Zambia struggles as copper price falls

Zambian firms may have to cut costs and therefore jobs

Fear exists that the falling price of copper could upset the Zambian economy, which relies heavily on copper export revenues.

Copper is now worth about 64 cents per pound, compared to 81 cents a year ago and is expected to fall further in the coming months.

Zambia's copper and cobalt mining industry is a major source of employment in the southern African country of 11 million people.

Already some projects in the country have been put on hold.

Dependent economy

The mining sector accounts for about 80% of Zambia's export revenues, Ignatius Chicha, treasurer at Citibank in Zambia, told the BBC's World Business Report, so the falling price of copper means there is potential for a huge balance of payment deficit.

Zambian companies are already reporting that they are operating at a loss this year and if this continues they will have to cut costs and therefore jobs, he added.

However Razia Khan, economist at Standard Chartered Bank said that as yet the fall in the price of copper hadn't had too much of an impact on the Zambian economy yet.

Delayed projects

"A lot of copper producers would have been hedged against the possibilty of weakness of copper prices," she told the BBC's World Business Report.

"As of yet, there hasn't been too much of a macro economic impact of the fall of the copper price in Zambia...the only difficulties they have had so far have been the delays to new copper projects...the only way to keep prices supported is to control output," she added.

The Zambian economy has been growing at a rate of 5%, helped by copper mine privatisations in the 1990s, which - though they led to job losses - in many cases helped revive the "copper belt economy".

"Those towns that were very dependent on copper mining have seen the economy improve," she added.

No surprise

The falling price of copper is set to result in job cuts across the world.

Phelps Dodge announcement last week of a 14% cut in capacity will mean about 1,440 employee layoffs.

"A cutback of any magnitude has been long coming given the weak environment that we've been experiencing, plus very high inventories," said John Gross, president of consulting firm JE Gross & Associates.

"The soft conditions were all being exacerbated by the tragic September situation."

For the copper price to recover fully, other producers should follow suit, analysts argue.

"We are looking at the lowest prices in some metals since the early 1980s as prices have been bludgeoned by the slowdown in the US and global economy," said Lawrence Eagles at Commodityexperts.com.