Find us on Google+

Friday, 7 January 2011

Mining Taxes in Zambia Need Sober Debate (Guest Blog)

Lately, a number of people including politicians who have no idea about Economics have been arguing for the Zambian Government to re-introduce Windfall taxes on the mines. However, much of the arguments for this re-introduction have been quite shallow and without much technical basis. Similarly, Governments’ response has been emotional and far from assured, rather the Government has instead been perceived to be in cahoots with the foreign mining firms.

However, it must be noted that Mineral extraction in most African countries including Zambia is a predominately “enclave” economic activity in which foreign mining companies import most of the equipment, technical, financial and managerial services needed to run their mines and export raw ore for further refinement or processing. Because industrial mining creates very few forward or backward linkages into the local or national economies, there is a consensus among UNCTAD, UNECA and the IMF that the paramount development benefit of mining in Africa is the potential to generate public revenue through a transparent tax and budget system.[1]

Everyone has conveniently forgotten the history of the privatisation of ZCCM and the role that the donor countries played in particular, the British Government and USAID. It should be remembered that it was the World Bank that paid the fees of the mainly British advisers to Government. The privatisation of ZCCM commenced in 1996, after GRZ and the Boards of ZCCM and the Zambia Privatisation Agency (ZPA) approved the ZCCM Limited Privatisation Report and Plan presented by UK based financial and legal advisors, NM Rothschild & Sons and Clifford Chance, respectively.

On the advice of the World Bank, and other bilateral donors, the Zambian government, desperate to attract foreign investors into the mining sector during the 1990s, changed the tax laws to give mining companies the tax breaks they were asking for through the secret Development Agreements, which today we realize were negotiated in bad faith. A number of prominent Zambians were part of these negotiations, including two current heads of political parties. More importantly, the current Minister of Finance and other senior Government officials were privy to the negotiations and technical studies done at that time and should in the national interest provide open facts so we can make our own better informed analysis of the facts on the matter.

We know that Mining companies are generally against windfall taxes as they view windfall profits as a compensation for the financial risks of their operations. This signals an unwillingness to share, in a reasonable fashion, the rents of mining activity with governments while at the same time expecting tax subsidies to compensate them for financial risk. Multinational mining corporations, and their subsidiaries in Zambia, have been announcing huge profit increases since the mid-2000s, resulting from the unexpected steep increases in international prices of gold, copper, cobalt, platinum and other minerals. In fact, current projections state that copper will go beyond the US$10,000 per metric tonne within the first six months of the year. It closed the year 2010 at US$9,200 per MT. The question we should all be asking and debating is how best can the country utilise this opportunity for the creation of wealth for Zambians on a sustainable basis?

It is important that as this debate moves on it is done based on facts and it would help a lot if politicians both from the Opposition and the Ruling parties came clean first on their role in this decision. In Australia, it led to the removal of a sitting Prime Minister and a renegotiation by the new Prime Minister who campaigned on the basis she would re-negotiate the deal with all stakeholders. Instead of a super profit tax as earlier planned, Australia is now implementing the Mineral Resource Rent Tax (MRRT), which is a proposed tax on profits generated from the exploitation of non-renewable resources in Australia. It is the replacement for the proposed Resource Super Profit Tax (RSPT).

The profits-based tax, to be levied on 30% of the "super profits" from the mining of iron ore and coal in Australia, is proposed to be introduced from 1 July 2012. The RSPT was initially announced as part of the initial response to Australia's Future Tax System review, known as the Henry Tax Review, by the Treasurer, Wayne Swan and the then Prime Minister, Kevin Rudd. The tax is similar in concept, although different in operation, to the existing Petroleum Resource Rent Tax levied on off-shore petroleum extraction activities. The statement from the Australian Government stated that: “The breakthrough agreement keeps faith with our central goal from day one: to deliver a better return for the Australian people for the resources they own and which can only be dug up once. It is the result of intense consultation and negotiation with the resources industry.”

