Mon. Aug 19th, 2019

Death of Copperbelt mining part II

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By Peart Siwale in Ndola
Mining in the Copperbelt faces a crisis. This crisis involves technical, economic, managerial and political issues.

In the October edition of The Independent Observer, I looked at technical and political challenges.

In this article I shall focus on managerial problems alone then the last part will handle economic challenges in the mines.

Copper deposits in Zambia were discovered in the 1920s while those in Katanga (DRC) were discovered earlier in the 1890s.

In fact, if Belgian geologists had not made an error in mapping, the whole Copperbelt would have been part of Belgian, Congo.

It is that same geological error that explains the unusual geographical feature known as the Pedicle.

Copper mining in Zambia has gone on for nearly 100 years.

During that period the industry has experienced many ups and downs—the ups in times of war or rapid industrialisation, the downs in times of economic recessions.

The most recent up sage in demand and price for copper has come from China and India in their rapid industrialization.

This article explains the nature of that crisis and proposes measures to mitigate adverse consequences.

Managerial issues: There are some serious managerial issues in the mines.

For example, expatriate employees and contractors are paid higher salaries and rates than Zambians counterparts doing the same work.

Why does the government and the unions condone this practice in this day and age?

In 1972, I was a member of a team which went to DRC (then Zaire) to study operations of GECAMINES.

One of the differences we found was the treatment of expatriate and local graduates.

All graduates, local and expatriates, were categorised as Les Cadres and were paid the same salaries.

Expatriates who had highly sought out critical skills were paid an “inducement” allowance outside Zaire.

It was this differential treatment that made me and many others to leave the mines. For the practice to have continued to this day is a shame and is nothing but shameful.

The International Monitory Fund (IMF) and the World Bank have been advising government to privatise Zesco.

Is it always the case that private companies are run more professionally?

Who would suffer if private owners mismanaged Zesco? The US government recently “nationalised” several financial institutions to save them from collapse due to mismanagement.

Managers in private companies can play politics. We see this in the saga going on in South Africa with the so called state capture.

The socialist government of President Allende privatised Chilean Copper mines.

When the socialist government was removed the new leaders retained government ownership, but had the discipline and integrity to avoid interfering in the running of the mines.

Chilean mines, though government owned, have been run professionally and the country has benefited immensely.

It is a sad fact that current African leaders, with few exceptions, do not have the self-discipline, self-pride and integrity to avoid dipping their fingers into state owned companies’ coffers.

Managers in private companies often play politics and are not always professional. Stories coming from South Africa about state capture are a case in point.

The IMF and the World Bank can do a lot to stop governments from interfering in state owned companies following the good example of Chile and Botswana.

Zambia’s dependency on copper

When I went to the Royal School of Mines at Imperial College in 1967, there were three Malaysian students in my class.

I was the only African. At the time Malaysia was the largest producer of tin in the world.

Tin, palm oil and rubber made up 80per cent of the value of Malaysian exports, while copper accounted for 80 per cent of Zambian exports.

When I went to Malaysia in 1999, tin, palm oil and rubber accounted for only 10 per cent of the value of Malaysian exports, whereas copper had enhanced its position and made up 90 per cent of the value of Zambian exports.

What happened?

The prime minister of Malaysia, Dr Mahathia Mohammed had posed the question in the 1970s.

“Can we develop our country depending on exports of products whose price we cannot determine? “The answer was, no. So what did they have to do?

Malaysia enacted a law whereby companies setting up manufacturing operations in Malaysia would get a 10-year corporate tax holiday.

They reasoned that the loss in tax revenue would be recovered from Pay As You Earn (PAYE) tax as the number of people employed increased.

The prime minister personally travelled to America, Europe and Japan to sell his country and give credence to this law.

Japanese companies were the first to take advantage of the law and almost uprooted factories from Japan to reestablish them in Malaysia.

European and American companies followed. Hence by 1999 Malaysia was the largest exporter in the world of air conditioners, natural rubber products and refined palm oil.

What lessons can we learn from this? Revenue from PAYE is more reliable than income from corporate tax.

Companies frequently manipulate their corporate tax liabilities to pay less tax.

Private sector jobs add more value to the economy than jobs in government bureaucracies.

 

Look out for part three of Death of Copperbelt mining as I focus on economic challenges and provide the measures and mitigations to arrest the problem.

Death of Copperbelt mining part II

By Peart Siwale in Ndola

Mining in the Copperbelt faces a crisis. This crisis involves technical, economic, managerial and political issues.

