http://downloads.bbc.co.uk/podcasts/worldservice/docarchive/docarchive_20071116-1224.mp3
or listened to directly here:
http://www.bbc.co.uk/worldservice/programmes/documentary_2.shtml
It features interviews with For Whom the Windfalls? co-author Professor John Lungu, former Finance Minister Edith Nawakwi, current Finance Minister N'gandu Magande, IMF Country Director Birgir Arneson, anonymous mineworkers, the Chief Financial Officer of Luanshya Copper Mines and Professor Paul Collier from Oxford University.
Much of it covers territory well-trodden in the report and in this blog, and most of it needs no additional commentary - Maurice Walsh asks the right questions and where the answers get evasive, well, draw your own conclusions. For me, the highlights:
1) Nawakwi discussing the atmosphere surrounding the original negotiation without providing any new evidence of how the negotiations actually proceded:
"Whatever has happened to this country, I think the 1990s were the worst. Zambia was really negotiating these agreements with a gun to our head."
2) Arneson trying unconvincingly to distance the IMF from any responsibility for the negotiations (he wasn't in post when the deals were negotiated):
Arneson: "It is clear that, by the late 1990s, the mining sector in Zambia was in a very, very sorry state. Clearly the authorities felt that they had to provide very generous terms in order to attract the investment. Whether the terms were exactly the right ones, that is of course debatable. There was no provision for example in the Development Agreements that allowed the Government to share in conditions like we have now where copper prices are many fold what they used to be. But I think that is sort of beating a dead horse to belabour that point too much."
Walsh: "But it's worth reflecting on that point because isn't it extraordinary that nobody thought of that at the time."
Arneson: "It would be best practice. It is best practice to put such provisions and we would strongly recommend that the Government puts such provisions into all new development agreements."
Walsh: "You weren't here but the institution you represent advised the Government in one way ten years ago and is suggesting that it does the opposite now. Isn't this the kind of thing that gives the IMF a bad name."
Arneson: "I don't think the IMF was involved in the design of the Development Agreements."
Walsh: "It was very heavily involved with the Zambian Government at the time and was very much pushing the privatisation. In fact the Government would have relied on the IMF for advice."
Arneson: "Well, we certainly supported the privatisation process. There was no alternative. The mines would have closed had they not been privatised."
Walsh: "Granted. But it surely must have occurred to somebody at the time, what if the copper price rises - it seems very straightforward."
Arneson: "What you are saying makes eminent sense and I simply cannot speak for what happened in the late 1990s."
3) Magande making a fairly bizarre argument for delaying re-negotiation.
Walsh: "Under pressure during the (election) campaign, the Government committed itself to renegotiating the deals. But it has taken a year for the Finance Ministry to get a team together to talk to the mining companies... despite the public outcry, the Minister for Finance N'gandu Magande is still councelling patience."
Magande: "Copper investors have been investing in the last three or four years. Investing means now sinking new shafts, buying new equipment, to make sure that they start producing copper. While the price has been going up we have not achieved the production levels that we actually had in the 1980s. So while people might say that the copper price has been going up the production levels have not increased as much as the price. Because the investors are still investing to make the mines productive."
Walsh: "People feel though that you've been too accomodating to the mining companies..."
Magande: "...We have not been lenient to the mines."
Walsh: "But nobody we've spoken to thinks that the mining companies are getting a hard deal. Everybody thinks that they've got a license to print money."
Magande: "Everybody excluding those that know the facts. Out of the mining companies that are now saying they might be able to produce 1 million tonnes of copper by 2010, many of them are the ones that are investing their money, borrowed from outside, or made from other operations outside. When they are investing the money you don't expect that they are making the maximum profit. Maximum profit for most of these companies could be made 10 years from now. That is when we should be saying, look, these people have already recovered their investment, that is when they will be making full profits. That is when we can get worried about that."
Walsh: So your messagge to the people on the Copperbelt is "wait, and your money will arrive, some time in the future?"
Magande: The people on the Copperbelt I am not saying wait, because out of the money that the mines are investing, the mining companies need people to drill the shafts, they need people to put up the shafts, they need people to do all sorts of contracts. So the people on the Copperbelt, they should be involved right now. So the people don't have to wait like Government is waiting."
