Can you give us an update regarding production statistics for this year?
By Q3 of 2020, 646,000 tonnes of copper were produced. Over the last six to seven years, production averaged 800,000 tonnes. Last year, due to adverse changes in policy in 2018, production was even lower than this average. These changes are also making it difficult to reach the pre-2010 goal of 1 million tonnes of copper per year. The current tax policy is a huge hindrance on the industry’s organic growth and consequently, investment.
What lobbying efforts is the Chamber undertaking to address this issue?
We are engaging through the legislature, our ministry as well as other ministries and civil society to address these issues. The key focus for the Chamber is the industry’s long-term growth, which seems secondary to the government, and is superseded by their drive to maximise tax revenues. However, half of the growth the government is targeting can be achieved from the mining industry alone if policies that facilitate its rise are implemented – which would in the long-run increase government revenue more than the current tax framework does. The fiscal changes in 2018 increased the cost of capital as a result of the effective tax rate, decreasing the return to investment. Therefore, our goal is to communicate to the government that the growth opportunity available is superior to the short-term increase in government revenue.
Over the past decade there have been eight changes to the tax regime and 14 amendments to the Mines Act. Is the chamber consulted prior to these changes?
In 2018 many changes were implemented at once, taking us by surprise. This year, the government implemented Covid-19 stimulus relief policies but we wish for changes within the policy to stimulate long-term growth through the relaxation of the double taxation policy on Mineral Royalty tax.
How will the upcoming elections impact the industry?
Policy neutrality would be the ideal scenario arising from the elections in order for Zambia to remain on the trajectory for its Seventh National Development Plan (7NDP) that sets out growth targets until 2030. The provision of indirect stimulus through targeted reliefs, especially on the double taxation elements on the non-deductibility of mineral royalty tax would secure approximately US$2 billion investment into the industry: Half of which is to finance the expansion of First Quantum Minerals’ Kansanshi mine, and the other is to expand EMR Capital’s Lubambe mine expansion, a 10 million tonnes of copper asset expected to produce 160,000 tonnes of copper annually.
What role does the mining industry play in the government’s diversification plan for Zambia?
Diversification requires capital that the mining industry can provide. The issues hindering the copper mining sector are also applicable to other minerals, so to diversify beyond copper these issues must be addressed. For example, a civil society organisation estimated that the effective tax rate on small-scale gold mining in Zambia lies at 55% - plus export duties this comes to 65%. Gold mining is an emerging sector in Zambia that will struggle to realise its full potential with such policies in place. Meanwhile, manganese is also affected by double taxation.
The government’s desire to increase the national stake in the industry under its local content goals is noble. However, local content in Zambia must be implemented where we have a strong competitive advantage, such as in the steel industry and its offshoots. But if the industry is stagnant or in decline, there will be no local content opportunities to be taken advantage of in the local value chain.
Do you have a final message to our international readership?
Zambia is a strategic location with a geological endowment second to none. The endowment is here, but the policies to allow its exploitation are not. Exploration activities in Zambia currently stand at approximately US$25 million per annum, which is a sixth of the ongoing exploration happening in the DRC. If the policies adapt to the stakeholders’ business concerns and needs, the industry will boom and the government will achieve its 2030 vision.