MINED OUT IN ZAMBIA
For decades Zambia's copper mines attracted foreign investors. Local miners put up with the atrocious working conditions and pollution because they were promised development. But the financial crisis now threatens to scupper those hopes.
By Jean-Christophe Servant
Peter and Irene, both 30, are engineering graduates of Lusaka university and have been working since 2006 in Chingola, a small Copperbelt town in Zambia in southern Africa (1). The couple are employed by Konkola Copper Mines (KCM), the biggest mining company in a country which earns more than half its gross domestic product from mineral extraction. KCM produces 70% of the country's copper and provides its employees, the children of neoliberalism, with a decent lifestyle: a net salary of 5m kwachas ($876) a month, plus shares they can cash in in 2010. They also enjoy professional status in a sector whose 400,000 employees earn an average monthly income of 3m kwachas ($350) while 68% of the population of 11 million live on less than two dollars a day.
Of course PEter and Irene have to make sacrifices. Irene's job is to look after the chemicals used to treat copper ore, and in 2007 she had to leave her husband and young child to go on a traning course in India. The Indian multinational Vedanta has been the majority shareholder in KCM since 2004. The sale was the latest in a series of privatisations that began in the late 1990s, and in which 257 of Zambia's 280 businesses left the public sector.
Nearly 100,000 people lost their jobs over this period, 40,000 of them from the country's flagship Zambia Consolidated Copper Mines (ZCCM), which was carved up into as many pieces as there were buyers. Vedanta got its hands on the biggest slice when it bought up the Chingola mine.
Irene has nothing but happy memories of her time in India. But when she returned to KCM she foundsome of her Zambian colleagues had been dismissed and replaced with young expatriate Indians "who are no more qualified, but better paid, housed in custom-built accomodation and given a company car". While she was away, Peter ahd to deal with the sudden rise in the price of essential goods, petrol and rent: their three-room flat and kitchen, infested with cockroaches and subject to regular power cuts, now cost them 2m kwachas ($350).
Then, on Christmas Eve last year, the rent fell to 1.7m kwachas ($298) - in tandem with a record fall in the price of copper, which dropped to $2817 a tonne from more than $8675 in July. The spectre of mine closures re-emerged. It was a glum Christmas for the 20,000 or so permanent employees of the mining sector - three times fewer than the state sector had employed at the end of the 1970s. Employers and employees both had to economise to ride out the approaching financial storm: for workers, so they could maintain their comfortable profit margins.
A river of acid
Vedanta's Zambian subsidiary declared a turnover of nearly $122m in the final trimester of 2008 - almost half what they earned in the previous one. First they reduced their contracts with the mainly South African temping agencies, which had flourished after privatisation. Thousands of underpaid and non-unionised workers, who had done the riskiest jobs, were laid off. Vedanta then resorted to other 'sacrifices', in order to maintain maximum input (its goal, written in large letters above the entrance to its Zambian complex). Suppliers had to wait a little longer to be paid - some went out of business. Working hours became longer: "four 12-hour days followed by two days off," according to a local member of the largest union in the sector, the Miners Union of Zambia (MUZ). Even Peter, a model employee, says they are being pushed to the limit: "We have to be on call 24 hours a day. If this carries on, there will be more accidents."
"Who benefited when the price of raw materials went up?" asks the economist James Lungu who teaches at Copperbelt University in Kitewe. "Mining companies and their shareholders. And who is suffering now the price is falling? Miners, their families, and the environment. We are on the verge of a social catastrophe."
It takes 100 tonnes of ore to produce one tonne of copper. On 6 Nobnember 2006 the people living on the banks of the Kafue - which flows down towards Lusaka before joining the Zambezi further south - were confronted with a strange sight: the river had turned turquoise. Vedanta had accidentally discharged its toxic waste into it. Two million inhabitants of Chingola district - 100,000 of whom draw water directly from the river - were deprived of drinking water for at least wo days. Thousands went for hospital checkups after eating fish from the river. Analyses of the Kafue's water showed it contained 38.5mg manganese, 10mg copper and 1mg cobalt per litre: concentrations 1.7 times, 10 times and 10.7 times higher respectively than the limits set by the World Health Organisation. With a ph of 1.5, the Kafue had become a river of acid (2).
The Vedanta employee who admitted the company's responsibility was sacked on the spot. The multinational threatened to withdraw advertising from the state-owned daily Times of Zambia if the incident was reported. But the editors stood firm, and the scandal erupted. On the orders of the Environmental Council of Zambia, a public body charged with maintaining standards, Vedanta called a brief halt to its mining activities in Chingola. The company was indignant at losing $2.5m Then business started up again. The price of copper continued to rise, and with it, the pollution.
An unauthorised visit to the massive Vedanta site during the rainy season revealed a vision from Dante's Inferno: 3km from the mines, the pollution control dam was overflowing, spewing copper-coloured water, reeking of acid, into a tributary of the Kafue. "Of course we pollute," said an employee, "but all the mines do." "It was worse in the ZCMM's days," retorted Sampa Chita, director of KCM's social responsibility programme. "We are fed up being blamed. You cannot run a mine without causing pollution."
Vedanta is the only mineral extraction company in Zambia to have a department devoted to "the community". In her empty office, devoid of even a computer, Chita estimated her budget, with some hesitation, at "$12 or $13m". The money is used to fight malaria and HIV/Aids, fund orphanages, pay university fees, dig wells and support the local cricket team - but not the football team. Chita refused to say if this is because Indians prefer cricket to football. But now, for the first time it it's 60-year history, the Chingola copper mines' football team, Nchanga Rangers, has been relegated to the second division.
Chita claimed not to know what her company's profits are. When pressed, she admitted only that her department's budget is tiny given the scale of the problems. "ZCCM had a social outlook - perhaps too social," she added. "We are more focused on results. But is it wrong to want to make money? MInes need a lot of investment, and investors want to make a profit. You have to be realistic." Three months after taking over 51% of KCM's shares in 2004, Vedanta had already made a profit of $25m.
A LACK OF TRANSPARANCY
Lungu is co-author of an astounding report on the privatisation of the copper mines (3). The sale was orchestrated by the International Financinal Institutions (IFIs) - including the World Bank and the International Monetary Fund - under the government of President Frederick Chiluba (4). "ZCCM's privatisation was carried out with a complete lack of transparancy, no debate in parliament, and with one-sided contracts which few of us have ever seen," explained Lungu. "It has never profited the inhabitants of the Copperbelt. Nor its environment."
