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Who moved my copper?

Why Zambia’s rich natural resources fail to serve its own citizens

Strolls down the garden path of social media often bring us face to face with appeals to help eradicate hunger in Africa. We are expected to feel guilt and/ or compassion and be moved enough to contribute a sum. What we are not encouraged to do is think, explore, examine, investigate, and ask: Why? Why are those children hungry?

Ever heard of “capital flight”? If not, a good starting point would be the book Africa’s Odious Debts: How Foreign Loans and Capital Flight Bled a Continent by James Boyce and Leonce Ndikumana.

The book explains how large amounts of money have been sneakily exiting the continent – capital flight – while the world tsk-tsks at Africa reeling under international debts.

Zambia is a case in point. In 2020, the south African country was found to be a debt defaulter. The amount in question was 17 billion USD. But why is this happening to a country rich in copper and cobalt, two of the world’s most sought-after metals? Despite a decline in production compared to its 2020 output, in the year 2021, the country mined 800,696 tonnes of copper out of its earth. At the same time, the global consumption of copper showed a 4 percent increase in 2021, from 23.5 million metric tonnes in 2020, underlining the growing demand for the metal.

Colonial footprints

Until 1964, when Zambia gained independence, the British South African Company (BSAC) owned mineral rights in Zambia. The BSAC included De Beers Mining Company’s founder, Cecil Rhodes. Kenneth Kaunda became the first president of free Zambia and nationalised its mines. 

But in the 1970s copper prices fell. The country had to open its doors to international loans, and the “odious debts” began to pile up. The World Bank and International Monetary Fund (IMF) brought in their Structural Adjustment Program, which badly affected the economy. There started a restructuring in the government’s ownership of mines until, in 1991, the multi-party system came into being in Zambia and privatisation began. 

The multinational mining company Anglo American acquired the mines in 2002. Even before privatisation they had been managing the mines for the government. While some said that Anglo American had got the mines in a sweetheart deal for 90 million USD, the company stated that the mines were not in a good state. Soon after, though, the company decided the mines were so unprofitable that it decided to withdraw altogether. (Two decades later, in 2022, Anglo American is gearing to come back to Zambia once again.)

Vedanta’s foray into Zambia

Operating as Vedanta Resources Plc then, Vedanta Resources Limited, registered in London with a head office in Mumbai, India, is one of the world’s largest globally diversified natural resources companies. After Anglo American’s exit, in 2004, the mining giant acquired three mines in Zambia, namely Konkola, Nchanga and Nampundwe.

Vedanta Resources Holding Limited ultimately acquired a 79.4 percent stake in Konkola Copper Mines, while the Zambian government, through its state mining investment firm Zambia Consolidated Copper Mine – Investment Holding (ZCCM-IH), held the remaining 20.6 percent.

During the decades that Vedanta Resources Limited carried out operations at KCM, a lot of mishandling of issues were reported, ranging from tax avoidance to environmental pollution to poor working conditions.

Financial allegations

According to London based charity War on Want, “In November 2012, Zambia’s Deputy Finance Minister Miles Sampa made the extraordinary announcement that Zambia was losing $2 billion a year in tax avoidance, with the mining industry identified as the biggest culprit. This figure amounts to almost 10% of Zambia’s GDP.”

A March 2013 leaked video of Anil Agarwal boasting of huge profits from KCM while having bought if for 25 million USD also angered Zambians, and suggested that Vedanta had not been honest about its profits. Then Foil Vedanta brought out its report against Vedanta in 2014, after which the Mineworkers Union of Zambia (MUZ) started investigating the profits made by the company. 

The Foil Vedanta report also talks about how incentives and tax breaks granted by the state further benefited the company:

"When Vedanta bought KCM they inherited many of the concessions negotiated by Anglo American in 2000, some of which had even required new legislation or changes to existing legislation. These are legalised in Vedanta's secret Development Agreements negotiated by Clifford Chance with the Zambian Government which are fixed until 2018. These agreements were leaked to NGO researchers and can be found online."

The Foil Vedanta report

In the pollution case against Vedanta, the May 2016 judgment also accused the company of financial secrecy. And a December 2016 UNCTAD report stated: “At the product level, while trade in copper exhibits large amounts of export over-invoicing in Chile, the results for Zambia show substantial export under-invoicing. In particular, while Zambia’s data shows that Switzerland is the top buyer of its copper (51 percent), no copper imports from Zambia appear in Switzerland’s trade data.”

