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Wednesday, 20 October 2010

A capture regulatory regime

Dan Haglund makes the case for a stronger mining regulatory regime in order to deliver a mining sector that support's Zambia's social and economic development . A key part is to abandon the deeper and cosy relationship between the Ministry of Mines and the mining sector :
Zambia’s regulatory framework for its mining sector relies on co-operation, consultation, self-reporting and mutual accountability. Regulators are viewed as partners who should support and enable, as well as control and constrain, private sector interests, with the aim of creating ‘a win–win situation, so that when we regulate, we regulate such that they are more than willing and glad to comply’.

However, where investors follow different standards and practices, regulators cannot rely on consensus. Firms that already have adequate reporting and control systems, like most of the Western mining companies, need not fear that regulatory reform will impose higher compliance costs. However, companies that do not have such systems in place are unlikely to support stricter standards. A mining manager from Chambishi Metals said that his firm fully supported reforms that would sharpen the regulatory ‘teeth’ of the Mines Safety Department, but described NFCA’s mood as ‘apprehensive’.

Zambia’s ‘presidential’ political culture, in terms of which large foreign investors are expected to brief the president on their investment plans, also complicates reform efforts because it engenders an interventionist approach. What should be relatively straightforward bureaucratic regulatory policymaking and enforcement becomes politicised. For example, a mines safety department official divulged that the ministry of mines was resisting plans for a more independent regulatory agency because it does not wish to relinquish control.
You can read the rest of the short paper here.

It appears our mining problems are multifaceted. The issues need a "root and branch" examination in form of a "green paper". Why can't the government produce a green paper on this vital question? This was the problem with the Mwanawasa reforms. Although they had some positive elements, they were done in secret and therefore had no real ownership among the people (even the opposition was not consulted). We need to change the way policy is done in Zambia. Mining policy in particular should not be just for the elite and the rich who currently hold Zambia in their palm. It should be a policy developed through deliberate consultation with owners of the resources - the people. 


  1. In case anyone ever again talks about 'rule of law' or honesty when it comes to the mining industry:

    On tax evasion employed by foreign mining companies in Zambia:

    Many multinationals exploiting African resources - often cheapened through the IMF-imposed policy of ‘tax competition' - extensively utilise Mauritius. And Mauritius seems bent on establishing itself as Africa's financial ‘gateway' for foreign investors.

    One example of such draining, as quoted in Faim et Développement Magazine, was described by Joly (currently president of the European Parliament's Development Committee) who revealed that ‘Zambian copper producers make use of Mauritius to export its copper. An offshore subsidiary buys Zambian copper at €2,000 per tonne to resell at €6,000. €4,000 of profits are retained by the subsidiary...untaxed. Under this arrangement, the Zambian government doesn't get a single Euro of tax on the profits.'

    This is not just tax avoidance, this is tax evasion. Anyone who advocates a 'variable profits tax' would have to explain how tax evasion can be prevented when we are talking about taxing profits.

    If the heavy taxation of revenues is an 'inconvenience' to the foreign mining companies, they only have themselves to blame, because they vigorously avoided paying taxes on the profits they make every year.

    If they don't play by the rules, someone will enforce the rules on them, and they won't like it, nor should they like it. They are crooks.

    Treasure islands: Mapping the geography of corruption

  2. Being a foreign owned mining company does not exempt you from going to jail for tax evasion. Even with 'development agreements' in place. These development agreements are the biggest tax evasion scheme Zambia has ever, seen and even that is not enough for them.

    From the London Mining Network:

    Vedanta in the frame for tax evasion
    Posted on | August 25, 2010

    Around 160 multinationals profit from Mauritius’s status as a tax haven (Tax Justice Network gives Mauritius an “opacity” rating of almost 100%), in order to walk away with billions in undeclared profits.

    One of the worst of these is Vedanta Resource plc – Zambia’s biggest copper producer and among the wealthiest of UK mining companies.

    Vedanta is majority-owned and controlled by Anil Agarwal and family, through a “trust” called Volcan Investments Ltd, which in turn wholly owns TwinStar Holding Ltd in Mauritius.

    Four 100%-controlled Vedanta financial companies also operate out of the Channel Islands tax haven of Jersey.

  3. It is generally accepted that we are over reliant on the mining industry, Zambia is actually economically and geographically well placed to become a tax haven or low tax country for the banking / insurance industry. A way to combat tax havens like Mauritius and New Jersey is for Zambia to move towards being a service based economy, allow international companies in Zambia, sorounding SADC member countries and else where to register their parent companies in Zambia.


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