Productivity Change in Zambian mining

By C. E. MOODY, Jr. and NORMAN KESSEL

I. IntroductionAN ANALYSIS of productivity change is an attempt to estimate the relative contributions of capital, labour and other factors ofproduction to the observed growth of output. The results of such an analysis could have important implications for future growthprospects. An analysis of Zambian mining is of interest because of the importance of Zambian copper production to worldsupplies. Zambia ranks third in the world behind the United States and Russia in copper production. Also, in 1969 for example, thecopper industry accounted for 52 percent of the net domestic product, 59 percent of government revenue, and 97 percent of totalexports. As a result, the productivity record of Zambian mining is crucial in estimating the growth prospects for the Zambianeconomy. Finally, the copper industry faces one of the most unstable markets. The analysis of the Zambian copper industry maygive some indication of the effects that unstable demand and price conditions have on primary producers.The analysis is performed on a relatively disaggregated, homogeneous industry. This allows some marked advantages in thehandling of the basic data. We are able to use gross output and input series rather than the usual value added series. We are alsoable to use output in physical units rather than the usual constant monetary units.In the next section we briefly review the growth of Zambian metal production and labour productivity, which constitutes the initialdata to be analyzed. Section III outlines the methodology and discusses the quality and relevance of the available data. Thedetailed productivity analysis is carried out in Section IV, and the sources of the observed technical change are discussed inSection V.

II. The Growth Record of Zambian Mining, 1954-66Output, employment and labour productivity figures are presented in Table 1. Output is simply the total yearly output of copper,lead and zinc, in tons. Employment is the yearly average of Africans and Europeans at work, both surface and underground, inthousands. Labour productivity is measured by output per head in column 3 and the rate of growth of output per head is given incolumn 4.Total output of copper, lead and zinc increased from 388,550 tons in 1954 to a maximum of 834,700 tons in 1965, while employmentincreased only six percent, from 46,550 to 49,250 in the same period. The resulting increase in

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output per man year is reflected in column 3. Output per man increased from 8·33 to 16·95 tons, or 200 percent in eleven years. Therate of growth of output per head has been anything but steady, ranging from a 25 percent increase in 1959 to a 13 percent declinein 1966. The average rate of growth of output per head over the period was a respectable 5·18 percent (which rises to 5·98 percent ifwe exclude the years 1954 and 1966). This growth was accomplished in the face of widely fluctuating demand. It is this increase inproductivity that we are attempting to explain.

III. Methodology and DataWe know from the accounting identity that the value of output must equal the value of total input in any period. From this identitywe can derive the rates of growth of total output and total factor input [12]. Any increase in output that is not accounted for byincreases in total input is the "residual" and is usually attributed to technical progress and improved input quality. The growth oftotal output is calculated as the weighted average of the rates of growth of copper, lead and zinc, in tons. The weights are thecorresponding value shares of copper, lead and zinc in total value of output.*(1) The index of total factor input is constructed asthe weighted average of the growth rates of European labour, African labour, capital stock, and raw materials. The weights are thecorresponding factor shares in the total value of output. The fundamental equation, for each year, is

where VC , VLD, and VZ are the value shares of copper, lead and zinc output and WE, WA, WK, and WR. are the factor shares of

European labour, African labour, capital stock and raw materials respectively. The remaining term, ∆P/P is the index of total factorproductivity, calculated as a residual. It can be shown (12, p. 253) that ∆P/P measures shifts in the production function as opposedto movements along it on the assumption of producer equilibrium.The output and value of output series are taken from the Copper Industry Service Bureau (formerly the Northern RhodesiaChamber of Mines) Year Books [7], in short tons and current pounds sterling, respectively. The use of gross output seriesnecessitates the use of gross input series in order to conform and this also reduces the load of assumptions needed to justify net

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output series. One problem with the use of output in physical units is that there may be declining ore quality over time. This wouldbe reflected in higher costs associated with a final product of constant standard and would be represented in the productivityanalysis as a negative change in the residual. The Copper Industry Service

