Resources Policy 74 (2021) 102242

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Resources Policy
journal homepage: www.elsevier.com/locate/resourpol

The economic and social impact of mining-resources exploitation in Zambia

Rafael Aguirre Unceta
EU Can Aid/Brussels, Belgium

A R T I C L E I N F O A B S T R A C T

JEL classification: Mining resources (mainly copper), whose extraction and export were initiated during colonial times, have played
K34 an important role in the economy of Zambia, a landlocked country in central-southern Africa. This country faces
O10 serious development challenges, especially regarding economic structural transformation, deficient public goods,
O13
and high poverty. The question arises as to what extent the mining natural resource has contributed or not to
O38
Q32
tackle these challenges. More specifically, how public action has intervened for addressing them. The analysis is
based on the A.O. Hirschman’s linkages theory and on some of the resource curse assumptions. The general
Keywords:
Natural resources
conclusion is that returns from mining resources has been modest in Zambia, even adverse in some respects, and
General economic development that a hypothetical resource-based development has not taken place in the country.
Taxation
Public finances
Development policies

1. Introduction Referring more specifically to the extractive industries ‘enclaves’

1.1. Analytical approach
As a case study using empirical evidence, this article examines the
socio-economic impact of mining natural resources in Zambia. The
nationalisation of copper mines some years after independence (1964)
and their subsequent privatisation at the beginning of the current cen­
tury constituted key economic policy decisions in this country. The legal
and fiscal framework applicable to private mining activities represents
still now a major national issue for the Zambian government and public
opinion. As in other developing countries, it is expected that these ac­
tivities of extracting national natural richness, yield a benefit to the
country and its population. For Zambia, the realness of that hypothetical
benefit is examined with an analytical approach based on the A.O.
Hirschman’ theory of fiscal and productive linkages and on some of the
vast resource curse thesis.
Hirschman (1981) distinguishes three types of possible connections
between a primary exporting sector and other sectors of the respective
country economy: fiscal linkages (public revenue which could be used to
promote development in other sectors), consumption linkages (demand
generated by the remuneration of local resources employed in the pri­
mary export sector), and production linkages: forward (adding value to
the exported commodities) and backward (supply of goods and services
for the primary export sector).
(oil, mining), Hirschman recognises the limited productive impact they
may have on the domestic economy, given their capital-intensive
structure and the propensity to repatriate their profits as they are
often foreign-owned. However, some local policies can activate that
impact. As regards to fiscal linkages, they are subject to intermediation
by the country authorities and must fulfil some conditions: ‘For the fiscal
linkage to be an effective development mechanism, the ‘ability to tax’
must be combined with the ‘ability to invest productively’ (Hirschman).
The challenge lies in the political capacity to: 1) capture a fair share of
the extractive rent, while ensuring investment incentives, and 2) direct
the obtained revenue to uses that can, by one means or another, expand
and diversify the national economy, avoiding a scenario of public
spending inefficiency or rent-seeking.
The resource curse thesis also refers to the deficient use, waste or
misappropriation of public revenues generated by the extractive
resource (Auty, 2008). During boom phases, countries live “beyond their
means”: consumption spending and sumptuary or inefficient in­
vestments increase, while incentives for the development of other eco­
nomic sectors are not created. With easy-to-obtain extractive revenues,
there can be a tendency to loosen, for political purposes, taxation on
other domestic fiscal bases (McGuirk, 2013; Crivelli and Gupta, 2014).
Institutional weaknesses have been thought of as a prominent cause of
these negative tendencies (Mehlum et al., 2006). Some authors establish
a negative correlation between natural resource abundance, savings,

E-mail address: agisor@gmail.com.

https://doi.org/10.1016/j.resourpol.2021.102242
Received 7 November 2020; Received in revised form 11 July 2021; Accepted 12 July 2021
Available online 24 July 2021
0301-4207/© 2021 Elsevier Ltd. All rights reserved.
R. Aguirre Unceta
and investment in both physical and human capital (Gylfason, 2001;
Gylfason and Zoega, 2006; Bhattacharyya and Collier, 2011). This
abundance is associated with stagnant levels of poverty and social in­
dicators (Ross, 2003), as well as with the neglect of social spending
(education, health …) (Gylfason, 2001; Cockx & Francken, 2014, 2016).
That varied group of theoretical conditions and diagnoses is
considered in the case of Zambia for both the years of commodities
‘boom’ from the middle of the first decade of the current century, and for
following period in which copper markets fluctuated. After presenting a
statistical summary of Zambia’s economic and social profile (section 2),
the article considers whether, in the post-privatisation context, the fiscal
regime applied to mines has been responsive to the condition of ‘ability
to tax’ (section 3) and how productive linkages have intended to be
promoted through the so-called ‘local content’ initiatives (section 4); the
size and financial effect of the collected mining revenue, as well as the
ensuing global budgetary policies are considered in section 5; finally,
section 6 is focused on public policies and impact on two specific areas:
infrastructure investment (roads) and social development (social
spending, human indicators, poverty).
1.2. Statistical issues
Statistical data represent only an approximation of reality, and
sometimes not a very good one, in particular in developing countries
that have limited means at their disposal. In sub-Saharan Africa, for
different reasons (private sector dominated by informal businesses,
minimisation of tax liabilities, old methods, and weak national statistical
capacities …), macro-economic national data, such as the GDP or trade
balances, have tended to be miscalculated (AfDB/African Development
Bank, 2013; Devarajan, 2013; Jerven, 2014). Since 2010, several
countries have revised their national accounts estimates with improved
standards and methods, as well as updating the benchmark year. Zambia
carried out this revision in 2014 (moving the benchmark from 1994 to
2010 too) and the result was, among others, having GDPs of earlier years
20–25% higher than previously estimated (IMF, 2015a). Data used in
this article come from the revised series, even if some minor discrep­
ancies can still be observed between national institutions, IMF, or World
Bank. But, in addition, it is recognised that there is a problem with the
statistics.
(GDP or others) from these institutions, the only ones available, to
reflect real development in Africa (Jerven, 2013). Figures on mining
revenue are especially important for this article. At this respect, the main
sources are the Extractive Industries Transparency Initiative/EITI yearly
reports on payments by mining companies. As explained in section 5,
some complications arise when dissociating the specific payments
coming from their own business margins or about the accounting of VAT
payments.
Statistical difficulties can also be encountered in other areas such as
measuring poverty (with surveys made from time to time) or social in­
dicators (Jerven and Jonhston, 2015). The flow of information from the
local service delivery levels to the national level is often complex and
entails different quality/regularity, sometimes with conceptual or
technical differences in the methods used. With these reservations, sta­
tistics in this article are taken from international organisations such as
the World Bank (WDI), UNESCO, WHO or UNDP, supplemented in some
cases by data from the national statistical agency.
Harmonised and reliable information on the executed public
spending is not readily available and quite uneven in Africa. This article
uses both Zambian national sources (the annual financial and economic
reports published by the Ministry of Finance) and data from some of the
mentioned organisations (UNESCO, WHO) in the sectors of their
respective competence (education, health). Without excluding some
possible inaccuracies, it has been thought that this combination of
sources can offer more coverage. Data series from these sources are
generally available up until 2018.
2
Resources Policy 74 (2021) 102242
2. Zambia economic and social profile
Key aspects (see Table 1):
• Rapid demographic increase: about 3% annual population growth
for the last decade
• Significant GDP growth 8,1% during the period of mining production
expansion (2006–2012), but slowed thereafter: 3,6% (2013–2019)
• Decreasing GDP contribution from Agriculture and Manufacturing,
while Services still raising
• Mineral rents reached a relative pick in 2011 (19, 17% of GDP), but
decreased later
• Poverty (below $1.90/person/day) was touching 58,7% of the na­
tional population in 2015; inequality among the highest in Africa
(Gini of 57,1 in 2015) and increasing
• Human Development Index progressing only slightly since 2010,
attaining a score of 0.584 in 2019, a little above the Sub-Saharan
average (0.547)
• Received Official Development Assistance (ODA) has been reduced
by half during the last decade (4,3% of Zambia GNI in the recent
period 2016–2019)
• Total gross government debt (domestic and external) rapidly
growing for the last 7–8 years, reaching 91,6% of GDP at end 2019;
debt service equivalent to 31,18% of exports the same year
3. Mine ownership and fiscal regime under private status
3.1. From nationalisation to privatisation
The Zambian mines had begun to be exploited in the Copperbelt
(North) in colonial times, under the control of, first, the omnipresent
British South Africa Company founded by Cecil Rhodes, and later, of two
private companies (Anglo-American Corporation/AAC, and the Rhode­
sian Selection Trust/RST), in which US investors had majority interest.
In 1969, a few years after independence and with international markets
favouring copper, the K. Kaunda government bought a majority stake
(51%) in the mining companies previously controlled by the AAC and
the RST. These private firms were retained for some years, however, as
the managers and sales agents of the mines. The government increased
its share in the mining companies to 60.3% (1979) and decided to merge
them (1982) into a single conglomerate, the Zambia Consolidated
Copper Mines/ZCCM.
At the time of ZCCM formation, copper prices were half those pre­
vailing in the early 1970s, and they continued to follow a downward
trend in subsequent years. These adverse commercial conditions had a
major impact on the poor results obtained during the nationalised
period, both in terms of the public purse, which had to take on the
growing losses of the ZCCM, and the mining industrial development,
with production reduced to less than half. However, other factors, such
as the excessive price of mining shares bought from the private sector,
the investment of ZCCM funds in inefficient parastatals outside the
mining sector (under an unsuccessful import-substitution industrialisa­
tion, see section 4), and the clientelist network created around the State
mining system, contributed to those defective outcomes too (Sardanis,
2003; Auty, 2008; Collier, 2014).1
In the 1990s, the Zambian State’s position in the mining sector had
become difficult to sustain, and privatisation was openly evoked, espe­
cially by the Bretton Woods institutions under the neoliberal doctrine of
the time (Washington Consensus) (Fraser, 2010). Following this para­
digm, the mining legislation was adapted to attract private investment
(Mines and Minerals Act 1995). The World Bank was particularly
involved in the design of privatisation schemes and had an undeniable
1
One sentence by P.Collier (2014, p. 19) sums up the balance of this era: ‘Far
from accumulating assets, the country accumulated debts’.
R. Aguirre Unceta Resources Policy 74 (2021) 102242

