How has PwC evolved in Zambia and what role does it play in mining?
The Zambia office, currently the lead transfer pricing specialist in the country, consists of six partners, evenly split between assurance and tax services, and 120 staff members. Whilst overall assurance (audit services) is the dominant business unit, PwC Zambia has other specialist business units that provide specialist advisory services to all sectors of the economy, including the mining industry.
The Zambian fiscal and regulatory framework has undergone many changes over the last decade. How has this impacted investment?
It was felt by many following a prolonged period of increased FDI into the Zambian mining sector, that the significant wealth created by the mining entities, which were majority owned by multinationals, had not benefitted the majority of Zambians. Therefore, in 2008 the government announced that the development agreements with mining companies would no longer be valid. This was the first in a wave of on-going changes to the mining tax regime, the majority of which sought to increase tax revenues from the mining sector. Between 2019 and 2020 alone, there were a dozen major changes pronounced. Some of the recent changes, such as the non-deductibility of mineral royalties as a business expense, are not only drastic but are inconsistent with commercial taxation principles. The impacts of the changes to the mining tax regime on the mining industry were not necessarily well thought through and the lack of appropriate dialogue between the mining sector and government resulted in growing tension. Two key factors amongst others that contributed to the tension included: A lack of appreciation of the life cycle of a mine and the fact that three of the four phases of a typical greenfield mining investment require significant investment and expenditure; with only one phase, the production phase yielding any income. Secondly, a lack of appreciation of the diversity of mining operations (i.e. open pit/ underground, etc), the concentration and purity of ore bodies and their overall impact on mining costs, which need to be factored in when legislating for any changes to the mining tax regime.
Overall, the lack of stability with the mining tax regime and incoherent approach to policy decisions over the last several years have resulted in minimal investment and rendered Zambia a less attractive investment destination, particularly for the large well-established mining houses. In the 2019 Fraser Institute survey of mining companies, Zambia was ranked in the bottom 10 as the least attractive investment jurisdiction. Overall, Zambia has gone through a full circle and there is a need to reflect and learn from the actions of the past.
All is not lost though, and there is ample reason for optimism. The current boom in copper prices and modest recovery of cobalt prices combined with the current economic recession present a significant opportunity for the government and mining sector to come to the table to work together to turn the economy around and to legislate for a good framework which provides for a coherent and consensual process for effecting changes to mining policy and the mining tax regime in the future.