Economic expansion brought problems of its own. Many of the companies it benefited had close links with Southern Africa. The Rhodesian UDI and Zambia's determination to
disentangle itself from the South reduced their time horizons significantly,^^ and they attempted to maximise profits in the short term and to remit a high proportion of those profits immediately. Many withdrew large amounts of capital by
meeting replacements costs from local borrowings and distributing all profits. Such practices created a serious drain on
the balance of payments, reduced the amount of loan capital available to domestic enterprises, and left many industries
under-capitalised.^^ The economic boom also caused inflationary pressures - demand expanded rapidly while trade restrictions
were causing bottlenecks in supply, and some companies took 66 advantage of this situation to impose massxve price increases.
The government's response to these problems was announced by President Kaunda at Mulungushi in April 1968. Local
borrowing by foreign- and expatriate-owned companies would be curtailed, while dividend payments abroad would be limited
^^ C. Harvey, 'Growth and the Structure of the Economy' in M. Bostock and C. Harvey, op.cit., Table 4.1, p.90.
^^ M. Bostock, 'The Background to Participation', in M. Bostock and C. Harvey, op.cit., p.112.
^^ Zambia's Economic Revolution, pp.iii-v. 65 ..
ibid.
to the lower of 50 per cent of profits or 30 per cent of equity c a p i t a l . T h e government would greatly expand its direct involvement in the economy, by asking a number of major manufacturing and distribution companies to 'invite'
6 8
the State to purchase 51 per cent of their equity. Only in this way, argued the President, could the government ensure that price and profit levels and investment policies would be determined with Zambia's interests in mind, and that
production could be rationalised and unnecessary duplication eliminated.^^
The vehicle for state participation would be the Industrial Development Corporation (INDECO), a government agency which had played a major role, directly and indirectly, in fostering industrial expansion since Independence."^^ INDECO would
negotiate values and terms of payment for the State's share- holdings with the companies involved, but the President
stated that compensation would be based on book value.^^ No mention was made of government participation in the mining companies, but the President did express criticism of their investment policies:
I want to say to the mining companies that I am very disappointed at the virtual lack of mining development since Independence. Apart
from very small developments and some further
^^ ibid., pp.27-8, 50. ^^ ibid., p.38.
ibid., pp.38-40, 43.
INDECO participated in joint ventures with private companies, provided loans and other forms of assistance to prospective
investors, and established a number of major transport organisations.
^^ 'Book value- normally reflects the historical cost of a company's assets less whatever has been provided for
development at existing mines, we have seen nothing. The companies claim that the royalty system has been against new development... I do not agree ... I have been following their accounts and I know very well that they could have embarked upon further expansion if they chose to devote part of their profits for this purpose. Instead of re-investing they have been distributing over 80% of their profits every year as dividends.
Nevertheless, Dr Kaunda stated, the government would change the royalty system. No details were announced, but the
new arrangement would leave government revenue substantially unchanged while meeting the companies' criticisms. The companies for their part would be expected to expand production; they would be subject to the general limitation on dividend
remittances, and would be expected to reinvest the 50 per cent of profits retained in Zambia.
Was this criticism of the companies justified? First, it should be noted that two separate issues were in fact
involved - development of additional capacity and reinvestment of profits. The rate of development of new capacity certainly slowed down after 1964. Copperbelt production increased by
73 only 14 per cent between 1964 and 1969 (see Table 6),
compared with 21 per cent between 1960 and 1965 and 72 per cent between 1955 and 1960 . However after Independence mining was taking place at deeper levels and ore grades were declining, and the amount of investment required to maintain production increased. Investment of this type was charged to
72
ibid., pp.49-50.
^^ More precisely, AAC's production declined by 2.4 per cent while RST's increased by 28 per cent. A. Drysdall, 'Prospecting
and Mining Activity, 1895-1970', in M. Bostock and C. Harvey, op.cit., p.7 3 .
Table 6
Zambia's Copper Production,
Selected Years 1942-1964, and 1964-1978
Year Production C O O O ' s Metric Tonnes) 1942 251 1946 185 1950 281 1954 385 1958 380 1960 589 1964 632 1965 696 1966 623 1967 663 1968 685 1969 720 1970 684 1971 651 1972 718 1973 707 1974 698 1975 677 1976 709 1977 656 1978 643
Sources: R.E. Baldwin, op.cit.. Table 2.2, p.33; Zambia Mining Year Book, various issues.
working costs rather than appropriated fromprofits (a more usual procedure) , and for this reason President Kaunda' s claim that only 20 per cent of profits were reinvested was somewhat misleading. For example, AAC group mines declared profits of K88.6 million over the period 1964-8,"^^ of which K12.6 million or 14 per cent was appropriated for capital expenditure- But capital investments totalling K36.4 million were made in maintaining production, and if these had been
appropriated from profits rather than charged against working costs AAC's reinvestment rate would have been 39 per cent. This is similar to the rate achieved by the Northgate group in
7 8
Ireland (37 per cent), and by Bougainville Copper Limited 79
in Papua New Guinea (42 per cent). Significantly, neither of these companies expanded capacity substantially during the periods to which these figures apply.
This discussion illustrates a point made earlier: the Zambian mining groups (unlike some other foreign companies) were willing to maintain the value of their investments, but were reluctant to invest in new capacity (for reasons mentioned
above). The measures announced by President Kaunda did nothing to over come this reluctance, firstly because his promise
to change the royalty system was not acted upon, secondly
This is the procedure followed by Bougainville Copper Limited and by the Northgate group, for example.
Derived from R. Sklar, Corporate Power in an African State: The Political Impact of Multinational Mining Companies in
Zambia (University of California Press, 1975), p.55. ibid.
Derived from Table 1 above. Derived from Table 18 below.
because restriction of dividend remittances had no impact on investment. The companies simply accumulated the blocked
8 0 funds in local b a n k accounts.
The issue of prospecting and mining rights also required urgent attention if new mineral developments were to proceed. The government had acquired only the BSAC's mineral rights, and other companies (including AAC and RST) held rights, in perpetuity, over a large part of the country. If the companies decided to 'sit' on known mineral deposits or to ignore certain
Q 1 . ,