There are signals that the new dispensation in Zambia means business. It may reconsider the decision to hand over Konkola Copper Mines owned by Vedanta Resources to liquidators appointed in May 2019. Until now, the Zambian government was scouting for a partner. Some have shown interest to drop out halfway. Others backed out after doing the due diligence. Understandably, the plant has legacy problems to drive away the suitors. In the meantime, Vedanta has expressed the intent to take over the company again and run it complying with the feasible conditions laid by the government and the regulator. Importantly, this expression of interest has come as both KCM and Vedanta Resources are gearing up for an arbitration hearing in London in January 2023 to sort out vexatious issues.
The KCM-Vedanta dispute can be seen from many angles. There can be issues that can be seen working against the company. Undeniably, the activists and locals who had raised voices against the operation of the company, particularly about the environmental degradation, technology gaps, insecurity in the mines, etc, cannot be discounted. But it is also true that the search for a suitor to invest in the ailing company, despite the efforts being done by the administration, so far, did not bear any results. How soon it can get the right partner to start the operations seems to be uncertain terrain. There are gloomy forecasts of a global recession threatening to upset the cross-country flows of investments notwithstanding the impressive UNCTAD figures for FDI flows into Africa. Data shows that in 2021, FDI has picked up as compared to the previous year, with the exceptions of a few countries, including Zambia, which has bucked the trend by registering negative growth, while its immediate neighbours have shown a meaty positive growth.
Investment flows to Zambia remained negative at (- )US$457 million in 2021, a steep fall from (-)US$173 million in 2020, due mostly to a US$1.5 billion copper mine divestment by Swiss-based Glencore to state-owned ZCCM Investments Holdings. There are indications that some other multinational corporations operating in the country in the mining sector are increasingly complaining about the state of affairs during the earlier political regime, which did not have a clear-cut policy framework on investments. Heavy investments in the infrastructure sector, carried out by the earlier regime, by borrowing from several sources including multilateral organizations did not go well since infra investments precariously have a lag effect between investment and benefit flows. The preponderance of those ill-conceived policies had led to Zambia defaulting on sovereign loan repayment, a sinister development that signaled the death knell to the flow of more investments into the country.
As expected, the new dispensation led by President Hakainde Hichilema is trying to give a new direction to the development model of the country led by the private sector to address the fault lines of the earlier development model. It wants to reduce the role of the public sector in a calibrated manner, as is the case with the present trend in other parts of Africa. Importantly, Mines Minister of Zambia Paul Kabuswe has dropped hints that the country is not averse to reconsidering the decision on liquidation of the KCM-Vedanta resources, although the last word has yet to be heard. China, which has made huge investments in Africa and is reported to be aggressive about taking over copper mines in Zambia, has shied away from being a serious bidder for KCM. The rationale for such a decision, as pointed out by experts, is the technological backwardness of the plant and the huge investments needed to bring it on the rail.
Yet, there are differing views that surface as discussions about possibly handing over KCM to Vedanta Resources take place. An activist group wants greater control of the government, to the extent of 50%, if the management of the company is returned to Vedanta Resources, as against 20% as was the case earlier. Another group of traditional chiefs of the regions, late, demanded that 5% of the shares of a mining company should be vested with the local people. Such demands can be unproductive since the company operating the mines will be hamstrung in carrying out its modernization works since there will be hurdles in decision making and implementing them in time.
It calls for Zambia to set up a strong regulator to monitor the activities in mines and leave its management to the private sector by drawing up clear-cut regulatory measures to comply with. Infringement of the laid down conditions should attract appropriate penalties.
Zambia is only an archetypal example. Most of the countries in Sub-Saharan Africa may have witnessed the acceleration of FDI in recent years. But a few factors have to be kept in mind while analysing this trend. First, the FDI increase in all these countries, except South Africa and Nigeria, is from a small base. Secondly, intercompany investments constitute a major chunk of investments and not in Greenfield projects. Thirdly, a sizable quantum of investments has been channelized to the green energy sector and the share of manufacturing and services is negligible, which are critical for creating more employment.
Investments in mines, particularly, in Zambia, will have a snowball effect, not only on all other segments of the industry in the southern African country but also in other African countries, where the state continues to be a major player in the mining sector. If that trend in the mining sector is reversed, more avenues for investment and employment will be opened up. That is also the crying need of the continent.
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