Zambia’s Banda refuses to undermine mining agreements

According to an IOL news piece, “Zambia’s Banda says copper windfall tax is ‘bad business’” (Mar. 9, 2011), Zambian President Rupiah Banda has “ruled out windfall taxes for mining companies enjoying record copper prices, saying [recently] that changing the rules for foreign investors was plain bad business”. South African authorities can take a leaf out of Banda’s book by rejecting out-of-hand the ludicrous proposals to nationalise SA mines, as opposed to drawing-out the process by dispatching a task team to determine nationalisation’s viability.

The uncertainty created by drawing out this process is no doubt deterring investment as mining companies sit in limbo waiting to discover their future. Zambia is well aware of the consequences of interfering in the market by changing the rules of the game. After gaining independence in the 1960’s Zambia embarked on disastrous mine nationalisation, which plunged the economy into debt as the international price of copper dropped and the government stepped in to subsidise the unprofitable operations. Zambia went from one of sub-Saharan Africa’s most prosperous nations to one of its poorest within in a matter of decades. After privatising operations in 2000 Zambian copper output has made steady progress but has only recently recovered to output levels last seen when the sector was nationalised in the late ‘60’s.

Author: Jasson Urbach is an economist with the Free Market Foundation.

FMF Policy Bulletin/ 22 March 2011