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Zambia's Mining Industry: Risks, Prospects, and Competitiveness Analysis

Explore the country risks, investment attractiveness, and competitiveness of Zambia's mining industry, with scenarios for improvement. Learn about copper prospects, investment climate, improving competitiveness, and ways to realize Zambia's mining potential.

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Zambia's Mining Industry: Risks, Prospects, and Competitiveness Analysis

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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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