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Tuesday, 27 May 2008

Sharing the proceeds of mining, 2nd Edition

Nkana Member of Parliament Mwenya Musenge is calling for government to immediately establish a mining communities development fund to benefit residents of mining areas. Warning that should government fail to establish the fund, people living in mining communities would have no option but to start agitating for it.

.....Many countries in the world have a development fund that benefits communities that live in mine areas. If we do not establish this fund in Zambia, even the mine developments that we are talking about like in North Western Province and Southern Province will not amount to anything.....There’s so much excitement for North Western Province but many years down the line, once the investors have made their profits and when there is no more mining to talk about, we’ll just be lamenting like we are doing for the Copperbelt.....the government should retain at least 40 per cent of the profits from the mines to benefit mining communities and cities....This money could be shared between the local authority for that particular town and communities surrounding the mine....
A previous blog articulated the same concerns noting that in sharing the proceeds of mining expansion, for distributional reasons, we must first and foremost seek to deliver a favourable outcome to the Zambian miner and the local community. The remaining revenue can then be used by central government to fund strategic infrastructure. However, we also need to ensure that additional revenues are free from corrupt activities and are not mired in the web of bureaucracy. These two issues certainly looms large at both the central and government levels, and any new mechanism must deal successfully with both.

16 comments:

  1. the government should retain at least 40 per cent of the profits from the mines to benefit mining communities and cities

    What does he mean by that ?
    Is it about transfering 40% of the mine-related tax receipts to the local government or does he actually think about a 40% tax for the local communities ?

    Between that and the fact that he doesn't quite say what the devellopment fund would do and how it's supposed to benefit the communities, I'll just say that he needs to work on his case a bit and actually try to explain what he's trying to achieve.

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  2. Cho,

    However, we also need to ensure that additional revenues are free from corrupt activities and are not mired in the web of bureaucracy. These two issues certainly looms large at both the central and government levels, and any new mechanism must deal successfully with both.

    I have never understood why it was so hard to track government money.

    I think we should get rid of simple disbursement of government funds, and have an officer assigned to every single project, who must frequently report on how the money is used, keep a record of receipts and expenditures, how the project is progressing, etc.

    Right now, it sounds like money is just handed to this project or ministry, and no one is keeping an eye on it, certainly not real time.

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  3. "Is it about transfering 40% of the mine-related tax receipts to the local government or does he actually think about a 40% tax for the local communities ?" - Random

    Its the former....the issue of new taxes has now been settled..the fiscal regime is in place...the issue is what to do with the new money...to whom SHOULD the windfall? thats the question.. after that comes the HOW question...in defence of the MP..its not immediately necessarily for him to spell out the HOW...until we agree on the SHOULD....

    "I think we should get rid of simple disbursement of government funds, and have an officer assigned to every single project, who must frequently report on how the money is used, keep a record of receipts and expenditures, how the project is progressing, etc." - Mrk

    I am sure such people exist already..the problem is that the information is not publicly available...but even when it is made available..the public is ignorant...take the issue of the projected $415m...the government has already "conditioned" people to a PRECISE amount...when the time comes and they deliver $415mm...NO ONE will consider the possibility that the actual amount should have been more than the stated amount...
    We need to ask ourselves how other countries have ensured that this never happens...greater TRANSPARENCY in all spheres..,,and GENUINE INTEREST by PEOPLE to go through all the details...here is where AN EDUCATED POPULATION helps...its not just transfering responsibility...

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  4. Its the former....the issue of new taxes has now been settled..the fiscal regime is in place...the issue is what to do with the new money...to whom SHOULD the windfall? thats the question.. after that comes the HOW question...in defence of the MP..its not immediately necessarily for him to spell out the HOW...until we agree on the SHOULD....

    But the "should" depends on the "how".
    I still think it's quite odd that he talks about a devellopment fund managed by local communities but doesn't say one word about what that fund should do.
    For all we know, this may be part of a pure appropriation fight in which that MP's interest is to see some people have more funds at their disposal.

    I don't think he makes a good case for fiscal decentralization and I'm a believer in general. Had he mentionned things like environemental degradation to justify extra help for mining communities, it would have made sense. Saying those communities don't get anything out of is vague and possibly wrong.

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  5. Cho,

    I am sure such people exist already..the problem is that the information is not publicly available...but even when it is made available..the public is ignorant...take the issue of the projected $415m...

