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Zambia Shakes Up Copper Market With Direct Trading Plan

The southern African nation aims to increase its share of the global copper market and diversify its economy.

by Motoni Olodun

Zambia, Africa’s second-biggest copper producer, has announced a bold plan to directly buy and sell a portion of the metal it produces, challenging the dominance of trading giants such as Glencore Plc and Mercuria Energy Group Ltd.

The move is part of President Hakainde Hichilema’s vision to boost the country’s benefits from its mineral wealth and diversify its economy away from over-reliance on copper. Hichilema, who took office in August 2021 after a landslide victory, has vowed to revive the mining sector, which has been plagued by high taxes, policy uncertainty, and corruption under his predecessor Edgar Lungu.

“We’ve reached the point where we have to be disruptive. Our benefits from the sector have been quite minimal,” Jito Kayumba, Hichilema’s senior economic adviser, said in an interview on Monday at the Investing in African Mining Indaba conference in Cape Town. “There’s a lot of financial engineering, call it creative accounting — transfer pricing reduces our chances of getting a good dividend.”

Kayumba said the government could start with a limited amount of about $100 million and build its trading business, which would also provide financing for the mines. He said the government could have legislation ready in the next three to six months, adding that it may opt to receive physical metals instead of royalties from some mines.

“We want to do it in a way that’s fair, that’s commercially suitable for the mining companies,” he said. “To say that we can come as a commercial player to compete with the other commodity traders, to make financing available for the mines for us to have a fair share of the resource.”

Zambia joins other African countries such as Botswana and the Democratic Republic of Congo in seeking greater economic benefits from their mineral resources through direct access to the commodities. Zambia produces about 800,000 tons of copper a year, making it the world’s seventh-largest producer. Hichilema has set a target to increase the output to three million tons a year in the next three years.

The government will hire the necessary expertise to start trading its copper, and shouldn’t struggle to compete as it has direct access to the resources, according to Kayumba. The move will also open a window into the financial world of commodity trading and help the government see how much profit from its copper remains abroad — some of it in countries like Switzerland, where Glencore and other traders are based, he said.

“It gives us transparency,” Kayumba said. “We’ll see ‘Ah! That’s what happened in Switzerland’.”

Switzerland accounts for about 46% of Zambian export earnings, according to official data.

Zambia’s plan to enter the copper market has been welcomed by some analysts, who say it could increase the country’s bargaining power and revenue. However, others have warned that the plan could face challenges such as price volatility, logistics, and quality issues, as well as potential resistance from mining companies and traders.

Zambia’s mining sector has seen some positive developments since Hichilema took office, such as the resolution of a long-running dispute with Vedanta Resources Ltd over the ownership of Konkola Copper Mines, and the acquisition of Mopani Copper Mines by state-owned ZCCM Investments Holdings Plc from Glencore. The government has also announced incentives for mining investors, such as a sliding royalty rate and the refund of value-added tax arrears.

Zambia’s copper ambitions reflect its aspiration to become a prosperous and resilient nation, as copper demand is expected to rise in the coming years due to the global transition to clean energy and electric vehicles. With its abundant mineral resources and renewed political will, Zambia has the potential to become a major player in the global copper market and a model for other African countries.

Source: Bloomberg

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