Socio-economic change and natural resource exploitation: a case study of the Zambian copper mining industry

Abstract

The privatisation of Zambia's copper mines has paved the way for increased levels of foreign direct investment in the economy. The incentives provided to the mining companies have been very attractive to investors. However, the weakness of the Zambian state is clearly demonstrated in the development agreements it signed with the mining companies at the expense of the welfare of the Copperbelt communities. The major outcome of privatisation has been a considerable loss in welfare as the new mining companies have been following to the letter the terms of the development agreements. Despite the upturn of copper prices on the international market, the mining companies have continued to provide reduced services to the communities, compelling civil society to pressure the government to renegotiate the agreements.

1. INTRODUCTION

Nearly one-half of Africa's population of approximately 800 million people live in conditions of extreme poverty, surviving on incomes of less than $2.00 a day. In Zambia, it is reported that overall poverty stands at 64 per cent (Government of the Republic of Zambia, 2005). This level of poverty and human misery is paradoxical when one considers that the country and indeed the continent are endowed with abundant natural resources.

Zambia has historically depended on copper mining. Changes affecting the management of this resource determine welfare levels in the country, as in the past it has been copper mining that has determined the quality and quantity of employment, access to health facilities and education, and also the state of municipal infrastructure and the environment. The exploitation of this resource by foreign firms has raised urgent questions about the corporate responsibilities of these firms and the government.

This paper traces the changes that have taken place in the Zambian mining sector since the colonial period, elucidating the underlying philosophies that guided change in the sector. It investigates the terms of the mining agreements signed between the government and mining companies, as well as the politics, and the labour, social and environmental practices and their impact on the mining communities. It further assesses the pressure from civil society on government to renegotiate the development agreements. To contextualise the discussion, the paper first discusses the concept of corporate social responsibility.

2. THE CONCEPTUAL FRAMEWORK

Ferrell et al. define corporate social responsibility as ‘an organisation's obligation to maximise its impact on stakeholders and minimise its negative impact’ (2004:4). The stakeholders are defined as customers, owners, employers, the community, suppliers and the government. These authors also classify four types of corporate social responsibility: legal, ethical, economic and philanthropic.

The legal dimension refers to obeying laws and regulations established by the government. Since society does not believe that businesses or corporations can be trusted to do what is right, especially in areas such as safety and environmental protection, but may regard these as costs and not part of business practice, the laws try to set the minimum standards for responsible behaviour. The ethical dimension refers to the behaviours and activities expected of or prohibited by organisational members, the community and society. These behaviours and activities may not be codified as law. For example, in a labour-abundant economy it is unjust to import unskilled labour from abroad. The philanthropic dimension refers to a corporation's contribution to society. Corporations are expected to provide their employees with a decent standard of living and to protect their quality of life, and also to contribute to the quality of life and general welfare of society at large. In particular, they are expected to contribute to the needs of local communities. This can be done through donations to local and national charitable organisations. It must, however, be pointed out that corporate social responsibility does not end at philanthropy. Finally, the economic dimension refers to the way resources for the production of goods and services are distributed within the social system. For example, sustaining an unfair remuneration system is not acceptable.

This paper applies this four-dimensional understanding of corporate social responsibility to the changes that have taken place in the mining sector in Zambia.

3. HISTORICAL ROLE OF COPPER MINING IN ZAMBIA

Since the first commercial mine opened at Roan Antelope (Luanshya) in 1928, copper mining has dominated Zambia's economy. During this period, the Roan Selection Trust and the Anglo-American Corporation owned the mines. After independence in 1964, the ruling United National Independence Party (UNIP), under the leadership of President Kenneth Kaunda, raised great hopes for development. Central to these hopes was the rapid growth of the copper industry, driven by favourable world prices during the late 1960s and early 1970s. In 1969, Zambia was classified a middle-income country, with one of the highest Gross Domestic Products in Africa – three times that of Kenya, twice that of Egypt, and higher than those of Brazil, Malaysia, Turkey and South Korea. Earlier, in 1968, Kenneth Kaunda had raised concerns about the failure of the mining companies to invest in developing the mines. Consequent to this, Kaunda nationalised the copper mines in 1969 in the hope that nationalisation would enable the state to direct the profits of the copper mines towards building social and economic infrastructure.

4. ECONOMIC AND SOCIAL ROLE OF THE COPPER MINES

From the start of copper mining in 1928, the corporate social responsibilities of the private mining companies took the form of providing orderly compounds to house employees and supplying weekly food rations. The companies also established hospitals and recreation clubs for employees in all mining settlements. The state-owned Zambia Consolidated Copper Mines (ZCCM) continued with this welfare policy, but supplied a much wider range of amenities than the private companies that came before it. Besides subsidised housing, water, electricity and transport, it provided care for miners' newborn infants and free education for their children. It also subsidised burial arrangements. In short, it operated ‘a cradle to the grave’ welfare policy. The services provided were not all initiatives from the mine management. In many cases, the powerful Mineworkers Union of Zambia (MUZ) demanded these improvements as part of the miners' conditions of service (MUZ/Non-Ferrous Metals Company – Africa, 2005). The mines provided services not only for their workers but also for the whole community. They managed the environment in the mine townships, maintained roads and collected refuse. They encouraged the growth of economic and social activities such as shops, farms to supply food to the mine areas and industrial activities. They also established youth development schemes and women's clubs, while contributing to government revenue (Lungu & Mulenga, 2005). In years when international copper prices were good, mining contributed over 50 per cent of the country's foreign exchange and two-thirds of the central government revenue. Thus the copper mines were fulfilling their corporate social responsibilities to a large extent.

