LONDON () -- Zambia goes to the polls on the 28th of this month, and one presidential candidate is garnering attention by threatening to up taxes on foreign-owned mines in the southern African country, as well as limit the stakes that foreign companies may hold.
Michael Sata, who has been predicted to gain a significant percentage of votes when election comes, although not to win, stated in a recent television interview that if he won the presidency he would limit foreign investors in Zambia's mines to 51% and increase taxes on their operations.
This may merely be populist posturing on Sata's part, but it highlights a real issue in Zambia, which is one of Africa's main mining nations, largely thanks to its much storied copper belt.
Lately, labourers in the copper belt have become restive and have begun to agitate for better pay and conditions. However, Chinese mine owners in particular have been playing hardball with the labourers, and this has led to increasing friction, which has been picked up on and exploited by politicians vying for position ahead of the elections.
Whether or not Sata would actually act on his threats if he were to become Zambia's president is uncertain, but it will be unsettling for investors with major money in Zambian assets.
Levy Mwanawasa, the incumbent president and favourite to prevail in the elections, has not been slow in responding to Sata and addressing the issue himself. A Reuters report from Zambia today has Mwanawasa ordering the arrest and prosecution of 'investors in the country's vast copper mines who are violating labour laws'.
A subsidiary of London-listed Vedanta Resources [LSE:VED], Konkola Copper Mines, is specifically mentioned. Although British based, the management of Vedanta are predominantly of Indian extraction. There is a background of animosity between Zambia's Indian community and its majority black population, but Sata has singled out Chinese investors as those who would be targeted under his administration.
It could though be that Chinese diplomatic sway over Zambia's government, which as in much of Africa is based on economic aid of various kinds, would be sufficient to protect Chinese investors from serious persecution by the Zambian government, although the same may not be said of British diplomatic influence, on which Vedanta would have to rely.
Britain's hands are somewhat tied by its colonial past in the region, and the negative way that any intervention in favour of a British based international mining company would be portrayed by most media outlets and interpreted by most of the British public. But it is important to remember that things haven't gotten to that point yet, and Vedanta could always try and bring in the Indian government to help with any problem.
Other companies operating in the country include Canada's Equinox Minerals [TSX:EQN; ASX:EQN] and First Quantum Minerals [AIM:FQM; TSX:FQM]. Despite the possibility that Sata's comments are just rhetoric aimed at securing votes, rather than a solid indication of future policy, investors in Equinox, First Quantum and Vedanta, as well as other companies with interests in Zambia, will be hoping that the Zambian electorate give Mwanawasa another term, or at least steers clear of Sata.