Table 1
Zambia: economic and social data.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Population, total 12,17 12,50 12,85 13,22 13,61 14,02 14,47 14,93 15,40 15,88 16,36 16,85 17,35 17,86
(millions)
Population growth 2,64 2,67 2,73 2,81 2,91 3,02 3,10 3,14 3,12 3,07 3,00 2,95 2,91 2,89
(annual %)
GDP growth (annual 7,9 8,4 7,8 9,2 10,3 5,6 7,6 5,1 4,7 2,9 3,8 3,5 4,0 1,4
%)
GDP per capita 1183,4 1248,4 1309,3 1390,3 1489,5 1525,6 1591,3 1620,1 1644,1 1641,0 1652,6 1660,8 1678,2 1653,8
(constant 2010 US
$)
Agriculture, value 13,21 12,11 11,45 11,55 9,42 9,65 9,32 8,23 6,78 4,98 6,23 4,02 3,34 2,86
added (% of GDP)
Manufacturing, value 9,41 8,68 8,45 8,68 7,58 7,52 7,08 6,02 6,82 7,52 7,69 8,13 6,85 6,79
added (% of GDP)
Services, value added 47,52 47,45 49,03 51,55 52,81 50,39 53,19 53,14 53,51 56,22 54,18 52,09 54,24 54,60
(% of GDP)
Mineral rents (% of 18,06 18,65 14,55 14,70 18,71 19,17 16,10 14,25 12,48 12,12 11,20 13,18 14,62 ..
GDP) (*)
Poverty at $1.90 a 62,1 65,8 58,7
day (2011 PPP) (%
population)
Poverty at $3.20 a 78,9 80,8 75,4
day (2011 PPP) (%
population)
Gini index (World 54,6 55,6 57,1
Bank estimate)
Human Development 0,425 (2000) 0,471 (2005) 0,527 0,561 0,569 0,571 0,578 0,582 0,584
Index (UNDP)
Net ODA received (% 12,69 8,17 6,75 8,52 4,86 4,63 3,82 4,26 3,75 3,83 4,76 4,21 3,86 4,26
of GNI)
Gross Government 25 21,9 19,2 20,5 18,9 20,8 25,4 27,1 36,1 62,3 60,7 65,5 78,1 91,6
Debt (% of GDP) 3,17 2,37 2,95 3,47 1,86 2,33 2,19 2,75 3,60 6,63 9,90 9,16 14,47 31,18
Total debt service
(% of exports of
goods/services)
Real effective 105,61 97,61 112,57 95,60 100,00 97,15 99,72 102,98 98,38 86,62 85,52 94,52 88,43 79,43
exchange rate index
(2010 = 100)

(*) Mineral rents are the difference between the value of production for a stock of minerals at world prices and their total costs of production (WDI, World Bank).
Sources: WDI WB, IMF Gov Finances Data and Art IV reports, Ministry of Finance annual economic reports, UNDP 2020 HDI report

weight in the decisions taken in Zambia. If privatisation (1996–2000)2
allowed mining recapitalisation and copper production growth in sub­
sequent years (table 2), the concluded ‘Development Agreements’
implied very favourable conditions for investors (especially fiscal),3
detrimental to the national public interest (Gondwe and Pamu, 2014).
Under the privatisation agreements, the Zambian part negotiated a
minority stake in various of the new mining private companies, in order
to have a share in their expected profits and a say in their management.
This State participation managed by a restructured ZCCM (now ZCCM-
IH, Investments Holdings) has varied between 10 and 20% of the capi­
tal of nine foreign-owned copper companies.4 From the point of view of
the State’s financial interest, yield from ZCCM-IH has been delayed: it
has provided some dividends only from 2014 (2014, 2017, 2018 and
2020). However, it must be borne in mind that since privatisation, the
holding had to assume, on behalf of the State, the legacy of the debt, the
pension fund, and the environmental restoration obligations of the
former ZCCM. ZCCM-IH’s role and operations have received some
2
The privatisation process was really completed in 2004, when the Indian
company Vedanta became the majority owner of the Zambian largest mine at
the time (Konkola), after Anglo-American had disposed two years earlier of its
acquired shares.
3 contracting local (Zambian) personnel, products, and services. It also re-
For instance, the privatisation ‘Development Agreements’ fixed the mining
royalty at 0.6% of the value of the extracted/exported metal, when the already
generous Mines and Minerals Act adopted in 1995 had established it at 3%.
4
A relevant recent decision (January 2021) has been the purchase from the
multinational Glencore of its majority shareholding (73,1%) in one of the most
important mining companies, Mopani Plc (ZCCM-IH, 2021).
criticism in the past (Adam and Simpasa, 2009; Conrad, 2012). How­
ever, more recently, its governance status has been assessed more
positively (Natural Resources Governance Institute/NRGI, 2017).
3.2. An unsteady fiscal regime
The rapid rise in copper market prices from 2004 and its impercep­
tible impact on the country’s public revenue only reinforced civil de­
mand for a greater national share of the profits from mining activities.
Between 2000 and 2007, less than 1% of the national budget revenue
was coming from mines (Adam and Simpasa, 2010). It was a tense
period of confrontational views between the government, political
parties, civil organisations, donors, and mining companies (Fraser,
2010; Rakner, 2017). With some delay, the government reacted in 2008
with the adoption of a new Mines and Minerals Development Act/MMD
Act and a drastic revision of mines’ tax obligations to rebalance the
distribution of income with private companies. This process from a weak
to a strong position by the government has been linked to the “obso­
lescing bargain” model (Manley, 2012; Chichilnisky-Heal and Heal,
2015).
The 2008 MMD Act readjusted mining licensing rules, strengthened
environmental obligations, and introduced a generic preference for
established the royalty at 3% of the value of the extracted/exported
metal and declared the ‘Development Agreements’ null and void,
rejecting their ‘stability clauses’ of 15–20 years. The Zambian govern­
ment discarded the option of renegotiation with the mining companies
and decided to unilaterally change the legal regime applicable to all

3
R. Aguirre Unceta Resources Policy 74 (2021) 102242

Table 2
Copper production growth after privatisation.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(1)