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Bureau publishes series on tons of ore hoisted and tons of copper produced. Taking tons produced as a percentage of tonshoisted as a measure of ore quality, it was found (Table 2) that this ratio was virtually constant over the period, varying from 2 · 5 to2·7 percent. Although the copper content of the ore may have been declining for some individual mines, the opening of new minesand improved beneficiation techniques acted to offset such effects for the Copperbelt as a whole. We can conclude that decliningore quality was not a significant drag on growth.The Year Books give employment figures for Europeans and Africans in copper, lead and zinc mining in all years except 1954, 1962and 1963. In these years only employment in copper mining was reported. The figures for lead and zinc employment were estimatedfrom separate Ministry of Mines labour reports [13] on the assumption that employment in quarrying, with which metal mining wasaggregated in those reports, was constant at its 1955 level for the 1954 estimate and at its 1961 level for the 1962-63 estimates. Sincequarrying activity is tiny compared with that of metal mining, the effects of this assumption are probably minor.It is unfortunate that the number of shifts worked per year are only occasionally reported in the Year Books. We are thereforeforced to use employment (man-years) rather than the more sensitive man-shifts as our labour input. Denison [10] notes thatemployment is an upper limit on labour input while man-hours are a lower limit. We therefore assume that standard hours did notchange over the period, a realistic assumption for Zambia. The use of labour input disaggregated only as far as European andAfrican categories results in changes in labour quality (health, training, age, etc.) being included in the residual measure oftechnical change. Some changes in labour quality are estimated in Section V.The shares in output of copper, lead and zinc, and the factor shares of African and European employees are derived from YearBook series. We make the realistic assumption that wage rates are constant across mines.The raw material inputs series was derived from several sources and presented some difficulties. Because of its non-homogeneouscomposition (explosives, timber, fuel, etc.) the raw materials series could not be in physical units. The Census of Production (4)gives purchases of intermediate inputs by the metal mining sector in current prices for the years 1955-64. This series was deflatedto constant 1954 prices by the implicit price deflator for gross national product from the Monthly Digest of Statistics (5).*(2)Raw materials purchased were divided into supplies consumed and supplies added to stocks with the aid of the series on stocks ofraw materials from The Census of Production. Consumption of raw materials was estimated as purchases minus net stockchange. The 1954 figure

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was estimated on the assumption that there was no net stock change. The 1965-66 figures were taken from the Zambianinput-output tables published in the National Accounts [6].The capital share was estimated as the remainder after payments for labour and raw materials consumed. The capital input isassumed to be correctly measured by the sum of the undeflated book value of depreciable assets plus inventories and accumulateddepreciation. The series on depreciation and book value of capital stock were derived from the company reports of Zambian-AngloAmerican Corporation and Roan Selection Trust, Limited, and also summarized balance sheets in the Year Books. Because of datalimitations (Zambian national accounts go back only to 1945) it was not possible to construct an index with which to deflate bookvalue of capital stock to constant values. However, since Copperbelt mining uses the most modern techniques available, it may notbe far off the mark to apply an index based on United States data. To this end the index developed by Creamer, Dobrovolsky andBorenstein for expressing capital in book values in U.S. metal mining (8, Table B-14, p. 322) was applied to the book value ofdepreciable assets on the Copperbelt in 1954.*(3) The remainder of the series was generated by deflating gross investment incurrent values by the implicit price index for gross national product from the Zambian national account [6]. It will be seen belowthat the substitution of this series for book value of capital stock makes no great change in the results of the productivity analysis.

