In July 2016, the government of Zambia announced a new Mineral Royalty Tax based on a
sliding scale that varies between 4% and 6%, depending on the copper price.
We in the industry warmly welcomed this development, which we believe marked a shift away
from the harmful mining tax policy proposals of recent years, towards a more pragmatic and
realistic tax policy that views the mining industry as partners in development.
Zambia’s new Finance Minister, Hon. Felix Mutati MP, in the budget address to Parliament on
11th November 2016, made clear that “we cannot spend what we do not have”; a reference
to the urgent need to deal with the country’s growing budget deficit, and government
indebtedness, caused by past expansionary spending.
Fiscal restraint is necessary, but it need not have an adverse effect on economic growth and
development, if the right climate can be created for increased levels of private investment into
Zambia. The ‘multiplier’ effect of investment is well documented, and recent research has
shown a historic correlation in Zambia between investment levels, mining output and GDP
growth, particularly in the decade following privatisation.
What is the right climate? Let us be clear, it does not mean ultra-low tax rates, and light
regulation. It means being internationally competitive, in every sense.
Whilst there have been significant improvements, Zambia remains an outlier. It still has one of
the highest effective tax rates compared to other copper producing countries, and a terrible
recent history of policy instability. This deters badly needed investment.
With the renewed spirit of dialogue and cooperation which now exists with government, we
believe that it is possible to devise a more competitive mining tax regime that could provide
the economic stimulus that will help to grow industry, the wider economy and employment,
and ultimately deliver more tax over the long run.
With this objective in mind, we are publishing this freely available booklet Taxation and mining
investment in Zambia. It explains, in layman’s terms, the challenges of designing a mining tax
regime that benefits both the mines which pay tax, and the governments which receive it.
President: Zambia Chamber of Mines
Zambia needs a more competitive mining tax regime to entice both new and existing investors to invest billions of dollars into the mining industry and boost flagging production, says Nathan Chishimba, president of the Zambia Chamber of Mines.
“Last Friday’s budget speech by Finance Minister Felix Mutati aims to restore financial stability to the Zambian economy and lay the foundations for long-term economic growth – and economic growth depends on investment,” Chishimba says.
In a press statement publicising the release of a new report by the Chamber, Taxation and Mining Investment in Zambia, Chishimba says despite recent welcome changes to Mineral Royalty Tax (MRT), Zambia’s overall effective mining tax rate remains among the highest in the world.
“How is it that we have ceded our long-held position as Africa’s leading copper producer to the Democratic Republic of Congo (DRC). A key part of the answer has to be investment incentives and policy stability. The DRC’s tax regime is not only more investor-friendly than Zambia’s, but has also been much more stable. This has encouraged long-term investment, which has boosted production.”
Chishimba says the importance of new investment in Zambia is all the more timely, as the World Bank has projected that growth in copper production will start to slow after 2019. “Along with a decline in production, there will be a decline in government revenue, mining industry jobs and foreign exchange. However, production levels can increase if there is a new wave of investment.”
Taxation and Mining in Zambia quotes research showing that mining investment in Zambia benefits not just the mining industry but the wider economy too, through what is known as the ‘multiplier effect’. It means mines procure supplies from local businesses, and employees spend their wages in the economy, stimulating more business creation and more employment. A World Bank study on FQM’s Kansanshi Mine in Solwezi found that for every direct employment opportunity created at the mine, a further five were created in the wider economy.
The report also shows how levels of mining investment and national economic growth are inextricably linked. From 1997, investors in the newly re-privatised mining industry collectively poured more than $12 billion into modernisation, expansion and new greenfield ventures. Both copper production and economic growth recovered in 2000 and accelerated in the years thereafter. Importantly, this growth started before the copper price began to recover in 2004, proving it was the surge in investment which turned around the economic fortunes of the country.
The report goes on to cover the challenges of designing a mining tax regime which encourages continued investment – or at least does not discourage it.
The report considers the various phases that a typical mine goes through, from exploration and development to production and closure, and what incentives are necessary to encourage the development of resources through the various stages.
For example, during the exploration phase, when there is no income, the tax regime should ideally allow mines to defer losses to later years and write them off against future profitability. This incentivises mines to continue beyond exploration to actual mine construction.
“When taking business decisions, mines will respond to the nature of the tax treatment in place,” the report says.
Download Booklet – Taxation and Mining in Zambia
Issued by Zambia Chamber of Mines
Acting Chief Executive officer
A new analysis of mining in Zambia for the past 100 years shows a clear historical link between levels of mining investment and wider economic development.
