ZAMBIA Institute for Policy Analysis and Research (ZIPAR) senior research fellow Caesar Cheelo has called for stability in the mining tax regime so that mines can have “space to breath” and contribute more to national development.
And Cheelo says the country still has hope of attaining the projected three per cent growth as the economy has shown some level of resilience despite being hit by shocks over the years.
In an interview, Cheelo said because of some of the changes made to the 2019 mining tax regime, one mine closed its smelting plant in Zambia and moved it to the Democratic Republic of Congo because of the five per cent duty imposed on concentrates which government is considering to do away with.
“I was recently in Solwezi and I was told that one of the mines is closing down the Zambia side of its smelter and it’s going to start smelting on the other side, they are installing another smelter on the DRC side, why? Because they feel that over time, DRC will have a more stable tax regime… So just that five per cent [tax on] copper concentrates has caused them to make a drastic investment decision. The government of Zambia is right now thinking about reversing that decision so that copper concentrates come in duty free again from DRC but from an investor point of view, it might already be too late, the investment decisions have already been made,” Cheelo said. “So one way of managing that narrative around the bad sentiment on the mines is to bring together objective information that tells all the sides of the story and softening the position on the mines so that you give them a little bit of space to breath so that they are able to actually contribute more to the Zambian economy but as it is, I think there is an impasse and that information about the win-wins is not really coming out.”
He said the mines are also facing negative social sentiments regarding their operations that are seen not to benefit communities in the project areas.
“…people around the mines are saying ‘no, they are not creating enough jobs, they are not doing enough of this, not enough of corporate social responsibility’, the things that mines used to do a long time ago. With this sentiment, it becomes a pressure point for the politicians to keep pushing for more taxes because that’s the way they get money with which they beneficiate society. One way of managing that narrative is to start publishing more information based on consultation and dialogue between the public sector which is the government and the mines, so they need to come together and first of all understand things like the cost structures in the mines and how much profit is really being made and things like that and start to send out the signal into the public spaces,” Cheelo said.
And Cheelo said Zambia’s projected growth rate is not a complete write-off given that government does not borrow too much locally.
“So with that overall environment, it’s not completely far-fetched that we can achieve three per cent growth by the end of 2020. The policy pronouncements both by the Minister of Finance who said no borrowing, meaning that the government will not be competing for credit with the private sector [locally] and it will help the private sector indirectly as the banks will be sending more money to the private sector…Similarly, the Bank of Zambia did not increase the policy rate so the affordability of credit is still the same, other things being constant,” Cheelo said. “But when you look over time, you will notice that the Zambian economy is quite resilient, when you look at the private sector, it’s quite resilient. Now most of the things that are happening, economic actors are basically able to notice them and adjust to them.”
He further said the 22 per cent of GDP tax revenue target will mean more pressure on the private sector as it will be Zambia Revenue Authority’s target point.
“It means ZRA will have to be very aggressive on taxing mainly the private sector because that’s a taxable point. So again, you’re putting more burden on the private sector and taking away the resources that they would have used to achieve growth,” said Cheelo.