Africa’s Copperbelt a magnet for investors
“New dawn for Congo and Zambia as era of neglect ends, write Ed Stoddard and Chris Mfula”
“It was really well organised, we just flew up and played and then flew back. But the place was poor and desolate,” said lead singer Craig Hinds.
Just a few years ago, it would have been unthinkable for a foreign band to fly to a remote part of the Congo, known for graft, war and disease, to play a corporate gig.
But the times are changing and money is flowing into the vast strip of copper that straddles the Congo and neighbouring Zambia.
As a result, the mines on both sides of the border are being redeveloped after decades of neglect and ruinous policies.
“Both countries’ output fell to very low levels through lack of investment and low prices, but it is picking up from that low base,” says Robin Bhar, an analyst with Credit Agricole in London.
Investors still face a host of issues including a new nationalist president in Zambia and woeful infrastructure.
Still, investment in Africa’s Copperbelt in the next few years should reach billions of dollars and put it in the big leagues.
Despite recent setbacks — the price of copper is down 25% so far this year — the long-term outlook for the benchmark industrial metal is bullish, driven by demand from Asia and other emerging countries and regions.
Zambia’s Chamber of Mines reckons the country can roughly double copper output to 1,5-million tons a year by 2016. Other forecasts are more modest though still buoyant. According to Reuters’ Metal Production Database, Zambia will produce 1,3-million tons of copper from mine and leach operations by 2014. At that stage it could be the world’s fifth-largest producer of copper concentrates.
With the Congo’s output from mining and leaching forecast to reach half-a-million tons by 2014 from about 300000 tons last year, Africa’s Copperbelt could be producing about 1,8-million tons by the middle of the decade.
It is a far cry from the 1980s and 1990s, when copper output from Zambia’s nationalised mines was about 250000 tons a year.
Heavyweights like Brazil’s Vale, China’s Jinchuan and Swiss-based commodities trader Glencore have all been drawn to the region’s rich copper resources. But while the rewards could be high, the risks and obstacles remain daunting.
Any analyst who talks about the Congolese side of the Copperbelt raises one key issue: infrastructure, or its absence.
The country’s infrastructure was left to rot under the corrupt and brutal rule of Mobutu Sese Seko, who was deposed in 1997.
Lara Smith, MD of Johannesburg-based Core Consultants, which has done extensive research on the issue, says that the road and rail networks are a shambles. “The railways are shocking and that can cause derailments,” she says .
Chinese companies have been rebuilding some of the rail lines but critics have said some of this work has been shoddy, with crooked lines ripe for an accident.
Power is a perennial problem. Zambia has been hit by electricity shortages, with peak demand of 1580MW against available generation of 1401MW. The country has started rationing electricity for domestic users during peak hours but industry experts say this could spread to the mines soon.
Political risk is another huge factor. The key worry is stability and security of ownership of mines.
Investors are clearly jittery about new Zambian President Michael Sata. First Quantum, which is heavily invested in the country, has seen its share price fall more than 15% since election results began to trickle out, underperforming the drop in the copper price over the same period.
Analysts say Mr Sata is unlikely to shake up the copper industry, despite past attacks on foreign mining investment. Reuters
The country’s infrastructure was left to rot under the brutal rule of Mobutu Sese Seko, who was deposed in 1997.
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