Copp. Prod. (TMT) 411 460 514 520 568 601 732 740 699 764 708 712 774 799 862 776 882
Copp. Exp. (% GDP) 21,8 20,1 23 24,2 20,6 20,3 28,5 28,4 25,2 25,8 28,1 24,6 21 23,7 24,9 21,4 30,3
Copp. Exp.(% tot. Exp.) 74,8 76,4 77,6 76,6 75,5 74,4 77,8 76,9 66,1 63,7 74,5 71,1 67,3 74,4 73,7 69,1 73,5
Mining revenue/total 4,7 5,2 7,7 13,0 16,9 25,1 27,4 38,6 33,8 32,0 28,9 29,4 27,6 31,1 31,4 26,7 _
nat. revenue (%) (2)

(1): provisional.
(2): from 2008, according to EITI criteria and data (see 5.1).
Source: CSO-Zambia, Min. of Finances-Zambia Annual Economic reports, ZRA-Zambia data, EITI reports

mining operators.
At the same time, the government seriously modified the tax
framework for the mining sector (through the Income Tax Act),
increasing the ordinary tax rate on profits (with an additional variable
rate up to 15% for profits exceeding a certain level) and creating a so-
called ‘windfall tax’, applicable in the event of high international pri­
ces. This last measure was suspended a few months later due to resis­
tance from the companies and the transitory recession in the copper
markets (international financial crisis 2008). Overall, the 2008 reforms
had a substantial impact on mining revenues (table 2).
New changes in the mining fiscal regime have been introduced by the
Patriotic Front government formed after the 2011 elections. The most
relevant and frequent modifications are related to royalty levels, which
have followed an up and down trend since 2012. More recently (2016,
with rather weak copper prices), a graduated royalty scheme (from 4 to
6% depending on the copper price) was established, and the additional
variable rate in the profit tax (set up in 2008) was eliminated. It was
considered that while ensuring a reasonable revenue sharing with
companies, these measures reduced the progressivity of the Zambian
regime in case of higher copper prices (Manley, 2017; Liebenthal and
Chelo, 2020).
To surmount that risk of losing revenue in a context of growing
financial constraints, new fiscal changes became applicable in 2019,
referring again to the royalty rates: they are all accrued by an additional
1.5%, and new rates of 8.5% and 10% are instituted in the case of high
levels of copper prices.5 As in the past, these measures have met strong
opposition from the mining companies; despite gradual recovery of
copper markets since 2016, the companies have stated that the new
conditions will make the industry unprofitable and announced a fall in
investment and jobs cuts (Zambian Chamber of Mines, 2019). More in­
dependent observers (Zambia Institute for Policy Analysis and
Research/ZIPAR, 2018) have noted that, to fairly adjust tax rates,
mining cost models should be designed and agreed by all stakeholders,
since mining costs in Zambia tend to be relatively high. It should be
added that the significant increase of copper price in 2020 has led to an
all-time production record last year (table 2).
3.3. Ability to tax?
Considering the trajectory followed since privatisation, the Hirsch­
man’s condition on the ‘ability to tax’ can be assessed. The main prob­
lem of the Zambian mining taxation has been its very unstable evolution
and the resulting lack of predictability for mining operators.6 As in other
developing countries with natural resource potential (oil, mining), the
Zambian government faces a dilemma between the objective of max­
imising potential revenue and that of ensuring investors’ profitability to
materialize that potential. It is not easy to reach a balance between these
two objectives and there is often a process of successive attempts to do
so.7 However, compared with other African countries, this process has
been quite erratic in Zambia: ten modifications have been recorded in
the last 16 years in Zambia.8 This can reduce the attractiveness of
investing or developing mining production in Zambia, with respect to
other opportunities.
In additions, frequent modifications, ambiguous legal areas, as well
as the past tendency to individualised conventions with companies, can
affect the capacities of national services to administer mining taxes
(Conrad, 2012). Another important obstacle for performant tax man­
agement has been the weakness in data on the inner operations of
companies, even if some donor-supported programmes intend to address
this problem (Liebenthal and Cheelo, 2020). Based on interviews of a
varied group of stakeholders, Zambian authors (Chisakulo and Kambani,
2018) have observed that the country’ mining taxation is not responsive
to attributes of ‘good tax’ criteria. Weak institutional capacities, policy
inconsistencies, information asymmetry, lack of stability and neutrality,
were some of the major issues raised by interviewers.
The question of the Zambian mining tax structure arises too. The
weight of royalties in the total revenue from specific mining taxes has
gradually grown since 2008 (table 3), which has increased dependency
on this kind of income. However, some management reasons can explain
this trend. The tax system contains two main instruments: royalties and
profit taxation. The first is easier to administer and control to the extent
that it is based on the mining company sales (prices, quantities);
nevertheless, it does not allow for the capture of all profits in the event of
a boom and may induce marginal firms to stop production in the
opposite case. This problem can be partly solved by a variable royalty
rate (Clausing & Durst, 2015), which was in fact introduced in Zambia in
2016. The second instrument (profit tax) is more accurate in imposing
profits but involves a complex management and more unstable public
revenues, also allowing accounting manipulation by companies through
‘transfer prices’. The extent of these tax evasion practices in Zambia has
been revealed in different studies (UNCTAD, 2016; Redhead, 2016). The
amount of the resulting fiscal loss is difficult to estimate, but a better
control of these practices remains a key challenge (Liebenthal and

5
The 2019 National Budget contains other legal alterations relevant for
mining operations: the royalty tax became non-deductible for-profit tax pur­
poses, an import duty (5%) on copper and cobalt concentrates (from DRC) was
introduced (removed for 2021), and the royalty for cobalt increased from 5 to
8%. In addition, the VAT was to be replaced by a sales tax, but this measure,
other point of contention for companies, was later revoked.
6
The Fraser index, reflecting perception from mining investors, ranked
Zambia in 2019 in the 71st worst position out of 76 countries (Fraser Institute
Annual Survey of Mining, 2019).
7
Ideally, a consistent mining fiscal regime should have enough flexibility to
capture increase revenue when prices rise and automatically reduce the tax
burden for companies during periods of low copper prices (Manley, 2013).
8
Among the most significant tax adjustments were the introduction of the
windfall tax (2008) and the full elimination of the profit tax and its substitution
by very high royalty levels (up to 20% for open-pit mines)(2015); but they were
in force only for some months.

