Zambia has a plan to transform the economy, but it is one that rests on precarious foundations. As the global landscape shifts towards renewable energy, demand for copper is expected to fly. As one of the world’s biggest producers and home to very large deposits, the Zambia's government envisions reaping rewards by tripling its production from 760,000 tonnes in 2022 to 3mn tonnes by 2030.

The Zambian economy heavily relies on copper mining, constituting around 70% of export revenues. Achieving a fourfold increase in the primary export during a period of historically high copper prices by the end of the decade could usher in transformative economic change.

As part of the remaking of global supply chains, Zambia is in focus as a possible source of copper that is not part of the Sino-Russia non-aligned countries. 

“Capital Economics offers this handy chart that ranks economies by how much of their gross domestic product comes from commodity exports to China. It implies terrible news for Zambia, whose mineral exports are a huge chunk of GDP, and also problems for the big metal producers of South America and Middle Eastern oil exporters,” says economist Adam Tooze.

Global demand for copper is expected to double by 2035, driven by both the green and EV revolution, which will require substantial amounts of copper.

There is a global oversupply of copper at the moment, but that will turn to deficit in the next years.

Zambia is a possible alternative source of copper to Russia or Mongolia, which are also major producers. But a failure by Zambia to meet its own ambitious targets will have consequences for renewable energy targets elsewhere in the world. There are already growing concerns that existing copper supplies will not meet rising demand, so encouraging big producers like Zambia to increase production is key.

Western countries have already begun to look to Zambia as a potential supplier of critical minerals for the green transition.

British Foreign Secretary James Cleverly's visit to Zambia this year was the first by a British Foreign Minister in over 30 years, underscoring the new interested in independent sources of raw materials.

The US is also encouraging Zambia to set the new higher target of producing 3mn tonnes of copper and is offering investment to improve infrastructure to direct exports to Atlantic ports and so western markets.

President Hakainde Hichilema has echoed this ambitious target, portraying it as a "new dawn" for the economy, promising industrial growth and job opportunities.

However, the reality seems far less promising. Despite allocating ZMW4.25bn ($223mn) in the budget to implement this vision, underlying documentation casts doubt on its viability.

The strategy outlines three main avenues for accelerating production: expanding existing mines; establishing new mines; and reprocessing material from mining debris accumulated over a century.

All this is envisioned to be facilitated by a more stable investment environment, swift resolution of sectoral disputes, and improved geological mapping to uncover additional deposits.

As per the strategy, the Ministry of Mines anticipates that existing copper mines will augment production by over 1mn tonnes over the upcoming seven years. However, no mine in the country has disclosed expansion plans or investments approaching this magnitude. Many of these mines have been operational since the 1920s and lack the capacity for such sudden and significant output increase.

Under-achiever

The prospect of quadrupling copper production, the linchpin of Zambia's exports, by the close of the decade amid historically high copper prices could wield a transformative impact on the nation's economy.

However, a significant disparity emerges between the government's projections and the forecasts put forth by the mining companies themselves.

First Quantum Minerals, for instance, openly endorsed Hichilema's government and announced a further investment of $1.25bn in the Kansanshi Mine last year. They attributed this decision to their "renewed confidence" in Zambia. Although this expansion could enhance the mine's output to 250,000 tonnes, this figure remains significantly below the government's own estimate of 300,000 tonnes soon.

The aspiration of Zambia attaining 800,000 tonnes of copper from new mines is also precarious. The Ministry of Mines predicts the commencement of 17 new mines in 2026, with each of them quadrupling their production within four years.

According to the strategy document, Bountiful Blessing Investments Ltd, a company with scant public information available, is slated to develop seven of these new mines.

However, there are two major mines that have been idled but could add significantly to the output. Konkola mine (KCM) is situated in Chililabombwe was producing 800,000 tonnes in 2021 but is caught up in a legal dispute at the moment. And the Mopani mine has been sold by Glencore and is now in the process of being sold off by the state, but procued 264,000 tonnes when it was last working in 2021.

Zambia has a history of announcing ambitious mining targets that have proved elusive. In 2014, the Ministry of Mines proclaimed that copper output would reach 1.5mn tonnes the following year. This target was later revised to a more moderate 1mn tonnes by 2018, which was likewise unrealised. This pattern persisted after the United Party of National Development's victory in the 2021 election.

Shortly after assuming the role of finance minister, Musokotwane affirmed that the country would achieve a production of at least 2mn tonnes in 2026, which was subsequently revised to 1.6mn tonnes. The mining sector's policy has long been rooted in the anticipation of an impending boom that has yet to materialise.

Contrary to these expectations, Zambia's mining sector has languished over the past decade, missing out on leveraging high copper prices. The latest forecast for 2023, released by the Ministry of Finance in July, anticipates a decline in copper production to 682,000 tonnes this year, falling below levels observed in the early 1970s.

The government attributes this stagnation to the inconsistent taxation policies of the prior Patriotic Front government, and there's a degree of truth in this assertion. President Edgar Lungu's administration often demonstrated a confrontational stance towards the industry and initiated prolonged legal battles that culminated in the liquidation of one of the nation's largest copper producers.

Slow progress

The government has taken a step forward in its latest endeavour to bolster copper production.

In 2022, the government implemented a reduction in direct taxes on mining companies, allowing mineral royalties to be deducted from corporate income tax. This strategic move led to increased investments from certain companies.

British Foreign Secretary James Cleverly unveiled a significant commitment from the United Kingdom to foster investments of up to GBP2.5bn ($3.1bn) in Zambia's mining sector through the United Kingdom-Zambia Green Growth Compact, a pact established in 2021. Notably, Moxico Resources, a British firm, has already injected $100mn into a new mine and anticipates commencing production in 2025.

However, even with the most favourable policies and substantial investment funds at hand, the government's targets are unattainable within such a brief timeline. Developing a new underground copper mine, on average, takes about 17 years, while an open-cast mine requires around 15 years. Some projects stretch far beyond these timeframes.

The protracted challenges encountered with the Austrian-led Kangaluwi Mine in the Lower Zambezi National Park exemplify this reality. The mine, owned by an Australia-based company, was granted an exploration license in 2003 and a mining license in 2011. Yet its efforts to initiate production have been entangled in a series of legal battles concerning its environmental impact.

But there similar problems with a number of other less controversial mines including Konkola Deep (KCM), Lumwana Expansion, Kansanshi Expansion, Kobold mine.

Forecasts for robust growth throughout the 2020s hinge on the assumption of escalating copper production. The IMF identifies mining as a principal catalyst for economic expansion in the near future. Their projection for Zambia's GDP growth between 2024 and 2026 stands at 4.5%, with the mining sector anticipated to grow by 8.3% annually during the same period. A failure to realise the anticipated mining boom could usher in a decade of lacklustre growth for the economy.

Following extensive negotiations, Zambia recently struck a deal with creditors, including China, in June to restructure external debt amounting to $6.3bn. This agreement links the new repayment schedule and interest rates on outstanding debt to the nation's economic performance. Consequently, a slower growth trajectory could aid in managing the burden of debt.