INTRODUCTION
In many parts of the world there are exponential strides to shift energy generation from fossil fuels to clean or renewable sources of energy. On October 26, 2023 the European Union (EU) agreed to a partnership with the Democratic Republic of Congo (DRC) and Zambia to develop a critical raw materials value chain and also improve rail transport connections in Africa. The European Council and Parliament reached a provisional agreement on the Critical Raw Materials Act (CRMA) in November 2023.
On September 14, 2023, a motion was passed in the Zambian Parliament to adopt the Report of the Delegation to the 63rd Session of the Organization of African, Caribbean and Pacific States (OACPS), and the 43rd Session of the African, Caribbean and Pacific States and European Union Joint Parliamentary Assembly (ACP-EU-JPA).
According to Bloomberg[1], the United States is working to develop a new rail line linking a key source of critical minerals in central Africa with a port on the continent’s Atlantic coast, in a bid to establish a trade route for materials vital for producing electric vehicles. This project, named the Lobito Corridor, essentially involves laying hundreds of kilometers of track from Zambia’s Copperbelt province to an existing line in neighboring Angola.
BRIEF OVERVIEW OF THE ZAMBIAN MINING SECTOR
Zambia is located in south-central Africa, surrounded by mineral rich nations. The largest source of income for the mineral rich country is the mining industry boasting a rich repository of a broad range of minerals that include, gold, copper and cobalt, zinc, lead and iron ore, manganese, nickel and platinum group elements, gemstones, industrial minerals and energy production minerals (uranium, coal and hydrocarbons). This diverse mineral repository necessitates a critical review considering the international developments in critical minerals and their growing prominence.
KEY DEVELOPMENTS
The ACP-EU-JPA was held in Brussels, Belgium from June 19th to 28th, 2023. At this session, three keynote debates on critical raw materials, energy transition and climate change were held. No resolutions were passed. However, the Zambian delegates present at the ACP-EU-JPA gave recommendations to the Members of Parliament that, inter alia, the Ministry of Commerce, Trade, and Industry would need to collaborate with the Ministry of Foreign Affairs and International Cooperation, Ministry of Finance and National Planning, to organize a sensitization workshop for Members of Parliament to inform them about the status, objectives, and impact of the Post Cotonou Agreement on OACPS and Zambia, along with insights into other partnership agreements.
The workshop was envisioned to clarify the role of Members of Parliament in enforcing the Post Cotonou Agreement (defined below) and provide information beneficial to Zambian OACPS-EU Joint Parliamentary Assembly delegations. Key from these developments is the heightened awareness of the value and importance of critical minerals to Zambian development, and the desire by the legislative wing of government to capitalize on various international relations to foster an environment beneficial to Zambia – in relation to the sourcing, processing and subsequent supply of critical minerals to Europe and the world.
It is noteworthy that in a released statement, the Zambian Cabinet announced its approval for the publication and introduction of the “Mineral Regulations Commission Bill, 2023” in Parliament. The proposed legislation aims to establish the Minerals Regulation Commission, facilitate effective regulation, monitoring of compliance and enforcement activities in the mining sector. The bill targets issues such as illegal mining, environmental degradation, inadequate occupational health and safety standards, unsustainable exploration and mining methods and the loss of government revenue.
CONTONOU AGREEMENT
The Cotonou Agreement was a treaty between the EU and the African, Caribbean, and Pacific Group of States (ACP countries). The principal aim of this Agreement was to reduce poverty and promote sustainable development. The Contonou Agreement expired, however, various steps have been taken for a new legal framework ensuring continued relations between the EU and the OACPS (the Post Cotonou Agreement). The salient principles of this proposed new partnership agreement are, inter alia, inclusive, sustainable economic growth and development and environmental sustainability and climate change. Zambian lawmakers are attempting to ensure Zambia benefits from international partnerships and a global landscape that is favoring sustainable development and climate friendly practices.
GROWING PROMINENCE OF CRITICAL MINERALS IN ZAMBIA
The Zambian Cabinet approved the declaration of critical minerals such as copper, cobalt, lithium, tin, graphite, coltan, manganese, rare earth elements, gold, sugilite, emeralds and diamonds as strategic minerals in 2023. In addition, the Cabinet resolved that the declaration would result in the formulation of a strategy on critical minerals which will stimulate Government and private sector participation. The position taken by the Government on critical minerals is in alignment with current international practice. For instance, the EU critical mineral list is similar to Zambia’s except for copper that is treated as a strategic mineral by the EU, and several other minerals are not considered as critical.
