by Josh Wilson
The past few weeks have seen a growing debate about the impacts of slowing growth in China on the global economy. But I want to talk about the potential impacts on Zambia specifically.
Zambia — a country most people know exists but are not always 100% sure quite where it is located on a map. For a bit of background, it is a landlocked country the size of France, Belgium, the Netherlands and Switzerland combined, with a population of just 14.5 million people. It is situated just above Zimbabwe and below the Democratic Republic of Congo. It was a British Colony until Independence in 1964; Kenneth Kaunda won the first election after independence and ruled the nation from 1964 until 1991 when a multi-party democracy was resurrected and has continued since. Zambia has some of the most pristine nature reserves in Southern Africa, with one of the most concentrated populations of Leopards on the continent.
This beautiful country also has an awful lot of copper.
Infact it has so much copper one of the regions is officially named the Copperbelt. In a nutshell, the mines were nationalised in the early 70s and then privatised again in the late 90s. Underinvestment during public ownership as well as external factors, such as low copper prices and high oil prices, put the mines into disrepair. However the commodity boom of 2002-2008 led to vast profits being reaped by the new private owners. Unfortunately, this has not translated into tax revenue with very aggressive tax avoidance and evasion from the international mining companies.
trouble in the sector has major ramifications for the entire country
Zambia is a country, like so many others with vast natural resources, at the mercy of the global price of that resource. Even America suffers this fate, with half of companies active in the fracking industry predicted to go bankrupt due to the dramatic fall of oil prices by 70% since their peak in 2014. But in Zambia copper makes up 60% of total exports, so trouble in the sector has major ramifications for the entire country.
Prices have been erratic since the Global Financial Crisis of 2008 and are now dropping dramatically, with the growing volatility in the Chinese market. Last week George Osborne, the Chancellor of the Exchequer in the UK, listed a ‘dangerous cocktail of new threats’ that the British economy faces this year. One of the major issues that economists and politicians seem to be terrified of is the potential decline of the Chinese economy. The Shanghai stock exchange was forced to use its ‘circuit breaker’ mechanism twice in four days last week, which shuts down the exchange when stock prices fall past a certain level. Economic problems in such a major world power is of course drawing significant analysis as to how it will impact Europe and North America. But China has significant investments across the world and some of the worst hit by this decline won’t be the world’s richest countries, but some of the poorest.
more copper is being produced and put on the market than there is demand
The price of copper is broadly set in global exchanges, like the London Metal Exchange. This takes into account how much copper is being bought and sold globally, and the market is becoming increasingly saturated. That is, more copper is being produced and put on the market than there is demand. This is pushing the price down, with it dropping by nearly 25% over the past year. The fall in demand is mostly due to less being bought by Chinese firms in this time of uncertainty.
Zambia relies heavily on copper for government revenue, foreign exchange and jobs. Its price hike in the commodity boom helped make Zambia on of the worlds fastest growing economies. This growth is starting to fade as prices slump. Very low levels of rainfall have also hit the country over the past year, severely restricting the amount of power the Kariba Dam can produce. This has resulted in rolling power outages across the capital as well as in the copper mines at times. These factors have culminated in a huge depreciation of the Kwacha, Zambia’s currency, high inflation and an expected drop in growth rates.
The coming year looks very uncertain for the global economy. It is hard to say what will happen, but the one thing that does seem clear is that nothing has changed all that much since 2008. We are all still vulnerable to global crises. George Osborne tells us to brace ourselves for a potential downturn in China and a sustained fall in oil prices, whilst Zambia braces itself for the same thing. Eight years since the last crash and we are all as vulnerable as we ever were.