How should we respond to Magande? Well, firstly a basic factual criticism. Many companies have already recouped their full investments - most mines are already highly profitable.
Secondly, what is this notion of 'maximum profits', and what is the basis of delaying taxation until the mines are achieving it? We know that Vedanta, for one are already making massive profits, if not maximum ones. First Quantum Minerals have just reported third quarter operating profits at Kansanshi Mine in Solwezi are up 19% to $546 million!
But the big conceptual question: what is the link between production levels and taxation? Magande's view appears to me a purely ideological one that puts all faith in a deregulated market to deliver the best outcomes. He seems to believe that taxing companies would lead them to re-invest less of their profits, and thus in the long-term create fewer jobs. The other way of looking at it is that companies will stay in Zambia, and will borrow to cover investments if they expect to benefit in the future, so long as they expect the price to show some stability - taxing will reduce their profits, but have marginal effects on their investment decisions - it is a royalty rate, remember of just 3.0% that is being discussed. Price variations massively outweigh such a consideration in calculating profits. Another way of thinking about it is that 'production' in mining describes the pace of removal of a non-renewable resource from the nation's stock of natural capital - the longer you wait to tax production, the less there is in the end to tax. As Paul Collier puts it: "I think the argument of patience during a commodity boom is actually misplaced. There is no guarantee that copper prices will stay at their present levels. So it may well be now or never. The taxation has to be now.... very clearly in the last few years the big international story has been the world commodity booms. Handling those commodity booms to make sure that history does not repeat itself is the big international development story. If history repeats itself, the biggest opportunity that we've ever had for these countries to transform themselves out of poverty will be missed."
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9 comments:
Congratulations on excellent work. This may be the final push to get this house of cards to fall down.
The comments from Arneson and especially Magande are astonishing.
Arnesen tries to fob off the reporter with a 'well that's all water under the bridge' and Magande's line to any kind of corporate taxation from the mines is 'come back in 10 years time'.
Is it just me, or does Magande sound like he is watching out for and shielding his financial 'friends'?
The people of Zambia are cheated out of hundreds of millions, maybe billions, of dollars.
The minister should resign, and a committee should immediately start looking into the mining agreements.
In another interview, Magande said that he 'was an advisor at the time' (when the mining agreements were signed by Edith Nawakwi).
I wonder who he was advising for, and what his 'fees' were.
Walsh: "But nobody we've spoken to thinks that the mining companies are getting a hard deal. Everybody thinks that they've got a license to print money."
Magande: "Everybody excluding those that know the facts.
Then make the mining agreements public, so all the facts become public.
Magande cannot renegotiate deals when he is under suspicion of having influenced those corrupt deals to begin with. And he is shielding the mining companies.
Maximum profit for most of these companies could be made 10 years from now.
So what? Companies aren't taxed until they make 'maximum profits'?
But the big conceptual question: what is the link between production levels and taxation?
None. If the companies make a profit, they should be taxed on it - it has nothing to do with the corporate tax they aren't paying, just the mineral royalties tax (which is a tax on turnover), and it is insignificant in any case.
Magande's view appears to me a purely ideological one that puts all faith in a deregulated market to deliver the best outcomes.
Speaking of neoliberals in general, it is remarkable how easily corruption can be made to look like incompetence.
On that whole ten years time comment from Magande, to be honest, I find it so astonishing I have been wondering if he 'mis-spoke'. Just before he said it he had been talking about 2010. Maybe he meant 2010 - now I am trying to be generous here, but the Post reports today that the renegotiation has started, so it's hard not to think there will be something before 2017!
On that whole ten years time comment from Magande, to be honest, I find it so astonishing I have been wondering if he 'mis-spoke'. Just before he said it he had been talking about 2010.
Well he also stated that he is a mathematician. He said '10 years' twice.
But even 2010 is 3 years from now. Should the mining companies that are profitable now like Vedanta have another 3 years without paying taxes? That too is astonishing. Even if he misspoke, which I doubt. Magande has made arrogant statements like that in the past.
Whose interests is Zambia's finance minister representing?
What is also irritating is that in The Post, they announced that they are renegotiating these deals, this week, and that the results will be available in the new year.