IV. Productivity AnalysisThe necessary data for the productivity study is presented in Tables 3 and 4. The results of the analysis are presented in columns 1and 2 of Table 5. The average rate of growth of total mining output is 6 · 52 percent per year over the period. The average rate ofgrowth of total factor input was 3 · 81 percent per year, of which nonlabour inputs account for 88 · 5 percent. The residualattributable to technical progress is therefore 2 · 71 percent per year. Thus we conclude that the growth of total factor inputsexplains 58 percent of the growth of output and leaves 42 percent attributable to technical progress. Of the observed growth ofoutput, 0 · 6 percent is directly attributable to increased employment of African labour, 0 · 06 percent to increased European labour,25 percent to capital stock, and 33 percent to raw material inputs.*(4)

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The relative importance of technical change in the explanation of the growth of Zambian mining corresponds closely with thepost-war experience of the United States (see Denison [9], Table 15-3, p. 192). Of the growth of U.S. net national product at factorcost, total factor input explained 58 · 7 percent while

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the remaining 41·3 percent was attributable to technical progress. In general, our analysis indicates that the Zambian miningindustry has a productivity record similar to the United States and other developed countries despite the difficulties in planningand production created by the unstable demand for its output and the economically backward environment in which it has had tooperate.One noticeable difference between the Zambian and United States records is the relative importance of the various factors ofproduction in economic growth. According to Denison's analysis, 33·7 percent of the growth of U.S. national income is attributableto labour, 25 percent to capital. This contrasts markedly with our estimate of only 0·67 percent of the growth of Zambian miningoutput attributable to labour. There are several possible explanations of this difference. The first is that our use of a gross ratherthan value added measure of output affects the estimates of the relative importance of the factors of production and changes thevalue of the residual [11]. Another explanation could be in the effects of the industrial colour bar which prevented substitution ofAfricans for expatriates. As African wages increased relative to expatriate wages this first encouraged mechanization of Africanpositions by Africans, but later led to Europeanization so that the in service ratio of Africans to Europeans declined from 7·0 : 1·0 in1953 to 4·9 : 1·0 in 1963. Another explanation is that the quality of labour, especially African labour improved substantially over theperiod, and because we make no adjustment for qualitative improvements, it is absorbed into the residual. In the next section weattempt to estimate the importance of this effect, which is essentially the embodiment of technical progress in labour. Finally, therelative unimportance of labour to the growth of copper output may be due to a conscious policy of labour saving innovation onthe part of the mining companies in the face of rapidly rising wages and monopoly trade unions [1].*(5)

V. Sources of Productivity GrowthWe have seen that the increase in total factor productivity explains 42 percent of the observed growth of mining output. However,since this is a residual it may not be correct to equate it with technical progress.One important source of the growth of productivity is the improvement in labour quality. In Zambian mining, nearly all of thenecessary skills are acquired in training programs at the mines themselves. We would expect, therefore, that as the average lengthof service increased, the level of skill of the labour force would rise accordingly. Table 6 gives the average length of service forAfrican and European employees, from Year Book tables and shows that length of

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service of Africans has been increasing steadily at an average rate of 4 · 83 percent per year, while the length of service ofEuropeans has been growing less steadily at the lower rate of 2 · 03 percent. Using the average length of service series as an indexof labour quality and adjusting by that index leads to the revised productivity analysis presented in Table 5, columns 3 and 4. Theamount of growth explained by African labour has increased from six-tenths of one percent to over 8 · 5 percent. The increase inEuropean labour now accounts for 5 · 06 percent instead of the original 0 · 06 percent. As a result of this adjustment total factorinput accounts for an estimated 71 percent of the observed growth of output and the residual is 29 percent. Even so, we note thatlabour is still a relatively unimportant source of growth compared with that of the United States, for example.We have not adjusted labour or capital for utilization in the original analysis. The Year Books publish series on both employees atwork and employees in service. Obviously, as the number of days lost through strikes, accidents and other causes increases theratio of employees at work to those in service falls. Table 7 gives the ratio of employees at work as a percentage of those in service,for all labour.Examination of the table shows that 1955, 1958, 1963 and 1966 were years in which abnormally large numbers of man-days were lost.Year Book texts reveal that there was a major three month strike by Africans in 1955; a 71/2 week strike by Europeans in 1958; a21/2 month strike at one mine and a general 5 week strike by Africans in 1963. In 1966 there were two major strikes of three weekseach that shut down the entire Copperbelt. Moreover, there were disciplinary problems in 1965 and 1966 when the Zambianizationprogramme was instituted. Over the period, the average utilization ratio for labour was 89 · 89 percent. An index of labour utilizationwas constructed by adding 100 to the deviations from this average, on the assumption that there must always be some men absentfrom work due to sickness, accident or holidays. Adjusting both African and European labour by this index we get the revisedproductivity analysis presented in Table 5, columns 5 and 6. Adjusting for labour utilization reduces the contribution to growth ofAfrican labour to 7 · 98 percent, and the contribution of European labour to 3 · 63 percent. The utilization adjustment thus serves tooffset partially the adjustment for improved labour quality. Total factor input now accounts for 69 · 33 percent of the growth ofoutput.