4
R. Aguirre Unceta
Table 3
Evolving weight of royalties in mining taxation.
2008 2009 2010 2011
Royalties/specific mining taxes (%) 30.7 38.1 26.1 28.8
Source: EITI reports, Min. of Finances-Zambia Annual Economic reports
Cheelo, 2020).
4. Productive linkages through local content policies
To develop productive linkages, local content strategies aim to pro­
mote the participation of indigenous firms in the added value of
extractive productions. What can be achieved during the goods/services
supply phase (backward) or in the transformation/marketing of the
extractive output (forward). Local content policies should incorporate as
far as possible a diversification target, with a view of reducing long-term
dependence on the extractive sector, while taking advantage of its
returns during its life cycle. The scope of these policies extends to the
purpose of having a certain share of factors of production (labour,
capital) sourced from the domestic economy. This can be done by pro­
moting the employment of local labour or the participation of indige­
nous shareholders in the capital of extractive companies.
In sub-Saharan Africa, mandatory local content rules, often including
quantitative requirements, have been incorporated into many national
mining or oil/gas laws (Guinea, Angola, Nigeria, Ghana, South Africa,
DRC, etc.). They are frequently combined with incentives (‘carrot’
approach, with tax, credit, or other favourable measures) for extractive
companies increasing local content. At the same time, parallel initiatives
are meant to reinforce the technical and business capacities of indige­
nous operators to improve their competitiveness. In some cases (Niger),
more flexible rules have been adopted, establishing a preference for
local products and services if their conditions (price, quality, delivery
time, etc.) are comparable with other sources.
Zambia has sought to promote local content through national policy
documents (Mineral Resources Development Policy 2013; National local
content strategy 2018–2022) and through legal instruments. The latter
can have a general scope (Zambia Development Agency Act 2006 and
Citizens Economic Empowerment Act in 2006) or be specifically
designed for the mining sector (the aforementioned MMD Act 2008;
revised in 2015). This Act establishes a general preference for ‘Zambian
products, contractors and services and employment of citizens’. Func­
tional programmes with the same purpose have been running for some
time. The best known is the ZMLCI (Zambia Mining Local Content
Initiative), launched in 2012 with support from the World Bank, but
apparently no longer in operation in 2017 (ACET African Center for
Economic Transformation, 2017).
Another noteworthy initiative has been the creation of Multifacility
Economic Zones (MFEZs), particularly the one constituted in 2006 in
Chambisi next to a Chinese-run cooper mine of the same name. About 40
firms (Chinese and local) have settled there in the processing or recy­
cling of ore, as well as in the supply of machinery and services to mining
companies. In a different domain, Zambia tried in the past through fiscal
measures (taxing exports of unmelted concentrates of copper) to
encourage the first processing of the mineral within its territory. But, in
this case, the smelting activities are operated by the foreign companies
owning the mines.
The results obtained so far from the local content strategy in Zambia
have been very limited. According to a recent report by the Ministry of
Mines (2020), with data referring to 2019, the value of goods and
5
Resources Policy 74 (2021) 102242
2012 2013 2014 2015 2016 2017 2018 2019
36.3 61.9 58.2 86.3 70.5 69.5 61.6 56.7.
services procured from Zambian-owned firms accounted for 2.1% of
total purchases by the mining industry. The same report identifies sig­
nificant weaknesses in the local content provisions of the MMD Act
2008–2015: lack of a definition of ‘local’,9 no targets for the procure­
ment of goods and sourced services; no mechanisms for monitoring,
enforcing, and evaluation of mining local procurement. In fact, the
report is made in preparation of a Statutory Instrument that should
regulate these different questions.
The scope and effectiveness of the local content initiatives in Zambia
have been also critically assessed by foreign or Zambian independent
researchers. It has been observed that policies and regulations are
formulated in too vague terms and that they have been offset by other
economic/macroeconomic policies; they are also hampered by the
insufficient quality of local supplies and the imbalanced State-
companies power relations (Kragelund, 2017, 2020). From a relatively
similar view, it has been thought that content initiatives are hindered by
structural weaknesses: regulatory environment, human and technolog­
ical capital, endogenous entrepreneurship, macroeconomic context
(Morris et al., 2012; Lombe, 2020). Other evoked constraints for do­
mestic businesses are the high cost of inputs, low production capabil­
ities, the import tariff structure and lack of affordable finance (ACET,
2017). Increase in local procurement has been considered to be opposed
by vested interests of intermediaries and importers (Ramdoo, 2016). In
comparative terms, progress in local content is reputed to be worse in
Zambian than in African countries such as Ghana, Nigeria, or South
Africa (Morris et al., 2012; ACET, 2017). Nevertheless, in some neigh­
bouring countries (Uganda, Tanzania, Mozambique), the situation
seems to be relatively similar (Hansen, 2014).
Regarding the MFEZs, it has been estimated that local firm’s
involvement has been weak (Alves, 2011; Zeng, 2016), among others
because of their limited readiness in terms of technology, skills, and
innovation (Sikozi et al., 2016). They have been viewed more like ‘white
elephants’ (Phiri and Manchishi, 2020).
The ineffectiveness of local content policies and the counteraction of
other public policies (Kragelund, 2017), together with other factors of
various kinds (economic infrastructures, business climate, institutional
capacities, etc.), have hindered productive diversification in Zambia. At
this regard, no advantage has been taken from the mining resource and
the national economy remains substantially dependent on it.
In the first decade after independence, with high copper prices, a
process of diversification of the economic structure did take place, with
significant growth in the manufacturing sector: its added value (in
constant 1970 prices) expanded during the 1965–70 period at a high
annual average rate (13%), contributing to 19% of GDP during the 1970-
80 decade (Karmiloff, 1989). This trend was supported by a policy of
import-substitution industrialisation and strong State participation in
the new productive activities (Chitonge, 2016; Lombe, 2020), facilitated
by substantial mining revenues for a period of time. By 1980, 57,5% of
the manufacturing enterprises were publicly owned (Karmiloff, 1989).
However, this industrialisation process was quickly reversed not only by
an unfavourable economic environment (Dutch disease effects during
the copper boom, continuous fall in copper prices, heavy public
indebtedness, etc.), but also by its own structural deficiencies. Among
9
Definition of ‘local procurement’ is of big importance in practice. Most
countries approach this definition around three elements: geographical location
in the country, majority ownership by national citizens and in - country value
added of products or services.
R. Aguirre Unceta
the latter, the excessive focus in consumer goods (food, beverages,
textiles …) which were often subsidized and not competitive enough to
be exported; while intermediate capital goods (machinery, etc.) required
for maintenance and renovation, including in the mining sector, were to
be imported (Chitonge, 2016; Lombe, 2020). This also constrained some
other industries (rubber, chemicals, metals …) that could substitute
imported mining input goods. Progressive shortage of foreign exchange,
as well as poor or negative profitability, provoked a lack of reinvestment
in the new industries, with the subsequent fall in total factor produc­
tivity of the manufacturing sector (Karmiloff, 1989). Other key adverse
factors were the absence of local technological skills (AfDB, 2017) and
the inefficient management of the parastatal sector, with also frequent
practices of abuse of public resources (Bates, 1981).
For the last 20 years, under a privatised/liberalised economic sce­
nario, public policies were ineffective in using other adapted in­
struments (regulatory environment, incentives and finance facilitation,
building-up of national technological capabilities, etc.) to promote
local content and diversification. Mining revenue could have been also
directed to those less tangible but highly productive public investments,
thus contributing to address the different constraints for business
expansion. Although there have been no significant signs of Dutch dis­
ease10 in the economic structure (Gondwe and Pamu, 2014), the latter
has not been positively transformed either. Inter-sectoral transfers of
resources and output occurred, especially to the tertiary areas, but not to
the highest productivity sectors. On the contrary, employment has
grown in low productivity activities (urban retail, informal trading),
while decreasing in the manufacturing sector (Chitonge, 2016). Informal
rural and urban employment still represented (2018) 73.4% of the total
labour force (Min. of Labour, 2019). Manufacturing activities have
endured a number of handicaps (regulatory framework, high-cost
borrowing, backward technology, foreign competition …) (Gondwe
and Pamu, 2014). Insufficient power generation, more than half
consumed by the mines,11 has affected most of the productive activities.
The agriculture sector productivity, still predominantly based on
semi-subsistence rainfed crops, is stagnant. One of the major criticisms
of successive governments since independence is the lack of a strong and
coherent agricultural policy (Whitworth, 2015; Chitonge, 2016).
5. Mining revenue capture and impact on public finance
5.1. Revenue collected from mining extraction/export
The size of public revenue derived from mining in Zambia has been
subject to important fluctuations throughout recent history, both during
the nationalised period (sharp decline for the previously mentioned
reasons) and under private ownership (from initially very tiny amounts