According to an academic paper published this week entitled Copper Mining in Zambia – history and future.When mining investment is sustained and high, there is growth not just in the mining sector, but also in the broader economy in jobs, new businesses and the overall prosperity of the population.
When mining investment declines, it’s not just the mining sector that is affected but the entire economy, along with the material well-being of the population.
The paper, Copper Mining in Zambia – history and future, by Jackson Sikamo, Alex Mwanza and Cade Mweemba, was published in the journal of the Southern African Institute of Mining and Metallurgy.
The paper identifies three major periods in Zambia’s history when the levels of investment in the mining industry had a pivotal effect on the fortunes of the country.
The first period was in the early 1920s, when mainly American and South African companies invested massively in Zambia’s first commercial copper mines. Jobs were created, infrastructure was built, towns came into existence, and support industries emerged.
“Thus, by 1964, when Zambia was born, it had a strong economy driven by the mining sector,” the paper says. Zambia had one of the highest GDPs in Africa.
The second period was in the early 1970s, when government nationalised the Zambian mining industry and used its considerable revenues to drive an ambitious development programme.
However, because it came at the expense of continued investment in mining, the industry was unable to expand. Copper production and mining employment plummeted, and the economy went into decline. “The business prospects of the mines were bleak, and so were those for the national economy, which was heavily reliant on mining”, the paper says.
The third period was from about 2000 onwards, after privatisation. Investors poured capital into new machinery, new mining methods and new processing and extraction technologies. New mines were started in North-Western province.
“There was a sudden economic upturn, not only on the Copperbelt but in the country as a whole, with the mining industry as a pivotal contributor,” the paper says.
Significantly, this economic upturn occurred before the copper price started to recover, suggesting that it was the result of the investment itself, rather than an accident of commodity pricing.
By 2013, after more than US$12 billion of investment, Zambia’s copper output had tripled to 763 000 tonnes, and direct industry employment had reached 90 000.
Looking to the future, the geology of Zambia shows “great potential for further investment in mining”, say the authors. Consequently, the country’s prosperity hinges on the creation of a stable mining policy, internationally competitive tax rates and an investor-friendly environment.
The original paper can be viewed here (https://issuu.com/saimm/docs/saimm-201606-june) on page 15 of the June issue of the SAIMM journal.”
Issued by: Zambia Chamber of Mines
Contact: Talent Ng’andwe
The Chamber and a number of Chamber members attended a conference in Lusaka from the 25th April to the 26th April organized organised by Zambian Episcopal Conference on the Laudato Si, Pope Francis’s encyclical : “Care for our Common Home in the Context of Large Scale Investments – Mining and Agriculture” that was held at the Government conference Centre.
The relationship between large scale mining and agriculture and local civil society has had problems in the past but the message from the Pope to all stakeholders was to acknowledge the damage that has been afflicted on the environment and the need for urgent dialogue by all stakeholders to find lasting and sustainable solutions to the challenges being faced.
The conference was attended, a part all the important speakers, by Cardinal Peter Turkson, the President of the Pontifical Council for Justice and Peace who was representing the Pope, the Apostolic Nuncio to Malawi and Zambia His Excellency Julio Murat, their Royal Highness’s Chief Mumena and Chief Mpande and the Deputy Minister, Natural Resources and Environmental Protection. The conference discussed the impact that large scale industry has on the livelihood of those affected in the proximity of the operations. The conference noted the contribution of mining to the development of society and the contribution to job and wealth creation of the country, however it challenged the industry to practise responsible mining that respects the environment and the affected communities.
Our President, Nathan Chisimba, addressed the conference and conveyed the message that starting from the reality, about the social and environmental damage made in the past, now , according to Pope Francis message, all parties should work together to solve the problems in an open and sincere dialogue.
Following the conference, a Communiqué of Laudato si Conference was issued and is attached. (published also on the Pontifical Concil justice and Peace web site: http://www.iustitiaetpax.va/content/giustiziaepace/en/archivio/news/2016/zambia-episcopal-conference–zec—communique-on-the–laudato-si.html )
Chamber of Mine aware about the important and positive impact that this conference had also between many mining companies, specially those committed in Reflection’s days already organized with the Religious Leadears (with the Vatican and the Anglican Church) will work in order to propose to the ZEC another conference that could be organized, as follow up of this conference in the Copperbelt
The recent Zambia conference was the first of the planned regional conferences to encompass the spiritual community, major industry, civil society and the government.
