MAC: Mines and Communities

Zambia: Mining Collapse Cripples Dreams of Prosperity

Published by MAC on 2016-03-08
Source: Wall Street Journal

Mining Collapse Cripples Africa’s Dreams of Prosperity

Zambia faces economic and social crisis as copper prices plunge and foreign investment from China wanes

By Patrick McGroarty and Joe Parkinson, photographs by Charlie Shoemaker

The Wall Street Journal

5 March 2016

KITWE, Zambia—A decadelong commodity boom brought sleek shopping malls, tidy brick homes and dozens of private schools to this palm-pocked mining town in the heart of Africa.

The population doubled and incomes soared as record copper prices and a flood of Chinese investment and workers transformed a region bordering war-ravaged Congo into a beacon for Africa’s rising middle class.

Now the global forces that propelled Kitwe’s rise have reversed, fomenting an economic and social crisis that has interrupted dreams of greater prosperity across Zambia’s copper belt and exposed the fragility of Africa’s commodity-fueled growth model.

Slowing Chinese demand has nearly halved the price of copper in two years, upending an economy reliant on the metal for 70% of its exports. Chinese contractors and restaurateurs that followed state construction companies into the landlocked country are starting to head home.

Zambia’s kwacha currency is one of the world’s worst performers, losing half its value last year. In desperation, President Edgar Lungu has asked for divine intervention, decreeing nationwide days of prayer to resurrect the stricken economy.

Kitwe is a prime victim of the commodity bust’s outsize impact on Africa. Several mines have closed and some 15,000 workers have been laid off, with thousands more expected. Officials say each miner’s salary supports 15 dependents, exposing the entire town to the ravages of the global rout.

Violent crime is rising and blackouts have become commonplace. Hundreds of miners have withdrawn their children from private schools that sprang up to cater to new aspirations. Mining industry subsidies for HIV and malaria medications have been reduced. Double-digit inflation has frozen sales of the refrigerators, televisions and cars coveted here as hallmarks of success.

“It’s like being back to square one. We never expected such a situation,” said Reagan Musonda, one of about 4,000 workers who lost their jobs at Glencore PLC’s local Mopani unit in November. Saddled with tuition bills for three siblings and two children, Mr. Musonda—whose grandfather named him after the 40th U.S. president—is turning the forest on a patch of land he owns into charcoal to make ends meet.

Kitwe’s trauma is reverberating across Zambia and other resource-reliant African economies from South Africa to the Sahara. After years of blistering expansion, Nigeria, Angola and South Africa—whose oil, gold and platinum industries have long driven the region’s growth—are mired in crises that are freezing development and testing increasingly cash-strapped governments.

Turmoil is also raising the prospect of political change. Angola’s entrenched regime is facing unprecedented public criticism. Local elections in South Africa this year could see the ruling African National Congress lose control of key cities like Johannesburg and Pretoria for the first time.

Zambia’s president faces a tough challenge in August elections from Hakainde Hichilema, whom he defeated by less than 30,000 votes in a special election last year after the death of his predecessor.

“We are seeking public office to inject some sanity into the economy,” Mr. Hichilema said, overlooking the manicured lawns and helipad of his sprawling compound on the edge of Lusaka. “There is economic war here and people are dying.”

The dramatic shift has revealed how reliant many African economies remain on commodity riches, prompting some investors to reassess an “Africa Rising” narrative that exaggerated gains in manufacturing, infrastructure and education.

In 2011 the African Development Bank crowed that the continent’s nascent consumer class was already 350 million strong. Multinational banks, brewers and car makers clamored to make customers of them.

As it turns out, the bank’s tally included Africans who make hardly more than $2 a day, an income too low to put many families in the market for world-class goods and services. Credit Suisse concluded in October there are actually just 20 million middle-class Africans, defined as having the equivalent of at least $50,000 in assets, adjusted for local prices. That is a mere 3% of the continent’s exploding population.

“The emerging middle class has come under enormous scrutiny,” said David Cowan, Citigroup Inc.’s chief Africa economist. “Africa got oversold as an idea.”

Some companies that spent years evangelizing Africa’s economic potential are in retreat. Barclays PLC wants to sell a majority of its sprawling business on the continent. Nestlé SA in June cut 15% of its workforce in 21 African countries. The International Monetary Fund has cut its forecast for the region’s growth this year to 4% from 4.3% previously and chided officials for failing to use the commodity boom to create factories and commercial farms that could employ the 18 million Africans entering the workforce each year.

