In this piece, we highlight the crucial role of Zambia’s mining sector in driving domestic resource mobilisation as the country aims to curtail its reliance on external financing. Zambia’s mining sector continues to play a vital role in the economy. In 2021, it contributed 17.5 percent to Gross Domestic Product (GDP), 8 percent of formal employment and accounted for over 70 percent of foreign exchange earnings, according to the Ministry of Finance and National Planning. Additionally, the sector stands as the largest contributor to government tax revenue, according to the Zambia Revenue Authority (ZRA) 2022 Annual Report.
Despite its pivotal role, particularly in contributing to government tax revenue, the mining sector has been hampered by stagnant production levels in recent years. Reduction in production is most pronounced in the copper sub-sector, which witnessed a concerning decline of over 25 percent in the first half of 2023 compared to the same period in 2022. This concerning trend underscores the urgent need for immediate and effective measures to revitalize and enhance production within the mining industry.
The 2024 national budget highlights the government’s strong commitment to increasing domestic revenue, aiming for at least 22.0 percent of the GDP, a notable rise from the 20.9 percent target in the 2023 budget. This shows Government’s commitment to improving domestic revenue generation. However, achieving this ambitious goal is closely tied to revitalizing the mining sector, which, as previously emphasized, has been struggling with low production levels. While there has been some progress, Zambia still needs substantial new investments to stimulate production in the mining sector. Additionally, supporting artisanal and small-scale miners is essential, as they not only have the potential to increase their production capacities but can also significantly contribute to government tax revenue. This is crucial for reaching the revenue targets and strengthening Zambia’s fiscal self-reliance.
Additionally, regulatory oversight must be enhanced to ensure that the government collects all due taxes from the mining sector, thereby enhancing government revenue. In this regard, the intention to operationalize the Mineral Regulation Commission in 2024 is a positive stride towards effective mining sector regulation. However, to make this commission truly effective, it is important that government allocates sufficient funding to equip it with the necessary technical and human resources, facilitating the oversight of artisanal and small-scale mining activities and enforcing responsible mining practices among larger companies.
Furthermore, conducting a comprehensive assessment of the existing tax incentives within the mining sector is essential to gauge their true effectiveness in achieving their intended goals. The insights from this assessment should provide valuable guidance for shaping future tax incentive programs that not only stimulate production but also act as safeguards for government tax revenue. Structuring these incentives to align with specific production milestones or targeted investments can ensure they promote growth in the mining sector while preventing any unwarranted loss of tax revenue. This holistic approach can create a win-win scenario where Government’s fiscal objectives harmonize with the sector’s development goals.
In conclusion, enhancing mining sector performance is not just an economic imperative; it’s a pathway to fiscal independence and economic stability for Zambia. The sector’s substantial contributions to government tax revenue highlight its critical role in enhancing domestic resources to meet government spending needs. To achieve self-reliance and reduce dependence on external financing, Zambia must therefore prioritize enhancing the mining sector’s performance by addressing production challenges and implementing effective tax policies. Next week, we will delve into key strategies that can help harness the full potential of the mining sector to further strengthen domestic resource mobilization.
About the Author
Elijah Mumba is a Development Economist, currently serving as the Lead Researcher for Public Finance Management at the Centre for Trade Policy and Development. He holds a bachelor’s degree in economics with Mathematics from the University of Zambia, as well as a master’s degree in development economics from the University of Cape Town as a Mandela Rhodes Scholar.