RECENT ZAMBIAN GOVERNMENT POLICIES AND REGULATIONS
The Government has established an objective to achieve the production of 3 million metric tonnes of copper by 2032 amongst other objectives in the extractive/mining industry. According to the 2024 Parliamentary budget speech, in order to attract targeted investment and expedite mineral exploration projects across Zambia, the government plans to initiate a high-resolution countrywide geophysical survey in 2024. During the budget speech it was also announced that preliminary geological surveys have unearthed lithium deposits (a recognized critical mineral).
The Zambian economic and legal environment is being adjusted to consider these international developments. However, challenges are still present in the mining industry such as those highlighted below.
CHALLENGES IN THE ZAMBIAN MINING INDUSTRY
Legal Hurdles
A challenge facing the mining sector is the high tax regime which deters both foreign and local investors. Mining companies indicate that the tax rates are some of the highest in the world. The complex set of laws applicable to the mining and natural resources sector also make investors cautious.
Energy Generation Challenges
Energy cost and generation is a huge component in the costs of operating a mine. Energy constraints in the form of electricity rationing need to be reduced significantly.
Debt
Debt has traditionally prevented Zambia from offering more globally competitive Effective Tax Rates (ETRs), as some of its neighboring countries have done. As Zambia’s commercial debt negotiations are underway while others have been completed, it is hoped that this key constraint to reaching an improved level of offering competitive ETRs would be reached.
Security Challenges
Zambia is currently facing a series of thefts in transit of ore, which has increased the security cost of mine owners and transport operators. Therefore, the increased allocation of resources to the Ministry of Mines becomes key. The Government needs to take steps to make the business environment welcoming and comparable to other jurisdictions.
Notably, greater adherence to the rule of law and to environmental and safety regulations drives down the cost of capital – and not just in the mining sector.
Environmental And Social Impacts
Managing risks and opportunities related to environmental, social and governance (ESG) criteria is an increasingly crucial strategic consideration. On the international landscape, multi-national companies may be held liable for the tortious acts or omissions of their subsidiaries in Zambia. This was brought to the fore in the case of Dominic Liswaniso Lungowe & 1,825 others against Vedanta Resources PLC and Konkola Copper Mines PLC 2019 UKSC 20. This case was initiated in the England and Wales Technology and Construction Court on July 31, 2015 by 1,826 Zambian citizens resident in Chingola, Zambia. The claimants sought damages for personal injury, wide ranging environmental harm, damage to property, loss of income and amenity and enjoyment of land arising out of alleged pollution and environmental damage caused by the second appellant, Konkola Copper Mines. In this decision, the matter was allowed to proceed in the UK courts.
A December 2023 suit against Anglo American South Africa Limited resulted in a contrasting outcome. In relation to alleged pollution caused by the alleged improper disposal of waste from a now defunct lead mine in the Central Province of Zambia, the decision to rule in favour of Anglo America was rendered by the South African High Court. The court stated that a dangerous precedent could be set, by creating possible liability for a business half a century after its activities have ceased, to generations not yet born, as a result of being tested against future knowledge and standards unknown at the present time. The South African position could be deemed unpopular against international sentiment,. although whether the cases are distinguishable in terms of the legal principles argued, would need examination.
What potential investors need to be aware of is the need for clear and effective mechanisms of waste disposal and the requirement for compliance with both local and international environmental standards.
It is noteworthy that as of October 17th, 2023 the Zambian Government launched the Guidelines for the Submission and Evaluation of Mitigation Activities Under Article 6 of the Paris Agreement: Part 1 of the Carbon Market Framework for Zambia. The guidelines aim to catalyze public and private sector mitigation activities in Zambia in a transparent and attainable manner, and to ensure consistency with the evolving international carbon market. This development is imperative on the background of the Interim Guidelines on Carbon Market and Trading that were developed by the Zambian Government in 2022.
CONCLUSION
Continuous observation of the tax regime and policy environment for the Zambian Government action to enhance and facilitate increased investment in the extraction of critical minerals, will be required. Various policies are expected – concerning enhancement of security, carbon trading and emission reduction, debt restructuring and possible tax reformation. Heightened awareness of environmental and social governance issues is needed, coupled with companies developing their own guidelines concerning in this regard. Like many countries, Zambia presents a mixture of opportunity and challenge with respect to mining, including critical mineral, project developments.
For more information on this topic, please contact the authors; Joseph Jalasi, Chama Simbeye and Wana Chinyemba.
[1] www.bloomberg.com/news/newsletters/2023-11-01/supply-chain-latest-us-lobito-corridor-project-in-africa
