When Canada’s Barrick Gold said it would close its copper mine in Zambia if the government imposed a sharp hike in mineral royalties, President Edgar Lungu had little choice but to back down to save valuable jobs that keep the country going.
Mining accounts for over 70% of export earnings and employs over 60,000 in the landlocked southern African economy. With his Patriotic Front (PF) facing an election next year, Lungu, promised no jobs would be lost and agreed to lower royalties than the government wanted.
Barrick kept the jobs and the mine open in a case that highlighted the challenges for African governments in dealing with powerful international miners suffering from a global commodities slump. Governments in South Africa and the Democratic Republic of Congo (DRC) are also grappling with thousands of mining job cuts ahead of elections.
Investors in Zambia are now watching the government’s reaction to plans by Glencore’s Zambian unit, Mopani Copper Mines (MCM), to axe 4,300 workers, a decision by China’s CNMC Luanshya Copper Mines to put 1,600 staff at its Baluba operation on forced leave, and the decision by Konkola Copper Mines (KCM), owned by Vedanta Resources Plc, to put 133 employees on forced paid leave.
“This is giving the ruling party sleepless nights,” said Lee Habasonda, a political analyst at the University of Zambia.
“The Patriotic Front has heavily relied on votes from the Copperbelt and if this situation is not handled carefully, it could just spell doom for the ruling party.”
CNMC said its mine would have collapsed within three months if the company had not suspended production and that it followed Zambian law when it closed the mine.
But a government spokesman said on Sunday Zambia would revoke CNMC’s licence if it does not send its workers back, a drastic move that would have long-term repercussions for foreign investment.
Finance Minister Alexander Chikwanda on Wednesday struck a more sober tone, saying there was no need for drastic action.
“Mining companies are private investors, we can appeal to them but I don’t think we have to take draconian measures,” he told Reuters.
Mines minister Christopher Yaluma said the government would talk to Mopani, which is the second largest employer in Zambia after the state with about 21,000 direct and contract workers. .
But analysts fear, with elections looming and Lungu only elected in January in a ballot triggered by the death of Michael Sata, Zambia could take drastic measures if the firms press ahead with retrenchments.
“The socially-oriented government is aware that 2016 is another election year and that voting citizens have received the back end of the stick in recent months,” said Irmgard Erasmus, an analyst at NKC African Economics in Cape Town.
“While having indicated that the business climate will be more accommodative under the Lungu administration, the government’s stance suggests that, when push comes to shove, little to none has changed in Zambia.”
In 2013, the Sata-led government forced KCM to reverse a plan to lay off 1,500 workers after the government threatened to revoke the company’s license, a row that tarnished the image of one of Africa’s most promising frontier markets.
The problems in Zambia are replicated in other parts of Africa as global miners adjust their operations to take into account a slump in the industry.
In South Africa, mining contributes around 7% to the economy and employs about 500,000 people.
But mining firms including Glencore, Anglo American Platinum and Lonmin plan to cut thousands of jobs there as they battle falling prices and rising costs.
The government has said almost 12,000 mining jobs were on the line this year- retrenchments that will do little to help President Jacob Zuma’s efforts to trim an unemployment rate of 25% in the run-up to municipal elections next year.
South Africa’s mines minister last month briefly suspended operations at Glencore’s Optimum coal mine over the job cuts.
A plan by the government and mining companies to prevent job losses is seen doing little to stem layoffs as it does not include a total freeze on job cuts.
“Retrenchments are very sensitive from the government perspective. You don’t want to rock the boat by letting so many people lose their jobs before an important election,” said Henk De Hoop, a mining analyst at Rand Merchant Bank.
“But behind the scenes, realism is expected to set in because you equally don’t want to scare away investors.”
DRC, the continent’s biggest copper producer, is also due to hold general elections in 2016.
Congolese miner Kamoto Copper Company (KCC), controlled by Glencore, plans to suspend production due to weak commodity prices and says it will keep only 80% of its existing workforce during the shutdown.
The shutdown was expected to impact the economy.
“There are transport companies who work with KCC to transport copper to the Zambian border and beyond. Those people will automatically have problems,” said one prime ministerial adviser who did not want to be named.
The Congolese government met a Glencore delegation last week and KCC said it would take into account the issues raised by the government, without elaborating.