When Zambia’s opposition leader Hakainde Hichilema secured a landslide victory over incumbent Edgar Lungu in the country’s presidential elections nearly eight months ago, he pledged economic growth of 10 per cent a year.

If this ambitious promise is to be achieved, the key lies in reinvigorating Zambia’s mining industry. The last time the country saw 10 per cent GDP growth was 2010, when the copper price last topped $10,000 a tonne and the country’s share of global production was 4 per cent.

It has flatlined since then as the country spiralled into a debt trap under the Patriotic Front party. By the end of Lungu’s reign, debt to GDP exceeded 100 per cent.

In 2018, in an effort to boost his waning popularity, Lungu began resorting to crude resource nationalism. He accused foreign investors of siphoning $3bn annually in “illicit financial flows”, increased royalties and withheld VAT refunds.

On top of that, he slapped miner First Quantum Minerals with a $7.9bn bill for unpaid tax. He also tried to oust Vedanta from Konkola Copper Mines through a legally questionable liquidation process, now the subject of international arbitration proceedings in London.

Unsurprisingly, when Glencore disinvested from Zambia over a year ago, the lack of foreign interest meant that the Mopani mine was acquired by state-owned mining group ZCCM.

Hichilema and his United Party for National Development have promised a “new dawn”. His government’s first budget speech last October included a bold undertaking to increase annual copper output from 800,000 tonnes to more than 3mn in 10 years.

But no data nor plans were offered to back this eye-watering projection. While the government has made some noises about resolving legacy mining disputes, there is little progress to restore investor confidence.

This is even more pressing in view of the shock of the Russia-Ukraine war reverberating on global energy and commodity markets and the impact on the country’s inflation, now running at 13 per cent.

As Zambia seeks urgent IMF approval for a three-year $1.4bn credit line, the government faces the difficult challenge of pursuing orthodox economic policies, not least fiscal consolidation and the removal of power and fuel subsidies, at a time of spiralling living costs.

Copper production will not increase without significant foreign investment, which in turn requires major fiscal and regulatory reforms. The budget speech promised to make royalties tax-deductible again — a welcome and important step — but said little else about mining taxes and royalties. There is an urgent need to assure investors that Zambia’s seesawing royalty rates are a thing of the past.

Most importantly, the fiscal regime should be transparent, predictable and, above all, stable. Both the state and investors benefit when the risk of tax disputes is limited. International best practice has developed templates that Hichilema’s government could use to negotiate mutually beneficial investment deals with foreign companies. Consideration could also be given to reintroducing mineral development agreements which Zambia prohibited over 10 years ago.

In this way, Hichilema can assure foreign miners and their investors that Zambia will be a safe and secure place to invest. In time, the country may distinguish itself from the Democratic Republic of Congo, which is still mired in resource nationalism, as a major source of not only copper but, also cobalt, both expected to be in high demand for use in electric vehicles. Zambia is estimated to have rich reserves of metal, which are still under explored.

Zambia cannot resuscitate its economy without revitalising its mining industry, and there is little time to waste. But it can cash in on this opportunity if it sends a clear message to the international investment community that it is fully open for business.

This will no doubt also help Zambia to unlock the loan it has been negotiating with the IMF for months. A staff level agreement was reached in December, but even the government is no longer confident this will be approved before the end of the year. The conditions of the credit facility may well include the kind of fiscal and regulatory reforms that Zambia will need to generate investment in its mining industry.

If so, the stars may well align for Zambia to become one of the world’s leading copper producers in the long term, not least when governments in Chile and Peru, the two biggest producers, are leaning sharply leftward. In doing so, Zambia could show its confreres that deriving an equitable return from mineral endowments cannot come at the expense of foreign investment.

Peter Leon is the Partner and Africa Chair, Herbert Smith Freehills 

The Commodities Note is an online commentary on the industry from the Financial Times

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