5. THE CRISIS OF THE ZCCM MODEL

Although major progress was made in the first decade of independence, developments slowed when the price of copper collapsed following the first oil crisis in 1974, forcing Zambia to borrow in order to maintain social provision. After the second oil crisis in 1979, the country drifted into a severe debt crisis. For 20 years the economy collapsed at an internationally unprecedented rate as copper prices continued to fall relative to the price of imports. Between 1974 and 1994, per-capita income declined by 50 per cent – leaving Zambia as the 25th poorest country in the world (Ferguson, 1999:6).

Throughout the economic crisis, the state-owned ZCCM was treated as a ‘cash cow’, milked without corresponding investment in machinery and prospecting ventures. With little investment in exploration and drilling, no new mines opened. To compound the problem of lack of investment, the ore bodies within the existing mines could only be accessed at great depths, which increased the cost of production. The decline in production that followed meant low copper revenues and a failure to support social infrastructure. The Gross Domestic Product per capita declined to less than $300, and over 80 per cent of the country's population started experiencing extreme poverty. Borrowing was the only option available to maintain social provisions. Consequently, the World Bank and the International Monetary Fund (IMF) used the advantage that came with the country's massive debts to them, and the government's inability to fund expenditures with mining income, to push the country to adopt economic liberalisation policies. Zambia entered its first World Bank structural adjustment programme in 1983.

From that moment on, the international finance institutions have tightly policed Zambia's economic policies. Zambia tried to resist the conditions but learned the hard way. In July 1987, facing protests against the austerity measures in its adjustment programme, the government rejected the conditions of the loan from the IMF and instituted a ‘New Economic Recovery Programme’ that limited debt-service payments to 10 per cent of net export earnings. By September, Zambia's refusal to pay at the IMF's preferred rate resulted in almost all of Zambia's donors deciding collectively to starve the country of financial assistance (Saasa & Carlson, 2002:43). Within 18 months, the government decided that it had little choice but to accept – re-engaging the World Bank and the IMF, devaluing the currency, decontrolling prices and cutting food subsidies (Young & Loxley, 1990; Callaghy & Ravenhill, 1993).

By the time Zambia accepted a new adjustment programme in 1989, it was too late for the ruling party UNIP and Kaunda. Repeated urban food riots, industrial unrest, and eventually the loss of support for the ruling party from the Zambian Congress of Trade Unions, saw the unions form an opposition Movement for Multiparty Democracy (MMD), headed by Frederick Chiluba, which swept the board in the elections in 1991 (Baylies & Szeftel, 1992; Bratton & Van de Walle, 1997).

6. PRIVATISATION AND THE ROLE OF EXTERNAL AID DONORS

The MMD owed its original momentum to trade-union-led resistance to structural adjustment. However, by the time of the elections, the unions had made a wide range of alliances within the business community, human rights groups and civil society. The MMD ran on a manifesto that promised to liberalise the economy and secure a new democratic political dispensation. This was endorsed by the unions partly because trade unionists had suffered as badly as anyone else from the decline of nationalised companies. They also supported the MMD and saw dismantling of the state-owned industries as a way of challenging UNIP's previous power base. Finally, both unions and the MMD believed that the only way to get the country's shattered economy back on track was to win the trust of international banks and investors and to accept donor demands.

Donors hoped that an energetic reforming government could lead the first popular privatisation process in Africa. They aimed to support Zambia to become a ‘success story’ by ‘buying’ the MMD an extended political honeymoon with aid designed to cushion the social (and political) impact as they pushed through a massive programme of economic shock therapy. Over the first few years, aid money poured in, and the budget became more than 40 per cent donor dependent (Rakner et al., 2001). The support came with conditions that related to the privatisation programme started in 1992, designed to sell 280 state-owned companies. By June 1996, 137 companies had been sold, in a process that the World Bank recommended as a model for other countries because of its speed and thoroughness (Campbell-White & Bhatia, 1998) and that others would condemn for the ‘looting’ (Craig, 2000), de-industrialisation, deepening debt, and the poverty that came with it. Foreign companies bought up the largest and most viable firms, with very little profit staying in Zambia. In 2002 the World Bank also eventually accepted that, despite massive lending and a massive adjustment programme, the supply response from the extensive privatisation of small and medium enterprises was limited (World Bank, 2002).