We are pleased to inform you that with effect from 1st July 2016, our organisation will be relocating to the following address, the main telephone and facsimile numbers & email addresses remain unchanged.
We are moving to;
Mpile Office Park
Stand No. 4953
74 Independence Avenue (next to Ministry of Finance)
Tel No. +211-258383 (Main Line)
Fax No. +211-258385
During the relocation period, should you encounter any difficulties in contacting us via email and land-lines, please contact the following personnel via their mobile phones:
To quote former South African President Thabo Mbeki, who spent time in exile in Zambia:
“I am an African…I owe my being to the hills and the valleys, the mountains and the glades, the rivers….and the ever-changing seasons that define the face of our native land…”
To paraphrase Mbeki, I am a patriotic Zambian.
I work for a listed global mining company. I am proud to be both a Zambian and a modern miner, and I see no contradiction in that, merely a continuation.
Copper is the foundation of our development. For decades, it has fed Zambians, it has housed Zambians, it has educated, clothed and protected Zambians.
And, at least 600 years before copper was “discovered” in Zambia in 1895 by American scout Frederick Russell Burnham, copper crosses were being used as currency in the great trading civilisations of the 11th and 12th centuries.
Our Zambian Coat of Arms, adopted at independence in 1964, pays a fitting tribute to our industry by prominently featuring a miner’s headgear.
As the world continues to develop and industrialise, it drives demand for copper. So, despite the current downturn, copper has a great future.
Can Zambia be a part of that future? I firmly believe it can.
Last year, we produced 711 000 tonnes of copper – more than three times the level of 15 years ago.
I have a vision that in another 15 years, when my hair is greyer, Zambia’s copper production will have breached 2 million tonnes.
I believe this is achievable.
The copper is there.
Zambia’s mines have enough reserves to last another 50 years. More recent discoveries could take us well into the next century.
The long-term demand is there.
As countries in Asia, Africa and South America develop and industrialise, they will need copper.
But the story of Zambian mining should not only be about copper. We have undeniable evidence that Zambia is capable of producing a wider range of mineral materials if concerted effort is made to address the long term sustainability of the mining sector in Zambia.
And in mining, the long term is everything.
It takes at least a billion dollars to start a new mine, and several years before a return on investment is possible. But when good mining meets a good, stable policy framework, investors will commit their capital. This will result in a reinvigoration of exploration projects, which will then drive discoveries that will promote new and more exciting mining projects.
It is this fusion that we must strive for, if Zambia is to maintain its position as a favoured mining destination.
Yes, last year’s 711 000 tonnes is a record. But if you go back to forecasts made a few years ago, we should by now be closer to 900 000 tonnes.
Yes, our existing reserves are extensive.
But after a century of mining, the ore grades are lower, and the copper is more technically challengeing – and expensive – to access.
Since privatisation, approximately $12 billion has been invested in Zambia’s mines. Kalumbila and the recent modernisation of Mopani are just the latest shining examples.
But more is needed.
The World Bank is forecasting a decline in Zambia’s copper production after 2019, unless there is, quote-unquote, a “new wave of investment”. Given the timescales in mining, we have no time to lose.
All of us here today know that policy instability and friction between Zambia’s Government and mining industry have benefitted no-one in recent years. But, I truly believe those days are past us. Since early last year this Government has shown that it is willing to listen. To those investors here today, I point to the recent decision to lower MRT, in the face of budgetary pressures, as evidence of long-term policy making to safeguard the future health of the country’s pre-eminent industry.
The industry, too, has learnt from recent times. We acknowledge our wider role as a developmental driver for Zambia, and we recognise that we must ‘make our case’ to the people of Zambia.
This week, the Chamber has launched a new website, appropriately titled MiningforZambia.com, to help ordinary people learn all about our industry, its challenges, and its contribution. As a purely educational resource, I believe this is the first industry website of its kind.
So, good progress has undoubtedly been made by all parties in the last 18 months.
However, we all need to acknowledge the further challenges that lie ahead.
We must find the collective means to overcome them, through the symmetry of industry excellence and responsive regulation, if my vision is to come to pass.
Many of those challenges – power, regulation, investment, and so on – will be aired over the next two days, and I thoroughly look forward to being part of this vigourous debate.
For, let us be clear, tomorrow’s mining industry depends on decisions taken today.
Lusaka, June 22, 2016 – THE Zambia Chamber of Mines today launched an industry website which explains mining to ordinary people.
