What Would it Mean if Zambia Nationalised Their Copper Mines?

What’s the story?

The President of Zambia, Edgar Lungu (pictured above), recently announced that the Zambian states needs a bigger role in their copper mines. The African nation is aiming for 3% GDP growth by 2023 and sees a majority stake in the their rich copper mines as essential in reaching that goal.
 
Zambia is Africa’s second-biggest copper producer, with president Lungu stating:
 
“Owning a stake in some strategic mines gives the state the leverage required to utilise the defined mineral resources to benefit the nation.”
 
It is worth noting that President Lungu has not yet identified which mines would be targeted for majority ownership. From the outside, this may not seem like a controversial story. However, questions can be asked as to how Zambia will acquire a majority stake.
 
In November, Zambia became the first country in Africa to default on its debts since Cornavirus. The country missed a $42.5m bond coupon payment in October and soon after missed another payment in November which means the country technically defaulted. The size of the country’s debt is roughly $14bn.
 
I am unsure how Zambia plans to acquire a majority stake in their copper mines. Traditionally, a majority stake is achieved through purchasing more than 50% of the outstanding shares of a company. For Zambia, to do this would raise questions from their debt holders over the source of these finances. If Zambia could raise the money for this acquisition (which I imagine would be very expensive), wouldn’t they have used this money to pay their bond coupons in order to maintain their credit rating?
 
In my opinion, the most likely scenario is that Zambia takes a majority stake through the judiciary. Zambia previously did this in the on-going case of Vedanta Resources v Zambian Mining Company ZCCM-IH. In this case, the Zambian government sought an ex parte order from the Lusaka High Court, in Zambia, to appoint a provisional liquidator of Konkola Copper Mines (Konkola is majority-owned by Vedanta Resources). The interesting point in this case was that the application to liquidate was not based on liquidity issues, but rather that the winding-up would be “just and equitable.” It is worth noting that Vendanta recently won a decision in the Zambian court to halt liquidation proceeding to allow Vedanta and ZCCM-IH to proceed to arbitration.
 
The Vedanta case did much to damage the image of Zambia as an investor friendly nation, even though the case was described, by Zambian Mines Minister Richard Musukwa, as an “Isolated case.” However, I do not believe, if the Zambian government follow through with their intention to acquire a majority stake in copper mining, that the they have the resources to acquire this stake without resorting to continuous methods such as those seen in Vedanta.
 
What this means for law firms?

The effect of this is straightforward: loss of investor confidence. As mentioned, this was previously shaken as a result of the Vedanta case. I imagine that investors are watching Zambia very closely to see if and how the government acquire a majority stake. On a broader level, investors don’t like sudden changes in policy. Investors could be concerned that if the Zambian government can do this in area (copper), what stops them doing it in another? For firms with clients who have interests in Zambia, this will be concerning. Investors may view Zambia as a risky market and for those with assets in the country, they could attempt to dispose of these. On the flipside, commodity investors may turn their attention to the copper rich Democratic Republic of Congo. There is also opportunity for law firms to provide litigation services. I imagine that if the Zambian government once again refer to the judiciary in order to acquire a sizable stake in a company, then this will be contested in much the same fashion as Vedanta.
 
It is also possible, however very unlikely, that if Zambia do take a stake without contention and are able to meet their 3% GDP growth target, this may inspire other mineral rich countries to pursue similar policies. The long-term effects of this could mean a decline in investment in Africa and, most likely, a spike in litigation contending these measures.