Maravi

Windfall tax on copper was wrong - Mulenga

Windfall tax on copper was wrong - Mulenga
By Speedwell Mupuchi in Chingola and Kabanda Chulu in Accra, Gh
Tue 31 Aug. 2010, 04:00 CAT

THE windfall tax on copper was a big mistake for our country, Tranter Zambia chief executive officer Sixtus Mulenga noted last week, saying the recently abolished tax would have killed the mining industry.

But Third World Network (TWN) Africa has said the failure to implement windfall taxes by the governments of Zambia and Tanzania illustrates the lack of courage and confidence to proceed on reforms aimed at increasing national benefits from the minerals sector.

And University of Ghana lecturer Thomas Akabzaa has challenged mineral- dependant countries like Zambia to align incentives given to foreign investors to national development policy goals that define the role of mineral resources in national development.

Making a presentation on the role of mining companies at the launch of the preparation of the first Extractive Industry Transparency Initiative (EITI) report for Zambia in Chingola on Friday, Dr Mulenga said the much-talked-about windfall tax was a wrong tax.

“The reason it’s a wrong tax is because it charges tax on revenue. Everybody who is in business, you know that when you run a business…the laws say that you pay tax on your profits…Mining companies are paying that tax. Windfall tax was a big mistake for our country because we started charging tax on revenue. If you charge tax on revenue it means you kill the business, it won’t grow,” he said.

[What a bullshit. The mining companies are supposed to pay mineral royalty tax, which is also a tax on revenues, except that it is only 3% of revenues. It isn't 'killing the industry' in Zambia or in Chile, where they have the same tax on revenues. - MrK]

Dr Mulenga said for people to perpetuate the idea that mining companies still must pay the “monstrous windfall tax” was not good for Zambia in terms of investment.

“…It takes 10 to 15 years just to do mineral exploration and develop a mine… and during all this period the mining companies have been borrowing money. The latest mining project here is Lumwana, Lumwana has a lot of money to pay back to the funders who funded that project, so Lumwana has no big bags of money that people feel they should lump on them because their revenue apparently looks big, so they must scoop that cream, no, there is no cream,” said Mulenga who is Albidon Mine’s former general manager for corporate affairs.

[How much money is 'a lot of money', 'Dr.' Mulenga? - MrK]

Dr Mulenga also dismissed the notion that mining companies were externalising all their profits, saying it took time to develop a mine and that money was used in mine development projects to ensure sustainability. He also said good governance, credibility of signed agreements and stability of a political regime were criteria used by the mines when deciding where to invest. He noted that Zambia was currently classified under clearly poor performance together with Bolivia, Central African Republic, Congo, Liberia, Niger, Philipines, Sierra Leone, worse than Zimbabwe, Jordan, Togo, Peru, Gabon, South Africa and Tanzania which were classified under weak performance with relatively better performance in few economic and social sectors. Chile, Botswana, Malaysia, Tunisia, Ghana and Mexico are classified under better performers.

“We want Zambia’s international rating to improve because the mining world has changed dramatically. Major companies are looking for countries with good governance, political stability and an investor friendly environment,” he said.

Dr Mulenga noted that Zambia had unique opportunities to fully exploit its natural resources.

“We want the mining companies to feel safe, secure and use Zambia as a springboard for growth. We believe transparency is very important,” said Dr Mulenga.

But TWN Africa programme officer for environment unit Abdulai Darimani said minerals and metals had historically played a key role in Africa’s trade and investment relations with the rest of the world.

Darimani said mining had remained a significant part of the continent’s trade and investment with more than 40 of the 53 countries producing or have known reserves of some type of minerals or metals.

“…37 of the 53 African countries rely on mining as the largest sector for economy activity with 70 per cent of Zambia’s foreign trade income coming from copper and cobalt while gold constitute a third of Ghana’s foreign earnings and since 2003, prices of various minerals and metals have been rising dramatically on the world markets, reaching very high levels in the first quarter of 2008 and this rise in prices of mineral commodity contributed to the overall (Africa) recorded growth of 5.7 per cent in 2008,” Darimani said.