MiningforZambia.com website is educational and extensive in scope and content, and complements the Chamber of Mines’ existing website – featuring latest industry news from Zambia and around the world, a live updated copper price, tracking of the price of other mineral resources and the Kwacha/US Dollar exchange rate, and features offering a deeper look into mining in the country.
Chamber of Mines president Nathan Chishimba said: “It’s a world-first in the topics covered, the ease of reading and its daily round-up of news and financial information.
“This powerful website is a must-read for anyone wanting to understand the role of mining in the Zambian economy and society. We expect readers to return to the site daily, or at least weekly, to keep themselves updated – especially as we continue to add new content. It will appeal to all who follow the mining industry, be they experts or ordinary Zambians,” he said.
MiningforZambia.com is part of an ongoing programme of strategic, public engagement by the mining industry to promote a better understanding of the industry.
The site covers core topics focused on Zambia’s mines, their economic and social contribution, interesting facts about the industry and more.
It follows the launch of the booklet “Understanding Mineral Royalty Tax (MRT)” by the Chamber of Mines earlier this year.
The Chamber also hosted a media conference in December 2015 to explain the causes and the consequences of the global mining crisis resulting from the economic slowdown in China, the world’s largest importer of copper and other industrial metals.
MiningforZambia.com is the latest in several initiatives still planned by the industry.
“Mining in Zambia is relatively under-reported, and there are deep and abiding misconceptions about what it actually does and its impact on society and the economy,” Chishimba said. “MiningforZambia.com aims to help correct that.”
The website’s primary content is free for use by the media, or anyone else who wishes toaccessit.
Its five key sections are:
It also has a library and downloads section – where open source/ free to use information are shared. “We invite all Zambians to visit the website to learn more about an exciting and challenging industry which plays a critical role in the economy and society,” said Chishimba.
The new proposed changes to the Mineral Royalty Tax (MRT) regime will enhance the collection of mineral revenue by the government rather than compromise it, Chamber of Mines president Nathan Chishimba said today.
Chishimba was reacting to a media statement issued by a consortium of civil society organisations advising government not to implement the new proposed Mineral Royalty Tax regime on the grounds that it is “investor-led” and will “not maximize revenue in times of commodity price booms”.
Chishimba praised the government for the new proposed MRT regime, saying it recognized the need to balance increased tax revenue with continued employment and investment in new mining ventures.
“One cannot separate mining tax revenue from mining investment, because it is the mining investment which ultimately produces the tax revenue,” said Chishimba. “A good tax is one which balances these two competing objectives.”
Commenting on the civil society’s statement that “we need to make the most of what we have while we have it”, Chishimba said this short-term thinking was not necessarily good for the Zambian economy.
“The largest amount of tax revenue is always generated over the longer term, and this can only happen if mining companies are incentivized to invest over the longer term.”
On the view that the new proposed MRT regime will “not maximize revenue collection in times of commodity price booms”, Chishimba said this reflected a misunderstanding of the role of MRT in the overall tax mix.
“MRT is a tax on production, not profit. It is pegged at a relatively low rate, and is not designed to maximize revenues in times of commodity price booms. Governments collect most of their revenue in times of commodity price booms from profit-based tax, which is much higher.”
Chishimba said the government was on the right track with the proposed MRT regime, and urged civil society to view it in the larger perspective of ongoing investment, employment and economic development.
“One has to balance taking as much as one can now with having a thriving industry into the future, and the government has very sensibly recognized this,” said Chishimba.
The Zambia Chamber of Mines welcomes the changes to the new 2015 Mines and Minerals Development (Amendment) Act which was passed by parliament last Friday.
The Chamber maintains its position that the question of having an equitable fiscal regime that promotes the competitiveness of Zambia’s mining sector is not a zero sum choice between Government on the one hand and the mining industry on the other. Rather, it is one of making appropriate and well thought out choices that will result in a vibrant and competitive Zambian economy that promotes overall growth in the long term for Zambia. Given the pivotal importance of the mining industry in promoting long term diversified economic growth, the mining industry supports the forward thinking policy shift by Government, which will no doubt bear fruit in time to come.
We also note that the Government’s decision marks a significant shift in outlook towards the sector, and it can only be of benefit to the industry and the economy in the longer term.
However, given the intense competition we face as a country from other mining jurisdictions in the world, more needs to be done to ensure long-term competitiveness and renewed investment in the mining sector, which is key to securing growth. We are sure that if the country maintains the same momentum as exhibited by the outlook that resulted in the most recent change to the fiscal regime, this should be achievable in the next few years.
