State is talking to FQM and Equinox

The UK Guardian reports comments from Mines Minister Kalomo Mwansa suggesting that the government will 'discuss' new mining taxes with two mines. Whether these are negotiations on the regime is unclear. But why else would they talk? Mwansa says the two have asked for an 'explanation' on how the new windfall and variable profit taxes would be levied.

"There are a few concerns on how these taxes will be implemented and we will dialogue with two mining companies that want an explanation as they fear the taxes will affect their profits," Mwansa said. Mwansa did not say whether the government would have to waive some of the taxes.

We seem to be going round and round in circles here, with te same issues being clarified and re-clarified. Is it the applicability of both taxes simultaneously (answer: no), or the deductibility of these taxes (answer: no), that seem to me to have one word answers that have already been established. Am I being thick here? Can anyone explain, or s this just diplomatic language?

First Quantum union busting at Kansanshi

Reuters report that Kansanshi Mining has won a court order preventing its workers from going on strike. The union accuses the company of encouraging employees to leave the union. Hardly shrewd PR given what First Quantum thinks it wants from the Zambian state and local sensitivties to any resistance.
Workers at Kansanshiwent on strike in 2007 after a similar dispute.This time, management has obtained an injunction to restrain workers from striking, Goodwell Kaluba, general secretary of the National Union of Mining and Allied Workers (Numaw) told The Times."We had almost concluded negotiations for salary increment before the situation just became complicated."A senior mining industry source close to the negotiations said the union, which represents 368 workers at Kansanshi mine, one of Zambia's biggest copper producers, was asking for a 17.5 percent pay rise, which management rejected."There appears to be some problems in the negotiations and things don't look good at the moment. The management does not seem keen to offer what the union has been asking for, while the union has refused to sign what the management is offering them," the source said. Kaluba said the Numaw had instructed its lawyers to obtain a counter injunction to stop management from influencing employees to leave the union."Management has been trying to influence workers to leave the union and we have asked our lawyers to stop that through an injunction," he said said.According to Reuters, In April, Msiska told the state-run news agency, Zanis, that management had offered 15.8 percent while the union was demanding 29 percent pay rise.

Did Zambia buckle or resist IMF pressure on tax?

Cho is using his Zambian Economist blog to push the idea that the tax clarification from the Government last week was 1) a climbdown, and 2) a result of pressure from the IMF.

He quotes from the latest IMF Staff Assessessment, and claims that the text makes clear there has been a disagreement between the Government and IMF. It certainly does that, but I read it slightly differently from Cho. The text does tell us that the IMF wanted much more from Zambia,and didn't get it. But that does not answer the question of whether both windfall and profit taxes were ever advertised as operating simultaneously, and thus whether the clarification that they won't represents a climb-down. The IMF statement reads:

"The new fiscal regime for mining increases the average effective tax rate from a level that was significantly below that in other mining countries. When the international price of copper is at around the historical average, the windfall tax will not apply, and the average effective tax rate would be comparable to that in other countries. When the price of copper is well above the historical average, specifically, above $2.50 per pound, the windfall tax will come into effect and rise progressively with the price of copper. Staff cautioned that while progressivity is desirable, the marginal effective tax rate is very high at very high prices. Staff noted that it could be lowered by making the windfall tax, like royalties, deductible for the purpose of calculating taxable profits. Staff further suggested that, instead of the price-based windfall tax, a more appropriate way of capturing a larger share of the rents when prices are abnormally high would be through a progressive profit-based variable tax that would take into consideration the different cost structures across mines. The authorities argued, however, that they consider the windfall tax a more effective way to capture a sizable share of the rent when prices are exceptionally high and that current income tax provisions do not allow taxpayers to deduct other tax payments."

So what evidence have we got? Well, have a look back to this blog entry from May 22 and take the link through to the transcript of Equinox's teleconference : http://www.minewatchzambia.com/2008/05/six-fold-increase-in-revenues-as.html.

Now this is technical, but my reading of that discussion (pages 5, 8, 10 again) is that it was already understood that the two taxes would not apply simultaneously, but that Equinox still held out hopes about deductibility. Read it that way and the IMF note suggests the IMF tried to come in to support Equinox's interpretation but the authoritities refused.

I'll post this on Cho's site and see if someone can clarify.

What's going on in Chambishi?

A colleague told me recently that a ridiculously large number of PhD applications were coming in to our University, all wanting to study the same topic - China in Africa. The topic, and the Zambian case, are historically under-researched but are suddenly wildly fashionable. If, heaven forbid, I was starting a PhD now the Muti-Facility Economic Zone at Chambishi might well interest me. It is allegedly going to house massive investments and loads of new companies, and yet nobody seems to know anything concrete about it yet.

