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Topic : Green Energy Transition presents unparalleled Opportunity for Zambia
The transition to green energy presents Zambia with an “unparalleled” opportunity, but for it to succeed, the mining industry needs a fair, predictable, and stable regulatory framework, said Peter Leon, a partner at the law firm Herbert Smith Freehills and co-chair of Africa, during a speech at the Chatham House Conference in Lusaka, Zambia, on March 30.
To meet the surge in demand for materials that support the transition to green energy, the administration of President Hakainde Hichilema has previously stated its intention to increase the nation’s copper production from approximately 800 000 t/y to approximately three million tons per year within the next ten years. Currently, mining dominates Zambia’s economy, contributing 10% of GDP, more than 70% of foreign exchange profits, 30% of government revenue, and 8% of employment. Despite the significant contribution the mining industry makes to Zambia’s economy, Leon thinks Hichilema should work to revitalize the industry in order to meet the ambitious output goals. This would necessitate expanding existing miners’ output and starting new ones, which can only be done by luring foreign investment back to the nation.
Zambia is the second-largest producer of copper in Africa, after the Democratic Republic of the Congo, and is home to enormous reserves of both copper and cobalt. Even though cobalt and copper are both critical metals that are crucial to the transition to green energy, Zambia’s cobalt riches remain mostly undiscovered and untapped, primarily due to investor anxiety, according to Leon. Copper and cobalt are only two of the many minerals needed to build green energy technology. Currently, there is a two-thirds gap between present production rates and the anticipated demand for the minerals required for the switch to green energy, he noted. The need for renewable energy technology is expected to expand by roughly 500% by 2050, according to Leon, while copper prices have risen exponentially due to the demand for minerals like graphite, lithium, and cobalt.
According to Leon, “Rapid expansion in the mining industry of Zambia cannot be realized unless it is supported by a fair, predictable, and stable regulatory framework that is implemented and overseen by competent government personnel in a manner that is open and transparent. He added that the legal structure and the way it was implemented would create an environment that was attractive to investors, luring foreign direct investment and promoting growth. The government of Zambia has taken some steps to improve the appeal of its mining industry through financial incentives. For instance, it reinstated the tax-deductibility of mineral royalties against corporate income tax and lowered the corporation tax rate for all businesses from 35% to 30%. According to Leon, this has ended the practice of double taxation, which had a significant negative impact on efforts to recapitalize. Additionally, the government declared its intention to put the Mining Appeals Tribunal into action, with the goal of enhancing openness and offering governance in conflict resolution.
Leon argued that these actions yet fell short. “Foreign investment — and consequently copper and cobalt production — will not increase unless the government reforms the mineral law regime to better comply with international best practice and implements mechanisms to ensure that the law is administered in an efficient and effective manner,” the official claimed. Given that copper output for the first quarter of this year was lower than production in the first quarter of 2021, Leon noted that the need to update the mineral law framework to better adhere to international best practice was highlighted. This was true even after the introduction of business-friendly mining policies within the previous year. In order to obtain a license, he suggested that the new mineral law framework include specific substantive and procedural requirements that applications for reconnaissance, exploration, or exploitation licenses must meet.
It ought to also restrict the latitude given to public servants who must approve applications and grant licenses when applicants abide by the legal requirements in terms of both form and content. Lastly, it should afford applicants a one-off opportunity to remedy any defects in an application before the application is rejected. “If Zambia followed suit, this may promote investment into expanding the production of existing mines, and the exploration, and subsequent establishment, of new mining operations,” Leon said. Leon thinks Zambia can boost investor confidence by expanding the mining industry through the implementation of business-friendly legislation and changing the legal and regulatory framework governing mining. Leon concluded: “Through such measures, Zambia might substantially increase its exports of minerals required for the Green Energy Transition and, consequently, take advantage of this profitable opportunity, which, in turn, could contribute to a rapid rise of the Zambian economy.