His view is shared up by Edith Nawakwi, Zambia's former Finance Minister, who oversaw the privatisations. Her testimony says a lot about the behaviour of the IFIs: "We were told by advisers, who included the IMF and World Bank, that not in my lifetime would the price of copper change. All the production models that could be employed were showing that, for the next 20 years, Zambian copper would not make a profit. Conversely, if we privatised, we would be able to access debt relief, and this was a huge carrot in front of us - like waving medicine in front of a dying woman. We had not option to go ahead" (5).
In recent years international media attention has focused on the social responsibility of Chines companies in the Copperbelt. More than 40 years after building the Tanzam railway, linking Zambia to the Tanzanian port of Dar es Salaam, China had made a comeback. The nationalist third worldist ideology of the past (6) has given way to a more pragmatic approach. Beijing is now the third biggest investor in sub-Saharan Africa. But the initial good feelings engendered by China's "win-win" discourse faded in April 2005, when the Chinese dynamite factory (BGRIMM) (7) near Chambishi exploded, killing 52 people. The factory had been contracted out by Non-Ferrous Company-Africa (NCFA), itself a subsidiary of the China Non-Ferrous Metal Industry's Foreign Engineering and Construction Company. Anti-Chinese sentiment hit the roof. The Chinese president Hu Jintao, on an official visit in February 2007, even had to cancel a tour of the mining belt.
Employees of the Chinese mining companies are denied union rights and their conditions are probably worse than for tose working for Canadian, Swiss or South African multinationals. But for all that, Sam Mulafulafu, head of the Catholic Charity Caritas Zambia, says: "It is important to remember it wasn't the Chinese companies who privatised copper." The new globalised Zambia is pursued by companies from every corner of the globe, but in the Bench Marks Foundation, based in South Africa, notes that many of these multinationals apply muchlower standards in terms of health, security and respect for the environment in Zambia than they do in the developed countries where they are based (8).
In January 2008 acid waste from Chingola's mines reached the ground water at Mufulira, around 40km away. More than 800 people in the township adjoining the Mopani Copper Mines (MCM) complained of diarrhoea, abdominal pain and vomiting. The mine is co-owned by teh Swill group Glencore and the Canadian company First Quantum, and the joint venture wasset up with the help of the European Investment Bank.
Accidents like these increase what two young Zambian researchers call the "ecological debt". Economist Nachilala Nkombo and legal expert Brenda Mofya say the environment has been sacrificed on the altar of privatisation: "Unlike the finacial debt, the ecological debt is far larger than Zambia's $7bn financial debt was at its peak" (9).
The mining townships of Mufulira are stark reminders of this ecological debt. One of the worst is Kankoyo, home to 30,000 people, and a canker on an otherwise fertile and verdant landscape. Only two things grow here: avocado trees and cactus. Open sewers, dillapidated shacks with tin roofs corroded by acid rain, abandoned pharmacies, grocers shops with broken windows - the local population maintain these vestiges of the ZCCM's social programme as best they can.
THEY DON'T LISTEN TO US
Kankoya also lies downwind of the smoke spewing out of MCM's blast furnace: on some days the township is smothered in a choking fog. Every year nearly 700,000 tonnes of sulphur dioxide is released into the air. Cholera is common. And unrest grows as unemployment rises. MCM's armed guards sit on plastic chairs on top of the slag heaps, watching out for illegal miners searching for minerals among the waste.
A heavy contaminated air envelops the former hospital where Percy Chanda, MP for Mufulira district and member of the opposition party, Patriotic Front, has his office. "I am not against foreign companies, we need them," he said. "But the way they have behaved on the Copperbelt is very regrettable. Tey don't listen to us. Imagine if you came to my house, and I made you a meal. You would probably offer to help me with the dishses. But here they just sit still at the table, without lifting a finger, waiting for the next course." A former miner, Chanda remembers "the good old days" of ZCCM: a state within a state that looked after every aspect of workers' lives from birth to death. Everything from housing, education and healthcare, to evening classes and sports clubs was run by ZCCM - they would even change your light bulbs, people used to joke.
Chanda was still a miner when Zambia - caught between ZCCM's losses of $713,000 a day and the offer of debt relief - accepted the advice of the IFIs. At that time copper was worth $2500 a tonne (actually it was between $1000 and 2000 per tonne - MrK). A militant member of the mining union during the post-privatisation cutbacks, Chanda finally hung up his miners hat in 2006 when he became an MP: "I have never been able to find out anything about the agreement that was reached on privatisation. Nor about what profits have been made since. I feel I am banging my head against a brick wall."
When copper prices began to rise, Chanda tried to negotiate a pay rise for miners. "They told us we couldn't benefit from the price rise, because they had sold their copper in advance at the previous year's prices. Now they tell us they have to lay us off because of the price drop. But they are still selling at September's priceswhen they were at their peak! But you know it's not safe being in hostile territory, surrounded by your enemies. One of these days they'll regret what they did to us."
EVERYTHING IS FOR SALE
The financial storm has hit the Luanshya copper Mines (LCM), an Israeli-Swiss joint venture registered in the Netherlands, which has just sacked its 1,300 permanent staff. LCM's director, Derek Webbstock, says business will resume when the price of copper goes back up. The atmosphere is gloomy in the mining town. Around 60 policemen have been sent to guard the entrance to the complex, but LCM has already sent its mining equipment - sawhorses and piping cut up into pieces - to South Africa by lorry. Nothing is wasted - it can all be reused and sold.
It is rumoured the Chinese may take over the mine. At the mini-market, customers count their pennies, and worry about Christmas. The local union representative, Boniface Kabwe, has four children. The abruptness of the closure knocked him sideways. "In October some miners tried to borrow money from the local bank, but they were told they didn't have enough security. The bank seemed to know the mine would close before the government did! In fact [the government] was the last to know."
Up to now relations between LCM and the local population have been reasonable. Unlike other mining companies, LCM had kept the road to Luanshya in good repair. In fact the town was voted the cleanest in the Copperbelt last year, in a competition dating back to ZCCM days. Two-thirds of the local council's revenue - more than 1.2bn kwachas ($210,000) in the last six months of last year - came from local taxes paid by LCM. "They told us recently that they had enough funds to stay open despite the financial crisis," says Mutakela Kayonde, a Luanshya town planning official. "It's not just the miners who are affected by the closure. With eight people to a household, it's the whole community." Like an increasing number of people in the Copperbelt, including local correspondents from the national press, Kayonde is beginning to wonder what's going on. Has the collapse in the price of copper given business another opportunity to blackmail Zambia's government?
