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Zambia: bringing order to an unregulated gold rush

By Heidi Vella 02 Jun 2020 (Last Updated June 1st, 2020 10:21)

Many developing nations have tried and failed to formalise artisanal mining, but could Zambia have better luck with a new strategy of buying gold directly from informal miners? We investigate.

Zambia: bringing order to an unregulated gold rush
Artisanal gold mines near Dodoma, Tanzania. Makeshift sails lead fresh air underground. Credit: Hans Erren

Zambia is Africa’s second biggest producer of copper, which accounts for the majority of the 12% GDP contribution the mining sector makes to the landlocked country. However, the sector has been under pressure of late, first disruptions from power cuts and droughts, and now the Covid-19 pandemic. Nevertheless, the government is keen to tap into mineral resources produced from the informal mining sector to stem soaring national debt.

Artisanal and small-scale miners (ASM) in Zambia have been rushing to extract newly discovered deposits of gold and manganese across the country. These operations, which are often characterised by poor health and safety standards, are supposed to purchase licences, provide environmental plans, and pay fees. However, many don’t, finding the process overly arduous, resulting in some of the commodities being smuggled out the country.

To increase engagement with the ASM sector, Zambia’s mining investment arm, ZCCM-IH, said in March it had started buying gold from informal miners. To assist their operations, it added, it will provide technical expertise on mine planning and safety, as well as access to machinery. But many are dubious about the intentions of the government and whether formalising the sector can really boost national revenue.

The scale of ASM in Zambia

For Zambia’s people, ASM is an important economic activity, providing supplementary income for agricultural communities and seed money for small-startups. Although the size of the sector is unknown, it is estimated to employ around thirteen million people.

According to Twivwe Siwale, former country economist and now policy economist at the International Growth Centre at the London School of Economics and Political Science, there are varying degrees of formalisation in ASM in Zambia.

“They range from mines licenced and owned and run by a person who employs workers, pays a basic wage and provides simple lodgings and food; to those that hold licences in name only and share them with foreign nationals, usually Chinese, for a cut of production; to completely illegal miners who work off others plots and steal,” she explains.

Siwale, who visited areas of small-scale mining of manganese in Zambia last year, says the ore is bought for a small price, then taken to a processing site, usually Chinese or foreign owned, and sold for a higher price. When the product is processed and sold outside the country it will fetch significantly more.

The sector used to be concentrated on emeralds and amethyst mining, but recent discoveries of gold and manganese, which is used in batteries, have seen new surges in extraction that have spiked government interest.

“Often, mineral rushes will start with discoveries made by ‘barefoot miners’ and end with the government and army coming in to take over,” says Twivwe.

“The government tends to think, ‘oh we have gold in the country, we can use it to shore-up our national reserves and ease the burden of paying debt,’” she says.

“However, it’s often unclear about the quantities of gold and whether they are commercially scalable or not.”

What is ASM worth?

The Zambian mining minister has said he wants the country to produce 40,000kg of gold in 2020. Some major mining operations produce small quantities of gold as a by-product, but this target would include gold from artisanal miners as well.

ZCCM-IH, who were contacted for comment for this feature but did not reply, said in December it will set up centres for buying gold in strategic areas with deposits as a first step towards formalisation.

The policy mirrors that of Ghana, Ethiopia and Tanzania, which also want to reduce gold smuggling.

However, Nick Branson, senior Africa analyst, Verisk Maplecroft, says Zambia’s announcement echoes its desperation to maximise foreign currency earnings from mining.

“The decision to buy ASM gold coincided with an uptick in global market prices since the yellow metal is considered a safe haven in times of uncertainty,” he says.

Zambia’s finances are under acute strain, with public debt estimated at 110% of GDP according to the IMF. The bulk of which, says Branson, is in hard currency that is increasingly difficult to service as commodity earnings have dwindled.

“Government intervention is often at the detriment of miners, who end up suffocated in red tape and exposed to officials soliciting bribes,” says Branson.

“Zambia’s score of 2.25/10.00 on Verisk Maplecroft’s Corruption Index places it squarely in the extreme risk bracket for graft,” he adds.

Siwale says though she is also often ‘wary of government marketing schemes’ the gold buying centres may constitute a lesser evil than it being smuggled out the country.

“I think it’s an interesting idea, but it needs to be done in the right way. In the 80s and 90s, when the government had a similar model of buying gemstones from miners and then had the responsibility of marketing and reselling them, it was disastrous – the price was too low and the government institution was bloated and inefficient and didn’t do what it was supposed to,” she cautions.

Perhaps, Siwale adds, it’s necessary to ask: ‘What is ASM really about?’

“Is it about livelihoods? Or is it an enterprise development issue? The people who are in these sites and do this type of mining, I think they’re simply trying to survive, it’s about their livelihoods,” she says.

“The government could forget about revenue and instead make it more safe, more fair in terms of pricing.”

More challenges ahead

Barring a miraculous turnaround in Zambia’s public finances, Branson says he does not expect ZCCM-IH’s intervention in the gold mining sector to yield positive results.

“As long as the focus remains on maximising forex earnings, artisanal and small-scale miners are unlikely to be subjected to meaningful scrutiny over their environmental impact or benefit from state support to improve production standards. Large-scale miners will continue to shun ZCCM-IH’s gold, fearful of contaminating their value chains,” he says.

Zambia’s mining sector, like many others, faces huge pressures going forward due to unforeseen disasters like Covid-19, but also because of the country’s over-reliance on revenue from mining. This has seen clashes arise between the government and the major miners.

In May 2019, the state placed Konkola Copper Mines under provisional liquidation, effectively seizing the asset from Vedanta. This led Verisk Maplecroft to downgrade Zambia from high to extreme risk in its Respect for Property Rights Index. At the time of writing, the government is threatening to suspend Glencore’s Mopani mine licence because it does not accept its declaration of force majeure due to Covid-19-related disruption at the mine.

Perhaps to derive more revenue from its resources sector, Nasir Ali, PwC country senior partner, says the government should instead think longer term and consider adding value from more downstream activities.

“We should want to add value by building factories and making wires, fuses and other consumer products out of the copper produced; we could then sell it at 10 -15 times the price, but this means huge investment in infrastructure and bringing in technical skills,” he says.

“It’s not a short-term solution, but a longer one, but I think Zambia has advantages to get investors to put these things in place,” he concludes.