Reports

13th ZEITI REPORT,2020

Where does mining’s money go?

https://zambiaeiti.org/

Where does mining’s money go?

 

With Zambia’s mining sector routinely accused of tax avoidance, Illicit Financial Flows (IFFs) and outright corporate theft, the latest report released by the Zambia Extractive Industries Transparency Initiative (ZEITI) is a breath of fresh air in a post-truth world where, too often, it is the loudest – not the most informed or credible – voices which succeed in swaying public opinion.

ZEITI, the local chapter of the Extractive Industries Transparency Initiative (EITI) – a global coalition made up of members of Government, Civil Society Organisations, and mining companies – is the keystone among a range of transparency initiatives with both clout and credibility which give the public insight into the industry’s finances and tax affairs.

ZEITI’s thirteenth annual report, released on 11 January 2022, looks at each and every kwacha which Zambia’s Government received from the mining industry between 1 January 2020 and 31 December 2020, and provides a company-by-company breakdown of financial contributions to the economy. The report also reconciles the revenue received by the Government to the amounts declared as paid by the mining companies in a collaborative process which is overseen by a Multi-Stakeholder Group, the Zambia EITI Council (ZEC). It consists of 18 members from three sectors – Government, industry, and civil society – so its very structure ensures complete transparency by all parties.

What are the report’s key findings?

Almost one third (31.4%) of all Government revenues in 2020 came from the mining sector, amounting to ZMW 25 billion, including tax and non-tax payments received by Government agencies and dividends received by the Ministry of Finance. A whopping 79.5% of the country’s exports came from mining, with the sector remaining Zambia’s major productive industry. A total of 11.1% of Zambia’s Gross Domestic Product (GDP) came from mining, and 2% of the country’s national employment.

Five companies contributed approximately 69.4% to total payments, with First Quantum’s operations at Kansanshi, Sentinel and FQMO accounting for 48% of the country’s extractive receipts for the year.

The report’s scope extends to mineral production and export figures, supplied by agencies including the Zambia Revenue Authority (ZRA). Combined with other publicly available and cross-referable data on mining tax payments, profits declared by mines and dividends paid to shareholders, ZEITI’s report offers a window into the inner workings of Zambia’s mining companies, and the role of Government and other stakeholders in the sector.

A whopping 79.5% of the country’s exports came from mining, with the sector remaining Zambia’s major productive industry.

Rigorous questions lead to comprehensive answers

EITI is transparent about the methods it uses to collect, verify, and compile data which – in this era of disinformation – empowers the public to fact-check the data they digest. Additional measures are taken during the compiling of each report to ensure “data assurance”. These include requesting that extractive companies have their reporting templates signed by a senior official, and requesting that Government agencies have theirs signed by authorised officers. The extent to which reporting entities complied with data assurance procedures is then evaluated, with details about each entity’s compliance also available in the report.

Improving public debate on governance in Zambia’s mining sector

On 8 December 2021, Zambia was awarded a high score in “EITI implementation,” meaning that the EITI Standard is successfully being applied to inform public debate and policy, particularly through its Multi-Stakeholder Group. There is, however, room for improvement with regards to how data on production and export of minerals is collated.

Tracking minerals from the production to the export stage of the mining cycle is a challenge that has long been acknowledged by Government and industry alike. It has led to wild accusations ranging from “underreporting” to theories about thousands of tonnes of minerals being covertly transported across Zambia’s borders every day, unnoticed.

The challenges associated with accurately monitoring mineral production spurred the creation of the Mineral Output Statistical Evaluation System (MOSES) in 2015, a purpose-built mineral tracking system co-designed by the United Nations Conference on Trade and Development (UNCTAD) and ZRA. It gives all parties complete visibility into mineral production figures, along with information about taxes and royalties paid on minerals mined. But, unfortunately, complete visibility by all parties is not the same thing as ensuring all parties follow a common reporting structure. While MOSES has greatly improved the accuracy of mineral monitoring, eliminating discrepancies remains a challenge.

Counting the copper

One explanation for these historical variances in production data is the fact that mines in Zambia are “highly integrated”, meaning that copper in its various states (from ore to cathode and/or anode) tends to be handled by numerous parties during the mining, refining and export stages. Ron Smit, who headed up an initiative that aimed to build capacity within the Ministry of Mines and Minerals Development to improve accurate information-sharing, explained one key reason for the discrepancies that he noted during the Mineral Production Monitoring Support Project’s roll-out between 2015 and 2019.

“Mines are highly integrated in Zambia: some of them (like Kansanshi) go all the way from ore to cathode [and/or anode], and some of them only go halfway with this process and sell the intermediate product to somebody else. For instance, somebody might produce concentrate and report a certain number of tonnes of concentrate with 30% copper, to the Ministry. Somebody else would buy this concentrate, combine it with their own concentrate, and report the amount of final copper product [cathode, anode or blister] that they produced at the end. That resulted in the situation that some copper was counted twice.”

A very similar situation occurs when copper ores and concentrates are imported into Zambia from the DRC, where copper grades tend to be higher. When imported copper is processed in Zambia and then exported, because it was not mined in-country, it should not be reflected within the country’s copper “production” data. Doing so skews export numbers, and is one explanation for the volume of copper exports (930,969 MT) being higher than copper production (837,003.6 MT) in 2020.

While the incidence of copper being mined but not smelted and exported in a particular year (because of a smelter shutdown, for instance) may also be a factor, according to experts, the processing and toll treatment of ore and concentrates imported from the DRC is the biggest contributor to this variance.

Both companies and Governments have responsibility for reporting, collecting and publishing data.

Both companies and Governments have responsibility for reporting, collecting and publishing data. Improving the systematic disclosure of Government and corporate data, as well as working towards making MOSES information publicly available are among the EITI recommendations provided to the ZEC in the 2020 report.

From transparency to accountability

ZEITI’s reported data – and its recommendations – are furthering a vital goal of ensuring that transparency goes hand in hand with accountability, on the part of each and every stakeholder within the country’s mining industry. In an era where stories about ‘cloak-and-dagger corporations’ attract many more eyeballs than no-frills facts, ZEITI’s report offers sober, straight-talking insights into the country’s key sector which every Zambian deserves to see, and should take note of.

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