Chamber paints bleak future

15th May 2020

By: Tracy Hancock

Creamer Media Contributing Editor

     

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There remains no incentive for further investment in copper-rich Zambia’s mining industry, says the association for mining and allied companies Zambia Chamber of Mines (ZCM).

In January, Mines and Minerals Development Permanent Secretary Barnaby Mulenga said government was upbeat about the country’s copper production, owing to the development of new mines across the country.

However, on the back of the Covid-19 outbreak, the chamber membership forecast for production in 2020 is significantly reduced, at 740 000 t, compared with the 797 000 t produced last year.

“Although, some members now feel those numbers are optimistic,” says the ZCM.

The chamber called on government last month to urgently engage the sector to forestall the potential negative impact of the global Covid-19 outbreak on the health of the Zambian economy, should measures not be taken to immediately address the issues facing the mining sector.

The Zambian mining industry is synonymous with above-inflation cost escalation and frequent fiscal regime changes – the last instituted in 2019 – making it challenging for the sector to secure funding and remain sustainable.

However, this already challenging operating environment has been compounded by supply chain shift-related cost increases and depressed copper prices, as a result of Covid-19.

The pandemic has also caused expenditure by the mining industry to surge in an effort to protect staff and host communities by, for example, increasing the number of daily staff transport commutes to maintain safe social distancing, creating quarantine facilities for staff and contractors returning from high-risk countries, and sensitising communities on preventive measures, explains the chamber.

“The virus has aggravated an environment with the most punitive tax regime for base metals globally, a quite bizarre method of setting mineral royalties, a crippling tax on the import of capital equipment and astronomical amounts of unpaid value-added tax (VAT) refunds.”

Although the mining industry welcomed the withdrawal of the country’s sales tax last year, which forestalled even steeper cost escalation and wage inflation pressure, the ZCM says this event is overshadowed by the outstanding VAT refunds in excess of $1-billion – a critical obstacle for the sector.

Government Reaction to Covid-19

In response to Zambia’s potential loss of mining-related revenue, owing to the Covid-19 outbreak, ZCM says government announced the withdrawal of some general VAT claim limitation elements of Statutory Instrument (SI) No 90 on March 27.

Also announced was the removal of the country’s 5% import duty on copper and cobalt concentrates, along with the export duty on platinum-group metals, favouring the toll smelting and toll refining segments of the industry.

However, only some progress has been realised one month on, with government publishing guidelines on accessing interest and penalty relief on April 27 and SI No 90 being repealed and replaced by SI No 36 on April 28.

These developments come weeks since the industry proposed additional general stimuli for the economy and specific proposals that benefit core mining, which forms the bulk of the industry.

Lusaka Times reported ZCM acting CEO Talent Ng’andwe as saying on April 22 that tax relief measures announced by Zambia’s Finance Minister in March were a welcome first step in the broader relief package.

“Those measures announced earlier are woefully inadequate and provide scant relief across the sector. These limited measures do not address the core challenges the industry faces and set a gloomy outlook going forward,” ZCM told Mining Weekly in a written response on April 20.

ZCM points out that government has also failed to engage fully with contiguous countries and those beyond, especially South Africa, to facilitate essential cross-border trade, leaving a hole in the country’s economy, says the chamber.

Valuable Developments

The ZCM says structured local-content building of supply chains where the country has a comparative advantage is key to government deriving value from the country’s mining sector beyond taxes.

Government and industry are cooperating to develop action plans for 12 priority opportunities, which include boosting operations at State-owned fertiliser and industrial chemicals manufacturer Nitrogen Chemicals of Zambia to meet domestic demand. These opportunities were identified by the Ministry of Mines and Minerals Development with the help of the African Development Bank. Funding for the development of the action plans over the next two years is being provided by the UK Department for International Development.

However, government still needs to understand that the few expatriate mining experts working in the country bring great value to the sector by upskilling and training the local workforce.

“This is currently not reflected by the willingness of the Zambian government to grant work permits.”

Meanwhile, small-scale artisanal gold mining is sprouting at sites across the country, driven by “all-time-high gold prices”, while mostly artisanal opencast manganese mining has taken root in the Central and Luapula provinces, owing to favourable ore grades.

“It is extremely early pioneering days in both instances and, as with the copper sector, conducive policy will determine whether they flourish or fail,” states the ZCM.

There is still great opportunity for Zambia to benefit from its own natural endowment, but should it not act with haste it will create further socioeconomic decay, owing to its decline-driving policies, as “the opportunity is passing”, states the chamber.

Edited by Nadine James
Features Deputy Editor

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