Zambia Copper Case

     CASE NUMBER:   314
     CASE MNEMONIC: ZAMBCOP
     CASE NAME:     ZAMBIA AND THE COPPER INDUSTRY

A. DESCRIPTION

1.   The Issue

Since the discovery of copper deposits in the 1920s in northern
Rhodesia, which would become Zambia at independence,  copper has
had an "extraordinary dominance" (Bostock & Harvey, 1972) in the
country's economy. Many developing countries depend heavily on a
few primary products for export as their means of earning foreign
exchange.  Zambia, however, is an extreme case of over dependence
on the production and export of a single product; copper.  Zambia
is also characterized by an urban community shaped by the
requirements of the copper industry and the growth of its labor
force.  The dominating conflict points for this case are both trade
related and environmentally focused. First, Zambia's dependence on
copper has been exacerbated by its inability to influence world
market prices, therefore negatively affecting its trading ability
on the international scene. Second, Zambia's need to earn foreign
exchange predominantly through copper, has over the years created
environmental problems caused by the long and dangerous  smelting
processes of copper ore which heavily pollute the air and water
sources. Under trade, the  country's economy and therefore its
development have been at the mercy of fluctuating world market 
prices dominated by the industrialized countries. Falling world
prices have put Zambia's balance of trade into the red.
Consequently Zambia is unable and rather reluctant to invest into
tightening its pollution abatement and regulation standards.
Environmentally, the most vulnerable to the pollution caused by 
the copper mining industry are the people located in the immediate
vicinity of the mines, i.e. the miners and their families. However,
if ever acid rain were to be produced by the gases from the copper
smeltering  process, land, vegetation, water sources and people
hundreds of miles away could be affected.

2.   Description

Since the discovery of copper deposits in the 1920s in northern
Rhodesia, which would become Zambia at independence,  copper has
had an "extraordinary dominance" (Bostock & Harvey, 1972) in the
country's economy. Many developing countries depend heavily on a
few primary products for export as their means of earning foreign
exchange. Zambia however, is an extreme case of over dependence on
the production and export of a single product; copper. Zambia is
also characterized by an urban community shaped by the requirements
of  the copper industry and the growth of its labor force. The
Zambian copper industry developed for the most part as a foreign-
owned and controlled sector.

Philip Daniel notes that the technology, finance, equipment and
skills were imported, while the product was exported, together with
much of the operations profits. In addition, pre-independence
political control of the area, greatly minimized the developmental
impact of the copper industry upon the indigenous people and the
country. Biases; race, urban\rural, wage, sector, & regional (all
in favor of the white settlers and the copper mining industry,)
formed by the colonizers developed into deeply ingrained components
of the Zambian economic and political structures. With the economic
and social structures inherited at independence, it was clear that
Zambia's heavy dependence on copper would require a lot to change.
Following seventy-four years of colonial rule, Zambia became
independent in 1964.

Colonial rule began with the British South African Company which
acquired mining and commercial concessions. Minerals were the
driving force behind the British South Africa Company's entering
Zambia. At independence, Zambia inherited an economy with very
limited supplies of physical capital, but an unlimited supply of
monetary capital acquired from mineral royalties and revenue from
copper mines.  The price of copper rose "unsteadily" (Bostock &
Harvey, 1972) after 1964 to create a revenue surplus for the
government. In 1969, Zambia was the largest producer of copper in
the developing world and the third largest producer in the world
after the United States and the former U.S.S.R., with production at
12.2% of total world production (Bostock & Harvey, 1972). When
Zambia gained its independence in 1964, its per capita GNP was one
of the highest in Africa. Today, the country is listed under the
low income category with per capital income at $670 according to
World Bank data (1994:162).

The copper industry's contribution to Zambia's gross domestic
product, government revenue and export earnings has been  traced
since 1965. Direct contributions to GDP have fluctuated between 25%
to 50% of gross domestic product depending significantly on world
market price (Daniel, 1979).  Until 1970, more than 50% (Daniel,
1979) of government revenue came directly from the copper industry. 
However, the largest direct contribution of the copper industry
goes to export\foreign exchange earning. Copper also made
significant direct contributions to wage employment equaling 16.0%
of the recorded total in 1960, and 14.0% in 1973 (Daniel, 1979).
Data quoted by Philip Daniel, indicates that by the early 1970s,
the comparative productivity of  the broad sectors of the Zambian
economy was  significantly lower than the copper industry. For
example the contribution to GDP of a mineworker was 25 times that
of an agricultural worker (subsistence plus commercial
agriculture), 3 times that of a worker in manufacturing (the next
most productive sector with physically measurable output), and
twice that of workers in commerce, including finance and hotels
(1979, pg. 8).