to more balanced magnitudes). The evolution of mining revenue over
the most recent period deserves more detailed attention. Fig. 1 presents
10
Some symptoms of Dutch disease were presumed for a short period of strong
appreciation of the real exchange rate (18% annual average between 2004 and
2008) during the first decade of the current century. This affected non-
traditional exports, particularly agricultural ones, while the non-tradable con­
struction sector was growing. However, for the whole period of the last two
decades, there is no evidence of the main disease constituents, the resource
movement, and the spending effect. The latter was lessened by the expatriation
of a large part of copper rents, being the mines foreign owned (Gondwe and
Pamu, 2014). Besides, it can be seen (table 1 in section 2) that the real exchange
rate has globally followed a marked depreciation trend.
11
Too low electricity tariffs are considered the reason of lack of private in­
vestment in power generation (Gondwe and Pamu, 2014). Besides, the mines
have been benefiting from specific subsidized prices. Investments are underway
by the public utility ZESCO to increase the generation capacity, taking advan­
tage of Zambia’s strong hydropower and solar potential, as well as expanded
coal mining. They are facilitated by the strong financial involvement of BRICS
countries (China and India) and their construction companies.
6
Resources Policy 74 (2021) 102242
the evolution of revenue from 2006 to 2018, as well as the international
copper prices and copper production in Zambia. While the production
figures show a rather regular growth trend, the variable amount of
mining taxes is essentially linked to the applicable fiscal regime (the
2008 reform, in particular) and to copper prices. Despite new fiscal
measures (increase in royalty rates), the price contraction from 2012
meant a revenue decline, which reverted only in 2018.
Nevertheless, the revenue data shown in Fig. 1 (green solid line)
refers only to specific mining taxes (mainly royalties, profit tax and the
short-lived windfall tax) and does not include other fiscal or parafiscal
payments by mining companies. The annual EITI reports also provide
information on these other payments, among which are those related to
VAT12and customs duties, withholding taxes from employees’ wages
(PAYE, pay as you earn), dividends yielded by ZCCM-IH and payments to
local communities and Councils. Total payments by companies (green
dashed line in Fig. 1) are available from the Zambia Revenue Author­
ity/ZRA for the period 2004–2007 and from EITI reports for
2008–2018.13
It is difficult to anticipate the medium-term impact on public revenue
of the new 2019 mining taxation. While the latter significantly increases
the legal revenue potential, the actual impact will depend on different
conditions: investor response, market price trends (very favourable from
2020), and more effective public capacity to implement the new regime
and recover taxes.14
The amount of public revenue obtained from extractive activities
(oil, mining) is dependent on the degree of participation in the rents15
resulting from these activities. To assess this public participation, the
overall fiscal (or parafiscal) burden borne by extractive companies must
be measured. The most sophisticated measure, although complex, is the
average effective tax rate (AETR), which estimates the percentage of the
net income flow generated over the life of the extractive project that is
assigned to the State. It is a projection of the theoretical potential for
raising public revenue according to the established legal and fiscal
regime and does not reflect real flows. Some simulations have estimated
variable AETRs from 30 to 60%, depending on the country and the
mining product in question. However, recorded data show lower levels
because the theoretical estimates of the AETR do not capture different
12
A correct recording of VAT payments is complicated because the companies
are entitled to a refund of at least part of these payments when exporting their
products. The long delay in these refunds, for alleged verification reasons, has
been one of the disputed issues between companies and the government in
recent years. In fact, the versatile course of the line “Total payments by com­
panies” in Fig. 1 (in particular between 2016 and 2018) may be due, among
others, to different ways of accounting VAT payments in recent EITI reports.
13
The 2011 first revenue peak is explained not only by copper prices but also
by the aftereffect of the previous windfall tax. In fact, only two mining com­
panies started paying this tax in the few months it was enforced in 2008; this
resulted in other companies paying large arrears in 2011, when copper prices
reached again very high levels. The EITI report 2014 stated that the peak in
total payments that year was due to an increase in the number of.
14
In the short term, figures for 2019, compared with those of 2018, show a
reduction (− 8.3%) in copper output, an almost equivalent drop in copper prices
(− 8.2%), but an increment (in local currency) of collected company profit taxes
(+31.8%) and royalties (+8.4%) (Ministry of Finance, 2020). It should be noted
that the Zambian Kwacha depreciated by 23% against the USD on annual
average between 2018 and 2019. The 2020 strong recovery of copper prices
(+25.8% along the year) and production (+13.6% over 2019) (ZSA/Zambia
Statistics Agency, 2020) may imply an appreciable increase of mining revenue:
the total amount collected in 2020 from both the profit tax and the royalties
was 24% above the budget targets (Ministry of Finance, 2021).
15
The concept of extractive rent, derived to some extent from the Ricardian
notion of land rent, expresses the difference between the commercial value of
the extractive resource and the amount of all costs incurred (from exploration
to production), including the normal return on invested capital. Although
variable according to market fluctuations, this exceptional surplus reflects the
value of the natural wealth extracted.
R. Aguirre Unceta
Fig. 1. Copper production and price, specific mining taxes and total payments by companies.
Source: CSO-Zambia; London Metal Exchange; IMF Art IV reports; ZRA-Zambia data; EITI reports
tax erosion factors (deficiencies in tax management, evasion by com­
panies, etc.) (IMF, 2012).
reporting companies, as well as to more important payments to
ZCCM-IH. The more recent peak (2018) may have been influenced by
the above-mentioned issue of accounting VAT paid by companies.
Fig. 2 shows the variation of estimated AETRs in Zambia due to the
successive changes in the fiscal obligations of mining companies. A
distinction is made between low-cost and high-cost mines, which is
particularly significant in Zambia. The highest AETR levels are reached
in 2015 with the large increase in royalty rates (up to 20%) that was in
force only for some months.
Source: IMF (2015b); Lassourd et al., NRGI (2016); Manley, NRGI
(2017).
Fig. 3 compares AETR levels in some copper-producing countries. It
is relevant to observe the sharp rise in the AETR in the Democratic Re­
public of Congo/DRC after the new mining code adopted in that country
in 2018. This circumstance may have influenced the 2019 fiscal move in
Zambia. The DRC is the most direct competitor of Zambia regarding
investment choices in the copper region the two countries share (Cop­
perbelt).16 The Zambia AETR corresponding to the most recent changes
(2019) is not available; according to projections from mining sector
sources, it could be above the DRC 2018 level and more than doubling
those of Peru and Chile (Chamber of Mines, 2019).
5.2. Overall evolution of public finances
Despite variations mostly due to both exogeneous (copper market
trends) and endogenous factors (fiscal reforms), mining revenue has
maintained over the last ten years a certain weight in the national
budget. Its ratio against total domestic revenue has fluctuated between
25 and 35% as stated in the EITI reports (total payments by companies),
and between 10 and 15% according to specific mining taxes (recorded
by IMF and the Ministry of Finance).
What was the impact of the mining revenue flows on Zambia’s public
financial capacity? For the sake of simplicity, this impact can be asso­
ciated to the evolution of the ratio of total domestic revenue to GDP. The
trajectory of this evolution (Fig. 4, blue double line) is changing: for the
period examined (2004–2018), the ratio fell slightly until 2009 and then
followed an upward trend. Certainly, mining revenue has something to
do with this trend, but further analysis can be useful. To take out the
impact of mining revenues, Fig. 4 shows the ratios of global domestic
16
The DRC and Zambia are part of the Southern African Development Com­
munity (SADC), which has been trying for some time to promote some har­
monisation between the mining regimes of its member countries. In the recent
tightening of mining taxation in the two countries, there seems to have been a
unilateral mutual alignment rather than explicit coordination.
7
Resources Policy 74 (2021) 102242
revenue/GDP, with the exclusion of a) total payments by mining com­
panies (blue dashed line) and b) specific mining taxes (blue dotted line).
It is noted that these two lines referring to non-mining revenues rose
from 2009 too (annual average of 3.4% and 3.7%, receptively for a) and
b)), but less than the global domestic revenue/GDP line (4,8% annual
average).
Several studies (Bornhorst et al., 2008; Thomas &Treviño, 2013;
McGuirk, 2013; Crivelli and Gupta, 2014) have concluded that, as
another effect of the ‘curse’, growing extractive revenues can have a
negative impact on other domestic revenues. Being easier to earn,
extractive revenues can replace other taxes on the economy and local
population, with the derived political rent for the power in place. In the
case of Zambia, while this move could take place in a period of excessive
expectations about mining prospects (first decade of the current cen­
tury), it seems to have been avoided in some extent in subsequent years.
Nevertheless, this must be qualified. Non-extractive revenues are still
recovering the relative level (% of GDP) they had at the beginning of the
current century and their progression has not been so relevant in
Zambia. Neighbouring countries, such as Namibia and Mozambique
(having a lower per capita GDP), as well as most of the Southern African