Environment and labour violations

Initially, in 2011, the Zambian High Court found KCM guilty of polluting the Mushishima River, a tributary of the Kafue River, and poisoning over 2,000 people. This is a case in which James Nyasulu and other residents sued KCM for discharging effluents from its mining operations into the stream from which the residents get drinking water. KCM, however, appealed against the High Court judgment on grounds that the court erred in law and fact when it found the company guilty. The Supreme Court, in 2015, upheld the lower court’s judgment, though reducing the compensation for the impacted people.

Issues related to labour rights were also raised. Over 400 non-unionised Konkola workers protested alleging unfair pay and lack of contracts in Kitwe, Zambia. 

450 kms away from the capital city of Lusaka, in the copperbelt province of Chingola, the Mine Workers Union president, Joseph Chewe, told Unbias the News: 

“They [Vedanta] started moving away from the standard of mining in the name of cost saving, and the word cost saving was their language throughout . . . They stopped buying spares, they stopped mining directly, they stopped putting money on development . . . Workers who were working with those contractors became almost destitute because the salaries they were getting were minimal and most of those contractors were unable to pay their workers.”

- Joseph Chewe

Rumours of a return

The Zambian government finally handed over the mines to a liquidator in 2019. The grounds given were that Vedanta had failed to fulfil its licence conditions and the investment it had committed to.

A part of this report was aired on DC Talk Radio in early May 2022. Soon after there was a report in the media regarding a leaked letter by Vedanta dated 5 May 2022 that expressed the company’s wish, and new promises, to reclaim the mine. 

The company declared that it would suspend its legal cases over the mines, hoping to find an amicable solution. In an interview with DC Talk Radio on 30 May 2022, Masuzyo Ndhlovu, Vedanta Zambia Corporate Communications Director, said: “We have a very good working relationship with the government.” He says the allegations against the company are a result of misinformation and misunderstanding. 

The arbitration hearing of the matter is scheduled for January 2023, though mines minister Paul Kabuswe denied rumours of KCM going back to Vedanta.

Meanwhile in India

Despite such reassurances, the trust deficit towards the company among Zambian citizens remains. Things have not looked good for the company in its home country either. It has faced huge resistance in the Indian state of Odisha against its aluminum smelter plant, and in Goa against its mining leases.

In May 2018, the Tamil Nadu government shut down Vedanta Ltd’s (a subsidiary of Vedanta Resources) copper smelter. The order came after the police opened fire on people protesting in Thoothukudi against pollution caused by the company’s plant, killing thirteen people. In June 2022, Vedanta put up its plant for sale, followed by a drop in its share value.

Activist M. Krishnamoorthy, from the Anti-Sterlite Thoothukudi District People’s Federation, spoke to Unbias the News

“Not just me but many of us who participated in the protest are living with the thought that those of us who survived have been granted our lives as a bonus. Our mission is to get the plant here to shut down for good before we can move on with our lives.”

- Activist M. Krishnamoorthy

Merina Prabhu, who had also been active in the struggle against the plant, shared a similar sentiment: “They should leave forever. We are ready to law down our lives to ensure that.”

 

The company’s controversies in one country have been further cementing the distrust against the company in another region.

Where do we go from here?

For a long time now, the KCM matter has been a game of goal shifting and finger pointing. Zambia has the natural resource to dig its way out of poverty, but only if the West acts at the same time. The extra money could be siphoned off to the offshore bank accounts of corrupt public officials, or companies could find new ways to claim their profits were made elsewhere. 

As Ndikumana and Boyce write in Africa’s Odious Debts, “In the shadows of international finance, large sums of money routinely slip across borders, beneath the surface of officially recorded transactions and outside the box of the standard economics textbooks toolkit. To understand the realities of African development and underdevelopment, we must peer into these shadows.”

Fifty-seven years after independence, Zambia is still far from discovering a lasting solution to the problem regarding mining taxation. As the country embarks on a new chapter in its history under the leadership of Hakainde Hichilema, there is a need to take a fresh look at mining policies and reframe them to suit the well-being of Zambians.

This report was developed with the support of Journalismfund.eu’s Money Trail Project. 

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