Zambia's dependence on copper has been exacerbated by its inability 
to influence world market prices therefore negatively affecting its
trading  ability on the international scene, and leaving its
economy and ultimately its development at the mercy of the
consumers of the industrially advanced countries. According to
Philip Daniel, mining industries are very much a problem of
international economic relations for developing countries. Mineral
producers in developing countries characteristically consume very
small quantities of their own mineral products and instead trade
most of them in "notoriously unstable markets dominated by advanced
industrial consumers (1979, pg.1). Zambia is caught in this web of
international trade. It has very little say on the international
market in terms of market pricing for a product that brings in over
75% of export earnings, and in addition  it is affected by all
international trade and environmental policies.

Copper mining and processing create a number of environmental
problems. The Copper Belt has recorded a high number of respiratory
illnesses among inhabitants of  the area. Asthma and lung disease
are two of the most reported cases. Open pit mining deforms the
surface of the land and creates waste materials  containing
dangerous substances that pollute the water, soil and atmosphere.
The two most dangerous substances are arsenic and carbon-monoxide
produced by the smelters which contaminate the air and can produce
acid rain which  could affect the surrounding smeltering areas and
bodies of water and vegetation hundreds of miles away.

Zambia's use of the reverberator furnace (for smelting) which
produces a large volume of sulphur dioxide gas in concentrations
too low for "efficient sulphur recovery" (Mikesell, 1988) puts
Zambia on the list of countries still using smelting methods that
have been declared inefficient and do not meet the pollution
abatement regulations and standards of industrialized countries.
(See CHILEAIR Case). Declining and fluctuating copper prices,
coupled with the consequent decline in copper earnings have made it
difficult for Zambia's state-owned mining enterprises to invest in
new smelters and adequately address the environmental issues.

3.   Related Cases

    COPPER case
    CHILE case
    BRAGOLD case
    BOLIVIA case
    SAFRGOLD case
    BOLGOLD case
    YELLOW case
    PAPUA case
    IRIAN case


Key Word Clusters

                    1) Trade product         = copper
                    2) Bio-geography         = dry
                    3) Environmental problem = pollution [POLL]

4.   Draft Author        Irene Bomani (May, 1996)

B.   LEGAL Clusters

5.   Discourse and Status:    Disagreement and INProgress

UNCTAD, supported by the Intergovernmental Council of Copper
Exporting Countries (CIPEC), among them Zambia, has given special
attention to negotiating an international commodity agreement on
copper. Representatives of the major industrial countries are
opposed to an agreement on a stabilization program and the two
sides have not been able to reach an agreement. The former
President Kenneth Kaunda at one time met with the Chilean head of
state to discuss ways in which developing copper producing
countries could unite to form a union along the lines of the OPEC
countries, as a means of affecting world prices, and therefore
having a stronger position on the world market. Despite the
agreement,  copper producing countries in the developing world have
failed to form a union strong enough to influence pricing decisions
dominated by the industrialized and more wealthier countries.

6.        Forum and Scope:    Zambia and Unilateral

7.   Decision Breadth:   1

8.   Legal Standing:     LAW

C.   GEOGRAPHIC Clusters

9.   Geographic Locations

     A. Geographic Domain:    Africa

     B. Geographic Site: Southern Africa

     C. Geographic Impact:  Zambia

10.  Sub-national Factors:    No

11.  Type of Habitat:    Dry

A landlocked country, bordered by eight other African states:
Angola, Botswana, Malawi, Mozambique, Namibia, Tanzania, Zaire and
Zimbabwe, the Republic of Zambia covers 752, 600 square km of the
central African plateau from the River Zambezi in the south-west to
the tip of Lake Tanganyika in the north-east. Other than the
Zambezi river, large sources of water are limited in the area,
making for a relative dry landscape. 

