The dynamics of Zambia’s Copper Value Chain

Methodology

This thesis draws on secondary literature (published and unpublished) and primary data (archive data, interviews).

Research Objective

The general objective of this study is to investigate the implications of emerging Chinese and Indian investment in Africa’s extractive industries for local industrialisation and upstream linkages development. Furthermore, this thesis explores the dynamics of Zambia’s copper value chain in light of its copper mines diverse ownership structure. It mainly focuses on the impact of lead commodity firm ownership, in terms of investor country of origin, on processes of localisation, development and upgrading of upstream industries.

Synopsis

The research findings in this report focus on (i) the impact of privatisation on upstream linkages development, (ii) firm ownership and value chain governance and (iii) local supply firms’ trajectory.

• Emergence of informal traders and imports on the one hand and higher performance requirements on the other, which was worsened by no support from government culminated in stiff competition.
• Poor access to capital and infrastructural constraints affected the cost competitiveness of supply firms.
• Privatisation of the copper mines was a critical determinant of the extent and depth of upstream linkages to copper mining since the 1990s.
• Competition along the supply chain became stiff, because of trade and investment liberalisation, and the provisions of the Development.
• Agreements granting tax exemptions on capital equipment imports.
• After privatisation, Zambia’s copper industry ownership structure became highly diversified.
• Firm’s ownership shaped value chain governance in significant ways.
• The small market power of these fragmented small-scale operations resulted in a particular power relation with original equipment manufacturer’s (OEMs) and other large suppliers
• The small-scale buyers‟ value chain was characterised by low entry barriers, as buyers were willing to engage with new products and new suppliers, also from Asia.
• Chinese mining OEMs started positioning themselves in these value chains, offering advantageous credit terms, and often displacing established OEMs which would facilitate future expansion in the large buyers‟ supply chains.
• Value chain governance was critical in shaping these trajectories.
• Local upgrading process was supported by the supply firms’ backward integration in their respective GVCs.
• Chinese supply chain offered market growth opportunities, through low entry barriers and good payment records.
• This thesis also found a number of issues surrounding buyer and supplier cooperation.

Policy Recommendations

• Zambia should develop and implement a policy for the supply cluster.
• The government and relevant stakeholders should facilitate the entry  to the supply chain by local suppliers.
• They should build on the International Finance Corporation suppliers development programme.
• It is essential to encourage Chinese and Indian mines to deepen cooperation with local suppliers.
• There is a need to increase Foreign Direct Investment and other forms of partnerships.
• State to state dialogue with the DRC would increase opportunities for local Zambia suppliers.