Right from the start, the crown jewels of the privatisation process were understood to be the copper mines. As early as 1993, Zambia's second Privatisation and Industrial Reform Credit from the World Bank required that the government study options for privatising ZCCM. In 1995, the World Bank (Economic Recovery and Investment Project) and the IMF (Enhanced Structural Adjustment Facility) extended loans that demanded Zambia adopt and implement plans within the Enhanced Structural Adjustment Facility framework. The World Bank repeated the demand in 1996 (Economic and Structural Adjustment Credit II) and in 1999 (Structural Adjustment Facility [SAF]), as did the IMF in 1999 (Enhanced Structural Adjustment Facility) (Situmbeko & Zulu, 2004). Throughout the process, the government sought delays for technical and political reasons and the issue became a sticking point in relations with donors, with repeated accusations of bad faith on either side. The MUZ expressed concern that the unbundling of ZCCM into a number of companies would leave either the least attractive assets with insecure futures, or the government with significant liabilities on its hands. Better, they concluded, to encourage one serious investor to take on all the liabilities and all the facilities. The union was also concerned that introducing intra-company competition would drive down conditions of service for their members (Muchimba, 1998).

What broke the deadlock was Zambia's qualification in 1996 for the World Bank's Heavily Indebted Poor Countries initiative. With this qualification, Zambia came under pressure to push through privatisations that were more controversial. In most cases, the state stalled, tried to appease domestic interests, and then eventually went ahead, choosing debt relief over domestic politics. Throughout the privatisation period, the government was being encouraged by donors to establish an ‘investor-friendly’ policy regime. The most significant policy changes were enshrined in the 1995 Investment Act (reform of the Act was a condition of the World Bank's 1993 second Privatisation and Industrial Reform Credit [PIRC] loan to Zambia) and the Mines and Minerals Act of 1995.

The Investment Act laid down the procedures and the process for buying into the Zambian economy and provided the general incentives that would apply to all investors, while the Mines and Minerals Act of 1995 provided incentives for investors in mining. This Act also permitted the government to enter into ‘Development Agreements’ with specific companies. Under these agreements, the government could extend more incentives.

7. THE PROCESS OF PRIVATISING ZCCM

Two international consultants, Rothschild and Clifford Chance, advised on the practical modalities of the ZCCM privatisation (ZCCM, 2000). They suggested the company should be privatised in two stages. In stage 1, substantial majority interests in all ZCCM assets were to be offered in a number of separate packages that would leave the Zambian state – in the form of a company called ZCCM Investment Holdings – as an owner of minority interests in companies controlled and managed by the incoming investors. In stage 2, the government would then dispose of all, or a substantial part of, its shareholding. These shares were to be offered for sale to the Zambian public.

The outcome of the tender process gave rise to the emergence of seven companies. Figure 1 shows the historical process of mine ownership from 1928 to date.

Figure 1: Shifting ownership patterns for large-scale copper mining assets

Ownership of the copper mines has thus gone through three major phases. From their establishment to 1969, the mines were operated by private companies; from 1969 to 1997 they were nationalised; and they operated as ZCCM from 1982. They now have reverted to several private operators.

8. TERMS OF THE DEVELOPMENT AGREEMENTS

As stated earlier, the Mines and Minerals Act of 1995 permits the government to enter into ‘Development Agreements’ with specific companies. Under these agreements, the government can extend more incentives than the Act grants. These documents established the terms under which the mines were sold, and the rights and responsibilities of the Zambian state and the new mining companies. The original development agreements were negotiated between 1997 and 2000. Despite the Mines and Minerals Act specifying that mineral royalties should be set at 3 per cent for those holding large-scale mining licences, the rate negotiated by most mining companies was 0.6 per cent of the gross revenue of minerals produced in the mining areas. The agreements also allowed companies to avoid paying a good deal of corporate tax, by carrying forward losses for periods of between 15 and 20 years on a ‘first in, first out’ basis, meaning that losses in the first year of operations, and the subsequent investment in the later years, could be subtracted in subsequent years from taxable profits. The companies were also granted deductions of 100 per cent of capital expenditure in the year in which the expenditure was incurred, and were exempted from paying customs and excise duties or any other duty or import tax levied on machinery and equipment. This exemption was extended to other contracting firms importing machinery for mines development. Further, the government undertook not to amend any of these tax regimes for as long as between 15 and 20 years. These ‘stability periods’ are a particularly important provision because, until they expire, the terms of the development agreements are legally binding and overrule any existing or future national legislation. The development agreements, however, cover more than taxation issues. They also cover management of social services and the environment.

8.1 Positive outcomes of resource exploitation by private companies

With all the incentives outlined above, the privatisation strategy seems to have worked in economic terms. According to Lenard Nkhata, Permanent Secretary at the Ministry of Mines, ‘Closed mines have opened up, new mines are coming up, and the existing mines that were limping are doing very well’ (Fraser & Lungu, 2007:19).