D.   Trade Clusters

12.  Type of Measure:

13.   Direct vs. Indirect Impacts: Direct

14.  Relation of Measure to Environmental Impact

     a. Directly Related:      Yes Copper

     b. Indirectly Related:    No

     c. Not Related:           No  

     d. Process Related:       Yes      Pollution [POLL]

15.  Trade Product Identification: Copper

16.  Economic Data:

In 1969, Zambia was the largest producer of copper in the
developing world and the third  largest producer in the world
following the United States and the former U.S.S.R.,  with a
production of 12.2% of total world production. Copper's direct
contribution to  Zambia's total GNP has been astronomical. Up until
1975, the contribution changed  between 1\4 to 1\2 of GDP,
depending largely on the world prices. Until 1970,  more than 50%
of government revenues came directly from the copper industry,  and
until 1975, direct contribution to export earnings averaged, but
never fell below 93%. In 1976 Zambian copper production reached its
peak of over "700,000 mt".  However, between 1983-1984, declined to
an average production of only "557,000" (Mikesell, 1988). The
copper industry  also made a large contribution to wage employment
reaching 16.0% of the recorded total in 1960, and 14.0% in 1973
(Mikesell, 1988).

At the peak of copper production, Zambian per capita incomes were
4 times bigger than per capita income of Malawi,  Tanzania and
Zaire. This data strongly demonstrates the structure of an economy 
dominated by a one time highly productive mining sector and a
dependence on copper.  Today production has stagnated, and Zambia
has been replaced by Chile,  as the largest copper producing
country in the developing world, (See CHILE  Case).  Despite
substantial investment in the industry facilitated by international
loans, copper production is still below capacity and labor
productivity has declined.

17.  Impact of Measure on Trade Competitiveness:  LOW

18.  Industry Sector:    Mining

19.  Exporter and Importer:   Zambia, and MANY

E.   Environmental Clusters

20.  Environmental Problem Type: Pollution Land [POLL]
     
Open pit mining deforms the surface of the land and creates waste
materials containing  dangerous substances that pollute the water,
soil and atmosphere. The two most dangerous substances are arsenic
and carbon-monoxide produced by the smelters which contaminate  the
air and can produce acid rain which could affect the surrounding
smeltering areas and bodies of water and vegetation hundreds of
miles away.  Zambia uses the reverberatory furnace (for smelting).
which produces a large volume of sulphur dioxide gas in
concentrations too low for "efficient sulphur recovery" (Mikesell,
1988).  This puts Zambia on the list of countries that do not meet
the pollution abatement regulations and standards of industrialized
countries. (See CHILEAIR Case). The decline in the country's copper
earnings has made it difficult for  state-owned mining enterprises
to invest in new smelters which would alleviate the consequent
pollution.
     
21.  Name, Type, and Diversity of Species

     Name:               Copper
     Type:               Mineral
     Diversity:          N\A

22.  Impact and Effect:  High and Medium

According to Raymond Mikesell (1988), copper mining is "subject to
more government regulations than most industries, the most
important of which have to do with foreign trade and protection of
the environment". In addition, Zambia has been highly affected by
the high degree of volatilility  of copper prices which are
determined and protected by large industrialized countries. 
Volatile prices have been accompanied by "erratic changes in
investment in new capacity" (Mikesell, 1988) which significantly
affects price fluctuations. Zambia's balance of payment has been
the most affected due its high dependence on the copper as the
major foreign exchange earner. Since the late 1970s, copper
production in Zambia has been declining, due largely to a fall in
world copper prices, but also to low and inefficient productivity, 
caused by inadequate skilled managerial support, transportation
problems in delivering the product to an ocean port, and a shortage
of equipment and supplies.

23.  Urgency and Lifetime:    LOW AND 100s of years

24.  Substitutes:        LIKE

Copper has a variety of properties that make it useful either in
"pure or alloyed form in a  number of applications" (Mikesell,
1988), e.g. in electrical and thermal conductivity,  resistance to
corrosion, strength and malleability. Although the demand for
copper worldwide,  notably in the U.S., Canada and Europe is still
high, attempts to substitute its use have increased over the years.
Technological advancement has facilitated copper substitution, and
therefore significantly reduced the rate of growth of copper
consumption.  "Forecasting future demand for copper or its
substitutes [has depended largely]  and will continue to depend on
the specific end-products, the capital and operating costs of
alternative production processes, and expected new technological
developments in the production process" (Mikesell, 1988).

