Chibamba Kanyama
Sometime this year, an investment group based in Europe organised a one-hour conference call, connecting me to 80 other global investors. The questions were about Zambia in relation to the economy, the IMF, the external and domestic debts and the fiscal regime governing the mining sector. The topic on mining (for which I was upfront I had limited expertise) consumed over 40 minutes and I concluded there were thousands of individual investors all over the world (Zambians excluded) who had built financial fortunes by owning shares in copper mining companies operating in Zambia.
These fund managers had hindsight about what the Zambian government was planning to do: a change in the mining sector regulatory environment. In summary, I told them mining companies had lost the opportunity to pre-empt any such measures by failing to proactively and predictably support government revenues. Public sentiment in favour of increased taxes for the mines was growing; civil society organisations and opposition political parties were part of this sentiment.
One investor calling from Canada lamented, ‘Does government realise that it will be shooting the goose that lays the golden egg? Mining is a long term investment- it takes no less than 10 years to get your money back- and those who put the money want a commitment the fiscal regime will not change after the investment has been done.’
GOVERNMENT RAN OUT OF PATIENCE
The recently announced tax policies affecting the mining industry signal Government’s loss of patience on lack of transparency by mining companies. The figures sitting with government show that even the mineral royalty taxes get paid back through deductions on income (MRTs get deducted before profits are declared). Auditing the mining sector is in itself a very intricate exercise due to what others term, ‘creative accounting’. From what is imported to what is exported, there is little transparency and government always finds itself chasing the wind; refunding more than it is collecting while at the same time, losing out on what should be taxed because some of the companies under-value exports. Given these factors, government is well justified to introduce a broader range of taxes.
MINING COMPANIES MAY HAVE A POINT
The mining companies, through the Chamber of Mines, have quickly come out to warn the new measures will collapse the economy. Perhaps they have a point. One of the big mining companies, currently detached from its original parent company, owes suppliers and other creditors between US $800-US $900 million. It has been surviving on importing copper ore from a neighbouring country and the new tax regime will most likely ground this company to a halt; and this liability would most likely be the responsibility of government.
Another company that has been sinking shafts to be the top single copper mining company in the world is most likely going to be in red. Mining is about growth of output and we know that nearly all smelters are operating below capacity because of low production. Some of the mining companies, such as First Quantum Minerals, currently producing nearly 50 percent of copper, may feel let down by what those fund managers called, ‘an unstable fiscal regime for the mining sector’.
WHAT WILL BE THE LIKELY IMPACT?
Reading from that statement by the Chamber of Mines, most mines will retreat into a ‘survival mode’: halting expansion projects, restructuring staff (with potential political implications), reducing production, resulting into ‘reduced revenues’ to government. It means the projected revenue in the 2019 budget may not actually be realised. This is what the mining companies meant in their statement. They foresee reduced declarations to government in terms of mineral royalty taxes (due to reduced production levels), and by doing so, they believe it will hurt government where it matters.
My projection is that as the actual impact of the new tax regime becomes real by April, 2019, Government and mining companies will come together to the table. However, all this depends on how well prepared authorities are to counter the manoeuvres (some of them genuine) by mining companies to ‘arm-twist government’ into submission. It also means the Zambia Revenue Authority will need to be capacitated in many ways to engage productively with mining companies, whose position is clear: they will pay less!
RECOMMENDED ROADMAP
Government will need to consider the bigger picture governing the mining industry. The suspended development agreements have not been replaced. Development agreements are crucial in attracting quality investments in the mining sector. The development agreements will be two sided: on one hand agreeing on a fiscal regime that guarantees returns for investors in the long term and on the other hand, a commitment by mining companies to support government programmes through transparent and sustained payment of various taxes and other. The late President Michael Sata once put together a team of technocrats headed by the late Pious Maambo to review the entire mining industry and am sure their report offers a perfect roadmap.
The budget is currently under discussion in parliament. There is sufficient time to fully interrogate the new tax regime so that come January, all potential booby-traps would have been removed. What would be disastrous is to end up with reduced tax revenues from the mining sector.
The problem with many Zambians, the author of this article included, is that they are satisfied with less. They will settle for the role of spectators and not actors in the game.
The mines and the minerals therein belong to Zambia, so the wealth is Zambia’s – that’s how simple the equation is. Whoever comes in to extract minerals from Zambia simply has no choice but to abide with Zambian tax conditions. Yes, investors are entitled to shares but like everywhere else in the world, there is no justification for an investor to have the upper hand in taxes just because the natives are technically and financially disadvantaged to run their industry.
There is no problem with many Zambians. The problem is with government for failing to empower its citizens so that they can participate the way you are suggesting
HERE IS HOW IT WILL END. TAXES ARE NECESSARY. SAME OLD STORY.
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Tax them, they respond in a rather weird manner. Then you quickly reverse your taxes. Are they not infestors?
If government is already getting less from the mines, what less is the author talking about which government will again get? I thought government might get more on reduced production with proper and adequate taxation? Let IDC take over those mines that will deliberately fail. Its time to get out of this vicious circle of arm twisting government whenever we want to get a fair share from our minerals.
This issue May end well with the mines contributing more to the treasury or may end badly with the mines contributing less than what they are currently contributing. The mine owners are hard core pristine capitalists who wouldn’t want their magins to reduce through paying more taxes on the other hand Government is desperate for money to put the economy back on the rails. Now a desperate man is easy to manipulate. Our government is currently in a weak position because of the state of the economy. Botswana for example can manage to arm twist the mines but i am not sure if we can do the same. 2019 will be a showdown.
I am sure it won’t hurt to keep our minerals underground until such a time we know what to do with them
Reading opening remarks in this article I get the impression that Chibamba Kanyama is one of the enablers of the thieves looting this country. As far as I know he not one of the smartest of economists.