This is a fair description of the current ‘boom’ in Zambia. Under ZCCM, facing historically low global copper prices, the industry was desperately short of investment. Significant investment has now been delivered, re-invigorating the industry and increasing production. Despite criticisms of the privatisation, even the MUZ recognises that:

Since 1998 we have close to $1.4 billion which has gone into the mining industry, into refurbishment of plants, and purchases of spares and machinery. So one sees that privatisation addressed capitalisation, the issue of refurbishing and the issue of exploration and drilling. It has shown in increased copper production. (Fraser & Lungu, 2007:19)

The companies also pointed out that they have delivered on their most significant responsibility: providing the finance to rehabilitate the industry and create employment opportunities and income for the country. The mining industry's representative body, the Chamber of Mines, claims that by 2005 the companies were putting in over US$350 million a year. Reflecting the new investments, production has rebounded, although available figures suggest that this rebound was only to 500 000 tons by 2007 – which is certainly higher than the figure for the last few years of ZCCM, but is not unusually high in the history of the Zambian industry. Several companies have significant plans for future investment, which will increase production and result in employment creation. The Chamber of Mines predicts production will be as high as 800 000 tons in 2009 (Chamber of Mines of Zambia, 2005). These figures are possible partly because the investment will lead to the opening of new mines for the first time in 25 years. Lumwana, which will be the biggest mine in Africa, is currently under construction in a green-field site (an entirely new mine starting from an area of bush) in North-Western Province.

However, recognising that more money is going in, more copper is coming out and more mines are on the way does not tell us whether privatisation alone provided this boost to the industry or whether price increases were equally or more important. Although many of the new mining companies made major investments ahead of returns – investing sums that were not likely to have been available to ZCCM – others did not, preferring to keep previous operations running on old plant and old systems, and extracting maximum profit as quickly as possible.

This was particularly true during the years when the copper price was relatively low, suggesting that the companies deserve less credit than they sometimes suggest for the ‘risks’ they took. The Chamber of Mines' own figures show that between 1990 and 1996 ZCCM's investment in the copper mines was running at around $125 million a year. Following privatisation, for the next 7 years (1997–2003), under the new investors this average figure crept up to around $135 million. During this period, three of the seven initial investors pulled out of the country without making any significant investments – in the process, threatening to bring the industry to a complete halt. The investment boom thus only really started in 2004, after the world copper price explosion started. In the period 2000–2003, the average copper price on the London Metal Exchange languished at between $1558 and $1815 per tonne. By 2005, this price had doubled to $3737 per tonne, as Figure 2 shows. It further rose to $6699 in 2006 and to $7106 in 2007. At the time of writing (2008), it is hovering around $8000.

Figure 2: London Metal Exchange prices 2000–2005 (annual averages)

It is perhaps unsurprising, then, that the new investors are themselves now making significant sums. Profits have also risen. First Quantum's net earnings exploded from $4.6 million in 2003 to $152.8 million in 2005 (First Quantum Minerals Ltd, 2006). Similarly, Konkola Copper Mines' operating profit increased from $52.7 million in the year 2005 to $206.3 million in 2006 (Vedanta Resources Plc, 2006). All of the five mining companies interviewed in September and October 2006 recognise that the Development Agreements they secured are extremely favourable, and that the ‘investment climate’ in the country is exceptionally generous. With global commodity prices as high as they are now, all firms are set to make handsome profits. As the new Chief Executive Officer (CEO) of Luanshya Mining Plc put it:

Going though the Development Agreements for the two companies which we own, Luanshya Copper Mines and Chambishi Metals, I would say they are very fair, very reasonable … It must be one of the more attractive places to invest in globally, in terms of new mining ventures. (Fraser & Lungu, 2007:18)

The question is whether the new situation is also as good in terms of care for the environment, the welfare of the mineworkers, the Copperbelt communities and the Zambian economy.

8.2 Negative outcomes of resource exploitation by the private mining companies

Fraser and Lungu (2007) have outlined the economic and financial effects of privatisation of the copper mines. They tabulated losses in tax revenues and the subsidies given by the government to the private mining companies. Table 1 presents the negative contribution of mining to value-added tax receipts in 2004, and Table 2 presents the contribution of the mining companies to corporation tax. In 2003, mining – which is the most important sector of the economy – was contributing less than the financial services sector and nearly as much as the telecoms sector.

Table 1: Net value-added tax receipts by sector

Sector	Kwacha (millions)	Percentage
Financial services	11 764	3
Telecommunications	44 722	11.4
Mining	(653 838)	−166.5
Manufacturing	70 067	17.8
Tourism	(400)	−0.1
Agriculture	(27 394)	−7.0
Other	947 750	241.4
Total	393 671	100
Note: Data in parentheses are negative.
Source: Foreign Investment Advisory Service, Zambia: Sectoral Study of the Effective Tax Burden, a joint service of the International Finance Corporation and the World Bank, December 2004, as in Fraser and Lungu (2007).

Table 2: Corporate tax revenues 2003

Sector	Kwacha (millions)	Percentage
Financial Services	51 355	20.9
Telecoms	29 187	11.9
Mining	29 612	12.1
Other	136 460	55.6
Total	245 614	100
Source: Zambia Revenue Authority, as in Fraser and Lungu (2007).

