JAMES GORDON: What Zambia and SA have learnt about private sector investment

In both SA and Zambia, the state needs private investment to deliver on its development agenda. However, in both cases, the governments risk overplaying their hands in setting the terms of investment, leaving themselves — and their people — high and dry.

In SA, Sasol will stop supplying natural gas from Mozambique when its contract with the country ends in June 2026. Developing domestic alternatives to preserve energy security, and to vary the national mix of primary energy sources, is therefore high on the government’s agenda.

In Zambia, the government is determined to capitalise on the growing boom in demand for copper, thanks to the metal’s centrality to “green” technologies. The Zambian government has vowed to increase production of the metal from less than 800,000 tonnes a year to 3-million by the 2030s. In doing so, it hopes that a boom in mining will catalyse growth throughout the economy, thereby shifting Zambia on to the road to middle-income status.

SA is a mining colossus, but an oil and gas minnow. There have been few discoveries, and little to no experience of deepwater oil and gas exploration, let alone offshore resource development. This is important, because many of the major finds recently discovered in Southern Africa — in Mozambique, Namibia and SA — are offshore. Zambia has long been associated with copper mining, but the task it has set itself is beyond the means of domestic players. Of the 3-million tonnes of copper targeted annually, more than half of that will need to come from resources that have not yet been discovered. That means investment in exploration — a high-risk activity — on a previously unimagined scale.

To deliver on these ambitions, and given their domestic limitations, both countries will need vast amounts of capital and technical know-how from foreign investors and companies. Let us be clear: nothing will happen without it.   

However, apart from the macroeconomic benefits of a boom in copper mining or a plentiful supply of gas, both SA and Zambia want to ensure they receive a high level of benefit from the projects themselves. Though appropriate, this approach requires a careful balancing act, because an increase in the state’s share means a decrease in the return on investment. Get the balance wrong, and the result could discourage investors altogether, and undermine the greater objective of increasing the overall amount of investment flowing in. 

Recent events indicate that both countries have yet to find the right balance. The question is: will they take heed and adapt?

The Brulpadda and Luiperd gas fields were discovered in February 2019 and October 2020 by TotalEnergies, the French oil major. They are both situated in deep waters about 175km off the southern coast of SA, in an area that is known for its harsh conditions. These are both very significant finds, and on the original time frame would have been in production by 2026 — right in time to plug the looming supply shortage.

However, in August this year, TotalEnergies announced it was pulling out of the project. TotalEnergies has maintained a diplomatic silence, but in an interview with the Financial Times on September 3 2024, energy and electricity minister Kgosientsho Ramokgopa said the government “could have done better to ensure this resource could be exploited in a more commercially attractive sense”. Co-investors and business groups were more explicit, blaming PetroSA for foot-dragging on commercial arrangements, and the government for “dramatic flip-flops” in the regulation of the sector, including the introduction of a 20% “free-carry” interest for the state in new exploration projects.     

In Zambia, the UPND government of President Hakainde Hichilema has worked hard to undo the damage caused to investor sentiment by the previous government. A former businessman, Hichilema understands that a good deal is one that is good for both parties.

A regular at Cape Town’s Mining Indaba, his message of reassurance has reaped dividends, with billions of dollars in mining investment announced since 2022. However, in the past year, as the El Nino-driven drought has taken hold, hitting both food production and electricity generation, a new urgency for immediate returns has taken hold.

Widely anticipated mining reforms have veered from the promise of removing the stumbling blocks to investment, to the language of 30% “acquired” interests for the state, and “production sharing”. This is still an evolving situation, and key pieces of legislation have yet to be finalised. However, the sharp turn in rhetoric has unsettled the investors on which the country is reliant.

While there is nothing wrong in taking a strong stance in a negotiation, a wise negotiator will do so only once he has defined the “zone of possible agreement”. That is, the range within which two or more parties can find sufficient common ground to reach a mutually acceptable agreement. The only way to define this zone properly is to understand the needs, fears and desires of those on the other side of the negotiation. This means relentlessly asking probing questions or — in the language of public-private negotiations — meaningful, prior engagement and consultation.

In both SA and Zambia, the situation is complicated by low trust. The parties distrust each other’s motives, and consequently the data that is shared. In cases like this, it is vital that the parties find reliable, mutually trusted, third-party sources of information from which they can each work, which then helps them both to land proposals within the zone.

In both cases here, the governments — for they are the ones defining the terms, through the drafting of legislation — have not been able to accurately define the zone of possible agreement. In the case of SA and TotalEnergies, the one party has walked away from the table. In Zambia, there is still all to play for.

• Gordon, a former UK barrister, is an accredited commercial mediator and executive director of dispute resolution consultancy Concentric Alliance.