Development Community/SADC members, exhibit higher ratios of total
domestic revenue to GDP.17 For the IMF (IMF, 2017), revenue perfor­
mance has been hampered in Zambia by a series of features (tax ex­
emptions, large thresholds, multiplicity of tax rates, etc.) that shape its
general tax system. These concessions weaken both direct and indirect
tax collection. VAT and corporate income tax productivities, as well as
the ratio customs duty collection/GDP.
Another contingency affecting Zambia’s fiscal position is the evolu­
tion of international aid, a traditional source of financing public action
in developing countries. Over the past fifteen years, Zambia has faced a
significant reduction in external assistance (see table 1 in section 2). The
decrease particularly affected assistance provided in the form of grants
to the national budget, while foreign loans (for projects or budget sup­
port) have been following a recent rising trend (Fig. 4, red and green
lines, respectively).
The low level and exiguous progression of non-extractive revenue, as
well as the rapid drop of external aid flows, have reduced the impact of
the additional mining revenue. Under these circumstances, public rev­
enue has been unable to cover the substantial expansion of expenditures
17
The gap is quite substantial: the SADC region average ratio domestic rev­
enue/GDP was 24.5% between 2013 and 2018 (IMF, Government Finance
Data), while the Zambian one was 17,7% for the same period. Progress on that
ratio is however observed in Zambia in 2019 (19,3%).
R. Aguirre Unceta
Fig. 2. AETR Zambia (%): recent historical evolution.
Source: IMF Country Report no. 15/153; Manley, NRGI, 2017.
Fig. 3. Compared AETRs (%) in different copper producing countries.
in recent years (Fig. 4, brown line). Without any saving rules, this has led
to growing fiscal deficits.18 A large part of these deficits has been
financed through domestic and non-concessional external lending
(mainly, Eurobonds issued in 2012, 2014 and 2015). The public gross
debt to GDP ratio has been multiplied by more than four since 2011,
attaining 90% at the end of 2019. The global debt service (amortization
+ interests) consumed 46.1 %f of the domestic revenue in 2019. Some
spending adjustment took place in 2016 but was feebly maintained in
the following years (Fig. 4).
It becomes evident that Zambian has tended to live “beyond its
18
Zambia financial position became even more critical in 2020 because of the
effects of the COVID-19 pandemic, despite ad-hoc external assistance. Esti­
mated GDP dropped by 2.9% in 2020 and could recover to only 0.6% in 2021.
According to the budget 2021 address (Ministry of Finance, 2020), the addi­
tional fiscal gap (lost revenue, increased expenditures) will result in a 2020
budget deficit of 11,7% of GDP, well above the one projected (5,5% of GDP).
Further domestic debt has been contracted. Zambia received support under the
G20 Debt Service Standstill (2020 and first half of 2021) and will need a more
comprehensive debt treatment under the G20 Common Framework. The
country is seeking debt relief from one of its main creditors too (China, around
one third of its external debt). Zambia opted in November 2020 to bow out of a
$42.5 million Eurobond repayment, becoming the first African nation to default
on its debt in the Covid-19 era (CNBC, 2020).
8
Resources Policy 74 (2021) 102242
means”, without creating fiscal rules and reserves19 to compensate
copper market and mining revenue volatility. This volatility, main
channel explaining the ‘curse’ according to some authors (Manzano and
Rigobon, 2001; Van der Ploeg and Poelhekke, 2008), together with
inadequate budgetary policies, has resulted in excessive indebtedness.
Optimistic forecasts of sustainable revenues in boom years and use of
extractive resources as collateral, are followed by the difficulty of
reducing State expenditures in periods of contraction. Other ‘curse’
presages referring to the use of natural resource revenue may be attested
in the case of Zambia. As in the 1970s, mining expansion from
2010-2011 has led to a sharp increase in consumption spending and
public investment of dubious effectiveness (see section 6); this neglects
the Hirschman’ condition of the ‘ability to invest’ too. A significant part
of the recurrent expenditure has been allocated to public wages and
socially regressive subsidies (De la Fuente et alt., 2017; Cheelo and
Haatonga-Masenke, 2018). Over the period 2015–17, public emolu­
ments were absorbing 47.5% of the domestic revenue (37.4% of the
domestically funded expenditures). On their part, for the same period,
subsidies (fuel, electricity, agriculture) were consuming 13.6% of the
domestic revenue (Min. Finance annual economic reports). Together
with the debt service charge, already growing along the period 2015–17
(25.6% of domestic revenue), these allocations squeezed acutely the
19
Neighbours such as Namibia and Botswana set limits on public spending
and debt (as a percentage of GDP), the latter also establishing a medium/long-
term reserve fund (Pula fund) receiving part of the mining revenue (diamonds).
Zambia established limits on public debt too (in monetary amount), but they
have been hugely increased, with legislative acquiescence, in recent years
(2014, 2015, 2016).
R. Aguirre Unceta
Fig. 4. Domestic revenue and expenditure/GDP, Foreign financing/GDP.
*Data for grants 2006 do not include MDRI debt cancellation (21,4% of GDP).
Source: IMF Art IV reports; Min. of Finance-Zambia Annual Economic reports; EITI reports
fiscal space for other spending needs, forcing to contract new debt. The
mining tax hikes in 2019 could be also understood as a last resort option
to palliate the critical financial situation.
The spending trends explained have been induced by populist pres­
sures (urban consumers and medium size farmers) (Whitworth, 2015)
and have resulted from institutional weaknesses: lack of checks and
balances on the executive branch and political inconsistency of the latter
(Collier, 2014; Liebenthal and Cheelo, 2020). Corruption practices have
been observed too20. More generally, as supposed by many resource
curse analyses (i.eg. Mehlum et al., 2006), insufficient institutional
strength has had a relevant role in the inadequate use of mining revenue
in Zambia. In the 2017 NRGI Resource Governance Index, the country
gets a poor score (35/100) for the component revenue management.
6. Productive public capital, human capital and poverty
To absorb part of the extractive rents, the IMF among others were
advocating the creation of sovereign reserve funds, as medium-long
term ‘next generations’ savings and Dutch Disease reliever. However,
this option was questioned in the case of less advanced countries, having
precarious levels of public productive (infrastructures) and human
capital. It has been argued (Bhattacharyya and Collier, 2011) that, in
these situations, the priority should be to invest savings locally, to in­
crease those deficient national assets. Furthermore, the population
(current generations) in countries such as Zambia suffers from high
poverty; additional extractive revenue should contribute to reduce it.
However, as mentioned in section 1, the resource curse has been also
associated with limited public investment in physical and human capi­
tal, stalled progress on poverty and human indicators and the neglect of
social spending.
Next pages will intend to broadly examine the extent to which the
20
Public corruption reached a considerable scale around president Chiluba
(1991–2002) who succeeded first president K. Kaunda. However, some serious
cases apparently involving ministerial posts (Mines, Community Development,
Health), have been unveiled these recent years. In fact, Zambia’s Corruption
Perception Index (Transparency international, 2020) has fallen by 5 points (to
33/100) between 2013 and 2020. Corruption is not something that can be
radically tackled in the context of a country like Zambia, with entrenched
habits of corruption in some public spheres and bribery practices by foreign
companies (OECD, 2012). At this regard, the corruption-reducing effect of EITI
for Zambia has been viewed as mild (Villar and Papyrakis, 2017).
9
Resources Policy 74 (2021) 102242
Zambian case corroborates the mentioned (positive) recommendations
or (negative) predictions.
6.1. Public infrastructures(roads)
For the last decade, the road network has been the biggest benefi­
ciary of the investment policy of the Zambian government and one of the
main destinations of the rising public national debt. Its funding
increased from an average of 1.4% of GDP in 2007–2009 to over 3% of
GDP in 2014–15 (Fig. 5). In 2012, an ambitious road construction/
rehabilitation programme (Link Zambia 8000) was launched, financed
by both domestic and external resources (mostly from Eurobonds and
the Ex-Im Bank of China).
Investment in road infrastructure is most certainly a priority in a
landlocked country with a large territory, such as Zambia. It can reduce
transport bottlenecks for economic activities, promote diversification
(from mining) and address the heavy backlog of road maintenance and
rehabilitation the country had 20 years ago. However, apart from rele­
gating other priorities (Whitworth, 2012) and contributing to the debt
overhang, the road investment made in Zambia can raise issues related
to its composition, management, and efficiency.
Most funding has been devoted to rehabilitating the paved network
or enlarging it by upgrading some previously unpaved roads, through
often uneconomic projects regarding traffic volumes (Liebenthal and
Cheelo, 2020). This political choice had crowding-out effects on reha­
bilitation and maintenance of the rest of the unpaved feeder roads
(Raballand and Whitworth, 2014). Globally, 82% of the primary feeder
road network was in poor condition in 2014, to the detriment of rural
accessibility (World Bank, 2018). For the whole country network, the
excessive proportion of funds for road construction, compared to those
that should be spent on maintenance, has been questioned too (Tembo,
2015).
The efficiency of public infrastructure investment depends crucially
on how the entire cycle is managed: from planning and project selection
to procurement and contractual handling and to monitoring/supervision
of the financial and technical implementation of works. All these steps
require enough human/technical capacities in the country’s public in­
vestment management system; such capacities seem to be lacking and