Surely, if a developed country like Australia sees the need to gain more from their mineral resources why is it so difficult for Zambia to do the same. It is vital the Government of Zambia engages all stakeholders, the Chamber of Mines, business community, trade union leaders, mining experts, academia, economic, financial and legal experts and any other well meaning Zambians and let 2011 see Zambia implement a new and more sustainable mineral tax regime for the country. Does Africa always have to wait for donors to do something good for their own countries'?


[1] Africa Analysis, Volume 5, Issue 1; ‘Breaking The Curse A CASE FOR TRANSPARENT TAXATION; Compendium of NGOs



Trevor Simumba
The guest author is an international business consultant currently based in the United Kingdom

8 comments:

  1. " However, it must be noted that Mineral extraction in most African countries including Zambia is a predominately “enclave” economic activity in which foreign mining companies import most of the equipment, technical, financial and managerial services needed to run their mines and export raw ore for further refinement or processing. "

    This is not the problem. The problem is two-fold:

    1) Foreign ownership itself

    The very fact that Zambian mines are owned by transnational corporations means that they can devise all kinds of strategies to evade taxes. Like selling to their own offshore businesses and hide the value of their exports. Or set up a headquarters in a tax shelter country, like the Cayman Islands.

    2) Integration of foreign mining interests with national politicians (P.I.G. or Party In Government and Opposition) interests

    Foreign mining intersest: profit maximisation. P.I.G. interest: maintaining power at all costs. Opposition interest: to become the P.I.G. at all costs.

    There has been an alignment of the interests of foreign mining corporations and the ruling party. It is in the ruling party's interest not the develop the nation or local entrepreneurs, who could develop into competitors and financiers of the opposition (like Finance Bank). At the same time, it is now in every politician's interest to be the rent seeking bourgeoisie, rather than represent the interests of their proletarian electorate. Something that unites both the ruling party and large parts of the opposition. (And I still recommend EVERYONE to vote PF-UPND. If only to break up the existing cosy relationships between government and business.)

    You can call it the vampire state, or the predatory government. What is is, is the permanent fixing of the party in government as the continuing rent seeker. The laws are not in place to protect the electorate's right to enact a change in government policy every 5 years by voting in a) a new party with b) a different set of policies. Which undermines the social contract and the democratic consensus itself.

    Whereas the only justification of the largest party being in power should be that it represents the desires of the largest number of people (or voters), the de facto justification is that the party in government plays ball with the IMF/World Bank and the Washington Consensus.

    " Because industrial mining creates very few forward or backward linkages into the local or national economies, there is a consensus among UNCTAD, UNECA and the IMF that the paramount development benefit of mining in Africa is the potential to generate public revenue through a transparent tax and budget system.[1] "

    Again, this does not need to be the case.

    ReplyDelete
  2. Entire supply chains could be created locally if the legislation was in place. It is the law, which allows mining companies to be foreign, and allows them to import goods that could be produced locally.

    Also, the government could pass laws that encourage local value addition, so Zambia exports copper products rather than copper.

    " The privatisation of ZCCM commenced in 1996, after GRZ and the Boards of ZCCM and the Zambia Privatisation Agency (ZPA) approved the ZCCM Limited Privatisation Report and Plan presented by UK based financial and legal advisors, NM Rothschild & Sons and Clifford Chance, respectively. "

    Why am I not suprised to hear the name Rothschild? And you know someting is BIG when the Rothschilds put their name on it.

    The Rothschilds have a family fortune of 21 trillion US dollars - bigger than the entire GDP of the United States. And the power that goes with it, although the direct actors in the US seem to be the much poorer Rockefeller family.

    I think that is what should be kept in mind when people talk about 'foreign investors' and the 'Washington Consensus', and other pro-corporate speak. There is a massive accumulation of wealth into the hands of fewer and fewer people going on, and it is destroying both democracy and the normal economy - all over the world.

    " On the advice of the World Bank, and other bilateral donors, the Zambian government, desperate to attract foreign investors into the mining sector during the 1990s, changed the tax laws to give mining companies the tax breaks they were asking for through the secret Development Agreements, which today we realize were negotiated in bad faith. "

    A very interesting statement - I agree. The people of Zambia have been robbed of well over $10 billion. Think of all the roads, farms, factories, social services that could have been supplied with that. Not to dispare, but the refuel the fire, and get things done.