    The press may not be ignorant. The Post has it's own section that covers the courts. I'm sure they would be all over financial information about government expenditures, if they could get their hands on it.

    Maybe they should have a way for disgruntled government whistleblowers to contact them anonymously. Any kind of corruption or lawbreaking is bound to leave someone out or leave someone with a nagging conscience.

    the government has already "conditioned" people to a PRECISE amount...when the time comes and they deliver $415mm...NO ONE will consider the possibility that the actual amount should have been more than the stated amount...

    I agree.

    The only way out is to demand transparancy.

    I have said it before, but there are ways to put pressure on the government to be clear about it's finances.

    In the short run, the heat can be turned up on NGOs and foreign aid donors which have to justify their expenditures in more transparant countries.

    In the long run, people like Charles Milupi and the PAC should have much more far reaching powers to impeach or demand disclosure of records.

    Penalties should be imposed on state officials who fail to clarify their finances in a timely fashion. Or even fail to keep their financial records in order.

    If the MMD would do only that, they would have had a successful governmental cycle.

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  6. ”But the "should" depends on the "how".” - Random

    There’s only limited scenarios when that would be true. If say, you had three communities and you determine that the benefits from mining SHOULD be allocated to A, but none to B and C. If you then found out that practical constraints prevented allocating to A, then you could find yourself in a scenario where B and C where viable candidates.
    By and large the SHOULD is a prior to the HOW, because the fundamental distribution question is the SHOULD and then developing an HOW that ensures the SHOULD is fully delivered.

    ”I still think it's quite odd that he talks about a development fund managed by local communities but doesn't say one word about what that fund should do.
    For all we know, this may be part of a pure appropriation fight in which that MP's interest is to see some people have more funds at their disposal.”
    - Random

    May be he thinks its an “exogenous right” for local communities to have the cash :)

    ”Had he mentionned things like environmental degradation to justify extra help for mining communities, it would have made sense. “ - Random

    I would have been worried if he said that! Those things are best handled through an effective environmental tax or other environmental legislation. Anyway it turns out government has proposed this already and I have doubts. See the blog on the Environmental Protection Fund.

    Last year proposed a ridiculous idea of an environmental tax on the mines. See the blog here.

    ”The press may not be ignorant. The Post has it's own section that covers the courts. I'm sure they would be all over financial information about government expenditures, if they could get their hands on it. “ - Mrk

    I’ll be careful what I say here, because many members of the Zambian press read the blog and contact me regularly with often fruitful discussions – both the private and state press. What I will say is that while much good is being done by the press (on both sides of the aisle), I don’t think they do the kind of investigative journalism that you have in mind. I don’t even think they have the expertise to fully check facts.

    Imagine even now, no one in the mainstream press has pinned down government on critical issues like the Lumwana DA, the source of their numbers, etc.

    The future lies in getting more Zambians to take a personal interest in these issues and form little organizations that moves the debate forward. Waiting for the press to act will not get us any where.

    I recall that it took the press significant time to realise that we were being robbed on the revenue on mines last year. When the SCIAF and Minewatch Reports came out, it took them a longtime to pick it up..until the discussions started in the blogsphere.

    So I am skeptical in the ability of the traditional press to put scrutiny on government. They lack the expertise to take forward debate. When was the last time you read a good op-ed in the Post on a serious issue, with clearly laid out arguments for action?

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  7. There’s only limited scenarios when that would be true. If say, you had three communities and you determine that the benefits from mining SHOULD be allocated to A, but none to B and C. If you then found out that practical constraints prevented allocating to A, then you could find yourself in a scenario where B and C where viable candidates. 
By and large the SHOULD is a prior to the HOW, because the fundamental distribution question is the SHOULD and then developing an HOW that ensures the SHOULD is fully delivered.

    I'm a bit confused and we may not be talking about the same thing.

    The votes in parliament won't be "should local communities receive money from the windfall ?" and the debate for the most part won't about it either (hopefully). It will be about how much, by which formula, to pay for what, based on what principle, how would the money be allocated between local communities etc..

    So while I imagine there are people with a vested interested in fundamentally disagreeing with vertical redistribution, I think the opinion of the large majority depends on the various "how" issues.