Resource exploitation by the private mining companies has also brought about other negative impacts. These are on the environment, the mineworkers and the communities, both on the Copperbelt and in Zambia in general. These negative impacts are discussed in the context of the development agreements, which are also the corporate social responsibility blueprints for the mining companies.

8.2.1 Development agreements and the environment

Copper ore is separated from the rocks in which it is found by being crushed to a powder and floated in acids to separate it out. By-products of the process include liquid effluents made toxic by heavy metals and smoke from smelting, which contains sulphur dioxide. If released into the atmosphere, this smoke causes human respiratory illnesses and when combined with water forms acid rain, which corrodes metal roofs, kills trees and prevents many plants from growing.

Through the ZCCM era, government targets were set that limited the amount of pollution from the mines going into the rivers and the atmosphere. When ZCCM overran these targets, they were fined by the Environmental Council of Zambia – both as an incentive not to pollute and to help pay for clean-up. However, the development agreements contain significant exemptions to these laws. During their stability periods, so long as the companies do not discharge pollution in excess of what ZCCM was discharging, they cannot be held responsible. The companies also used the negotiations to ensure that they took on only ZCCM's assets and not its liabilities. So where the ZCCM division being purchased had created, for example, a dam to store toxic ‘leaching’ or a slag heap that the new company did not think they could make use of, they refused to take on the dam or heap, leaving long-term environmental management with the government. The heaps are, however, damaged by the seasonal tropical rains of the Copperbelt region and need to be stabilised by planting trees.

These exemptions under the development agreements were granted to the companies on two conditions: they had to prepare an Environmental Management Plan acceptable to the Environmental Council of Zambia, and report regularly on their implementation. This system has not operated effectively to replace the previous systems of regulation, because at least one company (the Non-Ferrous Metals Company, a Chinese company) has simply not submitted a final plan for approval, leaving the regulatory body with nothing to police.

There are also questions about the ability of the regulatory authorities to police the mining companies effectively even where there are clear laws in place. For example, construction of the new smelter in Chingola started before permission was granted by the Environmental Council of Zambia. The local communities expressed concern about the location of the smelter, as it was too close to their houses. The company nevertheless went ahead and implemented the project.

To further demonstrate the weakness of the regulatory body, we refer to two cases of serious pollution. On 6 November 2006, the town of Chingola had no water for 6 days following the spillage of mining effluents from the plant area. The pipe carrying slurry from the tailings leach plant burst, releasing effluent that raised the chemical concentrations to 1000 per cent of the acceptable levels of copper, 77 000 per cent of manganese and 10 000 per cent of cobalt. The local people, the water utility companies and the municipal council protested at the ineffectiveness of the regulator. Although the environmental council of Zambia later suspended Konkola Copper Mines' (KCM's) licences, it then restored them without explanation. The water utility company (Nkana Water and Sewerage Company) took legal action against KCM. We have yet to see whether this will succeed. In the development agreement, it is clearly stated that the only action available to the government and its agencies when KCM is non-compliant is to notify KCM in writing, specifying the facts and giving KCM time to rectify such non-compliance. An Officer at the Environmental Council of Zambia, who chose to remain anonymous, notes that ‘the development agreement protects KCM to the extent that statutory environmental regulations cannot apply to KCM within the stability periods’ (Lungu, 2007:11).

A similar problem of pollution was identified in Kitwe by a non-governmental organisation, Citizens for a Better Environment. In this case, Mopani was polluting one of the rivers and not taking any remedial action. The case was publicised but the Environmental Council of Zambia failed to take any position, arguing that it would do so only once water testing was done independently. These two cases of pollution have affected the quality of water and aquatic life. Consuming water as polluted as that in the Kafue River after the spill, and eating fish from the river or plants watered with the polluted water, is likely to have wide-ranging short-term and long-term health effects. In the short term, people suffered from diarrhoea, eye infections and skin irritations. These are probably the short-term signs of poisoning that will have long-term impacts. As one resident of Hippo Pool Township commented:

Now we are dead because of KCM. We may have problems in the future. We do not know what is in our bodies. We drank because we were thirsty. But the taste was bitter. It was like chloroquine. Most people are sick. Most people can't even stand up. If we try to put chlorine, the water becomes black. If we boil it, it becomes brown. (Sunday Post, 2006:5)

Another problem concerning the environment is the emission of excess sulphur dioxide from smelting. This causes human respiratory diseases and acid rain that damages rivers and trees. This is not only an environmental problem; it also creates immediate problems for the local communities' livelihoods. A local environmentalist noted that:

the only plants that survive are mangos, avocados and cactus. With low salaries, people can't buy food. But they cannot grow their own vegetables either. (Fraser & Lungu, 2007:33)

This has been a serious problem, particularly for communities downwind of the Nkana and Mufulira smelters. These incidences of pollution have affected the quality of life for people living in Kitwe and Mufulira and along the Kafue River. They demonstrate the negative impacts of mining on the Copperbelt communities. The philanthropic dimension of corporate social responsibility would lead us to expect that corporations should contribute to the quality of life and the welfare of society. The activities tabulated here negate the contributions the mines make to society by providing employment.