Last spring the Zambian government finally decided to review its mining contracts. It raised corporate tax from 25% to 30% and tax on profits [turnover/revenue - MrK] went up from a miserable 0.6% to 3%. The World Bank - forced to recognise how modest the Zambian treasury's share had been upto then - supported the measure. Zambia was getting nothing out of the exploitation of its copper reserves, while the multinationals were making a handsome profit. The mining companies had even set up sophisticated systems to avoid paying taxes by channelling their profits through offshore companies in islands like Mauritius. In 2006 Zambia earned $133m from copper exports estimated to be worth $3bn.
Mining companies made $3bn from copper extraction last year. But of the $421mn that should have found its way into Zambian state coffers, only $200mn was actually collected. Even though Zambia has some of the lowest taxes in Southern Africa, the multinationals contested them, threatening to take their disagreements to a commercial court - in their home countries. That was before the risk of redundancies, on the back of falling prices, offered them a new way to put pressure on the Zambian government.
It seems they have achieved their objective. After winning a narrow victory at the end of October 2008, following the death of his predecessor Levy Mwanawasa (10), President Rupiah Banda announced that his government was having discussions with the mining companies - on cutting taxes: "We must ensure that we do not kill the goose that lays the golden egg. There is little point in taking in a few million dollars in tax if thousands of jobs are lost as a result" (11).
Fred M'Membe runs the main Zambian opposition daily The Post, which started up in Chiluba's day. Sporting a South African communist party cap, and going around in a Hummer 4x4, he is now one of the wealthiest and most powerful men in the country, both from his editorials and his stake in the new Zambian economy. "Our government opened the doors wide to foreign businesses, but didn't leave itself the possibility to close them again. The economic policy of a country cannot be dictated by agreements made with private businesses," said the business magnate. "It's true privatisation did create a certain amount of hope. But now the Hollywood movie is over and reality has hit with the global financial crisis. The only solution is for the state to move back into the mining sector. Cooperatives or nationalisation, it doesn't matter. People should be first to profit from the mines."
Kabwe's zinc and lead deposits used to be the richest in Africa. After almost a century of exploitation by the South African giant Anglo-American they were finally abandoned, almost exhausted, in the mid-1990s. Now, despite a campaign to clean up the site funded by the World Bank, this town of 300,000 inhabitants is one of the ten most polluted industrial towns on the planet, according to the Blacksmith institute (12). The average level of lead in the blood of children is reported to be between 5 and 10 times higher than the limit set by the US Environmental Protection Agency.
(1) Their names have been changed.
(2) pH is a measure of how acid or alkaline a solution is. An acid solution has a PH of below seven. [PH goes from 14 or very alkaline/salty, to 1 or extremely acidic - MrK]
(3) Alastair Fraser and John Lungu, "From Whom the Windfalls? Winners and Losers in the Privatisation of Zambia's copper mines", Report for Civil Society Trade Network of Zambia, Lusaka, January 2007
(4) Frederick Chiluba was Zambia's second head of state, between 1991 and 2001. He has been charged with embezzling $500,000 of public funds, and his trial is due to resume this year. [He has just been acquitted of these charges, with others pending unless the present President restores his immunity - MrK]
(5) See "Undermining Development? Copper Mining in Zambia", a joint report by ACTSA, Christian Aid and SCIAF, October 2007.
(6) In the late 1960s President Kenneth Kaunda encouraged the nationalist guerillas fighting white rule in Rhodesia, who were financed by China and the Soviet Union. He nonetheless maintained good relations with the West.
(7) The Beijing General Research Institute of Mining and Metallurgy.
(8) "Mining Companies neglecting social responsibilities," ?22 September 2008.
(9) Ecological Debt owed to African countries, a case of the Zambian mineral extraction industry," September 2008. This report should be available shortly at Afrodad.
(10) The Zambian president Levy Mwanawasa, who was re-elected in 2006, died 19 August 2008 in a Paris hospital. The opposition candidate Michael Sata, popular in the Copperbelt, again lost his bid to be president in the election of October 2008. Now much less critical of Chinese businesses than in 2006, he told me he planned to stand for a fourth time in 2011.
(11) "Zambia may cut mining taxes, President says", Reuters, 16 January 2009
(12) Blacksmith institute.
Labels: FRED M'MEMBE, MINING AGREEMENTS, PRIVATISATION
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Mining companies' arrogance
By Concerned citizen
Friday March 07, 2008 [03:00]
I am simply surprised at the arrogance of the mining companies. I reckon it is the inability of the government to implement the law.
Sovereignty is basically the freedom to create laws and collect taxes on behalf of the people. In this case, the Zambian goernment is not breaking any mining agreement but making a new law which should be followed by any miner, small or large.
Those agreements were under a different tax regime, the fact that the government went to Parliament when introducing the changes means that it is new law and he who does not like it should quit Zambia.
Zambia is a sovereign state because it has Parliament to make laws. If those companies do not pay the new tax, then they cannot and should not be in Zambia.
http://www.postzambia.com/post-read_article.php?articleId=38712
Limos and poverty
By Dr Henry I. Kasongo
Friday March 07, 2008 [03:00]
The Sunday Post of March 2, 2008 on page 6 displayed, under the title 'Levy's visit to Gambia in pictures', pictures of His Excellencys sojourn in Gambia.
I wish to thank Ntembe Mwanawasa for this thoughtful initiative. She would have kept the pictures for herself if she wanted, but she decided to share them with the public.
Only one thing attracted my attention on all the pictures. Is it the president, the first ladies or the crowd? No. My attention went to the Hummer limousine. What an extravagancy in a continent where the majority are poor and jobless!
It is well known that the majority of African families live on less that 1 US dollar per day; and women are the most affected by poverty as they are the ones who fetch food for their families, look after orphans and nurse their sick husbands. Many families in Africa have no access to quality health care, clean water and education.
The prevalence of HIV/AIDS is high; and the number of orphans is increasing on a daily basis.
With this background of poverty in mind, one wonders why some African leaders are so wasteful, or should I say heartless.
Is it necessary to have such a mammoth vehicle for one person (the president of Gambia) and his family and waste tax-payers’ money on the maintenance of such an expensive motorcar while the majority of the Gambian people are suffering and living in a spiral of unemployment?
Things will only be fine in Africa when political leaders behave as responsible managers of their countries’ few resources and when they give more priority to the welfare of their citizens than to entertain their egoistic penchants.
http://www.postzambia.com/post-read_article.php?articleId=38717
'Chiluba sold us to Levy'
By Concerned Citizen
Friday March 07, 2008 [03:00]
Allow me to air my views on the stance that Sata has taken when he argues that Chiluba sold us to Levy.
Which is better between being sold to your local or to the foreigners? It is very fearful that this man whom so many Zambians trust will turn the clock anti-clockwise.