    ReplyDelete
  3. " We know that Mining companies are generally against windfall taxes as they view windfall profits as a compensation for the financial risks of their operations. "

    Actually they just want to keep all the money. The truth is that prices are much higher than they anticipated or calculated their risk against back in the 1990s.

    " This signals an unwillingness to share, in a reasonable fashion, the rents of mining activity with governments while at the same time expecting tax subsidies to compensate them for financial risk. "

    Actually they don't want to pay any taxes at all. Period. So it is up to the government to be proactive. If the mines act in an antagonistic manner, there can only be a fair outcome when the government does the same and takes everything it can.

    Not that this argument is made here, but I'm sick and tired of people saying that the mining taxes have to be 'fair to both sides'. That's not how business or negotiation work - at all. The mines have no intention whatsoever of acting fairly. And neither should the government.

    " Surely, if a developed country like Australia sees the need to gain more from their mineral resources why is it so difficult for Zambia to do the same. "

    But also, if it is so difficult for a rich nation like Australia to get a good deal, how difficult is it for Zambia? The problem is that we're playing at the same game. We need to change the game and the rules.

    Even the USA can't stop 'their' transnational corporations from evading taxes. So we need to change the game itself.

    What I would like to propose, is that ALL commodities in Africa are sold through either state exchanges or regional exchanges, and only at international market prices.

    That would cut out any politician doing deals to reduce the amount of money going to the people of the continent, and it would actually end 99% of all the 'wars' going on, on the continent. It would immediately end the violence in the DRC and the Sudan, as well as the Niger Delta.

    ReplyDelete
  4. The Oppenheimers (90% of the world's diamonds - the global monopoly, see The Diamond Empire free on Youtube) are very close to the Rothschilds. Oppenheimer heir Jonathan Oppenheimer was an analyst at NM Rothschild (founded in 1811, also known as 'Rothschild', the family's bank), and Evelyn de Rothschild (one time head of NM Rothschild) was a director at De Beers. The two families go back centuries. Of course the Rothschilds also financed Cecil John Rhodes' BSAC, and own part of Rio Tinto (big in uranium).

    The Rothschilds have a family fortune of *$21 trillion*. That is bigger than the GDP of the United States ($16 trillion), and 1/3 of the GDP of the world ($60 trillion). They make the Rockefellers ($300 billion plus ) look like paupers in comparison.

    This was what the great and brave President Mugabe was up against when he redistributed 35,000 hectares of the 117,000 hectare Debshan Ranch in Zimbabwe.

    We know the rest - devastating economic sanctions and credit freeze through ZDERA in December 2001. Which caused hyperinflation in 2002.

    It is now clear that the major beneficiaries of globalisation, austerity, free trade, neoliberal economics, are the already well positioned Rothschild bankers.

    And devastatingly, NM Rothschild and Sons, has it's name on the privatisation of Zambia's mineral resources, through the privatisation of the state monopoly, ZCCM.

    On Konkola Mine, from the ZPA's page:

    Upon the successful conclusion of Stage I of the Privatisation Process and the commencement of Stage II - as described in the Phase I Privatisation Report for ZCCM, dated April 1996, prepared by NM Rothschild & Sons ("the NMR report")

    Summary

    Free Trade will never develop Zambia - it simply isn't designed to. Free Trade looks devastating to developing economies, because it is. It is designed to facilitate the hyperaccumulation of wealth by the Rothschild family.

    The 'one size fits all' prescriptions of the IMF/WB are so not because they take into account the developmental stage of every economy they serve - they obviously do not. They are 'one size fits all' because they are designed to fit the interests of one hyperwealthy family, and no one else.

    Ha Joon Chang was right - this is not how Western countries developed. Free Trade is how they accumulate resources and wealth for themselves. Countries only develop when they protect their industries. Professor Chang just never got to put a name to it. I do, and the name is Rothschild. Just so no one missed it - the privatisation of ZCCM was done by the Rothschilds.

    And the privatisation of ZCCM was urged by the IMF. So who controls the IMF/World Bank again? Can I say Rothschild?

