Key Note Address 2nd CSO Alterative Mining Indaba in Ndola Pamela M Chisanga – Country Director, ActionAid Zambia The guest of honor, traditional leaders and government representatives present here, comrades from the region who are here to share solidarity messages with us, colleagues from civil society, academia, private sector, may I simply say all distinguished guests.This morning, I stand before you to talk about the status of mining in Zambia, and perhaps also relate this to other countries in the region. The subject of mining has for me, become a very emotional one. Emotional because of the failure of this sector or rather our failure as a nation to maximize the benefits of the mineral resources for development of our country and more importantly, we have not used the resources to end in poverty in Zambia.Yesterday, we had a public discussion forum in Kitwe to look at whether Zambia is really benefiting from the mining of gemstones and other precious and semi-precious metals.The picture was rather gloomy. We were told that Zambia is the third largest producer of gemstones in the world; we also understand that this is a US$200 million a year industry, but we were informed, for all sorts of reasons, that this sector has only started contributing to the national treasury in the last 1 year or so.Two profound sayings struck me yesterday at the discussion forum – I want to refer to one to illustrate just how as a country we have lost it in as far as mining is concerned. A Bemba proverb ‘umulembwe wacipuba wapwilile militumfwe’. This, ladies and gentleman, was used in reference to our copper. It is sad to note that in our lifetime, we will see copper finish in this country, and yet every day, we talk about leaving a legacy for our children – we now need to think about what future lies ahead of us. In this address, I want to primarily focus on 2 aspects of our mining industry – I want to focus on employment and taxation. Employment is perhaps arguably the easiest and most understood dimension of benefit capture by the Zambians, and therefore perhaps easy to demonstrate in broad terms, contribution of mining to the wellbeing of citizens in this country. To quote official figures, CSO figures show that in 2010 the ‘Mining and Quarrying’ industry employed only 1.4 percent overall for both formal and informal sectors i.e. employed and self-employed persons. The number of workers in the Mining and quarrying industry were estimated at 53,326 at the end of first quarter 2010. It represented 8.1 percent of all workers in the formal sector in the first, third and fourth quarters while the percent share recorded in the second quarter was 8.0 percent. Note, however that during the first-to-second quarter period, the Mining and quarrying industry experienced a 1.7 percent decline from 53,326 workers in the first quarter to 52,426 workers in the second quarter. The mining sector is increasingly becoming more capital intensive, with adoption and adaptation of new technologies which therefore means that Zambia is unlikely to realize more benefits in terms of jobs creation from additional investments in the mining sector. The quality of jobs is also a problem, as many of them are contracted jobs that are short term.In terms of employment, the mining sector is therefore not contributing as much compared to other sectors such as agriculture, which over the same period employed close to 67% - both formally and informally. In terms of gender, over this period, the mining and quarrying sector accounted for only 0.3 females employed in the sector, while the agriculture sector accounted for 72.3%. Allow me now to move to the issue of taxation, which, unlike employment, is least understood and is perhaps still, and very strangely, a contentious issue. Africa Progress Report released in 2013 noted that the revenues from mining in Africa are not reducing the gap between the rich and the poor on the continent and Zambia is no exception. In fact, in Zambia, in spite of the very good economic performance of the last few years, this performance has done very little to contribute to poverty eradication as poverty levels remain very high. It is common knowledge that any mining policy that is developed must focus on optimization of government revenue, but sadly the policies that Zambia has pursued have not really focused on this. Zambia entered the copper boom with one of the lowest royalty rates in the mining sector in Africa under an agreement negotiated with two mining companies in the late 1990s. It was not until the 2013 budget that tax concessions for the copper industry were moderated in the light of buoyant world prices. The first EITI report in Zambia indicated that, between 2005 and 2009, half a million Zambians employed in the mining sector were carrying a higher tax burden than companies. In Mazabuka, a Kantemba trader called Caroline Muchanga has paid more taxes in absolute terms, than a large multinational company in the same town. Caroline only makes K20 on a good day, but this company has made profits of over US$123m since 2008.In 