“The number of unemployed youths is frightening,” said Antoinette Sayeh, director of the IMF’s Africa program.

Africa remains the world’s second-fastest-growing region behind developing Asia. Construction cranes that pepper the skylines of Lagos, Johannesburg and Nairobi testify to the buoyant ambitions of the continent’s wealthiest people and businesses.

Zambian officials remain upbeat, arguing that more than $8 billion in foreign-direct investment during the boom will protect them from what investors have labeled “the superbust.”

“The panic of people now is because they lost their jobs, but they need to wait, said Chanda Kabwe, district commissioner for Kitwe, the mining hub. “In six months we will see a new cycle and new jobs germinating.”

Business leaders agree that Zambia’s decade of stable government and high copper prices transformed the country. Now they are forecasting a profound slump.

The prospect of protracted economic pain caught many Zambians off guard after years of plenty.

Many of Zambia’s 16 million people traverse their boomerang-shaped nation on thousands of miles of road paved by Chinese contractors. Miners and telecom technicians unwind at Pizza Hut restaurants and mirror-walled dance clubs. In recent years many took their first vacations to Johannesburg, southern Africa’s retail and cultural mecca.

Those relative luxuries convinced many here and elsewhere in Africa that their ascent into prosperity was irreversible. Now, Zambians are reckoning with huge threats to their expanding ambitions.

In ramshackle markets and gleaming new malls, prices skyrocketed as Zambia’s kwacha shed 47% of its value last year, more than any currency except Belarus’ ruble. London-based Fathom Consultancy, an economic research firm, ranks Zambia the African economy most exposed to the commodities bust and China’s slowdown.

Less than a year after the government sold $1.25 billion in debt to international investors, officials say they may need an International Monetary Fund bailout that would carry strict directives to freeze public wages and cut subsidies for gasoline and electricity.

“We really overshot our budget. We can’t continue like this,” Finance Minister Alexander Chikwanda said during an interview at the treasury in Lusaka. “The more the world gets integrated the more shocks we face. African economies are at a lower end of development so the shocks are much more damaging.”

Emmanuel Mutati, an executive at Glencore’s Mopani unit for 14 years until 2014, had a ringside seat for Kitwe’s transformation. Mopani’s workforce doubled to more than 20,000 during his tenure. Company clinics and pensions brought unprecedented security and disposable income to the workforce. Dirt roads became paved and traffic-clogged. The sleepy regional airport opened direct routes to Johannesburg and Abu Dhabi.

“Children were looking healthier and happier. People just didn’t realize it was a boom. They thought this was now normal,” Mr. Mutati said in an interview on the lawn of a Kitwe hotel.

Chinese workers arrived in Zambia in higher numbers than almost anywhere else on the continent, drawn by the dealings of their state-backed mining and construction firms and what they saw as the untapped potential for businesses as varied as printing shops and private schools. On the three-lane highway between Kitwe and the airport, the Chinese built a 50,000-seat stadium that is rarely filled.

“No doubt Africa has some of the greatest potential in the world,” said Mo Xing, vice president of the Zambia Chinese Association and an entrepreneur who says he has invested millions of dollars in a transportation company and other businesses since arriving in 1971.

Now, he said, the outlook for such projects has become far more uncertain. “Do you think I could come to Africa now and build what I built? No,” Mr. Mo said from the private dining room of a restaurant where dozens of Chinese expatriates sat making paper lanterns in preparation for the Lunar New Year. “Investing here takes commitment.”

Many entrepreneurial Zambians have borrowed to take advantage of their country’s leap forward.

Bruce Ngambi, a butcher whose father worked in Kitwe’s copper mines, started making two trips a month to South Africa to buy used sedans to sell in Kitwe for around $2,500. Now the price has doubled and demand has imploded; Mr. Ngambi hasn’t brought a car north since October.

As a result, his two children went back to school last month without new lunchboxes or shoes. Mr. Ngambi, 38, has stopped inviting his friends for barbecue and beers.

Over a dinner of Indian curry and naan on the patio of a mall completed just six months ago, Mr. Ngambi and two friends debated where their city was headed. Around them young Zambians in drop-crotch sweatpants and designer sneakers enjoyed the end of the weekend.

“These days there is no middle class,” Mr. Ngambi said. “People are going back down to the lower class—and that’s not easy.”

