Selling off the nation?

In the last week of April, the Chiluba Government finally got the privatisation show on the road with the announcement that it was offering shares in Chilanga Cement to the public. Keith Somerville reports on the tortuous path of Zambian privatisation, and the prospects for the sale of Zambia's big one - ZCCM 

The second and final phase of Chilanga Cement's privatisation is finally under way. The Government wants to sell 27.4% of the company's shares, and to have them listed on the Lusaka Stock Exchange by May 22. This is the first of 20 state companies which will be fully or partially privatised. Others including the mining giant Zambia Consolidated Copper Mines (ZCCM), Zambia Steel and Building Suppliers, the Mufulira Hotel and National Air Charter of Zambia Ltd.

Once Chilanga's shares appear on the exchange, President Chiluba will be able to answer those critics who have accused the Government of failing to get privatisation off the ground.

Mr Chiluba came to power in October 1991 promising to divest the Government of loss-making or inefficient parastatals. In February 1994 the Stock Exchange was established as part of the promised privatisation campaign, but Chilanga is the first to be listed.

Chilanga had in fact been technically privatised in October 1994. The Government had offered Britain's Commonwealth Development Corporation (CDC) its stake in Chilanga as early as June 1993 under CDC's pre-emptive rights to shares in the company (CDC already held a 24.5% stake, having set the company up in 1949). But while CDC bought enough of the Government's stock to give it a 50.1% controlling stake - and the responsibility for management - it waived its rights to the rest of the Government stock so that it could be sold to the public.

The way was finally cleared for the final share sale when, on March 31 1995, Finance Minister Ronald Penza announced the winding up of the Zambia Industrial and Mining Corporation (ZIMCO), which had overseen the Government's holdings in, or control over, some 150 companies. The dissolution of ZIMCO was the fulfilment of a promise made to Western donors at the donors' meeting in December 1994.

But the acid test of privatisation will be the fate of ZCCM - the copper and cobalt mining monopoly which is at one and the same time the major pillar of the economy and the major drain on economic resources.

ZCCM has been an economic disaster area for years, with accumulated debts of $700m and severe production problems. The Government has been seeking foreign loans or equity to recapitalise the company and foreign partners to take on a major shareholding.

Anglo-American has been top of the list of interested parties but has adopted an extremely cautious approach. It is worried about the level of ZCCM indebtedness and is to carry out an extensive financial and technical study before any decision is made to increase its 27% holding (through Zambia Copper Investments).

Negotiations have been under way between the Chiluba Government and Anglo for some years and Anglo has stated that it is prepared to put together a consortium to take a majority shareholding in ZCCM if its study comes to positive conclusions about ZCCM's production and financial prospects. Mr Jack Holmes, the Director of Anglo's Central African operations, told African Business that if the report is acceptable to Anglo it would be prepared to put together a consortium to take a majority shareholding, with the Government retaining a minority interest. Pending the report, he said, Anglo was not going to commit itself further to taking a stake in ZCCM or participation in the development of the Konkola Deep Mine; adding that he would see development of Konkola as part of an overall ZCCM revitalisation plan and not as a separate project.

There are those within the ruling Movement for Multiparty Democracy (MMD) who would like to see a greater and more definite commitment from Anglo to participate. They see Konkola Deep and Konkola North as very bright prospects whose potential should be recognised and exploited as soon as possible. Mr Enoch Kavindele, the newly-elected MMD MP for Chingola (in the Copperbelt), said he was impatient to see an influx of new capital into ZCCM to get it over its chronic lack of investment and its continuing technical/production problems. However, he told African Business that he thought real movement on foreign investment and a potential Anglo shareholding would have to await the technical and financial study and an audit being carried out at the insistence of the World Bank This could take two years to complete.

While many Zambians are impatient to see progress with ZCCM's privatisation, others feel that an early input of loan capital would help. However, this is looking increasingly unlikely. The Zambian Government asked Nikko of Japan to put together a loan package for the development of Konkola Deep. This has so far proved unsuccessful. Anglo for one was strongly opposed to using loans to prop up or develop ZCCM, given the high level of indebtedness. Mr Jack Holmes' view was that further loans would be "neither possible nor prudent" in the present circumstances and that the company balance sheet couldn't sustain further commitments. He is strongly in favour of waiting for the results of the studies and then following the equity investment approach. Asked if he felt this had led to awkwardness in the negotiations between Anglo and the Government, he replied that the two had a good relationship and that in broad terms Anglo supported the Chiluba privatisation programme.

Zambian Government Ministers have been making strenuous efforts recently to reassure potential investors, particularly in South Africa, that investments in privatised Zambian companies would be secure.

Mines and Mineral Development Minister Mr Paul Kapina was in Johannesburg in late March to promise potential investors that legislation would be introduced in the near future guaranteeing private sector mining rights, investments and the repatriation of profits. He also warned against too much haste or impatience over ZCCM, telling South African businessmen that "when you talk about privatising ZCCM, you're talking about privatising Zambia".