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7.5% duty waiver: Mines see hope

MINING companies are seeing hope eventuated by policy pronouncements in November last year in which Minister of Finance Felix Mutati dropped the 7.5 percent import duty on copper concentrates.
The mining firms had faced challenges as the importation of copper concentrates raised the cost of processing copper but Mr Mutati reacted by withdrawing the duty when he presented the K64.5 billion  budget to Parliament on November 11 last year.
The decision by the government followed complaints by the mining industry that the planned 7.5 percent duty on the importation of copper concentrates would put a kink on Zambia’s global competitiveness and force neighbouring Democratic Republic of Congo to send surplus mine output elsewhere.
The Zambia Chamber of Mines believes the decision could sharply influence increased processing of the metal, thereby making the country exceedingly competitive globally.
“It must be emphasised that the year 2016 has not been a good year for the mining sector and Government must be commended for striving to make the mining sector stay afloat,” said Zambia Chamber of Mines president Nathan Chishimba.
During his budget presentation, Mr Mutati said the mining sector continued to be Zambia’s key export earner contributing over 70 percent of the total export earnings. To ensure that the sector continues to play a pivotal role in revenue generation, Government would implement effective mining monitoring mechanisms and ensure a stable and responsive mining tax regime.
The mining sector in 2015 and 2016 faced economic nose-dive provoked by low copper prices and nation-wide power deficit that affected mining productivity.
“It is our sincere hope that the Zambian Government and the mining industry can continue to have open and fruitful discussions going forward,” Mr Chishimba said.
The removal of import duty on copper concentrates will help in stabilising independent smelters, and finished copper output, in addition to employment and contributions to government revenue.
Before the budget presentation, the Zambia Chamber of Mines had submitted to a parliamentary Committee on Estimates seeking a waiver on 7.5 percent import duty on copper concentrates.
Mr Mutati, in his budget stated: “We cannot spend what we do not have,” a reference to the urgent need to deal with the country’s growing budget deficit and government indebtedness caused by previous expansionary spending.
The position by the Zambia Chamber of Mines is based on the fact that fiscal restraint is necessary, but it need not have an adverse effect on economic growth and development, which is a life-line for poverty reduction.
Zambia requires increased levels of private investment to recreate the ‘multiplier’ effect for sustainable growth. Research conducted by the 2015 Journal of Economics on Zambia claims that there exists a historic correlation between investment levels, mining output and Gross Domestic Product (GDP) growth, particularly in the decade following privatisation.
This, Mr Chishimba argued, does not solely mean ultra-low tax rates, and light regulation but it means being internationally competitive relative to policies and on the international scale.
There is a general belief in the mining sector that Zambia has one of the highest effective tax rates compared to other copper-producing countries coupled with a recent history of policy instability.
Following that decision to waive the 7.5 percent duty on the importation of copper concentrates, among other factors, mining companies are now recording skeleton returns with recent developments in which some 300 workers who lost jobs being re-employed.
Mopani Copper Mines (MCM) reported recently that it was re-engaging at least 300 workers it had retrenched about two years ago.
“I cannot clearly say that the re-employing of workers as MCM is as a result of that decision. We have not spoken to our members who are bringing back the workers they earlier retrenched.
“We appreciate generally that the government made a decision to sacrifice the money they would have earned if that tax was not waived. It is a decision well made for the growth of the sector,” Mr Chishimba said.
MCM is owned by Glencore, which in September 2016 announced its debt-reduction plan to reduce over US$30 billion net debt by US$10 billion by the end of last year. That included reducing on the number of workers.
There is justification to allow importation of copper concentrates at lower cost and the justification is that for mining firms to make a blend which optimises smelting operations, Zambia needs a combination of chalcopyrite and chalcocite. However, availability of chalcocite in the country is limited.
Only Konkola Copper Mines and Lubambe Copper Mines have high -grade material suitable for optimal smelting. The deficit of such material necessitates outsourcing from the Democratic Republic of Congo.