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UPDATE 2-Zambian president threatens Vedanta unit over job cuts

Chris Mfula
Monday, 4 Nov 2013 | 9:50 AM ET

* Zambia warns may revoke Konkola licence

* Copper mining firm plans to scrap over 1,500 jobs

* Sata's populism may deter investors

LUSAKA, Nov 4 (Reuters) - Zambian President Michael Sata threatened on Monday to revoke the licence of Konkola Copper Mines (KCM), owned by London-listed Vedanta Resources, if it goes through with a plan to lay off more than 1,500 workers.

Lusaka made a similar ultimatum last month against South African retailer Shoprite, raising investor concerns in Africa's top copper-producing country.

"If he is threatening to lay off people let him lay off one and we will take away the licence from him," Sata told state-run ZNBC radio, referring to Konkola chief executive Kishore Kumar, who announced the plan to cut jobs last week.

The company said on Friday that it plans to trim away about 7 percent of its work force of 22,000, including contractors, by March as it begins to mechanise operations.

"We have been informed of the president's statement and we shall endeavour to engage the head of state over the matter," a Konkola spokeswoman told Reuters.

Sata is a populist swept to power two years ago on an activist platform that promised to defend workers in the impoverished southern African country.

"Sata's interventions are getting ridiculous and really clouding the investment outlook for particularly FDI (foreign) investors," said Chris Becker, Africa market strategist at ETM Analytics.

"Although Zambia's labour laws on paper are quite liberal and give companies significant flexibility, Sata is getting increasingly dictatorial and populist in his interventions."

If Vedanta were to pull out - and KCM is an underperforming asset - it would have huge consequences as it is the biggest private sector employer in Zambia.

Vedanta, an Indian oil and gas and mining conglomerate, bought KCM a decade ago after the exit from Zambia of previous owners Anglo American.

But the business, which was intended as part of a push beyond India and as an effort to boost copper exposure, has repeatedly disappointed the market, its margins dragging behind more lucrative Vedanta divisions like zinc or oil and gas.

Most recently, it downgraded production expectations for the full year after mined metal dropped by a fifth in the first half. Zambia accounted for just 5 percent of Vedanta's core profit in the year ended in March 2013.

The government last month threatened to shut Shoprite stores after the South African company fired 3,000 workers who went on strike over pay. Shoprite, Africa's biggest retailer, subsequently backtracked on the sackings.

BONDS VERSUS FDI

Zambia now aims to borrow nearly $2 billion from domestic and foreign markets to fund its 2014 budget deficit and is becoming more reliant on portfolio versus FDI inflows after a successful debut $750 million Eurobond launch last year.

ETM's Becker said Sata's moves "will continue to result in a changing structure of Zambia's external financing from FDI to more volatile and unpredictable inflows to sovereign bonds".

Zambia is not alone when it comes to heavy state or political intervention to protect jobs in a region where unemployment levels are high and much of the work force is still comprised of subsistence farmers, putting a high social premium on a regular wage.

Senior officials with South Africa's ruling African National Congress threatened the licences of Anglo American Platinum earlier this year over its plans to cut up 14,000 jobs as it crafted a plan to restore profits.

Amplats, a unit of Anglo American, has since rowed well back on this target under intense government and union pressure.

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