Investment Today, Multiplied Tomorrow

The findings of a May 2022 report – which takes a deep dive into First Quantum Minerals’ US$1.36 billion dual expansion of Kansanshi’s operations and the bringing online of Enterprise Nickel Mine – have laid bare the potential for the mining sector to transform the lives of hundreds of thousands of Zambians within the coming decade. With the report’s launch behind us and the dust starting to settle, Mining For Zambia drills down into the details with the authors, leading economist Professor Oliver Saasa and economic statistician Mr Shebo Nalishebo, in order to get beyond the economics and grasp the real on-the-ground impacts of these planned investments.

Mining For Zambia: First Quantum Minerals’ (FQM’s) combined $1.36 billion investment will substantially boost revenue collections by Zambia’s Treasury, with annual increases estimated at between US$85 million and US$165 million on average, depending on commodity prices. This will presumably give Government millions of dollars more to spend on healthcare, education, and infrastructure, and the Constituency Development Fund, correct?

Prof. Saasa: Indeed. These additional taxes will greatly expand the Government’s expenditure opportunities – and that includes enhancing social services delivery, while creating space for debt repayments. But an investment like FQM’s is about much, much more than what is being contributed in terms of taxes. In fact, understanding that the contribution of the country’s most strategic sector does not stop at the Treasury is exactly what we hope to demonstrate in our report.

Your report highlights job creation as another key effect of FQM’s investment. Beyond the 1,300-1,700 jobs that will be directly created within S3 and Enterprise, your calculations show that an estimated additional 16,500 jobs will also be created, as a result of multiplier effects. How does this work?

Mr. Nalishebo: Our computation shows that for every one formal sector employee that FQM hires, it generates employment or earning opportunities for 11 other people in the wider economy. So, the 1,300-1,700 new jobs [800 at S3 and 700 on average at Enterprise] will help to create around 18,000 new jobs, and open up new opportunities for domestic businesses.

“Our computation shows that for every one formal sector employee that FQM hires, it generates employment or earning opportunities for 11 other people in the wider economy.”

Please explain a bit about where these 11 additional jobs will be created.

Prof. Saasa: One initial job in a new mining operation – Enterprise, for example – will create one additional job within the mining sector. This might be, for example, a contractor hired by FQM to provide mining support services, such as equipment maintenance. The initial job will also generate three indirect jobs in other sectors that support mining. These may be in either the formal or the informal sector – for example an employee of a contractor to which FQM outsources catering services to feed new employees at Enterprise. Another example would be a company that transport copper to ports which needs to hire extra drivers or mechanics because of the substantial increase in production at Kansanshi, after its expansion. Then, there are seven additional jobs or earning opportunities that we call “induced effects”; these might include entrepreneurs or traders. Essentially, induced effects are those that occur in the communities where new mine workers, contractors and so on are spending their earnings.

Please elaborate on the way in which ‘induced effects’ work.

Prof. Saasa: Because of the nature of our economy, where approximately 75% of businesses are in the informal sector, the contributions of a sector as strategic as mining extend far further than the average person imagines.

Here’s an example that falls under ‘induced multiplier effects’: one salary from a job in a mine generates income that is enjoyed by multiple family members. With the surplus income, one family member might start a small business in the informal sector with a cash injection of as little as ZMK 2000. The family member who started the business will then be liable to pay tax on their earnings and, as their business grows, they may employ people who, in turn, contribute to the Treasury via the taxes they pay. And then there are the businesses that supply goods to that original small business. Those suppliers may hire employees too, whose jobs are created because there is demand for what they supply. The effects ripple outwards. Without a mine like FQM creating that new job and employing that first person, no one further down the chain would benefit.

Your report goes a lot further than calculating the employment and income multipliers from FQM’s two new projects. It also estimates the increases in jobs and income that would stem from Government realising its copper production target of three million metric tonnes a year. This, you’ve calculated, will require US$30-40 billion of investment. Please explain how you estimated the amount of investment needed.

Mr. Nalishebo: We made the following assumptions: Reaching the annual production targets that will take us to three million tonnes a year by 2030 will require the equivalent of nine additional Kalumbilas – which currently produces in the region of 240,000 metric tonnes per annum (MTPA). At least $2 billion in investment is required to set up a mine of Kalumbila’s magnitude. To reach these production targets, we’d need the equivalent of about nine Kalumbilas, which would cost about $18 billion to set up.