The Times of Zambia reports that Zambia Congress of Trade Unions (ZCTU) acting secretary general, Ian Mkandawire commends the new projects being put up by the Chinese were welcome because they would create employment opportunities for Zambians. At the same time, Mkandawire implored the Government to speed up the amendment of the Factory Act in order for cases of violation of labour laws by employers to be effectively addressed. He noted that currently it was difficult to deal with cases of employers in factories flouting labour laws because of the absence of effective legislation.

The Parliamentary Committee for Economic Affairs and Labour has been studying the zone. The Times reports very positive noises from committee member and Mulobezi MP, Michael Mabenga who said Chinese investment would bring new jobs for locals, and that Government had made bold economic decisions that had set the stage for the revival and development of the mining and agriculture sectors.

However, committee chairperson, Given Lubinda said that Multi Facility Economic Zone (MFEZ) had raised a lot of expectations and fears which Parliament needed to correct. Mr Lubinda asked managers of five companies speaking to the committee that the committee needed much more detail on what investments they were planning before it could consider giving incentives to such investors.

Zambia China- Economic and Trade Corporation Zone (ZCCCZ) manager planning and investment promotion development Wang Xin said it was difficult to state the specific enterprises. Mr Xin said that MFEZ would be attracting companies in earth moving equipment and construction among other companies.The committee refused to hold a meeting with Non-Ferrous Mining Company of Africa (NFCA) management because the company general manager Tao Xinghu and his deputy Zan Baosen were out of the country.

The Lusaka Times reports similar concerns expressed by Copperbelt Permanent Secretary Jennipher Musonda who said the needed much more information on the Chambishi Multi Facility Economic Zone (M-phase project), if the local people were to understand what the project was all about.

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Bluff-calling continues over new taxes

The phoney war over Zambia's new tax regime rumbles on with both Government and companies using a 'Euromoney Investment Conference' in Lusaka and the 'Copperbelt Show' to button-hole journalists and rehearse their favourite arguments. The discussion is getting heavy coverage in international business media, particularly in relation to claims that the new regime has led to the pull-out of investment in major projects. The claim is of course difficult to substantiate since we can't know what woud have happened without the taxes. ZCCM-IH has responded that foreign companies were penalised because they failed to pay dividends through ZCCM-IH's minority shareholdings, and that if they now feel the regime is insufficiently profitable, ZCCM-IH will happily buy them out. The companies appear to have won i) 'clarification' on the operation of profit and windfall taxes, which will not both operate at the same time as each other. I am not convinced the legislation ever made it appear that they would. This is spelled out nonetheless in a letter of intent to the IMF. ii) A concession from the Government on VAT on imported mining equipment for new projects. There are various loopholes associated with such schemes that were widely understood to be abused under the previous regime, and the state will have to be careful they aren't re-opening them.

While all but two companies have accepted the nex tax regime and started paying at the prescribed rates, two companies: First Quantum and Equinox continue to hold out for some sort of special concessions. If they really want to prove their rebel credentials, this month they will have to make two choices: to shut up and get on with life under the new regime, paying the ZRA new profit taxes, or to refuse and to take some sort of international legal action.




Typical of the coverage is Reuters (there are versions of the same stories on Dow Jones and Bloomberg)
which reports comments from Chisanga Chekwe-Puta, the Zambia country manager for Canadian miner First Quantum Minerals FQ.TO, who claims that Mopani Copper Mines (MCM) in which First Quantum has a 16 percent stake, had suspended construction of a mining shaft after authorities introduced new taxes. "Mopani has suspended construction of another shaft which could have employed 2,000 people." Chekwe-Puta also claimed investments at First Quantum's Bwana Mkubwa's copper processing facility unit and a new project at Kashime mine had been suspended.

Reuters also report Joseph Chikolwa, the chief executive officer of the state-run ZCCM-IH, who defended the new taxes, saying the copper mines had not been paying their dividends to the government before the new taxes were introduced. "We never received any dividends from the mines . . . so when the copper price is so high, why should you be complaining? We are not trying to chase away investors but we are trying to share the cake," Chikolwa said.

