Copper boom, new tax rules.

Author:Ntomba, Reginald
Position:Feature - Zamibia's tax policy on copper mining
 
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Zambia is renowned for religiously implementing World Bank privatisation reforms to the letter, including that of its lifeblood--the copper mines. Amid an outcry of poor workers' pay and increased pollution in mining towns, foreign mining companies have been selling the country short while generating huge profits from its minerals, thanks to flawed tax rules. But as Reginald Ntomba reports from Lusaka, things are about to change as the government puts its foot down declaring the era of long tax concessions is over.

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Mining has been the prime mover of Zambia's economy for over 70 years, contributing about 70% of the country's total foreign exchange earnings. In recent years, mining has been generating between 6% and 9% of Gross Domestic Product (GDP) and currently contributes about 40,000 jobs to the formal employment sector. In the 1980s and 1990s, however, the sector took a dive due to lack of investment, poor management and declining metal prices.

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Under considerable pressure from the World Bank, IMF and other donors, the Zambian government was forced to privatise its copper mining industry as a condition for debt relief. This pressure, however, contributed to the government having a weaker bargaining position during negotiations with the private mining companies.

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With the privatisation in full swing, there was soon increased investment. Coupled with growing global demand, for copper, it soon began to look like the bad patch was over and the good times were back. Production in the mining sector began to soar and Zambia is indeed currently experiencing a copper boom and a resurgence of the country's mineral fortunes. For example in 2007 copper production was over 500,000 tonnes and the government predicts it will hit a million tonnes when other large-scale mines are fully operational. The government's long-term vision is to have "a vibrant and well-organised mining industry contributing in excess of 20% to GDP".

But while copper prices have dramatically risen to record levels on the world market and the companies are reaping massively from the high prices, there is little to show for it in the mineral-rich nation due to inequitably long tax concessions given to mining companies. When Zambia decided to privatise its mines, copper prices were low and it was difficult to attract buyers. The former mining conglomerate, the Zambia Consolidated Copper Mines (ZCCM), was sucking as much as...

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