Establishing so many new mines will require a vast increase in supporting infrastructure, not least in the amount of power available. So, we estimated the cost of doubling installed electricity capacity from its current 3,300 megawatt capacity (to meet the demand for three million MTPA of copper production) at $5-8 billion, using the estimated cost for the 2.4 gigawatt Batoka Gorge Hydro Electric Scheme project as a reference. To those figures, we added $5-8 billion for constructing a 850km greenfield railway line from Solwezi to Kazungula, and at least $2 billion for a possible greenfield road that creates a direct route from Solwezi to Kazungula, along with road rehabilitation for the increased load. There is, of course, other supporting infrastructure that will need to be put in place, hence the $30-40 billion estimate. This, we hope, illustrates the vast quantity of resources that is required to meet such a target.

Certainly, there is a lot that needs to happen before this ambitious production target can be reached. If Government does succeed in attracting the US$30-40 billion that is needed, what impact would this have on ordinary people?

Mr. Nalishebo: Based on the estimated multipliers in our report, this would result in – among other things – the doubling of direct employment in the mines (currently estimated at over 70,000) and the creation of additional employment in excess of 500,000.

Half a million new employment opportunities would be phenomenal. Which sectors would these 500,000 people likely to work in?

Prof. Saasa: Firstly, 500,000 jobs is a very conservative estimate. It is estimated that, between now and 2030, about 40,000 jobs will be created directly in the mining sector. About 156,000 jobs will be created through backward and forward linkages to the mining sector. This figure is made up of 51,000 jobs in administrative and support services (including security), 48,000 in manufacturing, 16,000 in professional, scientific and technical services, 8,000 in Information and Communications Technology (ICT), around 6,000 in wholesale and retail trade, and 5,000 in construction, to name the biggest sectors.

In turn, this will induce approximately 300,000 jobs or earning opportunities – mostly in the informal sector – in the surrounding communities. Around 150,000 of these will be in agriculture, 52,000 in wholesale and retail trade, and 40,000 in manufacturing. Naturally, all this increased economic activity will create additional demand for education and health services. These computations are all available in our report.

Where will this economic activity be centred?

Mr. Nalishebo: The economic trickle-down effect will extend across the country. Since Sentinel mine’s construction spurred a flurry of economic activity in the newly-built Kalumbila Town, we’ve seen that a large percentage of unskilled workers have been sourced from surrounding communities – mainly Musele Chiefdom. This sets in motion an economic trickle-down effect at a local level. But, with an estimated 156,000 jobs being created through backward and forward linkages to the mining sector, these suppliers and contractors could come from anywhere in the country.

As Prof. Saasa mentioned, 500,000 jobs from a US$30-40 billion investment in the mining sector is a very conservative estimate. When we calculated the impact of S3 alone, we based our estimates on the 800 permanent new jobs that are being created. We did not consider the multiplier effect resulting from the additional 1,800 jobs that will be created during the construction phase, for instance – so the effects are likely to be larger than we estimated.

Your report refers to incomes increasing by $9-12 billion between now and 2030, should this US$30-40 billion of investment be secured. Whose incomes will grow by that amount?

Prof. Saasa: This is new household income that accrues to communities via income received by miners, and income from workers in industries with linkages to mining. By spending this money on goods and services, these workers induce further household incomes. The distribution of this additional income is US$3-4 billion for mine workers and US$2-3 billion for workers in non-mining sectors. Their expenditure in the areas where they live will induce other incomes amounting to $4-5 billion. The direct, indirect and induced incomes amount to US$9-12 billion. Put differently, Zambia’s population is expected to grow to 23.6 million by 2030, so this would result in additional per capita income of between US$389 and US$519.

“We want to give Zambians a sense of how, when you invest a certain quantum it extends downstream, and many multiples of people will benefit from that singular investment.”

The calculations are a bit technical, but all this data is available in our report. We are really aiming to give Zambians a sense of how, when you invest a certain quantum – in FQM’s case, $1.36 billion – it extends downstream, and many multiples of people will benefit from that singular investment. It is not a matter of 800 people being employed within S3 in the immediate future; the impact will be felt far beyond the mining sector. Many other companies’ and contractors’ and suppliers’ success will spring from the economic activity that’s set in motion by these investments.

Furthermore, when considering the benefits of mining in Zambia, we should not confine ourselves to particular investments by particular companies. Investments in a sector like mining take on a life of their own. Certainly, FQM’s investment is a very important first step in realising the Government’s ambitious copper production target by 2030, and is key to President Hichilema’s drive for a New Dawn for Mining in Zambia. This investment demonstrates a level of confidence in our country that is certain to encourage other investors to follow suit and, as such, must be celebrated.