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Saturday, 16 June 2012

Are Zambians about to get their dues from foreign miners?

Zambia Daily Deputy Editor Anthony Mukwita has written an important article for the for this important article for the Bureau of Investigative Journalism on mining policies in Zambia. We are thankful to him for flagging up our paper. We just hope that Mr Mukwita will now publish his powerful article in his paper. Surely, ordinary Zambians deserve to read what he has written?

Zambia is Africa’s top copper producer and it is in the midst of a spectacular boom. The scale of international investment – a reported $6bn – means Zambia will soon ‘overtake’ Australia and Indonesia to become the world’s fifth largest copper producer.

But the tax revenue to build schools, train and employ teachers, sink boreholes and buy medicine has simply not materialised. Wealth from Zambian copper has not trickled down – 64% of the population live on less than $2 per day according to the United Nations. Infant mortality is high – 69 per 1,000 births, life expectancy low – just 49.

The country’s copper has for too long not brought the much needed financial resources. Weak tax laws mean little revenue is collected. And mining companies were given controversial license agreements under the former President Rupiah Banda’s administration according to a recent World Bank study.

Could this be about to change?

In a visit last week to London the new president Michael Sata, 75, laid down a gauntlet. Addressing a meeting of businessmen during the Commonwealth Economic Conference (CEC) at Mansion House, the former trade unionist said his countrymen were being short changed.

’We are not getting enough from our mineral resources,’ he told the packed conference as he sought what he called ‘good’ investors from London, Canada and Australia.

Profits go overseas

There is no question that this change is desperately needed. Zambia is a stable country and has been for decades. Its copper should be pulling the country’s people out of the grasps of poverty. But its performance on any measure is comparatively miserable.

The World Bank study expressed concerns that despite Zambia featuring in the ‘top quadrant’ of resource-dependent countries, it ‘still belongs to a group of economies with very low levels of capital accumulation.’

The Zambian Economist, a not for profit organisation describes the level of revenues collected from the mining companies under existing contracts as ‘pitiful’ and ‘unlikely to improve the lives of Zambians’, in its report Debunking the government’s case for low mining taxation in Zambia. The report emphasised the dichotomy under the recent Banda administration: Zambians remained stuck in a poverty rut, while mining companies grew hugely profitable and invested the money abroad.

Unlike other countries weak Zambian laws allow foreign investors to transfer all their profits abroad to overseas banks without any ceiling or restrictions.

This has had a significant impact on earned state revenues. Zambia earned a meagre $50m from mining royalty revenues in 2009 from a combined revenue receipt bill of $5bn. Even when non-mining taxation such as company taxes and PAYE are included the government only recovered $270m, according to the Zambian Economist’s report. This is less than 5%. This terrible imbalance had been reached under the Banda government, which under heavy lobbying from foreign mining companies had reduced the taxes on mining including scrapping a windfall tax.

It has prompted local NGOs such as Civil Society for Poverty Reduction (CSPR) and donors such as the World Bank to urge the government to raise its game and pass laws that would benefit the country, not just the mining companies.

Transforming economies
Contrast Zambia with Botswana which, according to the Zambian Economist’s report has profited nicely from its diamond fields.

World Bank figures show that the country, which is mostly desert, transformed itself from one of the poorest southern African countries to a middle-income country with a per capita GDP of $16,300 in 2011. In Zambia it is just $985.

Likewise, Angola, after years of bitter civil war, is now surpassing Zambia in revenue earnings from its oil and diamond reserves. This is down to new ‘pro-poor’ laws claims the World Bank study.

World Bank figures show that the country, which is mostly desert, transformed itself from one of the poorest southern African countries to a middle-income country with a per capita GDP of $16,300 in 2011. In Zambia it is just $985.
These laws require mining firms in Angola to employ a large number of Angolans both at exploration and completion stage to deliberately reduce unemployment. Again not the case in Zambia.

Angola also ensures the country gains a sizeable share of its mining resources. Extractive firms in Angola have to fund 100% of any venture despite ultimately owning only a 40% stake in the mineral project (diamonds or oil) – the larger stake remains in the hands of Endiama, the Angolan state enterprise.