I hope Sata has learnt from his past experience because in many ways, while he worked with Chiluba, he too contributed to the selling of many Zambians together with their properties, either by being active or passively involved.
How can Sata prove that he might not do the same to us? I have come to realise that politicians in Zambia are just using voters for their selfish interests.
Sata is today saying that Chiluba sold us to Levy. But he too, during the Chiluba era, sold our companies to foreign investors through the privatisation process and he indeed held a very high respectable position of minister without portfolio.
Did he not participate in the selling of our property which the KK government acquired ? Can he prove that he will not sell us, together with our belongings to the Taiwanese?
Sata, give us hope and do not use us as a means to meet your ends. Advise your MPs and other officials in PF to pay attention to the promises they gave to the voters prior to the 2006 elections. MMD is now declining in popularity.
They thought upgrading the roads in Kanyama would buy them votes. It turned otherwise. So, I hope you know that words may not buy you votes. We need the implementation of policies, not just words. We are tired of being used by selfish politicians.
Today, its Chiluba. But who knows who's turn it will be tomorrow? Watch your words.
http://www.postzambia.com/post-read_article.php?articleId=38719
Foreign investment
By Concerned citizen
Friday March 07, 2008 [03:00]
The Minister of Labour needs to step down on moral grounds because he has clearly failed to manage the ministry.
The stories of Chinese nationals not respecting Zambian laws must come to an end. The truth of the matter is that these Chinese investors need us more than we need them. We should have a win-win relationship but it seems our government values profits more than human lives.
This is the only country in the world (maybe Iraq too) where foreigners can break the law under the veil of investment. We are tired of seeing our workers fight to earn a decent wage. Foreign investment and economic development are pointless if the ordinary people of Zambia do not enjoy the benefits.
The minister does not need to have inspectors report to him because news of this abuse is in newspapers everyday. Has Mwanawasa sold his soul to the devil that he cannot stand up for his people anymore? What has he promised the Chinese that he cannot dare stand up to them?
We should be equal partners but what I see is a master-slave relationship. The patience of Zambians has been taken for granted for too long. If this is the price we have to pay for foreign investment, then Lord help us.
http://www.postzambia.com/post-read_article.php?articleId=38641
Industrial unrest
By Dr Daniel Maswahu,Cambridge, UK
Thursday March 06, 2008 [03:00]
The industrial unrests that are currently proliferating with the blessings of the MMD government are a cause for serious concern.
I do not believe it is a mere coincidence nor indeed xenophobia that there are riots at mining enterprises under the management of the Chinese. There is no need to open fresh wounds and remind ourselves of the poor industrial safety conditions that Chinese mining enterprises expose their workers to.
The constitution does not provide clear guidelines on a minimum wage and it is little wonder that miners are taking the law into their own hands. These are not mere riots or the grunting of career criminals, but they represent an encroachment on, and a test of the strength of our sovereignty.
There is sufficient demand on the world metal market and Zambia can easily attract investors with a good industrial safety record.
The question therefore is, to what extent can Zambians continue being abused before the government realises their suffering?
Labels: MINING AGREEMENTS, WINDFALL TAX
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Unhappy mining firms told to seek audience with State
By Times Reporter
PRESIDENT Mwanawasa has invited mining companies opposed to the proposed tax regime to seek audience with Finance and National Development Minister N’gandu Magande and Mines Minister Kalombo Mwansa to show cause why the new taxes should not be effected. Dr Mwanawasa further said the mining firms should be prepared to explain to the Government why they were not happy with the proposed increase which was for the benefit of Zambians.
Dr Mwanawasa, who was answering questions from journalists shortly after arrival from Madagascar, maintained that Zambia’s mining taxes were still the lowest as compared to other countries whose taxes were between 40 and 53 per cent.
He said Government was just asking for a fair share of the resources to improve the lives of the ordinary Zambians and that he still could not understand the criticism.
“We are a listening Government, instead of them shouting on the hill I invite them to seek audience with the Finance and Mines ministers and they should be prepared.
“We are at 31 per cent, let the mining firms show that we are wrong when we say that our taxes are low. These people are coming from countries where taxes are high,” he said.
The President said he was sad that some Zambians were speaking on behalf of the mining companies opposed to the proposed taxes, saying that they should instead be fighting for the ordinary people who were still struggling to earn a living.
He said there were times when the Government had asked the mining firms to give Zambians top positions in the mines but they had refused, arguing that Zambians were not capable.
Dr Mwanawasa noted that it was sad that when it comes to fighting battles against increasing tax, the mines used Zambians.
He asked whether it was wrong to propose an increase to improve the living standards of people.
He said he was happy that the people who put him in power had welcomed the move by the Government to increase the tax and that his interest was for the people of Zambia who were more important.
On the continued power blackouts the country was facing, Dr Mwanawasa said he was hopeful that Zesco was working towards resolving the problem.
He said as South African Development Community (SADC) chairperson he had since called for a meeting with SADC ministers of Energy soon to discuss the power deficit in the region and find a way forward.
Labels: MINING AGREEMENTS, MWANAWASA
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Govt should expect resistance to new mining taxes, warns Dr Mutesa
By Joan Chirwa
Tuesday February 05, 2008 [03:00]
MINING companies need to examine their consciences in view of the new tax regime announced by the government, University of Zambia (UNZA) Development Studies lecturer Dr Frederick Mutesa has said. And the major mining companies have maintained that they would not give any statement on the new taxes announced in this year’s budget and subsequent remarks made on the issue, adding: “The matter is sensitive and it needs to be handled carefully”.
Dr Mutesa said the government and Zambian people should expect some resistance from mining companies over the new tax regime.
He was commenting on finance minister Ngíandu Magandeís remarks that there would be no room for the mines to negotiate the new mining fiscal regime with the government.
“The minister is very correct in taking the position that he has announced because the final authority in matters of legislation, including the tax policy, is parliament,î Dr Mutesa said.
And in this country, it is high time that parliament played a more significant role in scrutinising the development policies. However, some resistance could be expected from the mining companies, but the mines should examine their consciences, if they have any.”
The major mining companies could not give their views on the new tax regime, saying the matter was still being studied at a much detailed level before their position could be made public.
The government has this year come up with a new tax regime in the national budget, pending parliamentís ratification, with a projected US $415 million (approximately K1.5 trillion) in additional revenue to the treasury in 2008.
The estimates in terms of the expected additional revenue from new mining taxes is significantly higher compared to what the government has been collecting from the mines through taxes.
In 2006, government collected slightly over K35 billion from mineral taxes when other copper rich countries like Chile gained around US $1.7 billion (approximately K6.3 trillion, half of Zambia’s national budget) as tax contributions from its 17 largest privately held mines in just one quarter of 2006.