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Applying the same utilization figure to capital on the assumption that labour and capital lie idle to the same extent (probably anunderestimation of the utilization of capital) reduces the contribution of capital to 19 · 94 percent and total factor input to 64 · 27percent. After all these adjustments, technical progress still accounts for 35 · 73 percent of the observed growth of output.We have noted that the price of copper is very unstable. For example, the London Metal Exchange price of copper ranged from alow of £198 per long ton in 1958 to a high of £550 in 1966, yearly averages. However, in 1964, a particularly bad year, the averagemonthly price went from £238 in January to

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£507 in November and down to £362 by the following January [7]. As a result of these wide fluctuations, standard methods of mineevaluation are almost useless given that new shafts must be considered 10 years ahead and haulages 3-5 years ahead. On the otherhand, the fluctuating product price seems to have spurred technological change."We knew at some time we would be required to face sharply lower product prices and we would have to prepare the mineaccordingly. Indeed, this was best done during good times, when it was easy to siphon off money from profits to provide capitalfor improvement projects giving long-term savings." [3, p. 111].In conclusion, we find that Copperbelt mining displays the sort of productivity record that one expects of advanced countries, withapproximately 36 percent of the growth of output attributable to technical progress. This record has been maintained in the face ofvery unstable demand. The relatively low contribution of labour to the growth of copper output, even after adjustment forimproved labour quality, may be due to deficiencies in the data (we have made no adjustment for education levels) but are probablydue at least in part to the rapidly rising wage rates from trade union pressure. The resulting rise in the capital-labour ratio reducedthe contribution that the Copperbelt made to the rest of the Zambian economy, given that the expenditures for capital equipmentwere made in great part overseas. In the absence of any reduction in the relative increase of wage costs, the Copperbelt can be onlyan advanced industrial sector further isolated from the rest of the country.C. E. MOODY, JR., College of William and Mary, Williamsburg, Va.NORMAN KESSEL, Imperial College of Science and Technology, London[Tables 1-6 : pp. 68-71]

