Missing out on the copper boom

Botswana and Zambia are neighbouring countries both rich in resources, but while Botswana has moved from being a low-income country to an upper-middle-income country, Zambia has regressed into greater poverty.

"Botswana and Zambia are two land-locked and resource-rich African countries that have followed two very different approaches in managing and using the rents from their resource wealth to achieve very different outcomes. Botswana's remarkable per capita income growth performance, averaging 6.4 percent [annually] over the 1960 to 2004 period, enabled it to move from a low-income poor country in 1960 to an upper middle-income country ($8,936 in 1996 international dollars) since 1998," a recent World Bank report said.

Despite Zambia's vast natural resources and political stability since independence from Britain in 1964, the Bank commented in 'Challenges of African Growth: Opportunities, Constraints and Strategic Directions' that income levels had declined.

"Zambia's and Cote d'Ivoire's per capita incomes have hardly progressed relative to their levels in 1960. Zambia's per capita income on average retrogressed at -0.6 percent per annum over the past 45 years and, as a result, its 2004 level of $902 in 1996 international prices is 23 percent below the 1960 level of $1,167," the report commented.

In recent years, Zambia's president Levy Mwanawasa has been praised by western donors for his pro-market economic policies, but the strategy has failed to translate into real wealth for the two-thirds of Zambia's about 10 million people who subsist on less than US$1 a day, while only about 400,000 Zambians have formal employment.

"The government officials keep telling us that the kwacha [local currency] has improved, but all the prices of commodities have remained the same. In fact, our lives are worse off now than we were under [founding president Kenneth] Kaunda. In Kaunda's days, we were having a lot of money but there were no commodities to buy; now we have a lot of commodities on the market but without money to buy them," said Marilyn Chiwewe, a retired civil servant in the capital, Lusaka.

Zambia's investor-friendly approach after South African mining conglomerate Anglo American pulled out in 2002 saw generous terms offered to lure mining companies to set up shop, such as 20-year tax holidays, a 0.6 percent mineral royalty tax - globally the norm is 3 percent - and no duty imposed on imports of equipment and machinery.

Analysts say any attempt to revise the mining investment terms is likely to result in litigation by companies. Although the government has been encouraging diversification of the economy into other sectors like tourism and agriculture to reduce dependence on copper, it remains Zambia's chief export, accounting for over 80 percent of these earnings.

"As a country, we haven't benefited from copper sales over the last five years because even the 0.6 percent mineral royalties has not been paid by some companies. The mining companies were excused from paying mineral royalties for as long as they were not making profits, implying that many of them only started paying the royalties last year," said Bob Sichinga, a former parliamentarian who served on the parliamentary mining committee.

"Government is supposed to be getting about $1 million in royalties every year but it has been getting almost half that amount, and the worst thing is that all the mines, except one, are currently banking their money abroad. They only bring to Zambia what is needed for operations and salaries."

This year copper hit record highs of about $8,000 per tonne on the London Metal Exchange, up from the average price of $1,200 five years ago. Zambia's annual copper production is worth billions of dollars, but unlike Chile - the world's largest producer - where the price contributed to a record budget surplus of $8 billion, Zambia has little to show for the boom.

Ironically, Zambia's finance minister, Ng'andu Magande, told local media last week that the World Bank had cut loans and grants to Zambia by $80 million this year because of the country's good economic performance, and it would only receive $50 million.

Zambia has benefited from Western debt relief and, according to Magande, was unlikely to qualify next year for low-interest loans from the International Development Agency [IDA], the World Bank's lending arm. "The formula has now changed, as I don't see Zambia getting IDA [loans]. We don't qualify for IDA grants any more because of the debt-relief situation. We are no longer a highly-indebted country to benefit from the IDA loans."

Zambia's foreign debt of $7.2 billion was written off last year and has now been reduced to $502 million.

Ezekial Phiri, a University of Zambia School of Economics lecturer, told IRIN that inadequate investment in social services had led to a reduction of the country's income. "The productivity of the country largely depends on the health and education of the people. Our low income levels could be directly attributed to poor investment in these two key sectors of the economy."

In the 1960s post-independence era, government embarked on a countrywide construction of schools, hospitals and roads. Education was free up to grade 12, and there were hundreds of university education bursaries. Free education now only goes up to grade seven.

"It will take time for the people to feel the impact of the current government's policies because they are not forward-looking," Phiri said. "The government always rushes into flooding the market with millions of dollars whenever the country makes earnings from exports, in order to strengthen the performance of the kwacha instead of investing in long-term social infrastructure that would pay off over time."

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