Copper blow shakes government

Zambia's economic prospects looked increasingly uncertain this week as a key investor in the strategic copper mining sector contemplated pulling out of the country. Zambia Copper Investments (ZCI) suspended trading in its shares on the Johannesburg Stock Exchange (JSE) late on Wednesday on instruction of its directors amid speculation that Anglo American Corporation, which owns 50.9 percent of ZCI stock, planned to write down its investment and leave the country. ZCI's major investment in Zambia is a 65 percent stake in Konkola Copper Mines, one of the most important of the country's mining assets. Zambia depends on copper and cobalt exports for around 80 percent of its foreign receipts. "It is not clear yet whether Anglo will decide to pull out or to recapitalise ZCI. We can only hope that they decide to stay on and recapitalise," Citibank Zambia country treasurer Ignatius Chicha told IRIN. "It is also difficult to say how the markets would respond to an Anglo pullout until the government responded to it," he added. The recovery of Zambia's ailing economy is seen to lie in the resuscitation of the copper industry, which was crippled by over two decades of mismanagement and inadequate financing by the former government of Kenneth Kaunda, analysts say. The reformist government of Frederick Chiluba, which assumed office in 1991, privatised the assets of the state-run Zambia Consolidated Copper Mines (ZCCM) in the late 1990s under a donor-tailored structural adjustment programme. It was widely expected that new investors would turn the mining industry around. However, poor copper prices in a weak global growth environment and metallurgical problems frustrated their ambitions. Bleak medium-term prospects forced ZCI to suspend the start-up of the Konkola Deep project, a US $500m investment aimed at accessing lower-lying copper ore bodies, last year. Anglo's partner in Zambia, the Commonwealth Development Corporation, which has a 7.5 percent stake in ZCI, is also reportedly reviewing its projects as it strives to achieve better results. Analysts fear that an Anglo pull out would prompt other members of the ZCI consortium to review their investment in the country. "If Anglo or any other member pull out of Zambia, the government would have to take up their shares, but does it have the money to do that?" Chicha said. As the markets anxiously awaited news of Anglo's decision regarding its investment, Zambia's Vice-President Enoch Kavindele told reporters on Thursday that the cabinet was meeting to design a response to the worst possible scenario. "This is a very serious matter. Cabinet has been meeting the whole morning to find a way out. It requires serious consideration, but a statement will be made soon," Kavindele said. A western donor representative said an Anglo pullout would be "a bit of a tragedy" as it would ultimately lead to fresh job cuts and to reduced export earnings and, consequently, a balance of payments crisis. Zambia is one of the poorest countries in the world, with an estimated 80 percent of its 10.3 million people living in desperate poverty.