An important new article on mining in Zambia that brings together many of the uncomfortable truths we have discussed in the past. Excerpt :
Has the collapse in the price of copper given businesses another opportunity to blackmail Zambia's government?
Last spring the Zambian government finally decided to review its mining contracts. It raised corporate tax from 25% to 30%, and tax on profits went up from a miserable 0.6% to 3%. The World Bank - forced to recognise how modest the Zambian treasury's share had been up to then - supported the measure. Zambia was getting nothing out of the exploitation of its copper reserves, while the multinationals were making a handsome profit. The mining companies had even set up sophisticated systems to avoid paying taxes by channelling their profits through offshore companies in islands like Mauritius. In 2006 Zambia earned $133m from copper exports estimated to be worth $3bn.
Mining companies made $3bn from copper extraction last year. But of the $421m that should have made its way into Zambia's state coffers, only $200m was actually collected. Even though Zambia has some of the lowest taxes in southern Africa, the multinationals contested them, threatening to take their disagreement to a commercial court - in their home countries. That was before the risk of redundancies, on the back of falling prices, offered them a new way to put pressure on the Zambian government.
It seems they have achieved their objective. After winning a narrow victory at the end of October 2008, following the death of his predecessor Levy Mwanawasa, President Rupiah Banda announced that his government was having discussions with the mining companies - on cutting taxes: "We must ensure that we do not kill the goose that lays the golden egg. There is little point in taking in a few million dollars in tax if thousands of jobs are lost as a result".