We believe the prevailing low price environment continues to present significant challenges for the mining sector over the short to medium term.
The gesture by the Government is a good lifeline that will provide much needed relief. The simplicity, stability, predictability, and ultimately the attractiveness of Zambia’s minerals fiscal policy environment and taxation regime, is vital to providing the assurances these investments require, especially given that copper mining in Zambia is a high cost business.
For the mining industry, this is critical: the instruments used within a taxation regime, and the rates at which taxes are set, together establish the incentives and disincentives a mining company faces in deciding whether and how much to invest, how many workers to employ, and what ore to extract – which in turn can affect the life-span of the mine.
If Zambia is to attract this needed investment its mining taxation levels, particularly Mineral Royalty Tax, must at the very least lie within global norms. Given Zambia’s specific production conditions, many would argue that an even bolder approach is necessary.
Since 2000, on the back of rising copper demand from China, the Zambian copper mining industry has led the nation’s development, spurring GDP growth and helping to achieve annual growth rates of 7% to 10%. The industry has ploughed more than US$14 billion into new mining ventures and trebled the country’s annual mining output to around 800 000 tonnes. This mining growth has been key in taking government tax revenue from less than half a billion Kwacha in 2000 to a peak of K8 billion ten years later.
“We are the basket which holds all the proverbial eggs. Working together we have to create a high-growth, diversified economy which spreads risk and opportunities across the economy creates more jobs and widens the tax base,” said Mr Nathan Chishimba, President of the Zambia Chamber of Mines.
“As we are seeing in the current crisis, Zambia should not be relying only on mining for its future,”Mr Chishimba said.
We commend the government for this new spirit of dialogue and cooperation, and we look forward to continuing to work together to solve these and future challenges.
The Zambia Chamber of Mines has urged Zambians to download its report on Mineral Royalty Tax, after strong endorsement by leading business personalities, who said the report would promote greater understanding of a complex issue which affects them.
The report , A guide to understanding Mineral Royalty Tax (MRT), has already been distributed widely, and is available on the Chamber’s website at www.mines.org.zm
Stakeholders who have welcomed its publication, saying it will help to promote informed comment, include Osbert Sikazwe, Dean of the School of Mines at the University of Zambia; Maybin Nsupila, CEO of the Zambia Association of Manufacturers (ZAM); Yusuf Dodia, Chairman of the Private Sector Development Association (PSDA); prominent Lusaka businessman Mark O’Donnell; and Jackson Sikamo, country manager for Chibuluma Copper Mines.
Osbert Sikazwe, Dean of the School of Mines, said: “The report will help the public to understand the wider operations of the mining sector, and to appreciate the challenges faced by the industry. It will also help people to understand how policy is formulated to enhance the growth of the industry.”
Maybin Nsupila, CEO of the Zambia Association of Manufacturers (ZAM), said any measure intended to promote debate and understanding of MRT is welcome. “The discourse by many people has been on the physical contributions the sector makes to the country’s economic growth, without understanding how the linkages ultimately benefit the country. The MRT report will give people a broader and more informed perspective.”
Yusuf Dodia, Chairman of the Private Sector Development Association (PSDA), said: “Mining plays a pivotal role in economic growth. While there have been challenges on policy as well as tax changes, there has been little or no understanding of the challenges faced by the industry. The MRT report will widen debate and promote a more informed view.”
Jackson Sikamo, country manager for Chibuluma Mines, a division of Metorex, said: “The report will help all stakeholders to appreciate what MRT is, and what its implications on fiscal policy are. It will to better-informed dialogue and debate, which are necessary for the country to come up with equitable taxation policies.”
Prominent Lusaka businessman, and Chairman of Union Gold Investment, Mark O’Donnell, welcomed the release of the report, given the competition Zambia faces from other commodity-producing countries. These include the Democratic Republic of Congo, which has “maximized the benefits realised from the mining sector, spurred by various incentives which have increased foreign direct investment”.
Chenai Mukumba, international centre coordinator for Consumer Unity and Trust Society (Cuts), described the release of the report as timely. “The initiative will help ease the misunderstanding among various players, especially the citizenry, who lack information yet are the ultimate beneficiaries of the mineral wealth.”
Peter Sinkamba, Development Planner/Environmental Protection Activist on the Copperbelt, said: “The MRT report will help to strengthen citizens’ awareness, and promote dialogue on challenges, contributions and shortcomings on policy formulation that might stifle the effective contributions of the mining and copper sector to the country’s growth.”
Zambia Chamber of Mines
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