The Post report that Chikolwa says ZCCM-IH will be more than willing to buy shares from companies that want to pull out of Zambia because of the new tax regime: "I am likening the mining companies to farmers who complain when it rains and again complain when it doesn't rain. At the moment, no one expects the mining companies to pack up and go because they have made investments of up to US $3 billion in the sector. The business model that was developed for the mining sector did not work. The mining sector has not paid any dividend to the government through ZCCM-IH, so government's decision to revise mining taxes was in the best interest of Zambians."

The Daily Mail reports that Government has suspended Value Added Tax (VAT) on equipment imported by mining companies that have not yet started production. Minister of Finance and National Planning, Ng'andu Magande told the Daily Mail. "We have deferred the payment of VAT on new equipment until these mines start making money."

Xinhua reports that the Zambian government has assured that the mining windfall tax and the variable profit tax will not apply at the same time in order to preserve the nation's attractiveness in the sector. Minister of Finance and National Planning Ng'andu Magande made the promise in a letter of intent to the International Monetary Fund (IMF) managing director Dominique Strauss-Kahn: "in implementing the new fiscal regime, the government will be mindful of the need to preserve Zambia's attractiveness for investment in mining. To this end, the windfall tax and the variable profit tax will not apply at the same time."

The Post reports that Mines and minerals development deputy minister in charge of Large-scale operations Maxwell Mwale has advised the companies, "There should be no economic sabotage by mining companies because of the new tax that government has put in place for the benefit of citizens," Mwale said. "It is not important for mining companies to be guided by greed. All the government wants is to get a fair return on its mineral resources as prices of copper remain high on the international market. We don't expect arm twisting tactics from the mines."


In a story in The Post, the mine companies encourage some sort of 'race to the bottom', suggesting that DRC now presents a more favourable investment location than Zambia, and that taxes and regulation should be reduced to bring in more investment. No doubt they are telling the Congolese the same story.

In the meantime, an old story gets regurgitated: the Daily Mail reports that quarterly meetings between the state and the Chamber of Mines will begin soon. The Chamber has recently elected a new president, Nathan Chishimba, who is sending out warm words about partnership between the state and private sector, and co-operation to improve the listing of mine firms on the local stock market. Mr Chishimba said the establishment of an index market for the mining companies could only be achieved when a good number of companies were listed on the Lusaka Stock Exchange (LuSE). He said there were not enough mining companies that were listed on LuSE to determine indexing of the sector. However, he was optimistic that in future, indexing of mining or any other sector on LuSE would be achieved. “Lets not look at the mining companies alone as being the major players on LuSE, there are other companies in agriculture, finance and other sectors that are blue chip companies for an index market,” he said. Mr Chishimba said listing mining companies on the LuSE was dependent on the shareholders that held shares in various companies on the international stock exchanges.

First MineWatchZambia conference - Sept 19-20, Oxford

Mine Watch Zambia Conference:

Politics, economy, society, ecology and investment in Zambia

Friday 19 and Saturday 20 September, 2008

University of Oxford, UK

Speakers already confirmed include

Professor Oliver Saasa, International Economic Relations, University of Zambia

Professor John Lungu, Economics and Management, Copperbelt University, Zambia

Professor Jeremy Gould, Development Studies, University of Helsinki

Dr Nicholas Cheeseman, Politics and African Studies, Oxford University

Dr Jan-Bart Gewald, History, University of Leiden

Dr Marja Hinfelaar, National Archives of Zambia

Dr Miles Larmer, History, Sheffield University

Elva Bora, PhD candidate, Economics, SOAS

Andrew Brooks, PhD candidate, Royal Holloway

Namukale Chintu, MSc student, SAID Business School, Oxford University

Alastair Fraser, PhD candidate, International Relations, Oxford University

Tomas Friederikson, PhD candidate, History, Manchester University

Dan Haglund, PhD candidate, Economics and Management, Bath University

Rohit Negi, PhD candidate, Geography, Ohio State University

Frida Wallin, MSc candidate, Economics, Uppsala University

Janie Whitlock, MSc student, African Studies, Oxford University

Objectives

This inter-disciplinary conference aims to bring together senior Zambianist scholars, a group of young researchers currently engaged in primary research in Zambia and all those interested in the country.

Contemporary Zambian political economy has been largely ignored by the academy for a decade. The excitement of the ‘dual transition’ to democracy and free market economics in 1991 led to a flurry of articles and books on the political economy of reform. Once the economy continued its long-running decline and popular political forces retreated, Zambia appeared to lose its appeal. For the last decade the country attracted contemporary social science research almost exclusively on aid, the impacts of HIV-AIDS and occasional elections. Historical researchers have continued their work, and have remained well-networked, through newsletters and email circulars organised by the Network for Historical Research in Zambia, as well a series of conferences in Zambia and Europe.