References[1] BALDWIN, ROBERT E., Economic Development and Export Growth: A Study of Northern Rhodesia, 1920-1960,Berkeley. University of California Press, 1966.[2] BENNETT, O. B. "Improvement in Plant Practice and Labour Utilisation at Rhokana Corporation, Limited." Journal of theSouth African Institute of Mining and Metallurgy (May, 1958), 457-483.[3] BENNETT, O. B. "Improvement in Plant Practice and Labour Utilisation at Rhokana Corporation Limited: Introduction to a Paperby O. B. BENNETT (Member)." Journal of the South African Institute of Mining and Metallurgy (September, 1958), 110-116.[4] CENTRAL STATISTICAL OFFICE. Census of Production. Lusaka: Central Statistical Office, various annual issues.[5] CENTRAL STATISTICAL OFFICE. Monthly Digest of Statistics. Lusaka: Central Statistical Office, various monthly issues.[6] CENTRAL STATISTICAL OFFICE. National Accounts. Lusaka: Central Statistical Office, various annual issues.[7] COPPER INDUSTRY SERVICE BUREAU (formerly Northern Rhodesia Chamber of Mines). Copperbelt of Zambia MiningIndustry Year Book. Kitwe: Copper Industry Service Bureau, various annual issues.[8] CREAMER, D., S. DOBROVOLSKY and I. BORENSTEIN. Capital in Manufacturing and Mining. Princeton. PrincetonUniversity Press, 1960.[9] DENISON, EDWARD F., Assisted by JEAN-PIERRE POULLIER. Why Growth Rates Differ: Postwar Experience of NineWestern Countries. Washington, D.C.: The Brookings Institution, 1967.[10] - "Measurement of Labour Input: Some Questions of Definition and the Adequacy of Data." Conference on Research inIncome and Wealth. Output, Input and

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Productivity Measurement. Studies to Income and Wealth No. 35. Princeton: Princeton University Press, 1961, pp. 347-372.[11] DOMAR, EVSY D. "On the Measurement of Technological Change." Economic Journal LXXI (December, 1961), 709-729.[12] JORGENSON, DALE W. and GRILICHES, ZVI. "The Explanation of Productivity Change." Review of Economic StudiesXXXIV (July, 1967), 249-283.[13] Ministry of Mines. Manpower Reports. Lusaka: Government Printing Office, various annual issues.[14] U.S. DEPARTMENT OF COMMERCE, Office of Business Economics, The National Income and Product Accounts of theUnited States, 1929-1965. Washington: U.S. Government Printing Office, 1966.TABLE 1

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Output, Employment and Productivity, 1954-66

Year Output (thous.tons)

Employment(thous.)

Output per Head(tons)

Growth of outputper head (percent)

1954 387.55 46.55 8.33 -

1955 433.95 45.17 9.61 15.37

1956 495.64 47.82 10.36 7.80

1957 524.63 48.85 10.74 3.67

1958 484.29 41.95 11 54 7.45

1959 643.34 44.56 14.44 25.13

1960 679.22 46.62 14.57 0.90

1961 679.75 48.94 13.89 - 4.67

1962 674.39 47.75 14.12 1.66

1963 715.97 46.88 15.27 8.14

1964 755.92 47.87 15.79 3.41

1965 834.70 49.25 16.95 7.35

1966 747.11 50.67 14.74 - 13.04

Source Copper Industry Service Bureau (formerly Northern Rhodesia Chamber of Mines) Year Books [7]TABLE 2Index of Ore Quality

Year Ore Hoisted(1000 tons)

Copper Produced(1000 tons)

Ore Quality (2) =(1)

1954 n.a. 346 n.a.

1955 15098 390 . 026

1956 17660 435 . 025

1957 18905 480 . 025

1958 17519 441 . 025

1959 22511 595 . 027

1960 24971 635 . 025

1961 23763 634 . 027

1962 23431 620 . 026

1963 25011 648 . 026

1964 27388 697 . 025

1965 30801 767 . 025

1966 27750 687 . 025

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TABLE 3Indexes of Outputs and Inputs, 1954-1966 (1954=100)

Year Copper (1) Lead (2) Zinc (3) AfricanLabour (4)

EuropeanLabour (5)

Capital Stock(6)

IntermediateInputs (7)

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TABLE 4Product and Factor Shares(percent)

Copper VC(1)

LeadVLD (2)

Zinc VZ(3)

AfricanLabour WE(4)

EuropeanLabour WE (5)

Capital WK(5)

IntermediateInputs WR (7)

