Just three years ago, Zambia was the darling of international investors. Its debut euro bond was oversubscribed by a spectacular 15 times, attracting orders of nearly $12-billion (U.S.), even though it was offering lower interest rates than some developed-world bonds.
The copper-rich African country, newly anointed at the time as a "middle income nation" by the World Bank, had become a favourite of Canadian mining companies, including Barrick Gold Corp. and First Quantum Minerals Ltd., both of which were among Zambia's biggest private employers.
Swiss-based mining giant Glencore PLC was another major player in Zambia as the country became the second-biggest copper producer in Africa. Copper accounted for 70 per cent of Zambia's export earnings and there seemed no end to the boom.
But today Zambia is a lesson in the perils of over-dependence on a single commodity and a handful of multinational mining companies. The copper boom is over, Glencore has fallen into a cost-cutting crisis, Zambian mines are being shuttered and Zambia's currency has been the worst-performing in the world this year. Its euro bond interest rates have soared to nearly 12 per cent in recent weeks.
Declining copper prices and a severe electricity shortage are the biggest reasons for Zambia's tumble. Its currency, the kwacha, has lost about 50 per cent of its value against the U.S. dollar over the past year, fuelling higher prices on imported goods. The price of Zambia's main food staple, maize meal, has jumped by 20 per cent this month because of higher input costs.
Copper prices have weakened by more than 20 per cent over the past year, mostly because of softer demand from China, Zambia's biggest trading partner. Zambia's economic growth rate, which had averaged 7 per cent annually for the past five years, has fallen to an estimated 3.4 per cent this year, and analysts have speculated that the country might have to turn to the International Monetary Fund for assistance.
Glencore is among the companies that have cut back drastically in Zambia in recent months, suspending operations at its Mopani copper mine and announcing plans to lay off 3,800 workers at the mine, in which First Quantum has a 16.9 per cent ownership stake.
A Chinese-owned mining company, CNMC Luanshya Copper Mines, put 1,600 workers on forced leave at its Baluba mine, while another Zambian mine, owned by London-listed Vedanta Resources PLC, put 133 employees on forced paid leave because of the problems in the global copper industry.
The layoffs and shutdowns have followed an earlier uproar over the Zambian government's efforts to increase mining royalties, which led to threats of closure and postponed investments at several major mining companies. Thousands of job losses were predicted.
The royalty increases were partly rolled back after months of controversy and protests by the companies. But now Zambia's economic crisis has reached such proportions that the government held a national day of prayer and fasting on Oct. 18 to seek divine intervention for the economy. Soccer matches were cancelled and bars were closed until evening.
"God is a god of miracles and if we ask him, he will bless us and the kwacha shall be restored to its former strength and the prices of goods shall again go down," Bishop Simon Chihana told the Agence France-Presse news agency.
Another bishop, Peter Ndlovu, insisted that the prayer day could help Zambia's economy. "The Bible says gold and silver belong to God," he said. "If we pray, God will restore our economy."
The Canadian miners in Zambia seem to have been less affected by the crisis than Glencore and others. Andy Lloyd, a spokesman for Barrick, said the company's Lumwana copper mine has managed to survive without any significant job reductions this year. The mine had gone through a major cost-cutting process in 2013 and 2014, and its lean structure did not require further cuts this year, Mr. Lloyd said.
Despite the electricity shortages, the mine was able to conserve power and manage electricity loads so that it could maintain its operations, he said.
Earlier this year, Barrick had warned that it would be forced to suspend operations at its Lumwana mine because of the Zambian government's decision to triple its royalty rate to 20 per cent. But when the government eventually reduced the royalty increase, Barrick said it would continue operating the mine, which employs about 4,000 workers.
First Quantum, which announced last year that it would delay more than $1-billion in new investment projects in Zambia because of tax uncertainties and a dispute over $700-million in unpaid tax refunds, has also been affected by the electricity shortages this year. In July, the state-run power company imposed a supply reduction on First Quantum, leading to a temporary suspension of operations at one of the company's mine sites. This was followed by further restrictions in power for much of the year, forcing the company to obtain outside sources of electricity.