8.2.2 Provision of municipal infrastructure and services

The development agreements state that municipal services to former mining townships would be the responsibility of the municipal councils or the city council. Lungu and Silengo (1997) had warned of the danger of giving responsibilities to councils who, even at the time, had no capacity to maintain the infrastructure in their care. The government nevertheless went ahead, without consultation, and gave the councils these responsibilities.

To date there has been widespread disappointment in the performance of the municipal authorities in providing social services. The problems can be traced to the fact that the councils were not involved in the negotiations but were given huge responsibilities, despite having a weakened financial base, as the government had ordered them to sell the housing from which they raised revenue. The outcome has been the deterioration of infrastructure such as roads, especially in the former mine townships. A survey by Lungu and Mulenga in 2005 found that ‘the former mine townships were littered with sewerage from blocked pipes and the park areas were normally overgrown with grass, especially in the rainy season’ (Lungu & Mulenga, 2005:85). Because of stagnant water in many places, malaria has remained one of the top 10 causes of mortality and morbidity in Kitwe and Mufulira. The incidence of malaria was 387.3 per 1000 people in Kitwe in 2005, while the mortality rate for the years 2002 and 2003 averaged 79 for every 1000 admissions in all age groups (Kitwe District Health Office, 2005). It should, however, be appreciated that these figures may understate the real situation, as many people do not even go to hospitals because they are too poor. The Copperbelt environment has substantially deteriorated from what it was during the ZCCM era.

8.2.3 Provision of health and education facilities

ZCCM had a comprehensive health delivery system, ranging from clinics in the residential areas to hospital facilities. In nearly all of the large mining towns, the mining companies provided two hospitals in addition to the clinics and first aid centres at or near any mine. At privatisation, most of this infrastructure was sold to private individuals and some was handed over to the government. Some clinics were sold to private investors, while others were handed over to the District Health Management Teams, as shown in Table 3.

Table 3: Number of hospitals and clinics in the Copperbelt mining towns before and after privatisation

Mining town	Number of hospitals at each mine		Number of clinics at each mine
	Before privatisation	After privatisation	Before privatisation	After privatisation
Nkana	2	1	10	6
Nchanga	2	1	5	3
Mufulira	2	1	9	4
[Roan] Luanshya	2	1	6	3
Konkola	1	1	5	3
Chibuluma	1	1	2	0
Total	10	6	37	19
Source: Lungu and Mulenga (2005).

While the move to privatise these facilities and even hand some over to the government was better than leaving them lying idle, the outcome of the process has been inefficient delivery of health services in these areas. In Luanshya, for example, where two clinics were handed over to the district health management team, there was no corresponding budget allocation in 2005 to support them (Lungu & Mulenga, 2005). The staff had to share out to the new clinics drugs meant for those that were already in government hands. This meant that the level of service delivery in the whole town declined. Further, all those people who had lost employment by the mining companies now had to depend on the government for health services. This put more pressure on these services. In Mufulira alone, while a Mopani Copper Mines hospital in the area services a community of 31 800 people (employees and dependants), the two government hospitals service about 141 390 people (Mopani Copper Mines, 2007b). The pressure on government health facilities is compounded by the fact that the hospitals and clinics under mine managements have become extremely expensive, and thus inaccessible to the communities around them. Table 4 presents the costs of accessing a Mopani Copper Mines hospital.

Table 4: Mopani copper mines: Nkana mine site, Wusakile Hospital

	Low cost, 2006	High cost
Consultation fee – medical officer	40 000	45 000
Review	20 000	30 000
Consultation fee – consultant	60 000	100 000
Review	30 000	50 000
Nursing care	20 000	25 000
Ante-natal booking fee	1 800 000	1 800 000
Visits on the ward – medical officer	20 000	30 000
Visits on the ward – consultant	50 000	60 000
Board and lodging	90 000	120 000
Fee for service scheme – membership fee per person per month	40 000	60 000
Capitalisation fee scheme per person per month – payable quarterly	40 000	50 000
Note: Data presented in Kwacha (K) (K4046 = US$1).
Source: Mopani Copper Mines (2007a).

The congestion in government-run hospitals and health centres has resulted in ongoing shortages of medicines. While during the ZCCM era the entire population would have access to all the hospitals at minimum charges for services rendered, this is no longer the case. Non-miners who cannot afford the charges have to use the already congested government hospitals. This has negatively affected the welfare of the mining communities, as the increasing numbers of people have put pressure on government facilities, which are now offering substandard services. Similarly, ZCCM used to provide premium education in their schools. They had primary schools and a secondary school in Kitwe. The secondary school has since been given to the Zambia Episcopal Conference, while the mining companies have upgraded the others to basic school level. These are principally for the children of miners working for the new mining companies, even though they do offer a limited number of places to non-miners' children. The fees, however, are prohibitive.