VI.  OTHER Factors

25.  Culture:  NO

26.  Trans-Border:  NO

27.  Rights:        YES

Zambian miners are a significant component of a national
economy"overwhelmingly  dependent upon the production and export of
copper, and of an urban community [molded] by the requirements of
the copper industry and the growth of its labor force" (Daniel,
1979).  Zambia's dependence on the copper industry makes the
Copperbelt the country's most heavily populated and urbanized
province and the most significant in terms of economic activity. 
Although average earnings in this area has always been higher than
average earnings in other  sctors, copper miners are also exposed
to hazardous living and working conditions brought  about by the
copper processing. Working in the mines and refining factories
means workers inhale the chemicals used in copper production, e.g.
arsenic and carbon-monoxide.  Furthermore, the arsenic and carbon-
monoxide penetrate farming land tracts, putting  both miners,
processors and farmers at risk of getting arsenic poisoning and
other related health problems.

28.  Relevant Literature:

Africa Today. Dilemmas of dependence and (under) development:
conflicts and choices in Zambia's present and prospective foreign
investment. 1979, Vol. 26, 43-65.

The American Journal of Economics and Sociology. Mineral Taxation,
Mineral Revenues and Mine Investment in Zambia. Jan. 1986,
45:53-67.

Bostock, Mark and Charles Harvey. Zambian Copper: A Case Study of
Foreign Investment. Praeger  Publishers, New York, 1972.

Bureau of Mines. Copper: Mineral Facts and Problems. Bulletin 675.
U.S. Department of Interior. Washington, 1985.

Business Africa. Business Outlook: Zambia. Oct. 1994, Vol.3, N19,
1-2.

Business Africa. Zambia Privatization: Mining Plum for Sale. Feb.
1993, Vol.2, N3, 8.

Cornell International Law Journal. Mining Legislation and Mineral
Development in Zambia. Winter 1986, 19:1-34.

Daniel, Philip. Africanization, Nationalization and Inequality:
Mining Labor and the Copperbelt in Zambian Development. Cambridge
University Press, London, 1979.

Kenji, Takeuchi, John Strongman, Shunichi Maeda and Suan Tan. The
World Copper Industry: Its Changing Structure and Future Prospects.
Staff Commodity Working Paper No. 15, World Bank, Washington, 1986.

Intergovernmental Council of Copper Exporting Countries (CIPEC).
Quarterly Review.
Maizels, A. Selected Issues in the Negotiation of International
Commodity Agreements: An Economic Analysis. UNCTAD, Geneva, 1982.

Mhone, Guy, C. Z. The Political Economy of a Dual Labor Market in
Africa: The Copper Industry and Dependency in Zambia. Fairleigh
Dickinson University Press, Rutherford, New Jersey, 1982.  
Mikesell, Raymond. The Global Copper Industry:Problems and
Prospects. Croom Helm, New York, 1988.

Mikesell, R. F. and J.W. Whitney. The World Mining Industry. Allen
and Unwin, London, 1987.

New York Times. Copper Prices Up Sharply on News of Shipping
Delays. Feb. 1989, D, 16:1.

Obidegwu, Chukwuma F. Copper and Zambia: An Econometric Analysis.
Lexington Books, Lexington, Mass. C1981

Raw Materials Report. The Mining Industry of Zambia. 1986, N4,
4:14-27.

Resources Policy. Mismanaged Mineral Dependence: Zambia 1970-90.
1991, 17:170-83.

Walter, I. (ed.) Studies in International Environmental Economics,
Wiley, New York, 1976.

Wall Street Journal. As slack copper prices squeeze Zambia,
its government inches towards Marxism. July 1982. 200:37.

World Mining. World's Second Largest Copper Producer is Born. May
1982, Vol. 35, 71.

World Mining. Tailings Leach Plant to Produce Cheap Copper. Sept.
1982, Vol. 35, 100-1.