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The Impact of Various Economic Factors on Zambian Consolidated Copper Mines Investment Holding (ZCCM-IH)

ZCCM-IH occupies a very unique and strategically advantageous position as an investment holding company, as it holds key interests across mining and energy industries in Zambia. It also has significant investments in diversified energy entities, gemstones, and real estate. Currently, ZCCM-IH’s portfolio consists of five (5) wholly owned subsidiaries and fifteen (15) investee companies.

In their 2020-2026 strategic plan, ZCCM-IH has prioritized the generation of consistent and predictable income through investments in Brownfield and Greenfield projects and ensuring value is extracted from existing legacy and post legacy portfolio companies through driving and participation in primarily the mine supply value chain.

IDC group CEO Mr Mateyo Kaluba said that ZCCM-IH will take up a more active role as an investor in the mining sector rather than being a holding company for government’s minority shares. Mr Kaluba said ZCCM-IH should meet the aspirations of the Zambian people as far as ownership of mineral resources is concerned.

In accordance with the new government, Zambian President Hakainde Hichilema said his new government would implement policies to reduce the fiscal deficit, restore economic growth and review mining policies. In his first address to a new session of parliament since his election in August, President Hichilema said officials would also review agricultural policies, revise electricity prices and reform state power firm, Zesco.

Last November, Africa’s second-biggest copper producer became the first country on the continent to default on its sovereign debt during the pandemic, after failing to keep up with payments on nearly $13 billion of international debt. “Rebuilding our economy is top on our agenda. We will implement policies to address the fiscal deficit while ensuring that confidence is restored in the markets,” President Hichilema said. “We have indeed inherited an economy that is in dire straits and requires bold and decisive action to be taken,” he said, adding that his government was committed to halting the accumulation of expensive public debt.

Zambias external debt includes about $3 billion in Eurobonds, $3.5 billion in bilateral debt, $2.1 billion owed to multilateral agencies and $2.9 billion in commercial bank debt. Zambia also owes mining companies more than $1.5 billion in value-added tax (VAT) refunds, an issue that soured relations between government and the mining sector. The VAT refunds are the top priority for the industry, said zambia’s Chamber of Mines CEO, Godwin Beene, who represents mining companies including First Quantum Minerals’ Kansanshi Mining and Barrick Gold’s Lumwana Mining.

President Hichilema’s market-friendly stance will attract new investment into zambia’s mining sector and help boost the country’s copper production at a propitious time of near record-high copper prices. President Hichilema’s predecessor, Edgar Lungu, had pushed for greater state ownership of mines. State mining investment company ZCCM-IH took on $1.5 billion in debt in January to take over Glencore’s majority stake in the Mopani copper mine.

The previous government was looking for an investor to fund the mine’s expansion, which would boost output from 34,000 tonnes of copper a year to 15,000 tones. Zambia as a whole hopes to increase its annual copper output to 2 million tonnes by 2026, new Finance Minister Situmbeko Musokotwane said last month. The country produced 882,000 tonnes last year.

Hitting that target would require significant investment in Mopani and other mines across Zambia as well as in exploration. However, Citi Banks outlook on Zambia is that one of the reasons why many investors remain positive about Zambia is that the country has good external tailwinds, notably a copper price. In essence, high copper prices and a weak growth have meant that exports have been robust and imports depressed, which has pushed the current account into a surplus of 11.6% of GDP. This makes adjustments under an IMF programme easier to achieve, with the focus firmly on the fiscal side of the adjustment. It also supports the view that the Kwacha is not necessarily under the sort of pressure that is often associated with IMF programs. Moreover, Citi research remains bullish about the outlook for copper prices going forward.

The medium-term battle for the new government will be to put in place a new regulatory regime for the mining sector which balances its many goals: the need to boost production, while raising tax and creating jobs. Moreover, perhaps the biggest problem mining companies in Zambia have had in the last decade is the chopping and changing in the regulatory regime. So for significant new investments into the sector, what is probably required more than anything else is a degree of certainty that a new mining sector regulatory regime will remain in place for a prolonged period of time so that investors can make longer-term investment plans with a degree of confidence.

Their argument is that restoring macroeconomic stability under an IMF programme is probably a relatively easy task facing the new president and his economic team. The harder job is to ensure that Zambia’s debt stock is sustainable going forward, while at the same time boosting investment in the economy, led by the mining sector. Moreover, this is crucial, as this will drive government revenue and growth going forward, which in turn is critical to creating jobs and reducing unemployment. As we have seen with respect to other countries across Africa, there is a strong argument that this cannot be achieved in a single term. The key for the government is to move quickly, and then the economy should be showing signs of recovery as the next election approaches in five years, which would mean that the young voters who propelled HH to power have the confidence that the improvement will continue into a possible second term.


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