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Saturday, 1 November 2014

Profiting from Sata's death

We are already getting some indications of what the death of President Sata may mean for some economic policies. There are reports that Government may be backing away from plans to impose a 20 percent royalty rate on open pit mining in the country, according to Barrick Gold executives.

Finance Minister Alexander Chikwanda announced earlier this month that that from January royalties on open pit mines will rise to 20 percent and on underground mines to 8 percent from 6 percent currently.

Barrick Gold (owners of Lumwana Copper Mine) have been threatening government over the issue, suggesting that it would mean closure of Lumwana. They told Reuters on Thursday that “our sense is there would be movement away from that number….that's certainly the direction discussions were going”

The Chamber of Mines has been separately calling on government to reverse the mineral royalty tax regime, arguing that “the tax system undermines the mining industry’s goal of accelerating growth”

Whether PF without Michael Sata caves in presumably depends on whether it makes electoral sense and is profitable to the individuals holding power currently. Many of these mining companies fund these political parties so their confidence is probably not misplaced.

As for Finance Minister Chikwanda,though he may not like Vice President Scott, it is very likely that they will see eye to eye on this one. They are both broadly pro-mining companies in their posture.

And of course the Opposition as usual appears asleep to the mining discussions. Indeed, some of the opposition parties already are in the pocket book of mining companies. Some opposition parties have actually opposed the new fiscal regime.

However, one reason why the new fiscal regime may survive is that any reduction in taxation will almost certainly plunge Zambia in further fiscal problems. The 2015 Budget is already very tight and with the elections coming we expect more leakage and wider economic challenges.

It would be economic folly to reverse it only to borrow more or face a fiscal crunch. But then again, nothing surprises us in the land of the brave. If it is reversed Chikwanda may need to issue another Budget.

Of course if we have a new party holding power end January 2015- they will need an emergency Budget. A tricky proposition for all of them because they have no shadow budgets! So it is chaos perhaps whichever way one cuts it.

In all of this, one can’t help but wonder. What else are we likely to see reversed by the death of Michael Sata?

Chola Mukanga 
Economist | Researcher 
Copyright © Zambian Economist 2014

1 comment:

  1. Of course it would be good news were GRZ to step back from imposition of a 20% MRT for open pit mines. The reason (against the competeing tension of an empty treasury)? Well we have to address the rather unhelpul vocabulary which commentators, press and government use when commercial concerns are driven to the bone by ill thought-out legislation. By which I mean talk of companies 'threatening' government. No; the facts are that when a commercial concern starts making a loss, 'coercing, forcing or threatening' governement doesn't come into it. Barrick Gold are not threatening the GRZ, or anything of the kind. The reality is that government fiscal policy is forcing them and others towards closure. This then leads to job losses. Barrick have communicated this to GRZ. No threats; just a statement of fact. It's not too late ABC; how about looking again before the Country falls to its knees?



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