Monday, November 10, 2008

How copper prices could hurt the poor in Zambia

Zambia produces 600,000 tons of copper per year. Being the counties largest export, the high prices of copper have helped to improve the economy and improve services to the poor.

But now, the price of copper is slipping and it's drop is causing concern in the country. The IRIN explains how dropping copper prices could effect social services.

Copper accounts for 80 percent of Zambia's foreign earnings, and has helped drive healthy economic growth of five percent over the last six years. The government had projected additional revenue of $415 million in 2009 after raising the mineral royalty tax from 0.6 percent to the global norm of 3 percent, and the introduction of a windfall tax on mining companies as a result of record copper prices.

Oliver Saasa, a consultant economics professor at the University of Zambia, said falling copper prices would affect the delivery of social services. "It's putting a lot of pressure on the new government. As it is now, there is a reduction in government revenue, and also no windfall profit because of the low prices; the windfall tax is only applicable where prices are high," he commented.

Newly elected President Rupiah Banda is keen to make a positive impression after narrowly winning the 30 October presidential election, in which urban voters in the capital, Lusaka, and the central Copperbelt region, Zambia's economic heartland, voted overwhelmingly for opposition leader Michael Sata. In his inaugural speech Banda pledged to fight poverty and improve social spending.

"Because of the reduced resource base, government will face problems in social investments for such critical sectors as education and health," Saasa said. "Already, even before the fall in copper prices became an issue, we had overshot our national budget because of the [October 30] elections."

The International Monetary Fund's (IMF) October survey projected that growth in sub-Saharan Africa was likely to slow to 6 percent in 2008 and 2009, down from 6.5 percent in 2007, but the deceleration in oil imports could be sharper, dropping to 5 percent.

Food and fuel prices are likely to remain substantially above their 2007 levels, the IMF said. This means deeper poverty for households in sub-Saharan Africa, which typically spend about half their income on food. The World Bank has estimated that 44 million people worldwide will fall into poverty in 2008 as a result of price increases.

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