Admittedly, mine firms in Angola pay a lower tax rate until their capital expenditure outlay is recovered, but even this can amount to only 80% of initial revenues because of stringent profit sharing agreements laid down by the Angolan state.

It is hardly surprising then that the World Bank observes that, ‘Angola is growing at a faster pace than Zambia’. For the people of Angola it means massive infrastructure development as a result of these revenues.

The roads, the schools, the medical clinics being built all remain a pipedream in Zambia.

The World Bank study recommends that in order to reverse the trend ‘Zambia needs to capture a larger share of the resource rents (money from mines) and invest the money in the nation’s productivity.’

The previous Banda administration always defended the mining giants in the face of calls for higher taxes during boom times. The response was that it would be ‘irresponsible for (the Banda) government to collect a few dollars from the companies and kill the goose that lays the golden egg’.

Banda’s support for the mining companies and condemnation for local critics in fact compelled the opposition to suggest that he seemingly cared for big Chinese business – one of the big investors in the country – more than he did for his own people.

Chola Mukanga, founder of the Zambian Economist, described Banda’s policy of low taxes as a way of encouraging investors as ‘demonstrably intellectually bankrupt.’

Challenged to act

And now the new government has been challenged by the supporters of higher mining taxes, who maintain that there is no reason to keep taxes low to attract investment.

Economists, such as Professor Oliver Saasa, a Zambian Professor of International Economics, suggest that the government should not only introduce a better tax regime but also ensure mining companies do not engage in profit transfers.

President Sata’s young administration has tried to take a number of radical measures to turn the tide in favour of the state.

For instance, Sata has toyed with suspending issuing mining licenses until laws are passed to help Zambia capture more money from mines in future.

He has also ruled that all copper exports be receipted through the Central Bank of Zambia so the government knows exactly how much mining companies earn and so build a fair profit sharing scheme.

There are still giant hurdles to get over. Today, Zambia’s internal revenue authority, the ZRA clearly lacks the ability to determine how much a mining company has earned in profits. And under agreements made by the Banda government companies have an incentive to increase their costs and limit their official profits as then they can avoid paying any taxes to the government. And there is little Zambians can do about it.

And not all in the government seem to agree that taxes should be increased. Zambia’s Deputy Finance Minister Miles Sampa stated this week that the reasons investors in mining and other sectors should favour Zambia is because: ‘We boast of a free market economy with very little prohibitive industry regulation and we have virtually no exchange controls. You can repatriate a hundred percent of your dividends from Zambia as a business and our labour costs are low.’

There is some good news. The sector is the largest employers outside the public service creating 40,000 jobs, 20,000 of which have been created since 2009. And there is more investment on the horizon.

Canada’s First Quantum has said it may spend US$1.9bn on its Trident and Kansanshi mines in Zambia after losing the Kolwezi copper project in Congo in a 2009 rights battle with the government.

Vale’s joint venture with African Rainbow Minerals Ltd. will invest $1bn in Zambia’s Konkola North project, while Vedanta’s Konkola Copper Mines Unit plans to spend approximately US$1bn over the next two years.

London-listed Glencore International has also announced plans to invest $500m in its Zambian Mopani operation.

Lifting a child out of poverty

This large scale investment means Zambia is now on track to export about two million tons of copper annually by 2015. Mining revenues are expected to top $8.4bn this year. But the question is: will this intense activity make any tangible difference to the many Zambian families barely managing to feed their children. To find cash to invest in building schools, sinking bore holes or supplying drugs to hospitals, Zambia requires radical action.

The process has started.

When presenting the budget in Lusaka last November, Alexander Chikwanda, the finance minister, announced that mineral royalties had been revised upwards to 6%. This is double what had been previously predicted and is now approaching the regional average.

There has been talk about ‘going the Angolan way’. This would mean the Zambian government increasing state shareholding to at least 35% in the mining companies up from the 20% it currently holds through the state-owned ZCCM-IH.