8.2.4 Employment casualisation and poverty wages

As ZCCM had been overstaffed, the company started scaling down. Employment figures declined from 62 222 in 1976 to 31 033 by 1997/1998 (Lungu & Mulenga, 2005). By 2004, there were about 18 687 people employed by the mining companies and another 11 175 employed by contracting firms. It is clear from these data that there have been many redundancies and retrenchments in the copper mines. The numbers of people employed in the copper mines have now started increasing, but most of the new miners are serving on short-term contracts. These contracts make the workers feel insecure, as they are used to permanent and long-term employment.

Since privatisation, most of the growth in employment in the mines has been in the contracting firms. This number increased from 2628 in 2000 to 11 536 in 2004 (Chamber of Mines of Zambia, 2005). By June 2007 there were 47 836 people employed in the mining and quarrying companies. Of these, 25 428 (54 per cent) were employed directly and permanently in the copper mines, while another 20 230 (42 per cent) were employed by contracting companies, and 466 (1 per cent) were serving on 1-year contracts and another 1712 (4 per cent) on 2-year contacts. By June 2007, therefore, 42 per cent of the employees in the mining companies were serving on short-term contracts with contracting companies (see Figure 3).

Figure 3: Employment categories in the mining sector as of June 2007 by percentage

In most companies, jobs such as ‘development’ (digging new seams) have been passed on to subcontracting firms. This has meant that many ex-miners have been hired to work on the site where they previously worked, but this time indirectly employed via a subcontracting firm. As an MUZ official noted, these workers are:

doing almost the same development jobs or the same mining jobs. However, this time on fixed term contracts – three months. Without the union. On a lower wage. No patient cover. No housing, but they are given a housing allowance. Basically none of the fringe benefits that would have accrued. (Fraser & Lungu, 2007:22)

Monthly wages at the various mining houses differ. At the time of writing (2007), they ranged from K336 000 at Ndola Lime to K5 million at Mopani Copper Mines. (At the time of writing, the exchange rate was US$1=K4046.) However, a number of companies are still paying less than the basic needs basket calculated by the Jesuit Centre for Theological Reflection (JCTR) (National Economic Advisory Council, 2007). In June 2007, the basic needs basket and the basic food basket were K1 517 100 and K549 050, respectively. Five of the companies were in fact paying less than the basic food basket. This was the same as found by Fraser and Lungu (2007). Among the lowest paying mining companies were the Chinese-owned Non-Ferrous Metals Company – Africa, and Kariba Minerals Ltd (see Table 5).

Table 5: Salaries and wages in some mining companies, in Zambian kwacha (K)

Number	Company name	Code	Lowest (K)	Highest (K)	Average (K)
1	Ndola Lime Co. Ltd	NLCL	336 000.00	3 200 000.00	1 768 000.00
2	Chilanga Cement Ltd, Ndola	CCLN	550 000.00	3 500 000.00	2 025 000.00
3	Mopani Copper Mines Plc	MCMPlc	1 300 000.00	5 000 000.00	3 150 000.00
4	Luanshya Copper Mines Plc	LCMPlc	1 200 000.00	2 300 000.00	1 750 000.00
5	Maamba Collieries Ltd	MCL	800 000.00	1 850 000.00	1 325 000.00
6	Kariba Minerals Ltd	KML	372 000.00	1 000 000.00	686 000.00
7	NFC Africa Mining Plc	NFCA	443 907.00	1 524 855.00	984 381.00
8	Konkola Copper Mines Plc	KCMPlc	1 500 000.00	2 700 000.00	2 100 000.00
9	Chambeshi Metals Plc	CMPlc	500 000.00	3 800 000.00	2 150 000.00
10	Bwana Mkubwa (FQM Plc)	FQMPlc	850 000.00	3 000 000.00	1 925 000.00
11	Lumwana	LCM	–	–	–
12	Kansanshi	KMPlc	850 000.00	3 000 000.00	1 925 000.00
13	Sable Zinc Ltd	SZL	350 000.00	2 500 000.00	1 425 000.00
Average			696 300.54	2 567 296.54	1 631 798.54
Source: National Economic Advisory Council (2007).

The JCTR researches what it costs an average Zambian family of six, on a monthly basis, for basic food items and non-food items such as charcoal and soap, housing, water and electricity, education, health and transport to work (JCTR, 2006). Table 5 shows that the lowest paid in the mining companies were earning wages below $375 per month. The JCTR calculates that a just wage should be above US$375 if we adhere strictly to the basic needs basket. With rising profit levels, there is no reason why the mining companies cannot improve the conditions of service for the workers. Because of their failure to pay reasonable wages, we have seen the emergence of a new class of urban and working poor.

It is clear from Figure 3 that an extremely hierarchal system of employment has developed, with terms and conditions varying wildly for workers performing the same tasks and often in the same mines. While the total wage and the pension scheme are probably the most significant differences, most contract workers will not have access to medical insurance or free treatment for their dependants, while most permanent workers will (Fraser & Lungu, 2007).

