The mining sector in Zambia continues to play an important national economic role and has in the last two decades experienced tremendous growth and investment, driven mainly by expansion in large-scale mining. Getting ahead, the government is focused on building a diversified and export-oriented mining sector through regulatory reform as well as embracing strategies to promote: exploitation of gemstones and industrial minerals; local and foreign participation in mining value chains and industrialisation; and small-scale mining.
In a Q&A session, Corpus Legal Practitioners Senior Partner, Charles Mkokweza, shares part of the progress as well as some of the persistent hidden costs in the sector.
What are the main legal issues – related to compliance and legislation – that are impacting on Zambia's mining sector?
The main challenge remains the full operationalisation of the various modern statutes and laws over roughly the past two decades which have been one of the key drivers of Zambia's rise to become one of the preferred investment destinations in Africa. A few examples in this respect include the Amended Constitution, the new Companies Act, the new Insolvency Act, the Banking and Financial Services Act, the Securities Act, the Mines and Minerals Development Act, the Water Resources Management Act and the Environmental Management Act. All of these generally reflect international best practice for regulation but the office holders, regulators, boards or dispute resolution tribunals for some of them have not yet been appointed. Some of them have not even come into effect, such as the new Companies Act and the new Insolvency Act. This situation poses a challenge to the mining sector as the legislation universe remains in a state of flux and is always transforming, although most of the time for the better.
Are there other bottlenecks constraining the mining sector's growth?
Notable constraints in the sector relate to the lack of assurance for foreign investors that the legal framework protects their interests in Zambia. From our own experience, there are still situations where, depending from where the investment originates and the scale of the project, investors will struggle to get the proper support from government. In our view, that points to structural issues that the government needs to address. We cannot definitively call it bribery; however, it does not represent a level playing field and there is not enough consistency in the application of the strong legal framework that has been prescribed in this country.
For instance, we are still dealing with situations where an exploration company may have invested money in defining a resource, but, for one reason or another, their licence is rejected at the point of renewal. On the other hand, during that very short period of rejection and appeal, you may find another foreign company puts in an application which moves very quickly towards approval. It is difficult to call it corruption, rather a weakness in the structure. Arguably, it will take the government putting in place better training or appraising the standards for the people working in government licensing and regulatory institutions to ensure the country does not earn a bad name because policy is not implemented transparently and objectively.
What progress has been made on resolving these issues and is the mining sector's outlook improving?
The country's mining code has significantly improved, particularly in terms of determining disputes. The 2015 Act provides for the mining disputes tribunal where people with technical expertise can give their input on the matter at hand. If the case does still go to court, there is a record to demonstrate that a proper assessment of the situation has been made. The other important development has been the new constitution that came into place in 2016.
Politically, people are still trying to understand it better, but in terms of investment laws it has proven very advantageous for foreign investors. It now expressly recognises investment law as a supervening law for investors, so government is obliged to apply international investment law and customs when handling investors. All the current language coming from the government implies that it wants to partner with the private sector rather than merely regulate it.
What about hidden costs – what challenges remain, despite the progress made?
Some of the hidden costs have already been alluded to where, for example, a mining exploration licence holder, after significant investment, does not achieve a renewal of its licence in good time, largely due to the slow pace of the renewal process, thereby opening a window for abuse. Although this usually gets corrected or normalised in favour of the original holder, it is nevertheless at the expense of time and cost. Additionally, some revenue-collecting regulators are known to push for collection upfront, even for hopeless cases or situations, knowing full well that there will be some delay by the time the investor goes through the administrative and court appeal processes after which the regulator would then be seeking an out of court settlement. This could be after a few months to a few years without the regulator accounting for the cost of money held up in its system during that period. Other hidden costs include simple situations such as a regulator exceeding its powers in administering a law which could have far-reaching consequences by the time the situation is corrected.
Most of such incidences occasioning hidden costs would normally require a deliberate policy and effort by the government to create a sustainable, predictable and transparent structure to support the implementation of the modern legislation. This would include equipping the administering authorities with proper skills that promote administrative justice and an appreciation that both the law and the regulators are created to facilitate an orderly, conducive, efficient and effective environment for conducting social and economic activities as opposed to stifling, discouraging or frustrating such activities.
So, what does the future hold for the Zambian mining sector?
Most of what is currently driving the country is determined by government policy. The government is still treating mining as the most important economic activity in the country, although there has also been a deliberate shift in stance towards promoting agriculture and agribusiness. For instance, the Seventh National Development Plan (7NDP) identifies agriculture as one of the strategic sectors for economic diversification and job creation. Further, the government realises that it needs to work with the private sectors and to assist them to grow and mature, rather than only viewing them as a source of revenue. Therefore, while mining is still expected to grow as an important activity in the country, we see the emphasis shifting to other sub-sectors within the private sector.
The 7NDP outlines a vision in which agriculture will be the main strategic focus, followed by mining, tourism, energy, transport and infrastructure, water resources, and information communication and technology, in that order, as engines of economic growth and job creation.
Therefore, our expectation is to see growth in all the sectors identified as being strategic, although we certainly do not believe mining will cease to be dominant. However, we do believe the pace of growth in mining may not be as quick as the others based on the current objectives of the government.
Dentons would like to thank Senior Partner, Charles Mkokweza of Corpus Legal Practitioners, Zambia for this month's contribution to the Africa section of the Dentons South Africa Newsletter.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.