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
You have my support and I hope that Nigeria too can finally start benefiting from it’s rich resources. We are facing the same problems. The cushy deals that are made between corrupt national politicians and corrupt oil companies or corrupt mining companies are stealing money from the people on a massive scale.
We can fight this with the disinfectant of publicity. Corrupt deals cannot stand the light of day.
We can put pressure on: aid donors, NGOs, and existing civil society organisations including the media, to push this issue to the front of the newspages. It should never again be possible for companies to buy major natural resources, without a thorough debate in parliament, and the media.
There are billions of dollars involved. Zambia this year will export copper and cobalt with a market value of (US) $4 billion. Of that, about $2.4 billion are gross profits. This is what the government of Zambia is missing out on, because of IMF coercion (‘advice’). I say, sue the IMF and it’s multi-billion dollar gold reserves.
Also, in the documentary, Magande cannot say that ‘people just don’t know the facts’ when he refuses to make the mining agreements public. He’s a scumbag.
You have my support and I hope that Nigeria too can finally start benefiting from it’s rich resources. We are facing the same problems. The cushy deals that are made between corrupt national politicians and corrupt oil companies or corrupt mining companies are stealing money from the people on a massive scale.
We can fight this with the disinfectant of publicity. Corrupt deals cannot stand the light of day.
We can put pressure on: aid donors, NGOs, and existing civil society organisations including the media, to push this issue to the front of the newspages. It should never again be possible for companies to buy major natural resources, without a thorough debate in parliament, and the media.
There are billions of dollars involved. Zambia this year will export copper and cobalt with a market value of (US) $4 billion. Of that, about $2.4 billion are gross profits. This is what the government of Zambia is missing out on, because of IMF coercion (‘advice’). I say, sue the IMF and it’s multi-billion dollar gold reserves.
Also, in the documentary, Magande cannot say that ‘people just don’t know the facts’ when he refuses to make the mining agreements public. He’s a scumbag.
Really good and really interesting post. I expect (and other readers maybe :)) new useful posts from you!
Good luck and successes in blogging!
Really good and really interesting post. I expect (and other readers maybe :)) new useful posts from you!
Good luck and successes in blogging!
but what Ng’andu Magande says does make sense in a way.
Sure bargaining hard when the price is high would drive state revenue up (and then one has to hope zambians will see the effect of the additionnal revenue) but lower investment. After all the mining companies too know that copper prices won’t stay up forever. Furthermore, Zambia actually went through those motions because in the 70’s someone decided that Zambia needed to take advantage of high copper prices which led to the $1 million a day losses in the 90’s.
To me the mistake Zambia made is to have special tax rates for the mining sector. I mean I do understand that in the 90’s they had to motivate foreign investment but it would probably have been better to have an exception (tax credit) that depends on investment rather than a cross-sector one. Then again, may be that is what it is.
But to be sure, if the tax rate is 25% and the royalties 0.6%, the government revenue still goes up when the prices go up. Not to mention that the production is increasing.
So the fact that Zambians don’t see much of it may be an issue of government policy more than actual revenue.
but what Ng’andu Magande says does make sense in a way.
Sure bargaining hard when the price is high would drive state revenue up (and then one has to hope zambians will see the effect of the additionnal revenue) but lower investment. After all the mining companies too know that copper prices won’t stay up forever. Furthermore, Zambia actually went through those motions because in the 70’s someone decided that Zambia needed to take advantage of high copper prices which led to the $1 million a day losses in the 90’s.
To me the mistake Zambia made is to have special tax rates for the mining sector. I mean I do understand that in the 90’s they had to motivate foreign investment but it would probably have been better to have an exception (tax credit) that depends on investment rather than a cross-sector one. Then again, may be that is what it is.
But to be sure, if the tax rate is 25% and the royalties 0.6%, the government revenue still goes up when the prices go up. Not to mention that the production is increasing.
So the fact that Zambians don’t see much of it may be an issue of government policy more than actual revenue.
Random African,
Sure, government policy is an issue in this. Whatever point Magande has melts away when one considers that noone knows for how long copper prices will stay up. And yes, the revenue must have gone up based on the corporate tax rate alone, but if the royalties rate were 3%, it has been roughly estimated that the government would have made about 50 million dollars more this year alone.
Random African,
Sure, government policy is an issue in this. Whatever point Magande has melts away when one considers that noone knows for how long copper prices will stay up. And yes, the revenue must have gone up based on the corporate tax rate alone, but if the royalties rate were 3%, it has been roughly estimated that the government would have made about 50 million dollars more this year alone.
I read a bit more on the issue and Magande point is weaker than I thought.
I mean I still don’t understand why the current high price is mentionned so often.. royalties and corporate taxes are percentages, not rough numbers.
however the secrecy of the agrement, his funny explanation about investment (after all, corporate tax is on profits so investment reduces it anyway) and the rumoured tax vacancies.
It’s still a ressource curse issue though. I have yet to read anything that mentions how many people are employed by the mines or in adjacent activities and what effect increased production has on their well-being, it’s all about government revenue.. as if that’s the only thing that can make zambians better off.
I read a bit more on the issue and Magande point is weaker than I thought.
I mean I still don’t understand why the current high price is mentionned so often.. royalties and corporate taxes are percentages, not rough numbers.
however the secrecy of the agrement, his funny explanation about investment (after all, corporate tax is on profits so investment reduces it anyway) and the rumoured tax vacancies.
It’s still a ressource curse issue though. I have yet to read anything that mentions how many people are employed by the mines or in adjacent activities and what effect increased production has on their well-being, it’s all about government revenue.. as if that’s the only thing that can make zambians better off.
Dig the blog a LOT!
Nice style and I like the way you discuss the problems . I’m going to book mark it.
😉
Dig the blog a LOT!
Nice style and I like the way you discuss the problems . I’m going to book mark it.
😉