    May be he thinks its an “exogenous right” for local communities to have the cash :)

    Two issues:
    - Why only mining ? If the exogenous rights of local communities are the issue, there's no reason the argument shouldn't include redistribution of tax receipts from other sectors as well. There's nothing special about mining in this case.
    - he does not mention exogenous rights or even imply they're central to his argument. Had he said "the mining communities have the right to get a bigger share of the mining pie" instead of saying "mine devellopments won't amount to anything", it would have been clearer. (now I understand there are politics and that argument may not work in nationalist Africa but still).

    I would have been worried if he said that! Those things are best handled through an effective environmental tax or other environmental legislation.

    I meant using environemental degradation as an argument.

    To take the example of the Niger Delta again, the problem is not so much that those communities receive less revenue from oil than others (actually there is a anti-south east bias but that's another issue), the real issue is that they suffer more from oil-related extarnalities than other communities that receive as much money from oil. Pollution has destroyed agriculture and fishing which were the livelihood of the majority of those population. Plenty of land has been expropriated and roads, pipelines and flares are build without any consideration for the disturbances (economic and otherwise) caused to the populations.

    Similarly, mining may make agriculture less productive or impossible or have similar effects on tourism, fishing etc..

    The argument is not to collect an environemental tax but redistribute more tax revenue to help them devellop new activities that could replace the ones that got destroyed. Wildlife protection won't create jobs for the farmers who can't farm anymore, it's simply not its job.

    That's what I meant (and I feel this particular argument explains why mines are special much better than exogenous rights). Still disagree ?

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  8. Random,

    ”Why only mining ? If the exogenous rights of local communities are the issue, there's no reason the argument shouldn't include redistribution of tax receipts from other sectors as well. There's nothing special about mining in this case.”

    I have always found this question quite fascinating because it’s the same question on why government tackles certain externalities or subsidies certain things but not others.

    I guess the answer must be that there’s a politically feasible set of things one target, and hope to win and it just happens that mining falls within that.


    ”The argument is not to collect an environemental tax but redistribute more tax revenue to help them devellop new activities that could replace the ones that got destroyed. Wildlife protection won't create jobs for the farmers who can't farm anymore, it's simply not its job. That's what I meant (and I feel this particular argument explains why mines are special much better than exogenous rights). Still disagree ?”

    But that argument would apply to any activity that imposes externalities and where the tax revenue can be used to sufficiently allow development of alternative activities for those affected. It’s been used in the climate change debate for example. Mining really is therefore not special, what is special is the fact that it would generate sufficient revenue to allow alternative activities for the local.

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  9. I have always found this question quite fascinating because it’s the same question on why government tackles certain externalities or subsidies certain things but not others.

    hmmm.. Care to provide some examples ?

    My thing is that modern governments' choice of interventions tend to be based on a more rational basis. Market failures, coordination issues, equality promotion and other positive externalities etc.. While the targetting of mining (and other "natural" ressources), especially in former colonized countries tend to be based on... emotional notions (historical justice, exploitation, national ownership etc..).

    You're right to say that politically it's an easy target but that doesn't mean that rational people should try to find rational justifications (exogenous rights) to actions driven by less rational desires (mining is special).

    But that argument would apply to any activity that imposes externalities and where the tax revenue can be used to sufficiently allow development of alternative activities for those affected. It’s been used in the climate change debate for example.

    Yes. And yes it doesn't make mining special per se but you'd be hard-pressed to find many activities that generate that kind of negative externalities (destruction of other people's livelihood).
    And nothing prevents those other activities to get the same treatment. What I meant to say was that at least we're discussing a reason why mines should compensate mining communities.

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  10. "hmmm.. Care to provide some examples ?"

    As I note in the Kachasu post, we have many externalities in this world from climate change to sports. Many positive and many equally negatives. The point I was making is that often government choses to discriminate on them based on political feasibility - if you like, there's a cost / benefit to politicians that they factor in their decisions…a procedural cost that goes beyond the procedural costs associated with the act of the corrective step itself".

    "You're right to say that politically it's an easy target but that doesn't mean that rational people should try to find rational justifications (exogenous rights) to actions driven by less rational desires (mining is special)."

    On the contrary, I am saying that choosing a politically feasible alternative is equally rational, if the political cost of not doing are high! What we have here are complex set of goals among different players.


