Recommendations for Building Zambia’s Copper Industry

In 2021, Zambia became the first country to default on its external debt after the Covid-19 pandemic. The mining sector is a bedrock of the country’s economy. Since 2010, mining has played an increasingly significant role in Zambia’s GDP. However, the country has struggled to attract or retain investment owing to significant policy instability. In 2018, Zambia raised its royalty rate for the 10th time in 16 years, withheld value-added tax refunds, imposed double taxation as mineral royalties were no longer tax deductible, adopted a resource nationalism approach by implementing a 5 percent import duty on copper concentrates, and created an environment with uncertainty of tenure. Production dropped despite strong copper prices. According to the Zambian Chamber of Mines, in 2019 companies withheld over $650 million in investments.

After years of volatile policies, the election of President Hakinde Hichilema ushered in a suite of investor-friendly policies that led to a sharp rise in investment, including the 2023 Zambian Budget, which introduced the following tax reforms: a reduction of the property transfer tax on the transfer of mineral rights held by exploration companies from 10 percent to 7.5 percent; deductibility of the mineral royalty tax when determining the taxable income of mining companies; and the introduction of a presumptive tax (4 percent to 10 percent) for artisanal and small-scale mining based on gross turnover. This legislation aims to stabilize the tax regime and provide mining companies with major tax relief. Additional reforms include the National Mineral Resources Development Policy (2022) and the Minerals Regulation Commission Bill, which is nearing finalization. These policies seek to bring transparency, stability, and investment incentives.

Zambia’s mining sector is predominantly focused on copper, which accounted for 69 percent of the country’s total exports in 2022. In 2023, Zambia produced 698,000 tons of copper. Zambia is now the seventh-largest copper producer in the world and the second-largest in Africa, accounting for approximately 4 percent of global copper output. Nonetheless, the Zambian government set an ambitious goal of increasing copper output to 3 million tons by 2032. Comparatively, Peru, the world’s second-largest producer, output 2.2 million tons in 2021. Zambia’s goal is unlikely to be achieved. Recently, Zambia's finance minister said the country’s copper output could rise to about 1 million tons by 2026, boosted by investment in expanding production.

Companies see significant potential in Zambia. In 2023, exploration investments reached a 10-year high. The companies with the highest early-stage exploration budgets for copper in 2023 are Rio Tinto ($12.5 million), First Quantum ($6.6 million), the Japan Organization for Metals and Energy Security ($1.5 million), Koryx Copper ($1 million), and BeMetals ($900,000).

There has also been an uptick in brownfield investments and acquisitions. In 2022, the Abu Dhabi-based firm International Resource Holdings made a $1.1 billion bid for 51 percent of the Mopani copper mine. It is also in discussions with the Zambian government to take over Konkola Copper Mines. This would give the firm ownership of two of Zambia’s biggest copper assets. In the same year, First Quantum Minerals announced that it would make brownfield investments to expand the Kansanshi mine and the Enterprise nickel project, noting that “the approval of the projects reflects First Quantum’s increased confidence in the investment climate in Zambia.” The expansion will extend the life of the mine for 20 years. And in 2023, Barrick invested nearly $2 billion in a brownfield expansion project aimed at boosting Lumwana’s annual production to approximately 240,000 tons of copper from its current capacity of 50 million tons per year.

Barriers to Developing Zambia’s Mining Sector

First, Zambia’s full resource potential has yet to be mapped. At present, 45 percent of Zambia’s land is still geologically unmapped, and the other 55 percent was mapped before 1998. The government has proposed to strengthen the public-private partnership framework to incentivize the private sector to further increase exploration and mining activities and to discover new resources. One of the challenges to undertaking the mapping is limited financing—the government is severely fiscally constrained given the debt crisis. The cost of mapping will be greater than the 160 million Zambian kwacha the government allocated to the project in the 2024 parliamentary budget speech. This current lack of understanding regarding resource potential has undermined the discovery of new deposits and resulted in very few large-scale mines being developed in recent years, although the government disclosed that preliminary geological surveys have unearthed lithium deposits.