There is a long way to go before Zambia’s resource wealth benefits the poor more than the rich foreign owners. It is now up to the new government. The question is: will Sata’s administration be able to impose a new settlement that goes some way to improving life for ordinary Zambians?

Anthony Mukwita is deputy managing director of the Zambia Daily Mail based in Lusaka. He is currently on a World Bank funded secondment to the Bureau.

5 comments:

  1. this site is such a load of rubbish. As usual, Zambians copying Zambians. And of course this is sustained by the "elite" Zambians...no imagination whatsoever, and being so politically correct even on a web forum. What he/she needs to do in life is read yet another copycat site (shall we gossip about who had a Maserati, or shall we discuss european politics and economy as if we have even the slightest clue, or shall we magically reveal the injustices of the political administration which has done nothing to benefit the very people who cannot read the words on this site...what benefit has come from this discourse really?!!!). Please use your basic intelligence to do something more than create a forum for scandal/gossip/concern. What a hopeless plight we have when so many pathetic, pseudo-intellectual Zambians subscribe to wasting their time on forums like this, while the citizens of Zambia die from the unfortunate reality that they are less important than the minerals that come out of the ground.
    t of the ground.

    ReplyDelete
    Replies
    1. Your comments need clarity because it is little difficult to understand what you mean by "Zambians copying Zambians".

      Delete
  2. And...Chola..please...just so we don't lose any last vestiges of hope in humanity...whatever you do...don't sell out. If we see banner ads from Airtel/Zain/Celtel/Telecel/Zambeef/Madison Insurance/Bank A/Bank B, etc...and all the basic necessities in life like we do everwhere else in Zambia, then it probably is the right time to consider this forum (despite all its strong Alexa site statistics) as yet another example of talk being cheap (however pervasive and balanced it may seem).

    ReplyDelete
  3. @ JP

    It is clear that you dislike this site and its contents

    But you, what are you doing to inform, denounce scandals, increase awareness of problems and take an open and constructive approach to the zambian issues ?? probably nothing

    Cho received death threats in 2011for having revealed the scandalous Mopani report so he has not to take lessons from scurrilous guys who throw their venom

    OK you can piss off now !

    ReplyDelete
  4. Evo morales has pointed the way at Rio+20 summit...
    --
    Morales, Bolivia's first indigenous Aymara president, also pressed African countries to protect their rich mineral resources coveted by transnational companies.

    "The natural resources belong to the people, they cannot be the business of transnational companies," he noted.

    In a speech to leaders attending the UN summit on sustainable development here, Morales also called on African countries to recover and nationalize their natural resources.

    "Countries of the north are getting rich through a predatory orgy and are forcing countries of the south to be their poor rangers," the leftist leader said.



    ---

    Rio+20's 'green' economy is 'new colonialism': Bolivia
    Brazilian Presidency showing Brazilian President Dilma Rousseff and Bolivian President Evo Morales. AFP

    The "green economy" promoted by the UN Rio+20 summit is "a new colonialism" which rich nations want to impose on developing countries, Bolivian President Evo Morales said Thursday.

    In a speech to leaders attending the UN summit on sustainable development here, Morales also called on African countries to recover and nationalize their natural resources.

    "Countries of the north are getting rich through a predatory orgy and are forcing countries of the south to be their poor rangers," the leftist leader said.

    "They want to create intervention mechanisms to monitor and assess our national policies using environmental concerns as an excuse," he said.

    Morales, Bolivia's first indigenous Aymara president, also pressed African countries to protect their rich mineral resources coveted by transnational companies.

    "The natural resources belong to the people, they cannot be the business of transnational companies," he noted.

    He warned against a green capitalism "that converts every tree, every plant, every drop of water and every natural being into a commodity."

    Green capitalism was a "colonialist" attempt to control nature by turning the sources of life into commodities and to control countries of the south.

    In the name of the environment, every product of nature is "turned into money, business profit," Morales said.

    Militants attending a Rio+20 counter-summit have also been blasting the "green economy" concept.

    ReplyDelete

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