Zambia’s resource problem

November 21, 2013, 12:27 PM UTC

Patson Mangunje has seen his village, Sinazeze, in southern Zambia, transform in the past 10 years. A local government representative in his sixties, he has lived here since the village was nothing more than a strip of fertile land on the way to Victoria Falls. He was in Sinazeze when five Chinese brothers arrived more than a decade ago and started a coal mine; he and his neighbors celebrated the new investment and the potential of what could come with it. He was in Sinazeze when things at the mine started to go wrong. In 2008 his son Bruce quit the mine after working there for four years — he said his Chinese supervisor had beaten him. In 2010 a protest by the local miners for higher wages ended after their Chinese bosses opened fire and several ended up shot. Last year Mangunje’s son-in-law died in an accident — trapped under falling rocks — in the mine. Also in 2012 a huge, chaotic protest led to the death of a Chinese supervisor who was crushed in the mine by a trolley. The Zambian government took control of Collum Coal Mine earlier this year, but Mangunje remains incensed. “There is proper negligence underground,” he says. “The situation at the mine took us back to colonialism, where we had no say.”

Zambian officials say its foreign mining investors are bringing back colonialism in a different kind of way. (Zambia, a sliver of a nation with 14 million people and a $20 billion budget in southern Africa, was a British colony until 1964.) The country’s mining sector, known for its lucrative copper mines, accounts for only 5% of government revenues, according to the Zambia Development Authority, despite investments of more than $8 billion into the industry since 2000. The government has said that it loses up to $2 billion a year because of corporate tax avoidance; it recently reinstated a 10% tax on unprocessed mineral exports in hopes of gaining back some of that loss. Collum, for example, hadn’t paid taxes in years. “Collum Coal Mine was caught up by the new strategies of the new government,” Mooya Lumamba, director of mines, tells Fortune. “There will be a lot of other mines following, and we will be revoking licenses.”

The growing tension between Zambia and its foreign investors is not new. While running for office in 2011, President Michael Sata capitalized on anti-Chinese sentiment, even threatening to deport Chinese business owners. Once elected, he began to court China’s investment funds. “It’s not even the Chinese per se, who have only been really investing over the last 20 to 25 years. It’s our failure to enforce existing good legislation,” says Oliver Saasa, a Zambian development expert. “If you look at the mines, they don’t even record what they’re producing, the cost of production, how much they’re exporting.”

Zambia’s people, over half of whom live in poverty, are doubtful they will ever get their own share of the country’s abundant resources. China has invested more than $2.5 billion in Zambia and created thousands of jobs. Nevertheless, Zambians say they fear those new jobs will go to Chinese immigrants, who have already entered the country’s market for unskilled work. “There’s no cap on Chinese immigration,” says Fackson Shamenda, Zambia’s labor and social security minister. “When we don’t have the skills, we allow in those skills to fill the gap.”

“We have to do things in accordance with local culture, which is hard to learn,” Chai Zhijing, the Chinese embassy’s commercial counselor, says of the culture clash. “We’ve been here only 20 years. Our Zambian colleagues are quite familiar with the British because they were here for centuries. But since we’re relatively new, it takes time for both sides to understand each other.”

The author’s reporting in Zambia was supported by a grant from the Pulitzer Center.

This story is from the December 09, 2013 issue of Fortune.