False Economy - Alan Beattie [56]
By the time the global copper price soared again in 2006, buoyed by demand from China, Anglo had sold the mines on to a variety of foreign owners including companies from China, Canada, and India. The riches lying deep in the Zambian earth are staggering. At the prices prevailing in mid-2006, the copper deposits under Konkola Deep were estimated to be worth $1.4 trillion. Had it been free and straightforward rather than expensive and complex to extract, that would have been enough to pay off a third of America's national debt. But Zambia itself got a rather small slice of the benefit. Because they were foreign-owned, the profits from the mining operations left Zambia to be distributed to shareholders in London, India, and Beijing. Because of the strikingly generous deals needed to attract investors when copper prices were low, the companies paid little tax on profits and very low mineral royalties on the value of what they mined.
Moreover, they used largely imported machinery and equipment. The Chinese owners even brought in their own Chinese miners to work in them, much of whose wages were sent home. In other words, the majority of the value of copper mining in Zambia was most likely leaving the country. Nonetheless, perhaps because of speculative pressures in a fairly small and thin foreign-exchange market, the national currency, the kwacha, rose by 70 percent against other currencies.
Zambians had rightly been urged for decades by rich foreign-aid donors, development economists, and all and sundry to diversify their exports and rely less on copper. They had responded with an industry growing flowers, fruit, and vegetables to fly to European supermarkets, a model similar to the East African country of Kenya. Suddenly, travelers' initial impressions of the Zambian economy changed. Before they even landed and encountered the copper-ore fountain at the airport, passengers on the approach to Lusaka could see vast circles of bright green scattered over the brown landscape around the capital where mangetout, roses, and green beans were being grown for shoppers in London and Madrid. The Zambezi River, which marks Zambia's southern border, also provided the base for a growing tourist industry. Robert Mugabe's disastrous rule in neighboring Zimbabwe had at least one good side effect for Zambia: European tourists increasingly preferred to view the thundering splendor of the Victoria Falls from the Zambian side.
Suddenly, these hard-won gains were under threat from a soaring currency The value of export earnings, being in dollars, fell. The costs of domestic farmworkers and hotel staff, being in kwacha, stayed the same, and the result was a big hit on profit margins. In other words, the rise in the copper price, and with it the currency, meant that a collection of brand-new high-value labor-intensive export businesses whose benefits were mainly paid to Zambians in kwacha were being threatened by the long-established presence of dangerous, dirty mines where profits, capital investment, and some wages left the country to be handed over to foreigners in dollars, pounds, rupees, and yuan. A more poignant example of the Dutch disease would be hard to invent.
The Dutch disease is a purely economic manifestation of the resource curse, where a mineral resource crowds out potentially more profitable activity in the economy. But there is a political dimension to the overbearing dominance of a single, limited commodity as well. And, if anything, the politics has the potential to be even more inimical to development than the economics. We noted earlier in this chapter that a country does not, by and large, get rich from having a mineral resource and nothing else. So it is highly counterproductive if oil or diamonds do not just make other activities unprofitable but affect the entire mindset of the country and the motivations that spur people and businesses to engage in the economy. Oil and diamonds frequently lead to bad government and war.