Plans by Zambia to set up a new state-run company to control part of the country’s critical minerals production are raising concern among industry experts.

Minister of mines and minerals development Paul Kabuswe said in late August that the new entity will control a minimum 30% of the output from new mining projects. Kabuswe said that the vehicle will allow Zambia to maximize benefits from critical minerals needed for energy transition.

Lack of detail about the planned vehicle could deter international miners from investing in the country, says South African-based mining industry veteran Tony Harwood. Zambia’s wealth of minerals makes it an attractive destination, he says. But uncertainty around the vehicle’s financial structure, how production sharing will work, and whether it will pay market prices may raise concerns about “creeping nationalisation”, Harwood says. “International companies generally seek clarity and financial stability, and this policy could be perceived as an additional layer of risk or bureaucratic complication.”

The plan, Harwood notes, lacks a definition of which minerals are considered by Zambia as “critical”. The prospect of a commodities boom means that mineral rich countries like Zambia “should be trying to incentivise international exploration and mining investment,” he argues.  “In my opinion this is going to deter investors and be seen as another hurdle or risk to overcome.”

It’s also unclear whether the new vehicle will have cash to invest in exploration and mine development, and whether it will buy shares in new mines. The plan, he says, might “sound good politically” but is likely to become an “administrative nightmare” when put into practice.

The proposal specifies that 35% of procurement costs should be spent on local suppliers. That’s a “positive target” for promoting domestic suppliers but flexible implementation is needed as Zambia currently lacks the capacity to meet this demand efficiently, Harwood says. “Mining companies typically prefer to procure locally for cost and sustainability reasons, so with the right support, Zambian suppliers could grow into the role.”

Zambia is targeting to more than quadruple annual copper production to 3m tonnes by 2030. The government needs to focus on improving its mining administration, geological data systems, and critical infrastructure such as roads, rail and power, Harwood says. “This will incentivize investment and enhance the mining sector’s productivity.”

The announcement was “strange” and “unexpected” given the pro-business agenda of Zambian President Hakainde Hichilema, says Duncan Money, a historian specialised in mining at South Africa’s Stellenbosch Institute for Advanced Study. “It doesn’t seem consistent. Zambia is worried that they are going to miss out on a critical minerals boom, but they haven’t thought through the consequences,” of the plan, he says.

Zambia, Money says, will be challenged in limiting raw exports of critical minerals by the difficulty in guaranteeing power supply. The country is suffering from prolonged power shortages, but a power surplus would be needed for reliable lithium processing. The initiative, Money says, appears to follow the example set in the Democratic Republic of Congo by state-owned mining company Gécamines, which takes a share of the output of new mines. Yet in the Gécamines case, the rules are least clear, Money says.

Zambia already has a state-owned mining investment vehicle in the shape of ZCCM Investments Holdings. “It’s not clear why a new one is being set up. The potential for confusion and institutional rivalry is considerable,” Money says. It’s not clear how the new entity will operate, or what price it will pay for minerals, he adds. A further unknown, he says, is how ‘new mines’ will be defined. There’s no indication of whether mine expansion from an existing operation will count as new.

Tanzania’s ‘resource nationalism’

Harwood is CEO of Montero Mining & Exploration, which is focused on Chile in South America. Montero is among miners who claim that changes to the country’s licensing system amounted to expropriation. Similar disputes with Australia’s Indiana Resources and Canada’s Winshear Gold have been settled, but Montero’s case is still pending at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).

Most state mining companies in Africa, Harwood argues, are a recipe for economic disaster. He points to Tanzania, where the government holds a 16% non-dilutable free carried interest in mining projects through the State Mining Corporation (STAMICO). The 16% stake is viewed as an additional cost by foreign investors, especially when combined with other government interventions in the sector, Harwood says. Many miners in the country have to wait for years for VAT refunds which are due, he adds.

The state in Tanzania lacks the capacity to influence key operational decisions, limiting any potential benefit from the structure, Harwood argues. Increased state control and renegotiation of contracts, he says, are perceived as “resource nationalism”, and discourage long-term investment.