Last year, the government engaged a team of experts to renegotiate development agreements with the mines as part of the process of introducing a new tax regime announced that year, which entailed having royalty taxes pegged at 3 per cent as opposed to 0.6 per cent.
It was however noted that even if mining companies were to move to
the 2007 tax regime, the country would still not get a fair share from its mineral resources.
It is in this vein that it was decided to have a new fiscal and regulatory regime in the 2008 budget to bring about an equitable distribution of the mineral wealth between the government and the mining companies.
Effective April 1, 2008, mining companies will be expected to pay corporate tax at 30 per cent; mineral royalty tax on base metals at three per cent of gross value; withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the sector at the rate of 15 per cent and a variable profit tax of up to 15 per cent on taxable income, which is above eight percent of the gross income, will be introduced.
A windfall tax has also been introduced at different price levels for different base metals.
For copper, the windfall tax will be 25 per cent at the copper price of US $2.50 per pound but below US $3.00 per pound, 50 per cent at a price for the next 50 cents increase in price and 75 per cent for a price above US $3.50 per pound.
Magande said these measures were “competitive, reasonable and balanced."
Labels: DEVELOPMENT AGREEMENTS, FREDERICK MUTESA, MINING AGREEMENTS, WINDFALL TAX
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Magande revises income tax
By Post Reporters
Saturday January 26, 2008 [03:00] P
FINANCE and national planning minister, Ng'andu Magande yesterday unveiled a K13.76 trillion budget for the year 2008 under the theme, 'Unlocking Resources for Economic Empowerment and Wealth Creation' aimed at engaging Zambians in productive activities. The budget also proposes new tax measures. Under customs and excise duties, Magande proposed to
reduce value added tax (VAT) from 17.5 per cent to 16 per cent, as a wealth creation measure that would result in consumers having K21.6 billion that the government would forego in revenues.
Magande also proposed to revise Pay As You Earn (PAYE) by increasing the non-taxable monthly threshold income from K500,000 to K600,000 while those getting over K4 million per month would be paying 35 per cent instead of the previous 30 per cent effective April 1, 2008.
Magande has also proposed a windfall tax that would be triggered at different price levels for base metals including copper, on the international market and government estimates to raise US$415 million this year.
He further proposed that new tax measures for the mining sector would include corporate tax at 30 per cent, mineral royalty at three per cent and a variable profit of up to 15 per cent on taxable income, which is above eight per cent, would be introduced.
Presenting the 2008 national budget to the National Assembly, Magande said this year's budget represents 26.7 per cent of the Gross Domestic Product (GDP) estimated at K51.55 trillion for 2008.
He said of the total budget, K9.828 trillion or 71.4 per cent would be financed by domestic revenues while K2.278 trillion or 16.6 per cent would be grants from donors and the balance of 12 per cent is the deficit of K1.654 trillion or 3.2 per cent of GDP that would be financed by domestic borrowing of K618.8 billion or 1.2 per cent of GDP and external financing of K1.035 trillion or two per cent of GDP.
Magande said the general public services, education and health functions would remain on top of the government's priorities in 2008.
"The general public services has been allocated K4.514 trillion while education functions will get K2.11 trillion with the health sector getting K1.58 trillion and the defence sector will get K981 billion with the public order and safety functions getting K581 billion," he said.
He explained that tax measures to be introduced in the mining sector would contribute revenues estimated at US$415 million about K1.56 trillion in 2008.
Magande said the government's macroeconomic objectives were to achieve real Gross Domestic Product (GDP) growth of at least seven per cent, bringing down end-year inflation to more than seven per cent, limit domestic borrowing to 1.2 per cent of GDP and maintain the coverage of gross international reserves at no less than 3.6 months of import cover.
"Mr. Speaker, in 2008, the government proposes to spend a total of K13.76 trillion or 26.7 per cent of the GDP estimated at K51.55 trillion. Of this amount, K9.82 trillion or 71.4 per cent will be financed by domestic revenues while K2.27 trillion or 16.6 per cent will be grants from our cooperating partners," Magande said. "The balance of 12 per cent is the deficit of K1.65 billion or 3.2 per cent of the GDP. This will be financed by domestic borrowing of K618.8 billion or 1.2 per cent of GDP and external financing of K1.03 trillion or two per cent of GDP."
Magande said there had been an understandable concern that the tax burden was high and the government was mindful of the burden that workers faced especially those in the lower income group.
"I propose to revise the PAYE by increasing the non-taxable monthly threshold income from K500, 000 to K600, 000," he said.
Under the existing system monthly income up to K500, 000 is not taxed, while monthly incomes in the range of K500, 000 to K1.2million pay 25 per cent and those earning between K1.2million and K5.2 million pay 30 per cent while those earning over K5.2 million pay 35 per cent.
But in the proposed system, those earning below K600, 000 will not pay tax, and those getting above K600, 001 and K1, 235, 000 per month will be paying 25 per cent and those earning between K1, 235, 001 and K4 million would have to pay 30 per cent.
Unlike in the current system where those earning above K5.2 million pay 35 per cent tax, the new system will hit hard on those earning above K4 million, who will now be paying 35 per cent.
"This measure will give tax relief to workers in formal employment earning below K4.5 million per month. The measure will result in a revenue loss of K64.8 billion, which will go in the pockets of the workers," Magande said.
"Mr. Speaker, last year, this August House approved the proposal to increase the tax credit applicable to persons who are differently-abled from K36, 000 per annum to K144, 000 per annum. The government believes that this increase was insufficient, I therefore propose an additional increase so that the threshold will now be K600,000 per annum."
Magande further proposed to increase the allowable deduction for any employer who employs a differently-abled person from K500, 000 per annum to K1 million per annum for each such person employed, effective April 1, 2008.
He observed that the current interest paid on mortgage for residential property is not tax deductable and the government fully recognises the aspiration of most families to construct or purchase their own houses.
"I, therefore, propose to allow mortgage interest to be deducted for tax purposes to any Zambian individual who obtains a mortgage for residential property," Magande said. "It is envisaged that this concession will encourage home ownership. I also propose to increase the low cost housing unit capital expenditure limit for tax purposes from K2 million and K10 million to K20 million. This is meant to encourage employers to build decent housing units for their employees."
Magande proposed to reduce the withholding tax applicable from 25 per cent to 15 per cent in an effort to encourage savings and streamline the collection of withholding tax on interest earned on savings and deposit accounts.
In order to encourage local value addition, Magande proposed an export levy of 15 per cent on export of copper concentrates and cotton seed effective last night.
"This is in recognition of the availability of local capacity to process these products. This measure will result in an estimated revenue gain of K148.7 billion," he said.