    "Yes. And yes it doesn't make mining special per se but you'd be hard-pressed to find many activities that generate that kind of negative externalities (destruction of other people's livelihood)".

    In other words, intervening provides higher returns at minimal cost…compared to other interventions? If the "social budget" is scarce, so to speak, then clearly it makes sense. We would agree with that.

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  11. In other words, intervening provides higher returns at minimal cost…compared to other interventions? If the "social budget" is scarce, so to speak, then clearly it makes sense. We would agree with that.

    hmmm.. It all starts with the needs.

    Mining creates benefits on the national level (taxes and employment) and some at the local level (employment, which is limited because no law prevent mines from hiring non-local Zambians) but creates a local cost (pollution).

    In that sense compensation for local farmers who loose their livelihood makes more sense than the alternatives: not compensating (creates social issues) or not mining (for instance, Florida has oil but it's not drilled to protect its tourism industry).

    But yeah, the thing I like about this scenario is that the transfer is not ambiguous at all.


    "You're right to say that politically it's an easy target but that doesn't mean that rational people should try to find rational justifications (exogenous rights) to actions driven by less rational desires (mining is special)."

On the contrary, I am saying that choosing a politically feasible alternative is equally rational, if the political cost of not doing are high! What we have here are complex set of goals among different players.


    You're right on politicians but those were not the rational people I had in mind.

    I was talking about intellectual and technocrats. Those who have the responsibility to speak truth to power (or the people).

    Remember our debate on think-tanks and how I brought up the notion of "political courage" ? Well, yeah, it may be irrealistic but I expect journalists, academia, technocrats to be able to shape the debate by looking for the truth and for good arguments and not to concern themselves with political feasibility.

    The very weird thing is that we know when politicians have the will (via interest, of course), they know very well how to shape the debate and use convincing arguments made by the intellectual class to enact things. We have no difficulty imposing Single Party States and repressive laws but it's tough to discuss taxation rationally ?

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  12. ”You're right on politicians but those were not the rational people I had in mind. I was talking about intellectual and technocrats. Those who have the responsibility to speak truth to power (or the people). Remember our debate on think-tanks and how I brought up the notion of "political courage" ? Well, yeah, it may be irrealistic but I expect journalists, academia, technocrats to be able to shape the debate by looking for the truth and for good arguments and not to concern themselves with political feasibility.”

    But doesn’t that make the analysis incomplete? Without considering the procedure by which decisions are made we may underestimate certain unintended consequences. So yes, we can argue that a “benevolent” dictator would decide X, but if we went ahead and recommended X, when the people in charge are not “ benevolent” we may run the risk of ignoring other unintended consequences.

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  13. But doesn’t that make the analysis incomplete? Without considering the procedure by which decisions are made we may underestimate certain unintended consequences. So yes, we can argue that a “benevolent” dictator would decide X, but if we went ahead and recommended X, when the people in charge are not “ benevolent” we may run the risk of ignoring other unintended consequences.

    But this goes both ways.

    Here is a politician making a badly argued proposal that happens to be somehow politically feasible.
    My personnal political Occam's razor tells me his proposal is not benevolent. But you seems to argue that I should take political feasibility and political costs into consideration.

    So who's ignoring unintented consequences ?

    I mean when facing a policy proposal that redistribute wealth from two levels of politicians without any mention of "the people", why assume that those politicians won't be corrupt and incompetent ?

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  14. I have in mind of a two stage process..you weigh the costs and benefits...and then consider the political feasibility...

    This is actually not a new thing...properly considered...standard cost benefit should always take into "social constraints"...

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  15. Ok since you look at the cost/benefits first.

    But I still have issues with political feasibility. I mean, is the political feasibility of a proposal always the same ? Doesn't it change over time ? And doesn't the fact that people like you argue for or against it have an effect on it ?

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  16. Yes of course the political feasibility is fluid and does change. But the point is that at the point of decision making "public acceptability" should be considered in decision.

    I guess its because in my cost benefit analysis I believe that costs and benefits after assessed should then be further adjusted to reflect social constraints.

    A key example is legislation against criminals. In the first instance I would consider all the costs and benefits to everyone including criminals themselves...and then because of social constraints it is clearly not right to look at costs / benefits to criminals, since society does not approve their activity, I would make a further adjustment - to present a socially constrained CBA, which in truth is essentially a politcally feasible one!

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