).

E. Outlook
According to the U.S. Geological Survey, Zambia has reserves of 19 million mt and a reserve base of 35 million mt of copper content.³⁷ As such, it has been estimated that, even in the absence of new discoveries, Zambia has sufficient reserves for at least another 60 years of production at current rates.³⁸ Also, with copper prices remaining relative high amid signs of increasing political stability in the region, investment in Zambia’s copper industry should remain attractive in the near future. The impact of the recent elevated level of investments are reflected in our forecasts for Zambian mine, smelter, and refinery capacities, which are projected to increase to nearly 1.1 million mt, 660,000 mt, and 948,000 mt, respectively, by the year 2011. Of more pressing concern for the domestic economy is the degree to which the country’s economic performance is tied to the copper sector and, more specificity, to world copper prices. As a result of the recent volatility in copper prices, the Zambian government is reportedly reexamining its taxation of the sector. According to a recent press report, the Zambian government is considering increasing the royalty tax on the market value of minerals from the current 0.6% to 3%, in addition to raising the corporate tax rate on copper exporters from 25% to 30%.³⁹ In addition, the Zambian Minister of Information and Broadcasting Services was quoted earlier this year as saying that Zambia is planning on reforming its labor laws in order to curb the exploitation of its workers.⁴⁰

Other initiatives of interest to the copper industry include the government’s effort to provide a more reliable fuel supply to the copper industry. As part of that program, the government announced that, in partnership with the French oil company Total SA, it plans to invest $65 million in the Indeni oil refinery.⁴¹ The World Bank, meanwhile, reports that as of April 2006 it had invested approximately $3.44 billion dollars on infrastructure and economic development projects in Zambia.42 Although the impact of these various initiatives on the level of foreign investment and the status of the Zambian infrastructure is uncertain, it is clear that the government’s role in the copper sector, along with the changing level of world copper prices, have historically been key determinants of the productivity of the Zambian copper industry.

Figure 10. Zambia: Mine, Smelter and Refinery Capacity, 2000-2011 (thousand metric tons)

³⁷ U.S. Geological Survey (2007).
³⁸ Mining Journal Special Publication (2006).
³⁹ Dow Jones Newswires, (2007c).
⁴⁰ Dow Jones Newswires, (2007a).
⁴¹ Dow Jones Newswires, (2007b). 42 http://web.worldbank.org

References

Associated Press. 2007. “Chinese President to Inaugurate Copper Mining Investment Program in Zambia.” February 3.

Bureau of Mines, U.S. Department of the Interior. 1964. Minerals Yearbook. Washington, D.C.

Bureau of Mines, U.S. Department of the Interior. 1970. Minerals Yearbook. Washington, D.C.

Central Intelligence Agency. 2007. The World Factbook 2007. Washington, D.C.

Dow Jones Newswires. 2007a. “Zambia Govt To Amend Labour Laws This Yr To Help Workers.” January 19.

Dow Jones Newswires. 2007b. “Zambia To Invest $65M To Stabilize Fuel Supply – Official.” January 29.

Dow Jones Newswires. 2007c. “Zambian Budget Proposes Tax Hike on Copper Companies.” February 9.

International Copper Study Group, Database.

International Copper Study Group. 2006.Directory of Copper & Copper Alloy Fabricators – First Use – 2006 Edition. Lisbon, Portugal.

International Copper Study Group. 2007. Directory of Copper Plants and Mines: 2006 to 2011: 1st Quarter 2007 Edition. Lisbon, Portugal.

International Monetary Fund. 1999. “Enhanced Structural Adjustment Facility Policy Framework Paper, 1999-2001. Washington, D.C.

International Monetary Fund. 2006. “Zambia: Selected Issues and Statistical Appendix.” Washington, D.C.

Mining Journal Special Publication. 2006. “Zambia: A World of Opportunities.” London: Mining Communications Ltd.

Platts Metals Weekly. 2007. “Zambian Production Rises 9% in 2006.” February 5, pp.15-16.

U.S. Geological Survey, U.S. Department of the Interior. 2004. Minerals Yearbook 2004.

U.S. Geological Survey, U.S. Department of the Interior. 2007. “Mineral Commodity Summaries.” January.

Zambia Central Statistical Office. 2007. “The Monthly.” Lusaka, Zambia. January.

Internet Resources

International Labor Organization. http://www.ilo.org

Konkola Copper Mines Plc. http://www.kcm.co.zm

Republic of Zambia. http://www.statehouse.gov.zm.

United Nations Commodity Trade Statistics Database. http://comtrade.un.org.

Wikipedia. http://en.wikipedia.org

World Bank. http://web.worldbank.org

World Trade Organization. http://stat.wto.org

Zambia Ministry of Mines and Minerals Development. http://www.zambiamining.co.zm.

Zambia Privatisation Agency. http://www.zpa.org.zm