There must be involvement from much more stakeholders than just this government. If these deals are to hold up under new governments, everyone should basically sign off on them. I would say, involve the opposition parties, the civil service, parliament and the press.
No more secret deals.
Also, I think the reaction from the mining company representative was singularly unhelpful. I can't comment, I can't talk about that, etc.
Well, on the mining companies, we got much better answers from the companies interviewed for the For Whom the Windfalls? report. Those willing to talk were relatively honest on this issue, although they wouldn't talk about numbers. We talked to the boss of the same guy interviewed there, Derek Webbstock, and he was strikingly open. It may have been because before that report came out, the situation was somewhat less politicised. Maybe the companies will talk less now.
On Magande, I can't square the talks going on now with the idea of ten years. Made me wonder if he meant ten years since the original sales (2000)? Also, I wondered if it was a hint as to where the talks are heading - towards more tax in 2010. I completely agree that tax rates should have been raised several years ago not several years in the future.
On the question of potential corruption in the negotiations, and the role of the IFIs/degree of blackmail, I don't know what to make of your claims. They may be plausible, but what evidence do we have. I wrote about the series of questions I still think are unanswered/unanswerable in the last blog entry 'Debating Undermining Development'. The RAID report is one source on the talks. Kaunda's book another. But where is the best literature on this period in Zambian history and on the negotiations? I genuinely don't know, so I'd like answers from you if you have them.
http://www.minewatchzambia.com/
What I base my allegation of corruption on. A steady accumulation of hunches.
To me, it is bizarre that the minister of finance, who after all is a politician too, isn't even concerned about looking like he is pro-Zambian with regards to these negotiations. He seems to go out of his way to avoid offending these mining companies, even as they are costing his budget hundres of millions of dollars in unpaid taxes.
His delaying tactics on renegotiation of the mining agreements.
His apparent disinterest in collecting hundreds of millions, even as other government members keep repeating that the government doesn't have the money for all kinds of social programs or education. When was the last time an MMD politician was not interested in money?
We have seen how corrupted politicians behave. They make all kinds of harebrained excuses for things that are unexcusable. Like the politicians who sprang to their feet during the BGRIMM saga, defending chinese 'investors', even when it was clear that these 'investors' broke all kinds of safety and labour regulations. These mining contracts were somehow beyond renegotiation. They were somehow above the laws of parliament as well.
His unwillingness to involve Zambian experts, instead opting for Norwegian advisers? Would they be any different than the advisers who allegedly told Edith Nawakwi that copper prices wouldn't rise in her lifetime?
The lack of openness, which seems to be a desire to present the public and parliament with fully renegotiated contracts. They have even given a timeframe for when the results will be made public - early in 2008. Why are they determined not to invite scrutiny before the contracts are renegotiated?
What do you make of Edith Nawakwi's statements in The Post that:
“For once we have a country where we can put any fee on our copper and it will be bought and we can put any tax and no one will pack their bags because there are no new concessions anywhere except in a few places like Zambia where you are even opening up new mines,” Nawakwi said.
She said there was no criminal offence to the investors in increasing the level of mining taxes in the country provided it was done through Parliament.
If parliament can simply amend the mining act, why even bother renegotiting anything? It also undermines the argument that these contracts are somehow above the laws of parliament. (And I'm not familiar enough with Zambian law to know if that is even possible.)
Then the question comes back to political will - why is there this unwillingness to benefit from the mines? They are companies, they should at least pay taxes like any other Zambian company. Why not?
Here is a page with a lot of articles on the IMF, World Bank and their policies:
http://www.50years.org/institutions/index.html
http://maravi.blogspot.com/2007/11/its-possible-to-increase-royalty-taxes.html
Now even a source within the government says that the fix is in, and that games are being played.
I don't know about Zambian law, but in the US, if you pay money to one side of the negotiation table, that is an offense.
Certainly, the fact that people on the government's team are bribed or corrupted means that there is a legal cloud hanging over any renegotiated agreements.
If there is a prime candidate as to who has been bribed, it is Magande. Maybe others as well, but it is Magande who has shown the greatest reluctance to even renegotiated the royalties from 0.6% to a measly 3%.
I have said it before on this blog, but all roads lead to Magande.
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