He also gave further concessions to the music industry by reducing duty on musical instruments and art equipment falling under tariff heading 32, 92, and 96 from 15 per cent to zero and those under heading 85 from 15 per cent to five per cent.
On VAT, Magande said the issue of the 17.5 per cent standard rate of the VAT was a matter on which he had received numerous representation for many years and had always promised that he would respond when the economic conditions were appropriate.
"As part of government's 2008 theme, which is 'Unlocking Resources for Economic Empowerment and Wealth Creation', I propose to reduce the Value Added Tax standard rate from 17.5 per cent to 16 per cent. This is a wealth creating measure that will give the consumers K21.6 billion which the government will forego in revenues.
This measure will take effect on 1 April, 2008," Magande said. "Mr. Speaker, infant formula is a major nutritional supplement for babies. Given that infant formula attracts VAT, it makes the product unaffordable to many families. I, therefore, propose to exempt infant formula for VAT purposes. The measure will result in a revenue loss of K2.1 billion."
He also lifted the waiver on visa fees under tour packages.
"This will level the playing field for all tourists visiting the country. In addition, I propose to increase the visa fees by 100 per cent. The government will raise an estimated amount of K35.4 billion from this measure," he said.
On the changes to the mining fiscal and regulatory regime, Magande said effective April 1, 2008, the new fiscal regime for the mining sector would include: "the corporate tax rate will be 30 per cent, mineral royalty rate on base metals will be three per cent of the gross value, withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the mining sector will be at the rate of 15 per cent, withholding tax on dividends will be at zero per cent, a variable profit tax of up to 15 per cent on taxable income which is above eight per cent of the gross income, will be introduced."
He added that a windfall tax would be introduced to be triggered at different price levels for different base metals.
"For copper, the windfall tax shall be 25 per cent at the copper price of US$2.5 per pound but below US$3 per pound, 50 per cent at price for the next 50 cents increase in price and 75 per cent for price above US$3.5 per pound," Magande said.
"Hedging as a risk management mechanism shall be treated as a separate activity from mining."
He said capital allowance, that is a depreciation of capital equipment, shall be reduced from 100 per cent to 25 per cent per year.
"A reference price, which shall be the deemed arm lengthy price shall be introduced for the purpose of assessing mineral royalties and any transaction for the sale of base metals, gemstones or precious metals between related or associated parties.
The reference price shall be the price tenable at the London Metal exchange, Metal Bulletin or any other commodity exchange market recognised by the Commissioner General," Magande said.
Magande said capital expenditures on new projects shall be ring-fenced and only become deductable when the projects start production.
"Mr Speaker, these measures are competitive, reasonable and balanced. The expected additional revenues, in 2008, as a result of these new measures are estimated at US $ 415 million about K1.56 trillion," he said.
He said the Citizens' Economic Empowerment Fund would have over K120 billion.
"Furthermore, retired public workers will receive a total of K269 billion in terminal benefits," said Magande.
Labels: 2008 BUDGET, MAGANDE, MINING AGREEMENTS, WINDFALL TAX
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New tax regime on mining cheers PF MP
By Times Reporter
PATROTIC Front (PF)’s Bahati member of Parliament, Besa Chimbaka, has welcomed the Government’s new tax regime on mining and urged the State to ensure the benefits of the mineral loyalties trickle down to the improvement of social services. Mr Chimbaka told Parliament on Wednesday evening that proceeds from the new tax measures should be used to benefit a lot of infrastructure development projects and the livelihood of the people should be improved on.
Mr Chimbaka was debating on a motion of thanks on President Mwanawasa’s Parliamentary Speech. On Agriculture, he said President Mwanawasa’s statement that the country was moving from sacrifice to wealth creation making the economy work for the people should be taken seriously.
“Whether we are PF, United Liberal Party (ULP), MMD or any political party, we need to ensure this country move forward,” he said.
Mr Chimbaka was, however, disappointed with the Government over the non-re-stocking of fish in Luapula Province despite knowing agriculture was key to national development.
On the National Constitutional Conference (NCC) participation, he commended Dr Mwanawasa for starting the Constitution-making process.
“I commend President Mwanawasa without fear or favour for constituting a forum to enable Zambians sit and make a Constitution which I believe is not going to be based on tribal lines. The President has lived up to his word,” he said.
But PF Lusaka Central MP, Guy Scott, said he could not participate in the NCC because in its current form the NCC Act was defective.
On the mineral agreements, Dr Scott wondered what consultations the Government made when the mine owners recently in the Press were quoted to receive the new tax regime on mines with mixed feelings.
He called on the Government to quickly tell the House what was contained in the new mine agreements.
Mulobezi MP Michael Mabenga (MMD) said President Mwanawasa had done a lot to develop the rural areas in Lukulu, Mongu Solwezi among others.
In his contribution on the same motion, Tourism, Environment and Natural Resources Deputy Minister, Toddy Chilembo, said the long journey of making the Constitution finally had started and all should participate.
On the mineral agreement, Mr Chilembo said his Government embraced the idea, which would ensure that the mining investors paid more taxes.
Labels: BESA CHIMBAKA, INFRASTRUCTURE, MINING AGREEMENTS, NCC
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ZCTU calls for action on new tax regime
By Mutuna Chanda
Sunday January 13, 2008 [03:00]
ZAMBIA Congress of Trade Unions (ZCTU) president Leonard Hikaumba has said the labour movement is tired of listening to government pronouncements that are not implemented. And Federation of Free Trade Unions of Zambia president Joyce Nonde has said the new tax regime announced by President Mwanawasa has come a little too late when the country has already been swindled.
Commenting on President Levy Mwanawasa’s opening speech to the second session of the 10th National Assembly on Friday, Hikaumba said he hoped what the President said would be implemented, particularly the measures on a new tax regime that would enable Zambia benefit more from mining revenue.
Hikaumba said this in reference to the government’s failure to implement the increase in mineral royalties which finance minister Ng’andu Magande announced in the 2007 budget.
“We hope what has been pronounced is on the government’s agenda for action,” Hikaumba said.
Magande in last year’s budget proposed to increase mineral royalty tax from 0.6 per cent to three per cent for base metals and from two to three per cent for precious metals, but this was not effected for large scale mines which had development agreements with the government.
Hikaumba said Zambians had not benefited much from the country’s mineral resources.
“It’s not just copper, it’s also from gemstones, other minerals and other natural resources,” Hikaumba said. “Government should move fast and ensure that we maximise benefits from our natural resources.” He said the expected increase from mining revenues should translate into improvement of the welfare of workers countrywide.
