Zambia faces hard times because of falling copper prices, which dropped 26 percent to six-year low, trading at $4,660 a metric ton in December.
Zambia, Africa’s second biggest copper producer behind Congo, faces hard times because of falling copper prices. This year, copper price has dropped 26 percent to six-year low, trading at $4,660 a metric ton in December.
The Zambian economy relies heavily on mining for jobs and export earnings, and any changes on the market inevitably lead to a national crisis. Slow-growing demand from China, the main copper consuming country, together with the fact that competing countries have lower production costs, put Zambian government under pressure to review its taxing policy to attract more investments into the mining sector.
Zambia recently introduced a variable royalty tax to be calculated based on the global price of metals. The new regulation is expected to enter in force as soon as the first quarter of 2016. It is not the first attempt to cut mineral royalties: in June, Zambia decreased royalties for underground mines from nine to three percent, and for open cast mines from 20 to nine percent. The new tax will range between three and nine percent.
Optimistic outlook for Congo
In the meantime, Zambia’s main competitor remains stable. According to the World Bank, Congo‘s economic growth be 7.3 percent in 2016 – a quite optimistic forecast, compared to Zambia‘s expected three to four percent. This year, Congo‘s inflation rate has been much lower than in Zambia, just one percent against almost 20 percent.
Still, falling prices had some impact on copper production in Congo. This year, the Swiss company Baar suspended production at its Katanga Mining facilities for 18 months and invest in lower-cost production. As a result of the shutdown, Congo lost USD $215 million in revenue. Katanga mining produced 15% of the country’s entire copper output.
Congolese Prime Minister Augustin Matata Ponyo said that the country did not expect further shutdowns as other copper projects in the country had lower production costs and remained profitable at current prices. While the revenue from the mining industry represents about a quarter of country’s GDP, any shortfall will be compensated by new investments in other industries, including two $350 million cement plants due to start production in 2016, he said.
Image souce: www.openzambia.com