Nov

22

Taxing Copper in Zambia

Filed Under News, Opinion | 6 Comments

It is pretty well-known that Zambia is a copper-rich country; it is probably also well-known that the copper industry is currently booming - in the last ten years, the price of copper has risen almost four fold. But that is not felt by the Zambian people. This is attributed to ’secret deals’ made by the Zambian governement with the mining companies in the early 1990s. The details of the deals are not publicly known, but it is known that the mining companies get generous tax breaks, and that they pay only 0.6 percent of the prize at which the copper is sold on the world market to the Zambian government. The going rate internationally is 3 percent. The corporate tax in Zambia is normally 35 percent of the profit of a company; in the case of the mining companies it is 25 percent. In effect, the mine workers pay more tax than the mining companies.

“With a gun onto our head”
This information is from a BBC programme by Maurice Walsh on taxation. Mr. Walsh interviews Edith Nawakwi, the finance minister when the mining deals were negotiated. Ms. Nawakwi describes the situation under which she assumed the position of finance minister in 1997 as one in which they were losing the equivalent of a million dollars a day from the mining sector. On her first day at work she signed the papers of a loan of 50 million dollars, The money was used to pay the salary of mine workers. Because copper prices were low, and the government was losing money, the IMF and the World Bank ‘advised’ the Zambian government to get rid of the mining companies. The government was obviously in a disadvantaged position during the negotiations that eventually led to the privatisation of the mines.Ms. Nawakwi says:

Here is a country, you have no money, and the only people who can give money are the World Bank and IMF, and the creditors. And your colleagues wil say, Madam, we are not giving you any money. Get rid of your assets which are making you lose moey because you will be saving a million dollars a day if you don’t have that mine. And truly, I want you to understand that whatever has happened to this country, I think the 1990s were the worst. It was like Zambia was really negotiating this agreement with a gun onto our head.

Of mistakes and more mistakes
The main problem was that no provision for a change in the tax regime whenever there was an increase in the international price of copper. When Maurice interviewed a representative of the mine workers, he answered only very few of the questions he was asked. And when the current finance minister, Ng’andu Magande,was asked, he counselled patience, saying, “Copper investors have been investing in the last three four years…. While the prices have been going up, we have not achieved the production levels that we had in the 1980s. So while people might say the copper prices have been going up, the production level has not increased as much as the price, because the investors are still investing.” Hmm… I readily complain about resource curse, but I find it appalling when a government minister does not drive a hard bargain with the mining companies, especially as it is widely known that the price of copper will not stay high forever.

Nigeria?
After listening to this documentary, I was interested in knowing the details of the deals between Nigeria and the oil companies. Actually, this post was written partly because I am interested in finding out exactly how much oil companies pay to Nigeria. I am sure that someone has done - or is still doing - a PhD on the topic. So please, anyone who has any information about the details of the deal between Nigeria and the oil companies should please leave it as a comment. And anyone who is an expert on Zambia should please leave some information that might help us better understand the situation with the mines.

The information on the mines in the post was got from here

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