A crisis in Namibia’s mining industry was narrowly averted this week when the Cabinet agreed to review proposed new taxes after two tense weeks of negotiations between the finance ministry and the Namibian Chamber of Mines.
Deputy Finance Minister Calle Schlettwein announced on August 17 that the Cabinet had decided to shelve plans to introduce to a 15% VAT levy and a 5% royalty tax on raw-mineral material exports. Instead, it has proposed that a differentiated levy, ranging from 0% to 2%, depending on the peculiarities of different economic sectors, will apply.
The country’s raw materials must undergo beneficiation to stimulate increased industrialisation and create jobs in Namibia, where unemployment is running at 55%, Schlettwein said. Other proposed new levies, including a tax on the sale of shares as capital gains, a hike in non-residents’ taxes from 10% to 20% and a tax on the sale of live animals, mostly to South African abattoirs, were retained.
The announcement, greeted with relief by the mining sector, represented a major climb-down by hard-line elements in the ruling Swapo.
The mining sector, which contributes up to 16% of gross domestic product, has increasingly become the target of demands for local empowerment. Mines and Energy Minister Isak Katali announced in April that licences for the mining of certain strategic minerals such as uranium, coal, gold, diamonds and rare earths would, in future, be granted only to the state-owned Epangelo mining company.
This would be in addition to a black economic empowerment requirement of between 10% and 25% for all mining ventures.
Oddly, the Epangelo mandate was not extended to the burgeoning oil and gas sector — Namibia now projects that its off-shore fields could hold as much as 11-billion barrels of oil.
When Finance Minister Saara Kuugongelwa-Amadhila announced in Parliament three weeks ago that the government intended to levy an effective 20% tax on mining revenues, the share prices of several major new mining ventures in the country tumbled on stock exchanges in Australia, Canada and Namibia. Several large investors even suggested that the government’s raft of demands amounted to a creeping nationalisation.
Namibian Chamber of Mines president Mark Dawe confirmed that, added to demands for a share handover to black economic empowerment partners, the tax would kill off all foreign interest in Namibia as a destination for mining investments.
The proposal appeared to be an angry knee-jerk response from some quarters in government to huge deals in the Namibian uranium industry being conducted in offshore financial centres, without a cent Âaccruing to the treasury. Some analysts also suggested that Kuugongelwa-Amadhila’s initial announcement amounted to a panic in official circles about declining income from the Southern African Customs Union. Namibia’s share of revenues dropped by about R2-billion following the 2008 financial crisis.
In a bulletin to investors last month Namibian-based IJG Securities pointed out that the government’s recently announced R14-billion economic stimulation plan may have raised bond market doubts about its ability to repay loans. Yields from the two most recent bond auctions were much lower than expected, showing a declining appetite for Namibian debt, IJG said.
Schlettwein said Namibia had suffered a double whammy over customs union revenues because the treasury also had to borrow money to make up the shortfall.