However, economic and political developments in the country over the last five years have sparked a new wave of contemporary research, much of it being carried out by young scholars early in their academic careers. This research is particularly focused on:

- The privatisation of Zambia’s copper mines, through the negotiation of secret ‘Development Agreements’ between the Government and mine multinationals.

- The role of international financial institutions and aid donors in the privatisation process and subsequent reforms of the regulatory and tax frameworks.

- Increases in investment, productivity and profit since privatisation and the roles of privatisation and a boom in global commodity prices in these developments.

- The impacts of Zambia’s new boom on the wider national economy, government revenue, urban social conditions, labour relations and the environment.

- The increasing involvement of non-traditional (largely Indian and Chinese) investors, creditors and donors in mining and other commercial and industrial sectors.

- Company approaches to labour relations and laws, popular and regulatory pressure for corporate social responsibility and the ‘empowerment’ agenda.

- The unilateral revision of tax structures by the state in 2008. Reactions of the companies and investors to these changes.

- Reactions of the Zambian population, trade unions, NGOs, Churches and politicians to social and political change on the Copperbelt and the country more widely.

Background

One of the first publications reviewing the impact of privatisation of the copper mines (For Whom the Windfalls?, Fraser and Lungu, 2007), the linked publication of previously secret ‘Development Agreements’ between the Government and mining companies, and a ‘blog’ www.minewatchzambia.com sparked a number of the presenters at the workshop to contact the conference organiser. An informal network developed into an email list, as young and experienced scholars shared with each other their research objectives and provided practical advice on research in Zambia. This workshop will be the first physical meeting of many of those involved and presents an exciting opportunity to create new relationships, research connections and debates. The existing participants in this putative new network are excited about the possibility of meeting others, thus far unknown to them, working on linked research. If the workshop is successful, Fraser and Larmer propose to prepare an edited volume for publication based initially on the papers presented.

Publicity and Registration

This notice will be circulated on a range of email list-serves and websites. You are invited to forward this information as widely as possible.

Those interested in presenting papers at the conference are asked to email alastair.fraser@politics.ox.ac.uk with a title and abstract.

Deadline: July 18 2008.

Participation in the conference will be limited by the space available. Those interested in participating without presenting a paper are also invited to register their interest at the same email address. Places will be allocated on a first come, first served basis.

Funding and Costs

• The organisers have applied for funding to bring leading Zambian and European scholars to the conference, making possible an exchange between two generations of Zambianists. Their participation will likely only be possible if we are able to secure this funding, but the conference will go ahead either way.
• It is unlikely that we will be able to provide transport costs for other participants.
• We hope to make the conference free to attend and may be able to provide a contribution to accommodation for those speaking. However in the absence of funding there may be a small fee of around £20.
• Participants with ideas about potential sources of financial support for the conference are invited to contact the organisers.

Diversification, industrialisation, technology

Two pieces in today's Post, one reporting comments from British High Commissioner Alistair Harrison, the other an editorial on the same subject: diversification of the Zambian economy.

Harrison commented, "the boom in mineral prices is likely to continue, but higher commodity prices cannot last forever; hence, government should seriously embark on economic diversification on the Copperbelt to sectors such as agriculture."

Copperbelt minister Mwansa Mbulakulima replied: "We are on course with diversification and soon this region will be able to balance food production and mining but we cannot just abandon mining."

President Mwanawasa agreed: "A few years ago when the price of copper was very bad, government stressed that it was necessary to encourage other sectors like agriculture so that livelihoods that had been lost in mining can be replaced by some in agriculture and we should not lose sight of this important goal even when copper prices are high."

So, we're all agreed then? Zambia needs more than just a mining sector. OK, but the question it seems to me is 'diversification' (a word implying the growth of a range of industries) into what sectors? Harrison and Mwanawasa seem obsessed with food production. Hmm. Another primary commodity. Why? Well food is advocated on two grounds i) for the self-sufficient survival of households left out of the formal sector, ii) for export to the major rich country markets, principally in Europe. Until there is a formal sector base of waged employees, earning decent wages, the domestic market for Zambian agricultural will be seriously limited.

Is that really a model of 'development'? Export-based mining, plus export-based agriculture to take advantage of globalisation. And for the vast numbers left out of the labour force for these export industries - peasant agriculture, probably with quite a lot of aid industry and government funded primary health and education provision to keep the peasants alive.

