Nationalization in Zambia

Addressing a political rally a year ago, Zambian President Kenneth Kaunda insisted that he had no intention of nationalizing the foreign-owned copper mines that account for 95% of his country's export income and half of its government revenues. Said Kaunda: "The copper mines are big business--too big for us."

Last week Kaunda made it clear that Zambian ambitions have grown. Clad in his usual khaki bush suit, he told 400 cheering members of the ruling United National Independence Party that he was "asking" the owners of the mines to give 51% of their shares to the state. "I do not think," he said, "that the nation can achieve economic independence without acquiring full control of the existing mines."

Delayed Payment. Chiefly affected by Kaunda's "request" will be the Roan Selection Trust, Ltd., 43% of which is owned by Manhattan-based American Metal Climax, Inc., and Anglo American Corp. of South Africa Ltd. In addition to taking over controlling interests in the firms, Zambia will substitute 25-year leases for their existing leases "in perpetuity," and replace the present 44% royalty and export tax with a 51% mineral tax. The nationalized companies' holdings have a book value of about $784 million. Kaunda expects to pay shareholders for their loss entirely out of future copper profits. These are already so heavily taxed that even if dividends are maintained at their present level, the Zambian government can hope to realize only $5,000,000 a year from the two companies' $1.1 billion-a-year sales of copper. Thus the final payoff could be delayed for decades.

Both political and economic pressures lie behind Kaunda's move. Zambia, the former British colony of Northern Rhodesia, remains uncomfortably dependent upon white-dominated Rhodesia for trade and electric power. The cost of living is soaring and abrasive tensions between Zambia's blacks and whites (who constitute 1.5% of the population), are on the rise. Recognizing the importance of the mines to his country, Kaunda met two years ago with Chile's President Eduardo Frei to discuss an arrangement to help maintain world copper prices and quotas. Although no price-fixing agreement resulted from their talks, Frei's nationalization of the Chilean copper industry, beginning in 1967, probably stimulated Kaunda to take a similar step in Zambia.

Risky Action. Kaunda's action entails serious risks for his country. Zambia has neither the capital nor the skills to run the mines by itself. Kaunda must rely heavily on both the companies and their remaining 5,000 white miners to keep operations going. Only the steadily rising price of copper, now at a high of 740 per pound, has enabled Zambia to maintain a favorable balance of payments in recent years. Any decline in copper prices as a result of an end of the war in Viet Nam, the discovery of new sources, or the increased use of other minerals, would hit Zambia hard.

Zambia's action also creates problems for other underdeveloped countries, which need foreign venture capital in order to develop both their resources and their economies. Although Chile made arrangements to pay the owners of expropriated American firms for their losses in three years, foreign investors have been understandably slow to sink new funds into operations there. Peru's military junta has frightened outside investors by its seizure of International Petroleum Co.'s properties last October. The U.S.-owned Southern Peru Copper Corp., which was ready to invest $350 million to develop its copper ore concession a year ago, now seems less interested in expansion, and is refraining from committing itself until it has a better idea of the junta's plans.

Zambia's greatest damage will probably be to itself. The country needs private investment capital, and, as New York Governor Nelson Rockefeller said on his recent South American tour, "investment capital likes to go where it is loved." Kaunda's action can only encourage potential Zambian investors to go elsewhere in search of affection.

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