Saturday, January 12, 2008
Saturday January 12, 2008 [03:00]
It is pleasing that the intense debate that has been taking place in Zambia has resulted in a change of policy towards the mining industry in terms of taxes. The question has been: who is benefiting from mining? This question was increasingly being raised in Zambia, a country where the exploitation of mineral resources constitutes a significant element in the national economy.
The nature of the challenge is clear. It is to create a situation in which the Zambian people have a direct share in the wealth produced by exploitation of their mineral riches in a way that translates into improvements in their quality of life and level of wellbeing. This is an appropriate reciprocity for the reduction in natural capital resulting from exploitation of non-renewable resources, an exploitation that can generate significant negative impacts.
And with President Levy Mwanawasa’s announcement of an increase in taxes to be paid by the mining industry, there are two reasons to celebrate. First, that it is the beginning of the end of a regulatory and tax framework for mining that clearly benefits large-scale mining to the detriment of the country. And second, that citizens are now able to impose their views on those who govern and an industry increasingly distant from the concept of great politics in which the public task evolves strategic vision.
As Levy correctly observed, Zambia’s development has been intrinsically connected with mining. The institutional and regulatory model that arose after privatisation of the mines resulted in the arrival of significant foreign capital and an expansion of production. However, this has happened at the cost of ceding to multinational corporations practically all the income from this resource that belongs to the country and its people. Now is the moment to revise these policies. Zambia needs the income from its copper for development and to protect its citizens. The country cannot wait any longer.
Mining uses a non-renewable resource which means that there is an “economic rent” that belongs to all Zambians and which at present is appropriated by the industry. It is this fact that justifies an increase in the royalty and other taxes. In economics there are many theoretical debates but also in some cases a strong consensus, one of which is to charge the “economic rent” corresponding to resources.
In the beginning the government was uncomfortable with altering anything in their agreements with the mining companies. Of course, this is for understandable reasons. The government tried all means to close the subject, claiming that an increase in royalties and other taxes would be a break on investment. But the evident injustice of the mining sector’s level of contribution, and above all common sense, inspired many citizens to agitate for an increase in royalties and other taxes.
Others, just by expressing their opinion, contributed to breaking the wall that had been built to block any discussion of this subject. Finally, in the face of civic opinion and parliamentary pressure, Levy’s government has decided to put forward legislation providing for an increment in the level of royalties and other taxes on mining. By this decision, the existence of company obligation and the legitimate right of Zambia to demand reasonable payment has been acknowledged.
This demonstrates that the state, by constitutional provision, has a dual role as tax collector and owner of resources. As owner of the resource, the Zambian government must charge a reasonable price or fee when authorising a third party to make use of it. In short, natural resources are part of the capital of society and the state has a responsibility to collect a competitive return on that natural capital.
Of course, a great variety of positions had arisen for and against increasing royalties and other taxes on mining. However, what emerges as indisputable is the principle that it is just and necessary for the state, as owner of the minerals, to impose a reasonable charge or compensatory fee for the exploitation of these non-renewable and scarce resources. And it is good that Levy and his government have realised the urgent need to address this deficiency that is generating distortions and inequalities.
This charge is supported not only by our own laws but also by various resolutions and reports of organisations such as the United Nations and the World Bank, according to which the Zambian government, under the principle of sovereignty, can charge what it considers to be reasonable or appropriate for the use of a non-renewable and finite natural resource. Also, as the state is the owner of the resources in the ground, the concessionaire uses them in lieu of the state. So the state, as owner, has the right to a reasonable payment of royalty and other taxes which must be paid by the concessionaire.
Taking into account the current technological advances in the mining industry, it is probable that in less than two decades, mineral ore reserves currently being exploited will be almost exhausted and what remains will have a lower mineral content, which in view of high production costs will make extraction uncompetitive or unprofitable.
When a mine closes, in addition to the environmental impacts, another direct consequence for the population of the area is a substantial loss of income and indirect services due principally to the fact that mining does not generate other enduring local activities or initiatives. We therefore hope that the money that will be collected from increased royalties and other taxes will be allocated to the financing or co-financing of investment in production projects that articulate mining with the economic development of each area in order to ensure the sustainable development of urban and rural areas.
We hope the measures the government has decided to take will help the mining sector’s tax contribution to meaningfully increase and consequently raise the sector’s contribution to the development of the country to higher levels.
Again, these responses by the government demonstrate the need for our people to take a keen interest in all the affairs of their country and put demands on government to do what they think it should do. This also demonstrates the need for a responsive government, a government that favourably addresses the concerns of its people. It is only in this way that meaningful development can come to our country and its people. If not, we may end up with a kind of development that has all sorts of very favourable economic statistics but without, in any meaningful way, lifting the people out of poverty and despair.