“We should also make sure that equitable distribution of revenues from the mines encompasses workers,” Hikaumba said. “We want to see a significant improvement in the conditions of service for workers.”
And Nonde said the current generation would go down in history as one of the most irresponsible, going by the development agreements the government had with the mines and the failure to act quickly on the tax regime to enable Zambians benefit from high metal prices.
“In our time and the history of the country, those development agreements were the worst. I don’t believe those agreements were made by Zambians,” Nonde said. “We have been giving away our resources for nothing in return. The last 15 years for our country have been wasteful and whoever benefited from those development agreements among us Zambians will be swallowed in the air.”
She said her union was happy the President Mwanawasa pointed towards acting on development agreements and a new tax regime.
“We hope they will act swiftly now. We have had a lot of times when things have been promised without the government having the intention to act,” Nonde said. “Like in the budget, a lot of promises are made but they are not honoured. That is why we have money being returned to the treasury.”
She cited the failure by the government to move swiftly in implementing the broadening of the tax base, non-action on the Auditor General’s reports and the mismatch in paying pensioners their retirement packages.
“Year in and out the government talks about widening the tax base but we see little of this happening,” Nonde said.
“They even know the sector which to tax but when it comes to implementing, they are stuck, fearing that they are going to touch the voters.”
And United Liberal Party (ULP) Sakwiba Sikota demanded a comprehensive report on what led to the fish disease in Western Province and what would be done to prevent it from recurring.
President Mwanawasa in his speech said the fish disease on the upper Zambezi last year negatively affected the livelihoods of many people and that the government had commissioned an independent study to ascertain the cause and extent of the disease.
“Following the recommendations of the team, government will carry out a number of measures including revision of the legal framework regarding definition of stock diseases to include fish and fish diseases, continued collaboration and improved consultations with the countries sharing the Zambezi river basin,” said President Mwanawasa. “It will also conduct routine monitoring in the Zambezi river system to determine patterns of disease occurrence and increase public awareness on the disease.”
Labels: DEVELOPMENT AGREEMENTS, FFTUZ, JOYCE NONDE, LEONARD HIKAUMBA, MINING AGREEMENTS, TAXATION, ZCTU
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Distributing mining wealth through taxes
By Editor
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.
Labels: DEVELOPMENT AGREEMENTS, MINING, MINING AGREEMENTS
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Zambia is not benefiting from mineral revenues, says Levy
By Brighton Phiri and Mutuna Chanda
Saturday January 12, 2008 [03:00]
THE government has introduced a windfall tax and a variable profit tax for the country to benefit from its mineral resources. The tax regime, yet to be approved by Parliament, will be designed to work in periods of both high and low prices and for both low and high cost mining projects. The development moves Zambia into the median position in international comparisons at
47 per cent effective tax rate for mineral resources.
Opening the second session of the Tenth National Assembly yesterday, President Mwanawasa announced that the government would swiftly move to introduce a tax regime that would increase its share of mining revenue.
He said in recent years the price of copper on the international market had risen from an average of US$1,714 per tonne in 2001 to US$6,893 per tonne in 2007, an increase of over 400 per cent.
President Mwanawasa said the rise in copper prices made the mining companies to re-coup their initial capital investments and make huge profits in a short period.
"To illustrate the point of the effect of mining companies paying taxes at concessional rates, the companies only paid a paltry US$142 million in company taxes and mineral royalty to the treasury from the total earnings of US$4.7 billion in the 2005 and 2006 financial year," President Mwanawasa said. "If the current prevailing prices and production forecast hold, the mining companies under the development agreements tax regime will earn an estimated income in excess of US$4.0 billion in the 2008/9 financial year while they will only pay an estimated US$301 million in taxes to the treasury."
President Mwanawasa said by international comparisons, Zambia today earned far less from its mining activities than any other mining country in the world.
He said Zambia's average effective tax rate at 31.7 per cent was eight per cent points lower than the next lowest country in the world, Peru which stood at 39.2 per cent. President Mwanawasa said it had been brought to his attention that even if the mining companies were to move to the 2007 tax regime, the country would still not get fair returns on its mineral resources.
"The government, has therefore, decided to introduce a new fiscal and regulatory regime in order to bring about an equitable distribution of the mineral wealth between the partners, namely the government and mining companies," he said.
President Mwanawasa said the new tax regime would introduce a windfall tax and a variable profit tax that had been designed to work in periods of both high and low prices and for both low and high cost mining projects.
"With these measures, the Zambian tax regime still remains competitive and moves Zambia into the median position in international comparisons at 47 per cent effective tax rate," he said.
"Assuming that current prices and production forecasts hold, we anticipate that the country will earn in excess of US$400 million in additional revenues in 2008 when the new fiscal regime is implemented by all the mining companies."
He said when the new tax system was enacted, and assuming that current prices and production forecasts hold, the country would earn an estimated revenue of US$250 million. President Mwanawasa told the House that the government had already prepared all the paper work for the new tax measures.
He said there was no need anymore for special agreements with investors in the mining sector and any other sector of the economy.
"I ask you Honourable members of parliament to support us when we bring legislations to the House for enactment," President Mwanawasa told the House as members of parliament responded in support:"Bring them tomorrow...bring them tomorrow."
President Mwanawasa said as a result of the team's findings, the government had decided to put in place a new fiscal and regulatory framework for the mining sector.
"Many people have expressed concern that the country and indeed the people of Zambia are not getting the maximum benefit from the current high metal prices. This is because the mining companies are paying low taxes based on the concessions in the development agreements signed with the government at the time of investment. As a result, there have been loud calls on the government to renegotiate the agreement," President Mwanawasa said. "Given the history and importance of mining in this country, my administration has examined this matter with extreme caution.
A special team of experts was therefore appointed to study this issue in great detail. Based on the findings of the team, it has been concluded that the development agreements in their current form and in the current circumstances are unfair and unbalanced, and further, the development agreements no longer meet their stated purpose of providing maximum benefits to the Zambian people and an appropriate return to the mining companies."
On governance, President Mwanawasa disclosed that government had established eight pilot integrity committees with a mandate to address corruption and other malpractices in government ministries.
On the Freedom of Information Bill, President Mwanawasa told the House that the government intended to provide safeguards to ensure that increased access to information did not compromise the country's national security and violated people's rights to privacy, before re-introducing the bill to the House this year.
He further told the House that the Zambia National Broadcasting Corporation (ZNBC) board of directors would be in place this year.
On rural electrification, President Mwanawasa said it was unacceptable that access to electricity in rural areas was less than three per cent and yet the majority of Zambians resided in the rural areas.
