Mining - Pill or Poison?

Recently, the Chamber of Mines noted that the mining sector wanted stable and long term policies that would reduce unnecessary risks to their investments. This was stated as a benchmark for sustained private investment in the mining sector.

The chamber called for consistency so that any changes to mining policies should not result in a fundamental shift in the direction of the industry.

Examples were cited of the 2008 introduction of a 15 percent profit variable tax and a 25 percent mineral windfall tax which upset foreign mining firms.

This year the mining industry is set to achieve the targeted production of 600,000 tonnes of copper and the Chamber of Mines notes that the country can achieve the target provided that all other factors such as reliable supply of power and other logistical arrangements are met.

There are planned expansions and upgrades at Mopani Copper Mine (MCM), and the resumption of operations at LCM and Chambishi Metals Plc later this year. Konkola Copper Mines (KCM), is in the process of developing a major copper mine.

In an effort to support the mining sector, Copperbelt Energy Corporation (CEC) states that it will raise supply by about 25% in the next two years to match rising demand from new mining projects

CEC acknowledged that power demand from the mines would increase to around 700 MW and 800 MW from the current 430 MW.

CEC is planning to embark on the development of smaller power stations around the country to supplement the power generation primarily carried out by ZESCO.

There is a necessity for ZESCO to also strategize how to generate and supply the higher demand for power that the mining industry will need over the next ten years. This consideration will not only put ZESCO into considerable debt, but is also likely to put the country into long term debt as it backs up ZESCO.

Mining commentators from the private sector and academia highlight that mining taxes only account for two per cent of government’s total annual revenue.

There are calls for the immediate restoration of the 2008 mining fiscal regime abandoned this year following pressure from the mining companies. This is in view of the rising prices of copper from a low of US$2, 900 per tonne to a current high of about US $6,146 per tonne on the London Metal Exchange.

These calls are based on attempts to reach a win-win situation for both Government and the investors in the mining sector.

The opportunities that arise from high copper prices and more taxes from the sector include additional income to finance the diversification of the economy, and a meaningful move from our mono-dependence on copper.

Zambia is said to be a country with one of the lowest earnings from the mining sector, while developed countries like the United States earn mining taxes as high as 17 per cent of the country’s total revenue earnings.

Many Zambians argue that the mining sector is consuming the bulk of electricity, uses the bulk of all transport infrastructures, and enjoys the lowest cost for all logistics, and yet it is only contributing to two per cent to the Government treasury.

Multi National Companies (MNCs) which have subsidiaries in the country’s mining industry are perceived to be buying minerals such as copper at the gate price which is lower than that of the London Metal Exchange (LME). Government is therefore urged to put in place a policy where companies which are subsidiaries of multinational companies should be discouraged from doing “insider trading” where they sell to the parent company at a gate price which is lower than the LME price.

On the ground in the mining towns, residents experience rapid degradation of their roads because of damage caused by trucks carrying mining equipment, exports, and ore. The environment is impacted by effluents from mining activities that affect people’s health and agriculture production. These effluents include smoke, slag dumps, and chemicals pumped into local rivers and streams. In some areas noise pollution is experienced by residents in close proximity to mining activities.

It must be acknowledged that mining is an activity that damages the environment and leaves behind holes, tunnels, and cavities that could leave vast lands unusable for many years to come.

One can therefore understand why the public is so concerned with the operations of the mining industry, and look to ensure that the mining sector helps to develop the economy in such a strategic way that even when the mining activities come to an end, there will have been sufficient investment into diversification to stomach the legacy of derelict buildings and barren lands that mining often leaves behind.

To this end, there are some immediate practical steps that the Government can take to reel in the taxes that the mining sector should be paying.

The notion that Zambia has a liberalized economy whereby open trade should take place without public monitoring, is wrong.

The role of Government is not to impede economic development, but Government does have a responsibility to monitor and evaluate all economic activity in the country such that the correct taxes can be collected, and that the activities being conducted are in the best interests of the country.

This basic management of the economy requires that all mining exports must be accounted for through shipping documents processed by the Zambia Revenue Authority, and that all proceeds for the exports are accounted for by remittances to Zambia through the several commercial banks. This basic form of accountability ensures that Zambia gets her fair share of taxes.

This does not stop the mining companies from spending their money as they see fit, but ensures that solid and reliable figures are recorded for the purposes of calculating the taxes due to Government.

Furthermore, even if the export earrings are kept in Zambian banks even for only two days, the availability of foreign currency to the banking sector will be much greater and subsequently provide for a healthy liquidity of foreign exchange to support local businesses thereby instrumentally financing the national economic diversification program.

Mining is now bringing in more profits and the trend appears to be that of rising copper prices for at least the next few years.

It is high time that we took advantage of this windfall by converting the earnings into greater revenues for the national treasury, and investment capital for the other sectors including Agriculture, Manufacturing, Tourism, and Services.

Published 1 September 2009