James Ferguson's brilliant 'Expectations of Modernity' argued that the historical attraction of the Copperbelt for the many Zambians who have moved there has been the idea of breaking away from rural life, from the toil of agricultural production, from the insecurity that results from relying on nature's whims. The region, one of the first and the fastest in Africa to urbanise and industrialise, when 'booming' as now, has represented something radically better than the poverty that pervades much of Zambia, indeed Africa. At times, the opportunities offered have supported aspirations and dreams of achieving for mass populations the same levels of consumption enjoyed in the West. Older Copperbelt residents won't tire of stories of the 'good old days' that Ferguson discusses if you ask them.

Is there a way from agriculture back to that dream? Or are Zambians being told that the benefits of mining itself, and the industries that might grow around mining, will always accrue to a minority and to foreigners?

What seems to me missing in this vision is a discussion of industrialisation, of moving up the value chain to see Zambia competing to manufacture complex goods? After all, donors, especially the World Bank and DFID have been pushing this diversification = agriculture line for decades. They have traditionally argued the fiscal impacts of mining and the political choice of Zambian Governments to protect the sector (and its politically powerful urban workers) have frustrated agriculture. Structural adjustment was precisely designed to redress this 'imbalance'. Well, it wasn't a huge success! The Post's editorial picks up similar questions. I will quote it here at length but it's well worth reading the whole of the original.

"There is no need to pretend, as Copperbelt minister Mwansa Mbulakulima is trying to do, that we are on course with diversification. We are not on course with diversification on the Copperbelt – we are very far away from even making a good start. There is no reason that being mineral-rich should result in an inability to farm or nurture a dynamic industrial structure. In fact, a developed mining sector like Zambia's could easily be the motor for a fast-growing economy. A large mining sector has resulted in a concentration of population on the Copperbelt. This population, if it were well paid, would have the potential to generate an increased demand for various agricultural and industrial products. The sophistication of the industry would also generate skills that could be used in the other industries. Furthermore, demand for industrial equipment would produce a large enough demand to justify local assembly and later manufacture of industrial equipment."

But why hasn't this happened in the past? The Post argues, mining "has never been used as the integrating force in the economy. There are many reasons for this gross omission. First, the mining industry has always been treated as an external part of the economy. Second, the dominant position of large international firms in the industry re-enforced the alienation of the industry from the rest of the economy. Consequently, the large mining corporations were left to fashion and determine the country's mining policy. In turn, this re-enforced the view on the part of the government - both colonial and post-colonial - that the industry was only good as a foreign exchange milk cow."

The lesson picked up from colonialists in the 1920s onwwards was: "only mine copper, cobalt, lead and zinc; procure inputs from external suppliers; only export ingots and wire-bars without moving into semi-fabrication; consistently undermine the power of the ministry and by all means never let yourselves be integrated with the rest of the economy. On the part of the government, the mining industry has always been treated as a special one to an extent that most Zambians, including policy-makers, are ignorant about it. The mystique associated with the mining industry turned into a sacred cow. ‘Touch me not,’ became the industry's clarion call. It was certainly the goose that laid the golden egg."

The editorial concludes that the strategies of multinational mining houses have not benifited Zambia: "There is no effort to adapt to our country’s environment nor is there any incentive toward scientific and technological development because research and the choice of technologies is carried out in the transnational’s home country. So-called technological transfer is reduced to a very fragmentally apprenticeship to employ technologies that are alien to our country’s national realities and therefore precluding all possibility of adapting or producing them. Therefore, the results are almost nil because modern technology makes it possible to fragment more complex production processes into a number of more elementary phases. This, of course, makes it possible to carry out the greater part of the process with unskilled labour whose training requirements are reduced to a few specific operations.

However, in such vast international operations, the transnationals are obliged to divulge a certain amount of technological know-how. But then the strategy is to limit and control the process. Restrictive trade measures taking the form of technological contracts that forbid the export of products manufactured with a given technology are one of the mechanisms that the transnationals use to implement this strategy.

The features of the alleged transfer of technology attempting to copy the consumerist pattern of the parent company in the midst of our country’s unemployment, social inequality and extreme poverty, are clearly inadequate for the needs of our backward country. Far from being directed toward solving social problems, they contribute to the individual consumption of the higher-income minority.

So, the heart of the problem of diversification lies in the measures that we as a nation wish and are able to take at a given moment, in the political orientation and the nature of our economic development, and thus, in the resolute attitude of our leaders to struggle for the adoption of fundamental measures to meet the interests of our people."

Absolutely wonderful stuff. Well done The Post!