By MWANDA PHIRI and SHEBO NALISHEBO –
THE destination of Zambia’s copper exports recently triggered a myriad of reactions from various stakeholders in Zambia, raising questions on the accuracy of trade data reported by the Central Statistical Office.
The contentious issue that emerged suddenly is that while official Zambian trade statistics label Switzerland as the major destination of Zambia’s exports (59.5 per cent of all Zambia’s copper exports in 2014), many stakeholders contend that it is in fact China, which is the major destination market of Zambia’s copper exports.
Arguably, this large volume of trade between Zambia and Switzerland comes as a surprise to many stakeholders largely because copper is not a product for which there is particular significant demand in Switzerland.
‘Notwithstanding, the Swiss economy, although largely driven by micro-technology, hi-tech, bio-technology, pharmaceuticals, banking, insurance and tourism activities, is also commonly known for brokerage services.
Therefore, copper exports to Switzerland need not come as a surprise as it is expected that these exports are re-exported by Swiss-based traders.
So, is our copper truly exported to Switzerland? Or is China our largest market destination for our copper exports?
As far as trade statistics are concerned theoretically, the general expectation is to see a symmetric pattern between two trading countries whereby the amount that country A reports to have exported to country B, should be equal to what country B reports to have imported from country A.
This however, is seldom the case in reality.
A deep scrutiny of the World Bank’s World Integrated Trade Solution (WITS) data shows some interesting revelations on the flow of Zambia’s copper exports.
In 2013, Zambia exported $2.1 billion worth of copper and articles thereof to China.
In the same year, China is reported to have imported $2.8 billion worth of copper from Zambia giving rise to a discrepancy of almost $700 million between the two countries.
But this variance between the value of copper exports from Zambia and the corresponding mirror value of copper imports to China is not unusual.
There are a number of probable reasons that could explain this disparity.
For instance, countries use different valuation methods.
According to international standards, exports should be valued at FOB (Free on Board) and imports at CIF (Cost, Insurance and Freight) but some countries do not follow this standard.
At the same time, countries may differ on the type of the trade recording system used.
That is, the general or the special trade system whereby the former includes trade made in free trade zones and the latter excludes such trade.
Moreover, the timing at which trade flows are measured could be a source of discrepancies as well.
For example, exports recorded in one particular year in the exporting country could be recorded as imports in the importing country the subsequent year.
A Joint report by the United States and China found that the timing at which trade flows were recorded by the US and China was responsible for $2.7 billion of the total discrepancies in trade statistics in 2006.
Such inconsistencies can also result from product misclassification, trade partner misallocation, smuggling or fraudulent declaration of goods at the customs border so as to evade taxation or restrictions.
Equally of importance is the treatment of re-exports and goods in transit.
The United Nations recommends that port statistics should be compiled by country of origin, export statistics by last known destination and goods in transit should be excluded from trade statistics.
Yet some countries in their imports statistics report as trading partner country, the country from which the commodity was delivered and not where the commodity was produced.
While these reasons alluded to are not exhaustive, they offer some plausible explanation for the difference in the value of trade between Zambia and China.
Zambia’s Top Five Export Destinations of Copper, US$ millions 2013
Notwithstanding our trade with China, the big exposé is on the whereabouts of our copper supposedly exported to Switzerland.
The World Bank data further shows that Zambia exported $3.9 billion worth of copper and articles thereof to Switzerland in 2013 but equivocally, there are no corresponding mirror records showing that Switzerland imported any copper products at all from Zambia.
In fact, during the same year, Switzerland’s total copper imports from the rest of the world amounted to only US$1.2 billion (about 31 per cent of Zambia’s reported copper exports to the country).
Conversely, Switzerland’s total copper exports to the rest of the world amounted to a mere $712 million of which $15 million was exported to China, which is consistent with China’s import data.
The final destination of the largest share of Zambia’s copper exports is therefore indistinguishable.
If copper exported to Switzerland is neither captured by Swiss customs nor reported to have been re-exported to China, do our copper exports to Switzerland simply disappear into thin air?
This exposes serious weaknesses in the customs system and raises concerns not only on the accuracy of information on export destinations declared to the Zambia Revenue Authority by the mining companies, but also their information on profits.
Switzerland is a well-known tax haven!
The fact that copper exported from Zambia to Switzerland hardly shows up in the Swiss books as imports from Zambia, or re-exports to China or the rest of the world, strongly suggests transfer mispricing is going on.
If we cannot account for where the bulk of our copper resources are exported to, a serious implication of this is that Zambia could be losing out on potentially large volumes of revenue needed for developmental projects.
This not only undermines the country’s development but impedes the country from substantially reducing poverty.
(The authors are researchers at the Zambia Institute for Policy Analysis and Research).