Second, there is a structural energy shortage. Zambia is highly prone to droughts, and given that the country is highly reliant on hydroelectric power, this is hindering development of the industry. The mining sector is the biggest consumer of energy in the country. There is a need to both generate more electricity and diversify sources. The energy sector is expected to have a 500-megawatt (MW) deficit this year. The president plans to import and ration electricity to ensure the continued operation of the economy, especially the mining sector. To address the structural constraint, the Zambian government aims to boost its installed solar and wind capacity to 600 MW by 2030. Currently, the installed capacity for solar photovoltaics stands at just 90 megawatts peak, highlighting a considerable underutilization of Zambia’s renewable energy potential.

Recommendations for the Zambian Government

1. Reduce local content requirements. In an effort to ensure Zambians are benefitting from the country’s natural resources, the government has proposed a policy that requires that contractual services amounting to $1 million or less must be 100 percent Zambian owned. But there is a significant impediment—there is a limited amount of capital and inadequate domestic capital markets to borrow from, which can create a barrier to doing business.


2. Make the mining cadastre public. A mining cadastre is an official registry or database that manages and records information about mineral rights and concessions within a country. It typically includes details about the location, ownership, and status of mining claims, licenses, and permits. It should be accessible through an online map portal and provide a transparent and organized way for stakeholders, including the public, to access information about a nation’s mineral resources and related activities. At present, the government of Zambia wants to keep the cadastre, which is under development, private and sell the data as proprietary information. This is not aligned with global best practice and can pave the way for corruption. The International Monetary Fund (IMF) has noted that “efforts to enhance procurement, disclose beneficiary ownership, enhance access to public information, and combat corruption will provide a more conducive environment for private investment and inclusive growth.”


3. Delay the development of a sovereign wealth fund. The main goal of a sovereign wealth fund is to use revenue from minerals, oil, and gas to create wealth for future generations. Sovereign wealth funds are generally viewed as an important way to responsibly manage resource-generated revenues. However, given Zambia’s weak fiscal position and immediate need for socioeconomic development, resource revenues would be better channeled toward building central bank reserves and investing in infrastructure and human capital. Without such investments, Zambia remains highly vulnerable to future debt defaults and will face significant challenges with its growing youth population.


4. Continue making necessary macroeconomic reforms. The IMF has noted that the Zambian government has made strong progress in adopting reforms to improve its fiscal position. It added the following:

Near-term reform priorities should focus on permanent revenue measures and better cash and liability management that would reduce the financing needs crucial to restore fiscal space and debt sustainability. In addition, strengthening tax administration, removing tax exemptions, and actively combating tax evasion can also boost revenues and improve governance.

Recommendations for the U.S. Government

1. Prove the case for the Lobito Corridor Project. As part of a visit to the region and engagements with both the public and private sectors (mining firms and logistics companies) and multilateral institutions, there was strong consensus that the project was neither a good use of resources nor one with adequate government or private sector buy-in. Instead, upgrading existing infrastructure—rail and road connections to ports at Namibia’s Walvis Bay or Mozambique’s Beira, for example—would be a better use of resources and bring value much more quickly.


2. Engage with high-level officials for strategic planning and mid-level civil servants that drive execution. Based on engagements with officials in various emerging markets, the U.S. government has a tendency to only engage with senior officials in Zambia—often political appointees. However, when there are political changes and/or a change in events, it’s common for agreed-upon efforts to slip through the cracks. Such was the case with U.S. government support for mapping Zambia’s resources.


3. Invest in energy projects. Zambia has a significant energy shortage and mining is highly energy intensive. Just 34 percent of the country’s population has access to energy. By investing in clean energy, companies can reduce their cost of doing business, free up energy capacity for household consumption, and provide energy to areas neighboring mines. For example, First Quantum Minerals, which has had a consistent presence in Zambia for 28 years, has found strategic value and public favor by partnering with TotalEnergies and Chariot Energy for a 430 MW solar project and a wind project, which are expected to be commissioned in 2026 and 2027, respectively. More of this is needed.

Conclusion

Ultimately, Zambia should work with investors to leverage its natural resources for economic growth. The country remains in high debt distress, with debt over 115.2 percent of GDP. Poverty increased from 54.4 percent in 2015 to 60 percent in 2022. In the long run, Zambia faces significant challenges ahead as the country is experiencing a large demographic shift. The population is expected to double in the next 25 years, resulting in pressure on demand for social services such as jobs, education, and health care. The proposed recommendations seek to create a conducive environment for investors while still ensuring that these investments are mutually beneficial.