Zambia’s mining companies, which have, until now, been treated to several tax rebates, may no longer have it so easy after the government’s upcoming review of agreements and plans to raise the mineral royalty tax from the current 0,6% to about 2,5%.
Finance Minister Ng’andu Magande, who is also chair of the committee reviewing development agreements for mining firms, said: “The main point is that as the prices of copper and other metals continue to boom on the world market, the country needs to benefit as well. We are seriously working out a programme to urgently review all our development agreements with mining investors and increase the royalty tax to an average of 2,5% for copper.”
In the run-up to the September 28 general election, the issue of poor social investment by mining companies moved onto the agenda. Analysts say it is what won defeated opposition leader Michael Sata his parliamentary seats in the Copperbelt region.
In his campaign, Sata promised to review all trade agreements with mining companies. He also pledged to ensure that at least 25% of the total shares in all mining companies were given to indigenous employees.
“Miners have spoken through their voting results and the government would do well to address our grievances. People are hurt, because some of our full-time miners are getting salaries as low as 800 000 Kwacha [about $180] and yet we have been proposing that the lowest-paid miner should be earning at least 3-million Kwacha,” said Mine Workers Union of Zambia president, Rayford Mbulu.
Copper prices on the London Metal Exchange have hit record highs this year — from the average of $1 200 per tonne five years ago to above $8 000 — on the back of a strong demand from India and China.
But unlike the government of Chile — the world’s largest copper producer — which has adopted a “pro-poor” policy and has a record budget surplus of over $8-billion fuelled by strong copper revenues, Zambia has gone for a pro-market policy.
Under Zambian law, mining investors are entitled to a host of incentives. They pay a paltry 0,6% royalty tax — the world average is about 3% — and they are exempt from customs duties on machinery and equipment. There is also no restriction on the amount of profits, dividends or royalties that can be repatriated.
“We have failed to feel the impact of the rise in metal prices because our mining investment agreements are very weak. They were entered into at the time Zambia was desperately looking for investors. These agreements have given mining investors the right to make huge sums of money and only bring back small amounts to Zambia,” said mining engineer and former Cabinet minister Andrew Kashita.
Development agreements for the current mining companies in Zambia were designed to attract more investment into the sector after South Africa’s mining conglomerate Anglo-American pulled out in 2002.
Zambia’s mines were previously run by the parastatal Zambia Consolidated Copper Mines (ZCCM). They were privatised in the early 1990s.
According to Kashita, the new mining investors have been less concerned about the welfare of miners and the neighbouring communities than about staying in business.
Nevertheless, major mining houses such as Konkola Copper Mines (KCM), the country’s largest mining company, say that they are active in communities.
“We are fighting hard to invest in our communities and promote the welfare of our people and it is very unfair for anyone to compare us to ZCCM, which was a parastatal. We are private companies and our core business is mining, but it’s like people expect us to do the kind of social investment that ZCCM was doing,” Banbyo Padhyay, spokesperson for KCM, told the Mail & Guardian.
Padhyay declined to comment on the proposed rise in mineral royalty payments, saying his firm could only take a position once the agreements were altered.
At its peak in the 1970s, Zambia produced about 750 000 tons of finished copper and was among the world’s largest copper producers before dropping to 200 000 tons in the 1990s. Output rose to 440 000 in 2005.