On telecommunications, President Mwanawasa said the government intended to introduce three bills to the House, (Information and Communications Bill, Postal Services Amendment Bill and the Electronic Communications and Transactions Bill), which would provide the appropriate legal framework in the sector.
Earlier, President Mwanawasa led the House in observing a minute of silence in honour of the late Kanyama Patriotic Front (PF) member of parliament Henry Mtonga.
The House adjourned to next Tuesday.
And commenting on President Mwanawasa's speech, Cuban Ambassador to Zambia Francisco Javier Correa said investors should share the profits in Zambia's mining industry.
"Most Zambians should own mineral resources and get as much profit from them. I fully agree with the President that Zambia should have higher taxes in the mines," Ambassador Correa said. "Foreign investors are always exploitative and are getting as much resources as possible. They can bring technology, yes that is good, but they should share profits."
Ambassador Correa said if the revenues from what would be earned from the mines resulting from President Mwanawasa pronouncements were properly utilised, many Zambians would benefit.
And United Nations resident coordinator Aeneas Chuma said the measures that President Mwanawasa spoke of on the mines were a new initiative of domestic mobilisation of resources which allowed the mines to make reasonable profits.
"Government is desirous of encouraging investment through the measures announced," Chuma said. "It is important to realise that the mining agreements were obsolete and it is important to have a regime that is consistent with international standards."
And Reform Party president Pastor Nevers Mumba said there was need to set up strong regulations to ensure that safety was not compromised.
"Many of the accidents that we've had on the mines are that there's been a compromise on safety," Pastor Mumba said.
Pastor Mumba said corruption needed to be dealt with firmly to ensure that regulations were upheld and further loss of life and productivity were avoided.
And European Commission head of delegation Derek Fee said there was need for the government to emphasize on the private sector over the next few years to achieve job creation.
"It's important for Zambia to increase revenues from the mines and the important thing is get the economic growth to be felt by the people," Ambassador Fee said. "Economic growth will depend on providing jobs so there must be emphasis on the private sector. The President touched on agriculture and tourism and there are jobs in tourism and agriculture and that is where emphasis should be."
Labels: DEVELOPMENT AGREEMENTS, MINING AGREEMENTS, MINING CONTRACTS, TAXATION, WINDFALL TAX
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Zambia to scrap old mining agreements
LUSAKA, Dec 4, 2007 (Xinhua via COMTEX) --
The Zambian government said here on Tuesday that it will scrap previous development agreements in the mining sector signed with foreign companies when the country sold most of its mines and assets in 1990s. Minister of Finance and National Planning Ng'andu Magande told a press briefing the government will puts in place a fiscal and regulatory framework to regulate the sector to ensure no special incentives are given to mining companies.
"I must emphasize that with such a regime, there will be no incentive for this administration or indeed any future administration to make changes to the regime as it will provide comfort and minimize the risk for both the investor and the government," he said, adding the government was currently in the process of re-negotiating those development agreements.
The agreements provided tax concessions to the mining firms with the objective of supporting and facilitating the necessary substantial re-capitalization and investment in the mining industry.
The concessions included, among others, the reduction of mineral royalty tax from 2 percent to 0.6 percent, reduction of corporate tax from 35 percent to 25 percent and withholding tax on interest, dividends, royalties and management fees paid to shareholders and affiliates reduced from 15 percent to zero percent.
However, following the increase in copper prices on the international market, various stakeholders have said there was need to re-negotiate the agreements because mining firms were not paying sufficient revenue to the government .
According to analysts, the conditions which necessitated the provision of concessions to the mining sector no longer exist and that since metal prices are high on the international market, there is need to re-negotiate the agreements.
The Zambian minister decried inequality in the sharing of the revenues from the country's mines.
"This clearly demonstrates the lopsidedness of these agreements, and under such circumstances, it is extremely difficult for the government to continue signing new agreements under the same terms, " he said.
According to government figures, earning from the mining sector amounted to about 1.6 billion U.S. dollars in 2005 and 3.1 billion in 2006. Of these amounts, taxes paid to the government only amounted to 26 million in 2005 and 76 million in 2006.
In 2007, the mining companies are projected to earn about 3.5 billion while their tax contribution is estimated to be 198 million only.
He said a government appointed team to negotiate the agreements did extensive work including consultative visits to major mining countries in the world, and concluded that Zambia had the lowest fiscal regime governing the mining industry in the world.
"According to the team's findings, there is need to reform both the fiscal and regulatory regime further if Zambian people have to equitably benefit from their natural resources," he said.
The establishment of this regime will ensure that Zambians get a fair and equitable share of earnings from the mining industry.
The current deals were signed during the privatization of the country's mining companies in the 1990's, during which companies were given special incentives, including lower mineral royalty tax of 0. 6 percent and lower corporate tax of 25 percent, with a view to re-investing in the poorly recapitalized mines at the time.
After the recent rise in copper prices, the country feels there is need to re-negotiate the deals because mining companies are earning a lot of money.
Zambian Minister of Finance and National Development Ng'andu Magande announced in this year 's budget in February that the government intended to raise mineral royalty tax from 0.6 percent to 3 percent and corporate tax from 25 percent to 30 percent, adding the government would institute new negotiations with the mining firms.
Copper production in Zambia reached 300,000 tons per year in the 1990's and early 2000's but current statistics show the production is over 500,000 tons.
Labels: MAGANDE, MINING AGREEMENTS
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Cost of cancelling agreements
By Murray Sanderson
Monday December 03, 2007 [03:00]
Our signatories to the mines privatisation agreements were guilty of a serious oversight. Today we all recognise this and would like to correct it. But we must take great care lest, in attempting this, we commit an even greater and more costly oversight. Let me explain. Many voices are urging that we cancel the agreements.
Yes, we could do that, and the foreign investors who bought the mines would have no effective way to prevent it. If they fought us we could win. But it would be a pyrrhic victory, a battle won leading to a war lost.
For economic development depends on much more than natural resources, money and technical skills. Far more important are certain intangible factors, such as trust, the rule of law, respect for property rights, and a reputation for dependability.
Some people may argue that Africa does not yet have the trust of other peoples, so there is little or nothing to lose. But I believe that view is profoundly mistaken.
Trust is something one has to win, and today Zambia has a great opportunity to win it. How? By honouring signed agreements, instead of taking the attitude that the end justifies the means and tearing them up.
If we keep our word, varied by whatever changes can be agreed in friendly negotiation, we shall add immeasurably to Zambia's reputation as a dependable partner in development.
But to keep our word will require courage. Far easier to give in to current popular demand and forget about Zambia's international standing. That, however, would be an oversight which our children and our grandchildren could bitterly regret.
Labels: MINING AGREEMENTS
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