“However, there was consensus that mineral producing and exporting countries did not derive optimum benefits from the price boom and this consensus translated into action to review existing contracts and pieces of legislation as well as overall reform of the mining tax regimes to improve benefits to national economies and development (under new taxes Zambia projected to earn US $ 415 million in 2009) but just as the momentum to review and reform was about to pick up the financial crisis set in and it resulted in severe economic shocks, undermined government’s capacity to deliver and slow down the pace of overall economic growth and development.”

He said the reversal in prices resulted in collapse of mines and related sectors, job losses, environmental liability, loss of government revenue and retreat of the state in some countries.

“The reversal also has implications for the possibilities of alternatives which Tanzania and Zambia failed to utilise and decided to suspend well intended policies and introduced measures which intensify orthodox economic policies that tax the poor to subsidize the rich and corporations,” said Darimani.

“The failure to implement mining windfall taxes by Tanzania and Zambia are examples that illustrates the lack of courage and confidence to proceed on reforms that aimed at increasing national benefits from the minerals sector and the solution to insulate mineral dependant economies lies in tackling the transmission channels which is both a technical issue as much as it is a political issue and this is why we should return to the era of the nationalist movements which resulted in the independence of African countries and the social movements hold the hope to this dream.”

And Dr Akabzaa said policy directions in the mining industry throughout times had been dictated by global trends and external actors.

“One attribute of the industry is the traditional lack of developed linkage with the rest of national economy in most mineral endowed African countries and little effort is made to address national and regional maximization of mining benefits such as value addition and more than 40 countries have adjusted terms (removal of windfall taxes) since 2000 with the majority in favour of companies though a few in Latin America and Australia favour government,” Dr Akabzaa said.

“There is need to harmonise the lack of coherence between national economic development plans and mineral policy and legislation and the incentives given to foreign investors must therefore be tailored to specific prescribed national development policy goals that define the role of the mineral resources in national development.”

He said Africa had remained impoverished and the number of poor people was on the increase despite the continent’s mineral wealth and the massive foreign direct investment to the sector.

“Africa’s role in the global economy is shrinking and its share of world trade has fallen from three percent in the 1950s to only one per cent today. Actually the role of the mineral sector in the economic development of the continent on the whole is suspect, for instance, while the sector accounts for on average over 60 percent of foreign exchange earnings, it contributes on average less than 10 percent to GDP of mineral endowed African countries and accounts for on the average about two percent of total employment of the region,” said Dr Akabzaa.

“So there must be an immediate development of a national mineral policy through a well coordinated public participation and with clear national vision on what the country expects from their mineral wealth and governments must foster development and closer collaboration among mining sector governmental institutions, research and academic institutions.”

And during the EITI report preparation launch, mines minister Maxwell Mwale, in a speech read by mines permanent secretary Dr Godwin Beene, noted that EITI would enhance transparency and accountability in management of the country’s mineral resources.

Mwale noted that preparatory work for Zambia to become an EITI compliant country by May 2011 was progressing with ongoing process to prepare the first report.

He said the implementation of the EITI had not been legislated in many countries and there was need for agreement among stakeholders.

Mwale said the extractive industry and government agencies were required to provide accurate information timely on request and that difficulties should not arise because the reconciler would be requesting for audited accounts.

Earlier, Dr Beene said there was need to attract eagles in Zambia’s extractive industry and not sparrows which fly away at the slightest turbulence. He said Zambians wanted to see a profitable extractive industry.

Dr Beene said the EITI which would require the involvement of large-scale mines and gemstone companies would improve governance, revenue collection and provide a forum for collaboration in addition to improving sovereign and corporate rating.

Labels: EITI, SIXTUS MULENGA, THOMAS AKABZAA, TRANTER ZAMBIA, WINDFALL TAX

posted by MrK @ 4:18 AM