A mile away at the warren of vegetable stands and mobile-phone kiosks in Chisokone market, vendors said business has plummeted. Raphael Alumu reported braiding the hair of just one or two women a day, down from 10 a year ago. A hardware stall said demand for padlocks has spiked along with robberies.

The pain for many runs far deeper than skipped shopping trips and restaurant meals. Alec Nkhowani, formerly a 40-year-old laboratory technician at the Mopani mine, recently borrowed $6,000 to build turkey pens and fish ponds on his farm outside of town.

After he was laid off in November, the bank seized his pension savings to pay off the loan. Mr. Nkhowani delayed plans to get married this year and has moved into his sister’s house.

“I’ve depleted all my resources,” Mr. Nkhowani said. Before turning to family, he consoled himself with a tub of ice cream and a bottle of vodka: “After I realized they were going to take everything, it really depressed me.”

For some the despair proved insurmountable. Ben Chinyimba, who worked the mines for 30 years to support his wife, four children and two grandchildren, drank a lethal dose of the pesticide Doom after being laid off in November. Now his wife, Grace Kunda, must support the family on her monthly hospital attendant’s salary of $200 a month.

“I don’t know how to cope with this life now,” she said, curled up on a mattress in the living room of her small concrete home, illuminated on a starless evening recently by the light of just one candle stuck in a beer bottle.

Weak pillars in underground mine tunnels cause houses to collapse in Sinazongwe

11 January 2016

FIFTY people from ten households surrounding Nkandabwe collumn coal mine shaft number three in Sinazongwe District have been displaced after their houses almost collapsed and sunk due to weak pillars of tunnels that were left during mining of coal some years ago.

According to affected families spoken to in an interview, the incident occurred on Thursday eve of the new year around 22 hours when they heard a tremor of the land only to realize that their houses developed major cracks as the ground was almost sinking.

A check at the site by Sinazongwe District Disaster Management and Mitigation Committee found that the piece of land on which houses belonging to affected households were built many years ago had gone down between two to three metres leaving most of the houses and several other structures like pit latrines with major crack down signs.

The District Disaster Management and Mitigation team further found that affected households had abandoned their houses which were almost collapsing and sinking together with their property including livestock and other important resources they relied on for their livelihoods.

The team found the victims squatting on a piece of land within the mine area which had no shelter for their refuge and other important requirements like toilet facilities.

Speaking on behalf of affected households,headman Siajele told the Disaster Management and Mitigation Committee that they urgently needed to be assisted with food and temporal shelter as they were sleeping in the cold since the day the incident occurred.

Headman Siajele said no death and serious casualties had been recorded except people felt traumatized and could not get back to the area to fetch their property and livestocks.

The headman has since appealed to Disaster Management and Mitigation Unit(DMMU) in the Office of the Vice President for assistance immediately for affected households in terms of food and shelter inform of tents before relocating them to an alternative piece of land.

Meanwhile,Sinazongwe District Commissioner Protacial Mulenga has assured affected households that Government through the DMMU in the Office of the Vice President was doing evrything possible to assist them.

Mr.Mulenga said when he visited the site yesterday to addressed the victims that they were going to be provided with food and tents for temporal shelter as soon as possible while the DMMU will continue with carrying out an assessment to determine the extent to which property has been damaged and the impact of the disaster on the affected households.

He said DMMU together with his Office and management of Nkandabwe Collumn Coal Mine in consultation with affected households will look into the need to find alternative piece of land where they could be relocated.

The District Commissioner called on affected households to remain calm as the matter was being resolved and treated with urgency.

And Collumn Coal Mine manager Kepson Munthali said in an interview with ZANIS in Sinazongwe yesterday that mining areas were prone to such dangers where a piece of land could collapse and sink after mining done underground.

Mr.Munthali said it was unfortunate that people had settled on that piece of land when infact should not have been allowed to settle in the mine since inception.

He suspected that no Environmental Impact Assessment might have been carried out because recommendations on areas for people to settle and build their own structures could have been made and such ocurrences could have been avoided.

Mr.Munthali disclosed the Collum Coal Mine had engaged consultants that will work with the Zambia Environmental Management Association (ZEMA) over the Environmental Impact Assessment (EIA) whose recommendations shall be implemented.

He added that the curving of the piece of land where households with their property had been affected was a wake up call that called for concerted efforts from the mine management and other relevant bodies such as ZEMA, Environmental Council of Zambia (ECZ), mines safety body and the ministry of mines and devlopment to ensure that such incidences becomes history in the mining industry.


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