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Friday, 9 November 2012

Sharing the Proceeds of Mining, 6th Edition

Mathias Mphande on the perennial question of mining revenues :
How to benefit from the mining sector depends on choices you make as a country and mining is capital intensive and requires sufficient investments which can take the entire government funding if nationalisation is put in place. So since mining capital is mainly foreign, the only linkage the mines have on the local economies is through taxes....So government should find ways of maximising revenue collection from the mines. But even when taxes are captured effectively, governments and its civil servants spend these monies in a greedy manner such that the social welfare of the people is not improved. What can Zambia show for the huge taxes the government gets when patients are still sleeping on the floor at UTH and university students are still squatting and learning with few teaching aids, yet advocates of better taxes are called ‘lunatics’ by government officials....Kenya, which predominantly doesn’t produce minerals, has better economic indicators than Zambia, and Peru, which is rich in minerals, is poor compared to Brazil, a non-mining country, while Ivory Coast doesn’t have minerals, but its economy is better than oil-producing Nigeria...
Part of the answer according to Mphande is for Zambia to create a mineral resource stabilisation fund that can be used to develop other economic sectors. I think a  stabilisation fund is a much weak idea compared to competing alternatives. Isn't part of real answer already in legislation - mineral revenue sharing with local areas? 5% of mineral revenues is meant to go to mining areas. Which the last administration failed to implement. The PF championed it, but they have gone quiet now they are in government. Perhaps they are working to increase that local contribution? At 5% the local contribution is certainly very low! 30% or thereabout would be ideal. But the key is enforcement as no actual revenues are currently being transferred - the process remains "work in progress" since we flagged it up last time. See related posts below.

Related Posts :

1 comment:

  1. These issues go round and round. Here is my comment in 2011:

    4 April 2011 07:38

    Customary commons trusts and a Zambia Permanent Fund are essential:


    The principal task is for government to provide the necessary policy and legislative framework making customary common property rights unassailable. In this, common property rights are fully assigned over land and renewable natural resources to responsible guardians, i.e. the chiefdoms, on behalf of all Zambians for customary land over all the natural resources except mining, which is dealt with through the proposed Zambia Permanent Fund. They, through their Trusts, then control market environmentalism, the chiefdoms having had the property rights to them fully assigned. They therefore internalise the negative externalities (costs) of pollution or over-harvesting, charging the necessary fees to concessionaires through an auction system. Government must therefore recognise public goods and ecosystem services as things of considerable value. Such services cannot under any circumstances be privatised, but are to be held under common property by the chiefdom trusts on behalf of the people.


    Following the example of the state of Alaska, the Zambian Government elected in 2011 should establish the Zambia Permanent Fund with legislation affirming that 75 percent of all mining royalties be paid to government as a replacement for taxes, and 25 percent paid to the Zambia Permanent Fund. Annually, dividends would be paid to the registered residents of the chiefdoms in the form of a living grant to heads of families resident in the villages, the balance - being subject to a means test - paid to those living outside of the chiefdoms. As a quid pro quo, chiefdom residents would be responsible for the protection of the renewable natural resources, following a Landsafe or similar landuse plan supervised by their Trust and their customary authority. It is critical to this exercise that the mining compradors and any corrupt politicians overseeing the mining taxes are sidelined, so that mining taxes reflect international financial reality.

    I sat down with Wynter Kabimba and I agreed to take the matter further. The advice I passed on after looking into it was that a foundation for this purpose (Provident fund) would only fly under an elected government. Well, they, the PF, are elected. There are at least two problems: 1) to get the PF to set up such a Provident Fund in the first place, and 2) it would be clearly EITI they would rely on to tell them what needed to be paid. But as I have written:

    With such lamentable ‘Big Man’ governance, civil society has come to lay its faith in future reform in the Extractive Industry Transparency Initiative (EITI); perhaps mistakenly. As Khadija Sharife revealed in a Pambazuka article, Transparency’ hides Zambia’s lost billions (23 June 2011), Zambia published its EITI report for 2008 that found unresolved discrepancies of $66 million between what Zambia said they had been paid by mining companies and what they had actually received. Moreover, the pricing structure for Swiss copper - remarkably similar to Zambia's exported copper - was six times higher than the funds Zambia received, facilitating a potential loss of some $11.4 billion. This is especially interesting when taking into account that Zambia's entire GDP for 2008 was $14.3 billion. Thus, catching revenue leakage through EITI - off the mark by billions - is impossible because it does not focus on what multinationals ought to have paid, only what they have paid, and it never investigates the means through which corporations were able to circumvent taxation.

    It is time to wake up. The PF are in business, as were the MMD. The villagers have no champion, they can be bought off with blankets at election time. A revolution is required to change history. The diaspora must get together.


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