TODAY on Policy Analysis I have decided to look at the extractive industry in Zambia and how the Zambia Extractive Industries Transparency Initiative (EITI) is endeavouring to improve transparency on the management of the extractive resources.
Our staffer, MAIMBOLWA MULIKELELA writes that:
The EITI is a global coalition of Government, companies and civil society working together to improve transparency and accountability in the management of revenue from natural resources
Zambia became a candidate country in May 2009 and became fully compliant on September 19, 2012.
Zambia is predominantly a copper producing nation and the largest producer of minerals in Africa.
In 2009, Zambia was estimated to be the second largest producer of mined cobalt metals.
The Government with the support of the African Development Bank (AfDB) has just produced the fourth reconciliation report based on the 2011 financial year.
The main objective of the reconciliation exercise is to help the Government of Zambia to ascertain the contribution that mineral resources are making to economic and social development of the country.
The other objective is to realise the potential through improved resource governance that encompasses and fully implements the principles and criteria of the EITI.
The report reviews that Zambia’s mining revenue nearly doubled to K7.67 billion in 2011 as compared to the K3.79 billion in 2010 representing more than 30 per cent of the Government’s revenue.
The significant increase amounting to K3.748 billion is explained mainly by tax and rates introduced in 2008 mining tax regime which effectively entered into force in 2011 following arrangement reached in 2010 between mining companies and Government
This increased the company tax from 25 per cent to 30 per cent while, mineral royalty tax went up from 0.6 per cent to three per cent and also the Government introduced variable profit and windfall taxes.
Therefore, the mining companies until 2010 continued paying taxes at the old rate pending clarification on the changes to the fiscal regime clauses in the Development Agreements signed by the Government.
Following this arrangement, the mining companies were requested to pay all arrears arising from the 2008 mining tax regime amounting to K1.78 billion.
Further, the revenue increase recorded in 2011 was partly attributed to a seven per cent increase in copper production and a rise in metal prices driven by demand from China
The ZCCM-Investment Holdings recorded increase in revenue amounting to US $157 million from the extractive sector due to the sale of 2.28 per cent stake in Equinox Minerals Limited, the former holding company of Lumwana Mines in 2011
Zambia depends heavily on its mining sector, which accounts directly for 9.5 per cent of Gross Domestic Product (GDP).
Indirectly, the mining sector contributes about 50 per cent to GDP.
For example, Kansanshi Mining, contributed 55 per cent of the total Government revenues from the sector in 2011.
Kansanshi Mine is the largest copper mining company in Zambia which contributed approximately 29.8 per cent of the copper produced in 2011.
According to the EITI Report, a total of 26 mining companies made payments to the Government namely; NFC Africa Mining, Lafarge Cement Zambia, Chambishi Mines and Kagem Mining Limited.
Others are Sable Zinc Kabwe Limited, Chambishi Copper Smelter, Grizzly Mining Limited, First Quantum Mining and Operations, Albidon Zambia, Maamba Collieries and Kalumbila Mineral
Commenting on the 2011 EITI reconciliation report, Mines, Energy and Water Development Deputy Minister, Richard Musukwa said that the Government was committed to implementing the EITI
Mr Musukwa said that the 2011 report had made a lot of improvement compared to the 2010 one
The reported revenue in 2010 was K3.79 billion which increased to K7.67 billion in 2011.
Interestingly, the 26 mining companies reported to have paid K7.67 billion while, the total revenue reported by Government agencies amounted to K7.72 billion translating into a net discrepancy of K48.84 million.
Further, the report shows a decrease in the discrepancy with the net discrepancy in 2010.
“The negative discrepancy was attributed to non-submission of reporting templates by BHP Billiton World Exploration. Although payments to the Zambia Revenue Authority (ZRA) were included in the report,” Mr Musukwa said.
He believes that the Zambia EITI Council together with relevant stakeholders should address some of the challenges raised in the EITI report
The failure by some mining companies and some government agencies to meet the reporting deadlines set by the Zambia EITI when producing the report needs to be resolved.
The Zambia EITI council should continue improving the quality and content of the reconciliation reports so that they can enhance transparency in the management of mineral resources.
According to the AfDB Zambia and other countries were faced with the challenges of reporting the financial accounts of the mining industries due to the laborious process of data collection from the
extractive companies and government agencies
AfDB says there is need to develop a web-based or online e-service platform that will be robust, secure and easy to use accurate reporting by companies.
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