the system itself has been missing in Zambia (Le et al., 2014; Govern­
ment Zambia, PEFA, 2017). According to the Public Investment Man­
agement Assessment developed by IMF, an efficiency loss of 45% has
been estimated for Zambia’s public investment relative to an average of
36% for sub-Saharan countries (IMF, 2019).
R. Aguirre Unceta
Fig. 5. Road infrastructure expenditure.
Source: Min. of Finance- Zambia Annual Economic reports; RDA-Zambia Annual reports; Office of Auditor General-Zambia (2017).
For the road sector, failures are noted at different stages of the in­
vestment cycle, with issues such as insufficiently prioritized planning,
project selection that is not always coherent or motivated by economic
and social returns, lack of competitive tendering, and deficient moni­
toring and management of contracts (World Bank, 2017). The unit cost
of road construction or rehabilitation projects in Zambia is significantly
higher than the average cost of comparable projects in Africa (AfDB,
2014). The road programme is managed by a public body (RDA/Road
Development Agency) that does not appear to have had the required
capabilities to handle and supervise a high volume of operations.21 The
agency has been the object of much criticism by successive reports of the
Office of the Auditor General, concerning the irregular financial and
technical management of contracts (OAG/Office of the Auditor General,
2010, 2017).
Zambia seems to especially need to follow prescriptions of ‘ability to
invest’ (Hirschman, 1981) and of ‘investing in investing’ (Collier, 2010)
to adapt the investment pace to a parallel building-up of capacities, with
the right balance between the quantity and quality of investment.
6.2. Social spending and human indicators
A high correlation has been found in sub-Saharan Africa between
human capital indicators and the level of economic development
(Colantonio et al., 2010). Both human and physical capital investments
have been considered necessary if Africa is to attain industrial devel­
opment (Oketch, 2006). In fact, in Zambia, human development (edu­
cation, health) is nominally among the main priorities of national
development policies and programmes, together with public in­
frastructures and agricultural growth. The translation of this priority
into financial preferences is worth commenting on.
6.2.1. Education
Allocations for education increased during the period of mounting
mining revenue and budget expansion (2011–2014) .22 Their relative
weight, both in GDP and in total budget, tended to be slightly higher
than the average level in the sub-Saharan region. Nevertheless, these
two ratios have declined subsequently in Zambia, which brought them
below the sub- Saharan mean: between 2015 and 2018, spending on
21
In the absence of local companies that are large enough, most road contracts
have been awarded to foreign companies, in particular Chinese and South-
African contractors. By legal provision, these companies must subcontract at
least 20% of the value of their contracts to Zambian firms.
22
Budget allocations correspond to all levels and branches of the education
system, under the responsibility (from 2015) of two different ministries: The
Ministry of General Education and the Ministry of Higher Education.
10
Resources Policy 74 (2021) 102242
education averaged 15.1% of the total national budget in Zambia against
17.0% average in sub-Saharan countries (UIS/UNESCO Institute for
Statistics). According to executed budget data from the Zambia’ Ministry
of Finance, the downward trend continued in 2018: education expen­
ditures outturn was equivalent to 13,9% of total budget (3.68% of
GDP).23 Regarding other financing sources, it is worth noting that the
contribution of external cooperation funds to education is limited and
decreasing; the financial costs supported by households are low at basic
education levels.
Another relevant issue is related to the composition of the education
budget. For the last years, personnel emoluments represent between 80
and 90% of the total recurrent expenditure for the primary and sec­
ondary education levels. Therefore, the amounts available for other
costs (grants, teaching/learning resources, etc.) remain low. The sig­
nificant financial investment in teachers has not yet had a major impact
on raising the quality of basic education. Weak pedagogical outcomes
remain a serious problem, together with high repetition and drop-out
rates of pupils. Budget for capital expenditures has been narrowed
down too (UNESCO, 2016). However, a certain effort was made in
enlarging the supply of primary schools. Together with the introduction
of free primary education (grades 1–7) in 2002, this led to a significant
increase in school net attendance rates, from 57% (primary) and 18%
(secondary) in 2004 to 78.8% and 40.0%, respectively, in 2018
(CSO/Central Statistical Office of Zambia, 2012; ZSA/Zambia Statistics
Agency, 2019). The expected years of schooling, component of the
Human Development Index (HDI), remain higher in Zambia that on
average in the sub-Saharan region.
6.2.2. Health
As stated by WHO data, the government spending in the health sector
followed an upward trend from 2009 to 2014 and some contraction
later. It should be borne in mind that a significant part of health ex­
penditures was financed by external resources, most of them through
extra budgetary channels. Nevertheless, the relative share of external
funding is decreasing in Zambia (from 48.3% of current health expen­
ditures in 2008–2010 to 38.6% in 2014–2017),24 as it is doing the
funding from the population too (out of pocket), from 28.3% in
2008–2010 to 12.4% in 2014–2017 (free health primary care was
gradually put in place from 2006 to 2012).
23
Allocation for education was 15,3% of total expenditures in the approved
2019 budget provisions, but much lower in the 2020 and 2021 budget pro­
visions (12,4% and 11,5%, respectively).
24
As reported by the OECD-DAC, health is the most assisted sector in Zambia
(65% of total ODA in 2017–18); a large portion of this assistance is devoted to
fight HIV-AIDS.
R. Aguirre Unceta
The increasing government share in health financing (from 15.6% of
current expenditures in 2008–2010 to 48% in 2014–2015) compensated
for the reduction of the mentioned two other funding sources. However,
the government share dropped to 38.5% in 2016–2017. The relative
level of the health government spending (ratio to total budget spending
and to GDP) has declined from 2015 and was in 2018 quite similar to the
sub-Saharan region average, but it was lower in per capita terms.25 This
downward trend seems more moderate than the one recorded for the
education sector.
As for education, distribution of the health budget raises questions
too. The recruitment of health workers, whose number doubled between
2005 and 2016, as well as some sizeable salary and wage hikes since
2011, have increased the weight of wages in the total health budget,
from an average of 36.7% in 2006–2008 to 58% in 2014–2016 (World
Bank, 2019). This leaves insufficient room for other key expenditures,
such as infrastructure development (and maintenance), medical equip­
ment and provision of drugs, vaccines, and other health supplies. These
unbalanced allocations weaken the quality of care at the provision
levels.
Life expectancy at birth (a component of the Human Development
Index, HDI) followed a regressive trend in Zambia in the 1980s and
1990s but has notably recovered more recently. The HIV-AIDS pandemic
explains this trajectory, with a reduction of approximately 25–30% in
the proportion of adults living with HIV over the past 20 years and
progressive access to antiretroviral treatment, free of charge since
2004.26 Other health indicators (maternal and child mortality) have
improved too, although the MDG-2015 targets for Zambia in these areas
were not fully met.27 Decline in child mortality has been more rapid than
that observed on average in the sub-Saharan region.
As a global remark on the two sectors (education, health), it can be
said that, within the general trend of fiscal expansion, spending in them
increased significantly. By 2014, their sectoral expenditure ratios to
GDP and to total budget, were above the sub-Saharan average.
Restrictive measures adopted later and pressures from other spending
lines, brought down those ratios, in particular for education. Regarding
indicators, progress has been observed in education (school attendance,
expected years of schooling) and health (life expectancy, infant mor­
tality), even if it was globally slower in recent years (see the HDI series in
table 1 section 2). Besides, the quality of service delivery is still weak in
both sectors. With these mixed outcomes, it does not appear that the
‘curse’ hypothesis of reduced social spending and worse indicators are
strictly confirmed in Zambia.
6.2.3. Poverty
The proportion of people living in monetary poverty is still high in
Zambia: in 2015, 54.4% of the population was below the national
poverty line, and 40.8% was in extreme poverty, just below the figure of
42.7% observed in 2006 (CSO-Zambia, 2016).28 Poverty levels are even
25
Expressed in per capita terms, government health expenditure decreased
from a peak in 2014 (32.92 current USD) to 2015 (27.58) and 2016 (21.65),
with some subsequent recovery in 2017 (26.13) and 2018 (28.4). According to
WHO data, the African average between 2015 and 2017 was 56.7 current USD.
26
The 2013/14 Demographic and Health Survey (CSO-Zambia and Ministry of
Health, 2014), reported a Zambia’s HIV prevalence of 15.6% of the adult
population in 2001/02, 14.3% in 2007 and 13.3% in 2013/14; recent preva­
lence (2018) is estimated at 11.1% (ZSA-Zambia, Ministry of Health and ICF,
2019). In 2019, 85% of adults and children living with HIV were receiving
antiretroviral treatment.
27
Zambia was close to attaining the MDG-2015 target for child mortality with
a rate of 66.1 under-five deaths per 1,000 live births (compared to the target of
63.6 per 1,000); in maternal mortality, the gap was wider.
28
Estimations based on multidimensional poverty methodology, which uses
social deprivation indicators (education, health, living conditions), give a quite
similar proportion of people in (multidimensional) poverty: 53.24% in
2013–2014 (OPHI/Oxford Poverty and Human Development Initiative, 2019).
11
Resources Policy 74 (2021) 102242
higher if international lines (below 1.9 USD/day and below 3.2 USD/­
day, see table 1 in section 2) are considered. They are coupled with deep