    ReplyDelete
  5. The Oppenheimers (90% of the world's diamonds - the global monopoly, see The Diamond Empire free on Youtube) are very close to the Rothschilds. Oppenheimer heir Jonathan Oppenheimer was an analyst at NM Rothschild (founded in 1811, also known as 'Rothschild', the family's bank), and Evelyn de Rothschild (one time head of NM Rothschild) was a director at De Beers. The two families go back centuries. Of course the Rothschilds also financed Cecil John Rhodes' BSAC, and own part of Rio Tinto (big in uranium).

    The Rothschilds have a family fortune of *$21 trillion*. That is bigger than the GDP of the United States ($16 trillion), and 1/3 of the GDP of the world ($60 trillion). They make the Rockefellers ($300 billion plus ) look like paupers in comparison.

    This was what the great and brave President Mugabe was up against when he redistributed 35,000 hectares of the 117,000 hectare Debshan Ranch in Zimbabwe.

    We know the rest - devastating economic sanctions and credit freeze through ZDERA in December 2001. Which caused hyperinflation in 2002.

    It is now clear that the major beneficiaries of globalisation, austerity, free trade, neoliberal economics, are the already well positioned Rothschild bankers.

    And devastatingly, NM Rothschild and Sons, has it's name on the privatisation of Zambia's mineral resources, through the privatisation of the state monopoly, ZCCM.

    ReplyDelete
  6. On Konkola Mine, from the ZPA's page:

    Upon the successful conclusion of Stage I of the Privatisation Process and the commencement of Stage II - as described in the Phase I Privatisation Report for ZCCM, dated April 1996, prepared by NM Rothschild & Sons ("the NMR report")

    Summary

    Free Trade will never develop Zambia - it simply isn't designed to. Free Trade looks devastating to developing economies, because it is. It is designed to facilitate the hyperaccumulation of wealth by the Rothschild family.

    The 'one size fits all' prescriptions of the IMF/WB are so not because they take into account the developmental stage of every economy they serve - they obviously do not. They are 'one size fits all' because they are designed to fit the interests of one hyperwealthy family, and no one else.

    Ha Joon Chang was right - this is not how Western countries developed. Free Trade is how they accumulate resources and wealth for themselves. Countries only develop when they protect their industries. Professor Chang just never got to put a name to it. I do, and the name is Rothschild. Just so no one missed it - the privatisation of ZCCM was done by the Rothschilds.

    And the privatisation of ZCCM was urged by the IMF. So who controls the IMF/World Bank again? Can I say Rothschild?

    ReplyDelete
  7. I was struck by the hypocrisy of a female BBC reporter, when she interviewed Zimbabwean minister Kasukuwere, on the issue of indigenisation. She asked him - but who in Zimbabwe other than the ZANU-PF has the resources to buy 51% of the shares? She never asked who would have the resources to buy 100% of privatised parastatals and resources - the answer would have been: the Rothschilds. And they did. They have the IMF/World Bank in their pockets, as most likely the US Federal Reserve (whose deceptive name conceils that it is a completely privately owned bank that has nothing to do with the US federal government).

    They are involved in all kinds of privatisations worldwide, and now their fingerprints are all over Zambia's privatisation.

    And are they also behind Dany Gertlers ('Mr Diamond') mediated takeover of ZAMTEL, through RP Capital in the Cayman Islands?

    ReplyDelete
  8. I should have added that Rothschild (bank) is the largest shareholder in De Beers and has been since 1887, which would have been simpler. :)

    Anyway, here is a forum featuring Oppenheimer heir Jonathan Oppenheimer.

    Africa: The New Frontier for Economic Growth at The Global Forum 2010

    So in effect NM Rotschild which is a major shareholder in Anglo American De Beers did the privatisation of ZCCM, and awarded Konkola Deep Mine to itself.

    ReplyDelete

All contributors should follow the basic principles of a productive dialogue: communicate their perspective, ask, comment, respond,and share information and knowledge, but do all this with a positive approach.

This is a friendly website. However, if you feel compelled to comment 'anonymously', you are strongly encouraged to state your location / adopt a unique nick name so that other commentators/readers do not confuse your comments with other individuals also commenting anonymously.