9. THE STATE, MINING COMPANIES AND CIVIL SOCIETY

From our earlier discussion, it is clear that concessions provided by the government in the development agreements partly reflect the fact that the principal aim of privatisation was to establish an attractive investment environment to bring in new money. This was prioritised above ensuring that new investors accepted responsibilities for sharing the wealth that would flow from their operations.

The concessions also result from the fact that Zambian negotiators found themselves in a weak position in the discussions. The government sold the mines when the price of copper was low, which caused the company to incur year-on-year losses. This made it a buyer's market, and the assets were given away cheaply, with few strings attached. Further, the World Bank pushed the government to sell the assets quickly. Potential purchasers knew this and, although the state did delay for several years, companies did not need to bargain for fear the government might refuse altogether. Although the government stated one of its objectives for the privatisation was that it should be a transparent process, consistent with good order in the industry, and the World Bank and IMF, who oversaw the talks, claimed to be in favour of good governance and transparency, the process was extremely secretive. There was no consultation with stakeholders or public discussion of the terms of the agreements. This weakened checks on the state negotiators, and allowed the companies to brush aside any concerns the state might express about public perception of or resistance to the deals.

Whatever the weaknesses of Zambia's negotiators, there is no excuse for large multinational investors to blackmail one of the world's poorest countries to provide special concessions from its national laws. Many companies have signed up to the Organisation for Economic Cooperation and Development guidelines on investment, which are designed to promote good corporate citizenship. These state clearly that ‘Enterprises should refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to environmental, health, safety, labour, taxation, financial incentives or other issues’ (Lungu & Mulenga, 2005:47).

However, the Chamber of Mines of Zambia is quite brazen about the companies' lobbying effort, stating that the investment climate that prevailed in the country at the time was not attractive to Foreign Direct Investment, and that since, by necessity, mining operations are long term, the new investors demanded, as a matter of prudence, that special conditions be added to the purchase conditions (Chamber of Mines of Zambia, 2005).

The economic conditions worldwide have, however, changed. The price of copper has gone up dramatically (see Figure 2), compelling civil society to put pressure on the government to renegotiate the development agreements. Some of the contentious issues in the development agreements are the clauses that relate to taxation and the stability periods. Surprisingly, even the World Bank now supports the Zambian Government's efforts in this direction. It is, however, not very clear what the World Bank wants to see Zambia achieve in this process. Is it that the Bank has now seen an opportunity to wean the country off its support, knowing very well that continued support to the country means providing subsidies to the private mining companies, or is the Bank now convinced that the country now has a credible development agenda that can be supported with resources gained from renegotiating the development agreements?

Whatever the case, the government is in the process of constituting a team to carry out the renegotiation. The issues at hand are that, first, it is no longer morally right for the companies to pay the low royalty and company taxes when the situation has changed for the better and, second, the companies cannot continue paying workers poverty wages and denying them community welfare services when they are actually enjoying excellent profits. The provision of community welfare services in the mining industry evolved because of the mining companies' failure to provide a living wage. As long as the wages remain at subsistence level, it is necessary to resuscitate the programmes in community welfare to make natural resource exploitation less exploitative of labour. This is, however, the simpler short-term solution to the country's development problem. There is an urgent need for the country to embark on a long-term development agenda that should lead it to sustained growth and development. The diversification debate needs to be rekindled.

10. CONCLUSIONS

This paper has discussed the changes that have taken place in the mining sector in Zambia, in light of the concept of corporate social responsibility. During the colonial period, two major private companies owned the mines – and both provided welfare services that contributed greatly to the standards of living of the miners and the communities on the Copperbelt. The companies contributed to government revenue and were a major employer of labour. Between 1969 and 1997, the copper mines were state owned through ZCCM, which operated a comprehensive ‘cradle to grave’ policy providing for a wide range of social needs. This policy helped to maintain the standard of living at a high level. The fall in the price of copper and the rise in the cost of production after 1974 precipitated the collapse of the company and of the economy. At privatisation, the copper mines employed about 30 000 people – less than one-half the number that had been employed in 1976. With many people out of work and the mining companies charging fees for the social services they provided, many could only access government facilities. With the congestion at these facilities, the services have become substandard.

The major outcome of privatisation has been a considerable change in welfare provision, as the new mining companies have been following to the letter the terms of the development agreements. Despite the upturn of copper prices on the international market, the mining companies have continued to provide reduced services to the communities. This has prompted civil society to urge the government to renegotiate the development agreements. The government seems to have yielded, and has the support of the World Bank. If the development agreements are not renegotiated, the government will find it difficult to provide the necessary services to the communities, since the mining companies do not consider this their responsibility.

The author would like to recognise Alistair Fraser (Oxford University), co-author of For Whom the Windfalls? Winners and Losers in the Privatisation of Zambia's Copper Mines (Fraser & Lungu, 2007), whose ideas are reflected in this paper. This paper was first presented at a conference on The State, Mining and Development in Africa, 13–14 September 2007, University of Leeds.

Notes