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High Unemployment Spurs Countries to Intervene With Some of Their Biggest Investors
Johannesburg and Kampala, Uganda – When Vedanta Resources Ltd. VED.LN +0.24% tried to lay off 1,500 workers at its Zambia copper mine last month, the company’s top manager in the country was the one whose job came under fire.
Vedanta had planned to cut 7% of the workforce at its Konkola Copper Mines operation, Zambia’s second-biggest copper project, due to weaker prices. But the proposal so incensed the government that Zambian President Michael Sata threatened to cancel the company’s mining license if a single job was lost.
Shrugging off the threat as “mere rhetoric,” Konkola Copper Chief Executive Kishore Kumar fired 76 workers anyway.
The government responded by revoking Mr. Kumar’s work permit and accusing him of fleeing the country, after he missed a meeting with the interior minister. “He should consider himself not wanted in Zambia anymore,” Interior Minister Edgar Lungu said at the time.
London-based Vedanta says Mr. Kumar had left for a previously scheduled business trip and assumed that the ministry meeting could wait until he returned.
As mining companies across Africa seek to lay off workers because of weaker commodity prices, African governments are fighting back. That has created strains between officials in emerging economies and some of their biggest investors.
“If we can’t cut costs at operations when commodities prices fall, that is a concern,” says Ivan Glasenberg, CEO of Glencore Xstrata GLNCY -0.45% PLC. The Swiss mining company has operations in 17 African countries, including Zambia, South Africa and Congo. If governments “hurt us too hard,” Mr. Glasenberg says, “we won’t throw more money at a country.”
The governments, meanwhile, face restive—or outright rebellious—populations that have meager job prospects.
Such tensions mark a sharp shift from the days of Africa’s commodity boom, when companies were jostling for access to the continent’s mineral-rich countries. Two years ago, gold was at a record around $1,900 a troy ounce, copper traded at $10,000 a metric ton and platinum at $1,900 a troy ounce. Those prices have dropped 34%, 45% and 25%, respectively.
“Governments need to realize that the profits of yesteryear are gone,” says Claude Baissac, the managing director of Eunomix, which advises mining companies in sub-Saharan Africa. “It’s the disinvestment they need to worry about now.”
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