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Main country risks factors for Zambia

Main country risks factors for Zambia. Tax regime– not just rate, but also stability Social issues (what workers and communities expect) Corruption – has same effect Currency stability: exchange rate is source of risk, undermines competitiveness.

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Main country risks factors for Zambia

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  1. Main country risks factors for Zambia • Tax regime– not just rate, but also stability • Social issues (what workers and communities expect) • Corruption – has same effect • Currency stability: exchange rate is source of risk, undermines competitiveness Country risk - increases risk adjusted rate of return -Ghana, Botswana much better/less risk

  2. Agenda • Global Prospects for Copper • Copper still has much to offer Zambia • How Attractive is Zambia for investment? • How Competitive is the Zambian Mining Industry? • What role can Mining play in Zambia’s prosperity? • What is needed to realize the Potential?

  3. What determines competitiveness? • Nature of deposits: quality of ore, age, depth of mine - mixed picture in Zambia • Efficiency: new investment/technology= competitiveness, • Cost base: input costs are high • Productivity: low by international standards • Transport to markets/incoming supplies: big disadvantage

  4. Older Zambian mines in upper quartile of international competitiveness

  5. ...And costs have increased dramatically Mufulira Shaft Costs and Sales Price ($/t) Source: World Bank

  6. Labour Costs SM8 Pay 2000 to 2008

  7. Labour and Productivity Productivity levels vary by mine. Aggregate labour productivity is low

  8. For Zambia, transport is a barrier to competitive market access; costs eat into margins; time (mainly due to border delays) reduces service quality Road freight cost/t US$ Average Southbound Road Transit (Days) 8 Sources: Project Research reports; N-SC Conf Mar 2009; MSC; companies

  9. Agenda • Global Prospects for Copper • Copper still has much to offer Zambia • How Attractive is Zambia for investment? • How Competitive is the Zambian Industry? • What role can mining play in Zambia’s prosperity? • What is needed to realize the Potential?

  10. Scenario 1: Improving Investment Climate, Increasing Competitiveness • Better investment climate + higher competitiveness = more investment, higher output (1.3-1.5 Mt by 2020?) • Stable tax regime that benefits GRZ and reduces risk for industry • Strong contribution to GDP growth • An increase in exports to US$9-12 billion, based on 1.5 million tonne output • Substantially higher government revenue at US$2.25-4 billion • Employment increases • Bigger industry attracts more suppliers increasing linkages

  11. Prospects for copper production are good

  12. Scenario 2: Do Nothing • Output from existing mines no more than 700 to 750 thousand tonnes? • GRZ revenue should increase as capital tax allowances are used up/new tax regime in place • Exploration happening – but will it convert to investment? • But not much upside from employment, linkages

  13. Agenda • Copper still has much to offer Zambia • How attractive is Zambia for investment? • How competitive is the Zambian Industry? • What role can Mining play in Zambia’s prosperity? • What is needed to realize the potential?

  14. What will it take to improve the investment climate? • Stability and Policy Consistency • Tax regime • Regulatory framework • Kwacha maintained at a competitive exchange rate • Infrastructure • Reduce transport cost for inputs and exports • Fix roads and railways • Minimise delays at borders • Power – assured supply

  15. What will it take to improve competitiveness? • Transparency • Development agreements/tax regime • Agreement between GRZ, municipalities and mines on social provision • Labour • Better educated and trained workforce • Higher productivity • Improve linkages • OEM suppliers investing in linkages • Better business environement

  16. The main contribution of copper is from re-investing government revenues • 4th attempt to get it right • Managing the resource curse • Net saving beyond asset depletion • Competitive, stable exchange rate • Productivity to counter Dutch disease • Transform the economy • Basic infrastructure, education • Move to efficiency/productivity economy • Diversification of exports, sources of competitiveness

  17. Chile has reinvested revenue from mining to increase prosperity

  18. It Can Be DoneThank You

  19. Comparison LME and BOZ Realised Price

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