1954 96.3 1.5 2.2 6.1 16.2 57.4 20.3

1955 96.5 1.4 2.1 5.5 14.5 62.8 17.2

1956 96.5 1.4 2.1 6.7 14.8 59.2 19.3

1957 95.8 1.6 2.6 10.5 19.0 42.2 28.3

1958 96.0 1.3 2.7 11.5 22.2 24.0 42.3

1959 97.2 0.8 2.0 8.6 15.8 52.7 22.9

1960 97.1 0.8 2.1 9.4 16.6 45.7 28.3

1961 97.5 0.7 1.8 10.3 17.8 42.9 29.0

1962 97.6 0.6 1.8 10.4 18.3 36.7 34.6

1963 96.5 0.8 2.7 10.4 17.1 36.3 36.2

1964 95.7 0.8 3.5 10.6 14.5 49.6 25.3

1965 96.1 1.2 2.7 10.4 11.6 49.9 28.1

1966 97.5 0.7 1.8 9.8 10.5 54.8 24.9

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TABLE 5Summary Analysis

%Points*(6) (1)

%Explanation*(7)(2)

%Points*(8) (3)

%Explanation*(9)(4)

%Points*(10) (5)

%Explanation*(11) (6)

%Points*(12) (7)

%Explanation*(13) (8)

Cross Output 6.52 - 6.52 - 6.52 - 6.52 -

African Labour 0.04 0.61 0.56 8.59 0.52 7.98 0.52 7.98

European Labour 0.004 0.06 0.33 5.06 0.24 3.68 0.24 3.68

Capital 1.63 25.00 1.63 25.00 1.63 25.00 1.30 19.94

Raw Materials 2.13 32.67 2.13 32.67 2.13 32.67 2.13 32.67

Total Input 3.81 58.34 4.56 71.32 4.52 69.33 4.19 64.27

Technical Change 2.71 41.66 1.87 28.68 2.00 30.67 2.33 35.73

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TABLE 6Average Length of Service, Years

Year Africans Europeans

1954 4.3 5.0

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1955 4.3 5.0

1956 4.7 5.1

1957 4.9 5.3

1958 4.9 5.4

1959 5.2 5.6

1960 5.2 5.6

1961 5.6 5.5

1962 6.2 6.0

1963 6.7 5.6

1964 7.0 5.8

1965 6.9 6.4

1966 7.5 6.3

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Endnotes1. Other minerals, especially cobalt are coproducts of copper production. These represent a very small part of the total value ofoutput (less than three-tenths of one percent over the period covered). We therefore ignore these coproducts and effectivelyinclude their weights to the copper share.

2. The implicit price deflator for gross national product was chosen over other deflator, because the product composition ofintermediate input purchases was not known To the extent that many materials arc purchased abroad, this domestic deflator isinappropriate. It is, however, the best available.

3 The Creamer index refers to 1953 instead of 1954. The index was reflated to constant 1954 prices by the imp licit price index forproducer's durable equipment expenditures from the U.S national income accounts [14].

4 The use of capital stock to constant prices yields the following results The contributions of European and African labour and rawmaterials are unchanged. The contribution of capital is reduced by 0 29 of one percentage point from 1·63 to 1·34 points Thecontribution of the residual is correspondingly increased from 2·71 to 3·01 percentage points The residual accounts for 46·1 percentof the growth of output instead of the original 41·7 percent.

5. O B. Bennett, General Manager of the Rhokana Corporation, one of the largest of the Copperbelt operations, noted that labourcosts rose over 200 percent from 1947 to 1958 while the cost of a typical machine increased 102 percent. "It is of course thisincrease [in costs] which has been one of the main driving forces behind the program of labour education and which has enabledus to introduce mechanization to a greater degree than might be justified elsewhere in Africa. [3, p 112].

6Labour unadjusted for quality change.

7 Labour unadjusted for quality change.

8Labour adjusted for length of service.

9Labour adjusted for length of service.

10Labour adjusted for length of service and utilization.

11Labour adjusted for length of service and utilization.

12Labour and capital adjusted for utilization.

13Labour and capital adjusted for utilization.

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