You’ve just exposed yourself Chibamba
Just like Saudi Arabia said to the American on Cheap Oil, we need to say the same to Investors. If they think the Tax regime is touch, they them leave and as a country, lets leave the minerals in the ground for our future generations. Right now Zambians don’t have the necessary support to mine and they infesters are just ripping off the country and leaving holes in the ground for our children.
You just have to look at all the mining towns after privatisation to see how little value the current mining status quo has added to the Zambia economy, despite the fact that this has been a bull run for resources. Contribution of mining to GDP has been shameful.
I think it time to stay the course on taxes. let let these companies leave if they have to. Lokk at what KCM did last week. NOBODY…
… NOBODY de-lists a loss making company from a stock exchange. KCM is profitable and that is why Vendetta can afford to de-list it from the stock exchange ..they don’t need investors or shareholders money, they make enough.
So to answer Mr Chibamba grand question..well let the resources remain in the ground fro now. That is where it should end. Future Zambians with better education and capital will get it out. Saudi Arabia did it with their oil , we can do it with our resources.
if the current tax regime is investor friendly, they are free to leave. We don’t benefit that much from their operations anyway. All the money used to build roads leading to mining house and fix mining towns is coming from loans and NOT mines..so call their bluff . Let them leave.
What was double h thinking?
It’s funny how on earth he wants to rule the country. It is unbelievable that the mines and taxes attributed to them will today cause alot of headache for Government and heartache for Citizens. Taxing the mines has proven to be a problem for some time now. Mainly because it is connected to jobs. If you wanna tax them enough, they use the most deadly blackmail sentence miners to the street. It all goes to how the deal was closed by those charged to privatize our assets. It is laughable and serious.
The problem is that despite being gigantic business undertakings the mines contributions to the treasury is insignificant, besides the little they pay goes back to them in tax refunds. There’s no justification whatsoever for Zambia to allow the existence of such ventures
how dumb of you zambians to think that you…chasing investors away from your country where as world is inviting investors as FDI to boost economy!! have you ever thought of this if they close and go away 10000’s of jobs will be lost and it will create a chain reaction in multiple folds…but you zambians dont use the gifted brains and instead just keep talking shit where as you dont know ABC of economics or business…just keep drinking and sell your stuff to chinese….by the way why dont you all talk about the corruption that is the main culprit here??? top to bottom all are corrupt..nah you will not talk about it cuz all that make sense to you that our resources our land our money…balls…keep dreaming
Your analysis is totally flawed. Smart Zambian minds are challenged to find workable solutions that will benefit themselves and future generations. It’s not a crime is a few thousand jobs must be lost if that’s what it takes to regain total control over our resources.
You mention corruption. In my eyes, the greatest act of corruption is one that allows a win-lose situation in investments. Despite your so much loved investors’ presence in the country for so many decades, Zambia has not seen any notable development. The only economies that have been boosted by our Zambian copper are western economies. How long do you want this to continue?
Chibamba Kanyama umwaiche is one of those useful I D I O T S who western investors have paid to run useless articles like these in order to incite the public against the government and make the Government capitulate and revert to the status quo. Sometimes you have to be patriotic iwe mwaiche Kanyama. You should also be objective and look at the side of the Government and the people and how they have been frustrated by mining companies ..at least write a balanced article than this one sided nonsense you have penned. I thought you were one of the fine journalists out there. How the allure of the dollar can blind us. Amazing!!!
I mean what Golden Goose that is laying eggs are the so called smart people talking about?
It is good the author acknowledged that he has limited knowledge about how the mines operate. To say that mining investors will wait for 10 years to recoup their investment in Zambia’s mines depends on which mines you are talking about. For those mines starting straight after exploration on a bush yes that may be true. But for mines like Mopani and KCM who inherited going concern businesses, that may not be true.
Mines make in the $500million dollars profit in a month!!!! I worked in the mines. The issue is that there is no transparency and no one will make that profit and knowing it will be taxed will come and declare it. There starts the problem. So the government have to find a way to get that information in an official capacity. The government know that information but in an…
It is always a wonder to how people mislead others. Every single mineral pass through our boarders manned by Zambian authorities. ZRA issue export permit for every mineral to go out of the country. Interms of Zambia having full information on what is exported and mined for that matter, this information is readily available. In companies such as KCM and Mopani, the govt is represented by 25% and 10%. So, this story of lack of transparency is mind bogging!! Let us as Zambians through our own representatives acknowledge failure to police these activities than to state its only on the other part.
Let me also state that the mistake is at the time we plead for investors. We promise them huge concessions but change mind stream. Perhaps its high time we started running some mines again but…
Game Theory is a fabulous mathematics field. Anyone who doesn’t want to lose out should study it or consult experts in it. In lay terms, it’s about brinkmanship which every person practices in endeavours.
GRZ has made the perfect gambit. Reduced revenue growth from mining is better than an unfair share of revenue in the context of the political economy. Investors will have to be less greedy than now. Otherwise, they should sell to other investors at a loss and this cycle can continue going on. GRZ view is that it simply is not true that they are not making sufficient money or it can’t be made with this share of revenue.
Don’t worry the Chinese will come and fill the gap if the mines reduce production and therefore revenue to the economy. I’m fact is that not the long term plan anyway?
We’ve been there before when Anglo American pulled a similar trick and destroyed our mining infrastructure with the intention to force the economy into a free fall and use the back door to loot our resources. Fortunately, the late President Mwanawasa vowed never to let them back in again. Here we need to stand firm, these people need to pay up their dues or go. When it comes to stealing in Africa, these Europeans are united to a point where they even send auditors from Europe to come and dazzle with their complex jargon of accounting. Our mines are subsidizing their standard of leaving in Europe. it’s time we took back control.