and growing inequality. Zambian Gini index of 54.6 in 2006 and 57.1 in
2015 (World Banks’s World Development Indicators), are among the
highest in Africa.
Poverty is concentrated in rural areas (85% of the extreme poverty
people), linked with low agricultural productivity and dependence on
rainfed maize monoculture. Informalisation of the economy has raised
poverty in urban areas too (Chitonge, 2016), even if the latter have been
the only ones receiving some anti-poverty public attention (Whitworth,
2015).
Agricultural policies, mostly focused on subsidies (to fertilizers and
to selling prices of maize) have done almost nothing to reduce rural
poverty. Favourable climatic conditions allowed agriculture production
to grow substantially during the first decade of the current century.
However, the recent trend (from 2012) has been irregular with a
reduced yearly average of production growth. In addition, a dry spell has
again markedly diminished crops and created serious food deficits in
two of the last agricultural seasons (2017/18 and 2018/19), while the
2020/21 has been in surplus. The problem is that the high proportion of
expenditure devoted to subsidies has prevented the development of
other programmes that could promote a more climate secure agricul­
ture, enhancing productivity (diversification from maize, irrigation,
extension services, etc.) and ensuring regular food for the growing
population. The impact of the agriculture subsidies on rural poverty is
far from obvious. Despite the large number of farmers concerned, the
main beneficiaries of the subsidies have been found to be relatively well-
off farmers (IAPRI/Indaba Agricultural Policy Research Institute,
2016).29
Agriculture subsidies have not allowed a real expansion of safety net
programmes, which could directly benefit the poorest rural population
(Harman and Chapoto, 2017). The most relevant anti-poverty pro­
gramme is the Social Cash Transfer/SCT. Its budget funding provisions
experienced some increase during the period 2017–2020, but remained
below 1% of the total budget provisions, with increasing gap between
approved and disbursed allocations. Well-conceived and implemented
these programmes have proven to be performant against poverty
(Banerjee et al., 2020).
Food insecurity remains prominent. Paradoxically, the large increase
of agricultural production between 2000 and 2012 did not significantly
improve the poor nutritional status of wide sections of the population.
Zambia is among the African countries with the highest Global Hunger
Index (GHI, 2019)30, ranking 113rd out of 117 assessed worldwide
countries. The proportion of undernourished people in Zambia was
estimated at 46.7% (2016–18), well above the sub-Saharan average of
22.4% (FAO-IFAD-UNICEF-WFP-WHO, 2019).
It is disappointing that, despite past macro-economic growth,
poverty remains so extended in Zambia (Chitonge, 2016). The country,
which is since 2011 in the group of lower-middle income countries
(World Bank criteria), continues to show (2015) poverty rates above
70% among its rural population and high undernourishment levels.
Mining resources do not seem to have done anything to change this
status. The correlation between mineral wealth and poverty, estimated
by resource curse researchers (Ross, 2003), may have some interest in
explaining stagnant poverty in Zambia.
29
A special input supply programme for the most vulnerable farmers (Food
Security Pack/FSP) is also in place, but its financial allocation has remained so
far negligible, together with a low rate of in-year disbursements (49% of the
approved budget in average 2018–19).
30
The GHI is a peer-reviewed annual report, jointly published by Concern
Worldwide and Welthungerhilfe. The GHI is calculated from 4 indicators:
proportion of undernourished in total population, prevalence of stunting in
children under 5 years, prevalence of wasting in children under 5 years and
under-5 child mortality rates.
R. Aguirre Unceta
7. Concluding remarks
This article has intended to give some insight into the economic,
fiscal, and social impact of mining resources in Zambia, by using, as
analytical framework, the A.O. Hirschman linkages theory, as well as
some of the resource curse thesis.
As a first comment, it can be said that the exploitation of mining
resources has not contributed to a positive structural transformation and
diversification of the Zambian economy. The objective difficulties to
develop productive linkages, because of the extractive industry features,
have been compounded by the lack of effective local content policies.
On the fiscal side, public revenue from mining activities has been
subjected to important fluctuations throughout Zambia’s recent history,
both during the nationalised period and
under private ownership. Over the last ten years, total payments
from the mining sector have fluctuated between 20 and 35% of total
public revenues in Zambia, taken into account the criteria and data of
the EITI reports. Although these levels are lower than those recorded
during the extractive boom in other African countries (particularly oil
producers), the additional funds thus collected could create fiscal space,
also considering the negligible mining revenue previously raised.
However, this financial margin has been unstable and contingent upon
factors derived both from the mining economy (prices, production,
taxation, etc.) and from the other sources of public financing. Mining
taxation was subject to excessive alterations, biased structure and
managing constraints that reduced its potential. The ‘ability to tax’, the
first condition advocated by Hirschman for enhanced fiscal linkages,
was defective. The low level and limited progression of non-extractive
revenue, considered by some authors as a collateral effect of the
resource curse, have reduced the impact of the additional mining rev­
enue too.
Other resource curse presages have been also appraised in relation to
the use of revenue. Public expenditures grew substantially. Without any
saving rules to compensate copper market and revenue volatility, this
expansion occurred through much recourse to debt financing whose
service later constrained seriously the fiscal space. Budget spending was
mostly driven by large but not efficient public investment and by con­
sumption outlays: rising public wages, increased allocations to subsidies
(to agriculture, fuel, and electricity), etc. These spending trends were
induced by populist pressures and have resulted from institutional
weaknesses (lack of checks and balances on the executive branch and
political inconsistency of the latter), as supposed by many resource curse
analyses.
The second Hirschman’ condition for fruitful fiscal linkages (the
‘ability to invest productively’) has been scarcely fulfilled too, even in
the most prioritized capital investment (roads). Given the country ter­
ritorial characteristics, investment in road infrastructure is well justified
to stimulate economic activities and improve people’s mobility.
Nevertheless, this investment must be compatible with global financial
constraints and with other priority needs. The most urgent deficiencies
of the overall road network should be addressed coherently, achieving
the necessary balance between main national roads and rural feeder
roads, as well as between maintenance and new construction. Like other
public capital spending, the costly funding of roads must be efficiently
managed along the whole investment cycle. Taking into account the
reviews and data available, these different requirements have not been
met in Zambia.
Within the mentioned general trajectory of fiscal expansion,
spending on social sectors (education, health) increased significantly. By
2014 Zambia’s expenditure-to-GDP ratio was above the sub-Saharan
average in the mentioned sectors. Restrictive measures adopted later,
particularly on the education budget, have changed the situation. Be­
sides, expenditure devoted to salaries has been gradually inflating, to the
detriment of capital expenditures and the supply/operation of schools
and health centres, with the subsequent negative impact on service
delivery. Amidst those different features, progress has been observed in
12
Resources Policy 74 (2021) 102242
indicators such as school attendance, life expectancy or infant mortality.
The hypothesis of social spending reduction and worse human in­
dicators, as one consequence of the resource curse, do not appear to be
strictly confirmed in Zambia.
However, in more global terms, mining resources and the induced
macro-economic growth have done almost nothing to reduce the
persistent high poverty levels in the country, especially in rural areas.
Expanded agricultural production for some time did not improve the
worrisome malnutrition and poverty of the rural population. One major
handicap has been the lack of coherence and equity criteria of the
agriculture policies, with excessive budget allocations to subsidies
mostly benefiting mid-size farmers and crowding-out diversification and
modernisation needs. Safety net initiatives to specifically address rural
poverty have been rather marginal.
As a final remark, it can be said that the development returns from
mineral resources have been modest in Zambia, even adverse in some
respects. A hypothetical resource-based development has not taken
place. It is true that market volatility, the main resource curse’ factor
according to some authors, has made unstable the benefit obtained from
mining, both during the nationalised period and in the most recent
privatised scenario. The new boom that seems to be driving copper
markets since 2020 offers the opportunity to take into account some
lessons from the past. One of them is that in the absence of solid in­
stitutions and sound policy guidelines, extractive resource rents can
involve risks of public inefficiency and waste.
Funding
No funds, grants, or other support was received.
Availability of data and material
Databases and all relevant raw data in this article are freely available
to any researcher wishing to use them.
Other authors’ contributions
Not applicable.
Declaration of competing interest
The author has no conflicts of interest to declare that are relevant to
the content of this article.
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Rafael Aguirre Unceta, former chief of cooperation in the EU Delegation to Zambia, he
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resources’.