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Thursday, 9 April 2009

A zombie approach to the crisis ?

A new ODI report part of the continuous monitoring of the impact of the global slowdown on ten African countries drawn from the sample of nations classified by the IMF as particularly vulnerable. Zambia is on the list and the report is not kind to the Lusaka club :

"In Zambia, the government is continuing with ‘business as usual’; [and] the government has not responded urgently and definitively to the economic crisis. Policies in response to falling copper prices are concessions to the mining sector to reduce cost of production and increase profitability. These include: the government abolished the windfall tax and increased investment incentives."


  1. Copper futures continue to rise fairly steadily as well, closed up another 3.93% today, at US$4548 per tonne (US$2.077 per lb). Stockpiles for the London Metals Exchange have fallen to under 500,000 tonnes, and China is reportedly planning to add 400,000 tonnes to its strategic stockpile in the second quarter of the year. Reminds me of the old Mark Twain quote, "rumors of my death have been greatly exaggerated."

  2. And it is pretty obvious why the foreign mining companies wanted to get rid of the windfall tax - they wanted to make sure as little money remains in Zambia as possible.

    And this MMD government of course complied. I have no doubt money has exchanged hands - it is time for the Task Force on corruption to have a look.

  3. There is little evidence that the demand side of the mining industry much cares how they get the metals, or who gets hurt in the process. On the other hand, we have decades of evidence from all over the world of the sorts of local conditions international metal markets are willing to accept (or perhaps encourage). from Peru. from the DRC. from India. from Argentina (in spanish mostly, but some articles in english)

    And on and on and on . . . If there is any industry in the world that needs to actually prove that it can be sustainable and socially/environmentally responsible for the people living in the areas they are exploiting, it is this one. I don't believe that it is sufficient to simply say that worldwide industry requires these raw materials in order to operate, therefore all other concerns must be subordinated to maintaining the pace of mining activity. Consumers must accept that the materials content of the goods that they purchase is drastically undervalued, manufacturers and retailers must accept that their own profit margins and sales volumes cannot be continually achieved on the backs of poor communities in developing countries, and governments must accept their responsibility to work together to ensure that their citizens are not exploited rather than colluding or competing to keep wages low and corporate profits high.

  4. In the mining context, and with regard to exports generally, the decline of the kwacha should be welcomed as long overdue. After all, the exchange rate was K4,800 = $1 as long ago as January 2003. Since then Zambia’s inflation has exceeded America’s by well over 10% a year.

    $8,000 for a ton of copper at K3,200 per $1 earned K25,600. Today $4,500 at K5,500 per $1 earns K24,750.That helps greatly with local mining costs, as well as with exports in general. At least the government has done less to ‘protect’ the kwacha than popular opinion would have liked. The Bank of Zambia’s relative inaction in this area was a valid response to the credit crunch.

    Advocates of reversing the relaxation of mining taxes should bear in mind the likely effect of Zambia’s credibility as an investment destination. Failure to honour past undertakings is a sure way to discourage future investment.


  5. Murray,

    I have long been a proponent for a weaker Kwacha even when many 'economists' where praising the significant appreciation last year before the wheels fell off. On that point we are on the same page.

    But I do not share fully your point on mining taxes.

    Let's us be clear, on the narrow point constantly changing the fiscal regime is wrong even in bad times. Good fiscal regime automatically adjust given prevailing conditions and businesses know what to expect. In that vein you and I surely agree that the latest removal of the windfall tax is yet another change within less than a year!

    On the wider issue of high taxes. My view remains that you can get investment with high taxes. What matters is the nature of those taxes and the predictability of taxes. On this blog we have presented evidence on which taxes are most prohibitive and which taxes are not. I do not intend to rehash that discussion.
    But suffice to stay the argument for removing the windfall tax is simply misguided.

    But a more crucial point related to 'predictability'. My view is that such is best achieved by having a regime that commands consensus from everyone. Investors need to know that the regime has sufficient buy-in so that the next party in government won't change it. I do not think the latest changes fit that description.


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