In the October edition of The Independent Observer, I looked at technical and political challenges.

In this article I shall focus on managerial problems alone then the last part will handle economic challenges in the mines.

Copper deposits in Zambia were discovered in the 1920s while those in Katanga (DRC) were discovered earlier in the 1890s.

In fact, if Belgian geologists had not made an error in mapping, the whole Copperbelt would have been part of Belgian, Congo.

It is that same geological error that explains the unusual geographical feature known as the Pedicle.

Copper mining in Zambia has gone on for nearly 100 years.

Diversification of the economy

When the price copper goes down and income from copper falls our leaders begin to talk about diversification of the economy.

When the price goes up, diversification is quickly forgotten.

The contribution of mining to the Zambian economy has been meagre compared to South Africa, Australia, Zimbabwe among others.

An International magazine compared foreign exchange contribution to the economy of mining in South Africa, Zimbabwe and Zambia.

The findings were: in South Africa: US $100 earned by mining the industry itself exported US $20 In Zimbabwe: US $100 earned the industry exported US $60 in Zambia: US $100 earned the industry exported US $80.

The situation for Zambia is not surprising and may have worsened.

The mines and virtually all suppliers to the mines are importers —every little bolt and nut is imported.

Mining companies in Zambia operated with a “mining camp” mentality.

Look at their own main offices at Nchanga, Mufulira, Nkana among others as compared to their offices in Johannesburg and London.

At one time the Anglo American group of companies controlled 60 per cent of the South African economy because they retained money in South Africa by investing in many areas of the economy.

A local value adding company, Metal Fabricators of Zambia (ZAMEFA), has not been expanded to a world class size, befitting Zambia’s status in copper production.

I was visiting Sumitomo Electric in Japan in 1995 and asked a factory official if they wouldn’t prefer to import copper rod instead of cathode or wire bar.

Of course they would. Why haven’t we added value to our copper exports?

Copper is a wasting asset if you export it. In importing countries copper is recycled indefinitely. For example, 70 per cent of copper used annually in the US is recycled, only 30 per cent is “new” copper.

As exporters we are just shifting our mines to importing.

Countries such as China and India. As these countries accumulate sufficient stocks of copper in their domestic economies, they will require less and less new copper and the price of copper will continue to fall.

Manufacturing in my town, Ndola, was completely wiped out by erroneous policies introduced by President Chiluba’s regime.

Government allowed an influx of used (salaula) tyres from North Korea which contributed to the demise of a local tyre manufacturer, Dunlop.

I was Managing Director of neighbouring Boart Longyear and I know how hard the MD of Dunlop, Bob May, tried to save local production of tyres.

The closure of Dunlop lost the country close to 1,000 jobs. The company left Zambia and set up a plant in Zimbabwe and now exports tyres to Zambia.

Continuous improvement

The Japanese quality guru, Shigeo Shingo, used to say, “If you are poor you must use your brains until you feel the pain.”

Most of us do not want to do this. Thinking is the hardest work in the world and leaders must accept their role in inculcating a culture of hard accurate thinking.

When the MMD came into power in 1991 almost all the good things President Kaunda had initiated were destroyed.

In total quality management we accept the existence of a productivity paradox.

Every new quality or productivity programme causes a dip in quality or productivity.

If you are wise, you persevere with the programme. The duration of this dip can be long or short depending on your focus and the intensity of effort.

When quality or productivity begins to rise, it will reach a level you could not have attained without going through the learning period.

Most people do not want to go through this, however short, period of hardship and end up forever wallowing in mediocrity.

President Kaunda used to talk about the need to tighten our belts.

Nobody these days’ talks about the need to go through periods of hardship in order to achieve a better future.

Conclusions

•Copper mining in the Copperbelt will decline rapidly unless certain strategic decisions are taken involving all stakeholders

• Among the major stakeholders is the government. The existing laissez fare attitude must end

• A new spirit of mutual trust and commitment between government and mining companies must be found.

• A team of experts comprising geologists, mining engineers, metallurgists, accountants, management experts and lawyers, representing government and the companies, be appointed to carry out a deep analysis of problems facing the Copperbelt mines, formulate a way forward and ensure implementation

• Stop the current unhelpful politicking, such as calls for re-nationalisation of the mines.

• Take to heart Shigeo Shingo’s admonition to find problems before problems find you.

• Work with the new owners to seek opportunities for growing ZAMEFA to world class status.

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