2011, Zambia’s copper exports generated US$10 billion, while government revenues from copper were only US$240 million – or 2.4 per cent of export value. The APR (2013) also notes that tax reform has been difficult in resource-rich countries like Zambia. For instance, when Zambia sought to renegotiate its royalty rate on copper exports, major investors opposed the measure despite a fourfold increase in the price of copper between 2000 and 2011, and the very low effective tax rates that transnational companies were paying. Data obtained from ZIPAR shows that there are various ways in countries like Zambia to devise an effective mining tax policy. The extent to which a country benefits from maximization of tax revenue depends largely on how the authorities utilise these tax policy instruments. Zambia’s economic history has shown that the volatility of copper prices has inevitably affected economic performance. This therefore means that revenues from mining activities are also volatile since they depend on the performance of the mining sector. Many people, including proponents of the introduction of windfall tax have argued that our tax system needs to be designed in such a way that it accommodates these price booms and slumps so as to optimally capture tax revenue during times of buoyancy while at the same time not act as a disincentive in gloomy days (ZIPAR, 2013). Zambia is dependent on copper mining, which accounts for about 80% of foreign exchange earnings and only 6% of total revenues. These therefore means that Zambia needs to re-look at both its mining tax policy and administration. Zambia needs to relook at its tax incentives, relook at tax treaties that it has signed with other countries, many of which are outdated and have outlived their usefulness. The purposes of these instruments was to avoid double taxation, but are now used as a loophole to avoid paying taxes in countries where companies are actually making their profits. Many of the agreements were signed in the 70s and 80s (with the latest one with Mauritius signed in 2012 which means that companies registered in Mauritius and operating in Zambia will only pay between 0-3% in taxes).. Having said all this, it is clear to see that civil society in Zambia, in Africa and indeed globally has a huge role to play to change this picture, as this is the case in many developing countries. Civil society has a role to play to ensure transparency and accountability by both government and corporate entities so that countries like Zambia are able to benefit from foreign direct investments in their countries and from their natural resources. Other impacts of mining activities such as environmental damage, displacement of communities, require civil society to mobilise citizens in our countries to stand up and challenge corporate entities responsible for this and our governments to ensure relevant laws are enacted and enforced to protect citizens. It has been disheartening to follow the events in Chief Musele’s area where even children are now forced to walk very long distances to go to school as they are now not allowed to go through land that seems to have been dubiously acquired by a named mining company. As civil society, we need to work with and support such communities to stand up to these corporations who violate their rights with impunity. Ladies and gentlemen, as a country, we have talked a lot about how much we have in terms of resources, and how we need to harness these resources for our development, but these resources are now fast diminishing, In our deliberations over the next few days, we need to come up with clear recommendations, that we should follow through and push so that this country can finally be able to benefit from the little resources that now remain. The time for business as usual is over. We need to now be aggressive as our passiveness and ‘polite’ engagement is not yielding anything. We need to name and shame companies avoiding taxes, we need to make it uncomfortable for them to continue doing this. We need to expose officials corruptly abating tax evasion and avoidance; we need to ensure that these are prosecuted. Maybe, just maybe, we will be able to get enough revenue to avoid a future of destitution for many of us. Ladies and Gentlemen, allow me to use this platform to invite you all to join the ActionAid campaign on tax justice – the ‘Tax Power’ campaign – we have the power to effect change in our tax system and administration, tax has the power to change lives of people living in poverty by paying for basic social services such as health, education, water and sanitation. Let me end with the second profound saying I heard at the public discussion forum yesterday. It was a quote from Mahatma Gandhi which says ‘there is enough for everyone’s need, but not enough for everyone’s greed’. The latter part is what seems to be the problem with the mining sector in this country. I thank you and wish us well in our deliberations over the next few days.
Posted on: Wed, 17 Jul 2013 09:17:47 +0000
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