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JOHANNESBURG — Just three years ago, Zambia was the darling of international investors. Its debut euro bond was oversubscribed by a spectacular 15 times, attracting orders of nearly $12-billion (U.S.), even though it was offering lower interest rates than some developed-world bonds.
The copper-rich African country, newly anointed at the time as a “middle income nation” by the World Bank, had become a favourite of Canadian mining companies, including Barrick Gold Corp. and First Quantum Minerals Ltd., both of which were among Zambia’s biggest private employers.
Swiss-based mining giant Glencore PLC was another major player in Zambia as the country became the second-biggest copper producer in Africa. Copper accounted for 70 per cent of Zambia’s export earnings and there seemed no end to the boom.
But today Zambia is a lesson in the perils of over-dependence on a single commodity and a handful of multinational mining companies. The copper boom is over, Glencore has fallen into a cost-cutting crisis, Zambian mines are being shuttered and Zambia’s currency has been the worst-performing in the world this year. Its euro bond interest rates have soared to nearly 12 per cent in recent weeks.
Declining copper prices and a severe electricity shortage are the biggest reasons for Zambia’s tumble. Its currency, the kwacha, has lost about 50 per cent of its value against the U.S. dollar over the past year, fuelling higher prices on imported goods. The price of Zambia’s main food staple, maize meal, has jumped by 20 per cent this month because of higher input costs.
Copper prices have weakened by more than 20 per cent over the past year, mostly because of softer demand from China, Zambia’s biggest trading partner.
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