Maravi

Analyst bemoans high levels of profit repatriation by mining firms

COMMENT - The secret 'development agreements' and the privatisation of the mines into foreign ownership are the costliest fraud visited on the Zambian people since 1991. There is no treating the mines 'fairly', because they do not treat anyone fairly - not their workers, not the taxpayer, and not the Zambian people. The gloves have to come off. We must retain all their profits in the economy for a couple of years, just to make up for lost time.

Analyst bemoans high levels of profit repatriation by mining firms
By Chiwoyu Sinyangwe
Wed 21 Apr. 2010, 03:00 CAT

HIGH levels of profit repatriation by mining companies is making the kwacha fail to appreciate against major international convertible currencies despite the country recording positive trade balance, key Renaissance Capital analyst Samir Gadio has observed.

And Gadio has observed that in the immediate short term, the kwacha is not likely to appreciate against global currencies as foreigner portfolio investors try to exit Zambia after their local-currency fixed income positions mature.

Despite recovery in copper prices, the kwacha has not recorded any significant appreciation as anticipated trading around the K4,650 and K4,670 for bid and offer.

Copper prices currently are now at about US $8,000 per tonne, yet the kwacha has not appreciated significantly as in 2008.

Latest statistics from Central Statistical Office (CSO) indicate that the trade balance has been in positive balance since June 2009.

Copper is Zambia’s chief export product accounting for over 63 per cent of the country’s foreign exchange earnings.

“I think the issue is that the income balance is consistently in negative territory, probably partially reflecting the high level of profit repatriation in the mining sector, which has resulted in sluggish (aggregate) current account metrics,” Gadio said.

The kwacha lost some ground against the US dollar in early 2010, after rallying from second quarter of 2009, but in reality the currency has not moved much compared to second half of 2009.
The US dollar and kwacha exchange rate has been more volatile in the past.
And Gadio said reduced Bank of Zambia (BoZ) intervention in the market through Open Market Operations (OMO) might place some pressure on the local foreign exchange in the immediate short term.

He said this scenario could prevent the kwacha from appreciating against global currencies.

“Yields on treasuries have collapsed as the central bank reduced its OMO operations and excess liquidity resulted in significant demand for government paper,” said Gadio. “In this context, foreigner portfolio investors are probably trying to exit Zambia as their local-currency fixed income positions mature, and this could place some pressure on the foreign exchange in the immediate short term, or at least prevent the kwacha from appreciating against global currencies. As the 364-day Treasury bill became increasingly unattractive after third quarter of 2009, such pressure may persist until the third quarter of 2010.”

Labels: DEVELOPMENT AGREEMENTS, FRAUD, MINING, SAMIR GADIO, TAXATION, WINDFALL TAX

posted by MrK @ 3:45 PM