RECENT developments surrounding the mining sector have the capacity to have a negative impact on the country’s economic performance if mishandled.
The mining sector has been a major driver of the economy contributing on average, 10 per to the Gross Domestic Product (GDP) with an average 80 per cent to the country’s export earnings in the last three years.
Proposed changes in the 2015 budget by Minister of Finance Alexander Chikwanda and subsequent approval by Parliament has been viewed by industrial players as designed to reduce production in the mining sector.
The mining tax regime has been redesigned by replacing the current two tier system from six to eight per cent mineral royalty for underground mining operations as a final tax and 20 per cent mineral royalty for open cast mining operations as a final tax.
Other changes which have since been approved by the Parliament include a 30 percent corporate income tax rate on income earned from tolling and another 30 percent corporate income tax rate on income earned from processing of purchased mineral ores,  concentrates and any other semi-processed minerals, currently taxed as income from mining operations.
This has sparked debate with some mining houses threatening to cut down jobs and shut down operations, contending that the new taxes would cripple their operations and reduce production and profitability of their businesses.
The Chamber of Mines of Zambia (CMZ) has said the endorsement of the new mine taxes by Parliament will significantly affect mining
operations.
According to the Chamber, the new tax regime would result in unintended ramifications for the country’s mining industry which would include the suspension of certain mining operations and significantly affecting jobs, inward investment and reduced Government revenues.
“CMZ and its members are committed to working with the Government to find solutions that will allow them to sustain operations, protect jobs, support local communities and pay appropriate taxes.
Therefore, it is of great regret that as a direct result the passage of the 2015 Budget through Parliament, Barrack Gold Corporation has announced that it will initiate procedures to suspend operations at the Lumwana Copper Mine,” the Chamber said.
Mines like Lumwana are a major-driver of the North-Western provincial economy, purchasing close to US$400 million in goods and services from
Zambian suppliers in 2014 and supporting a range of education, literacy, health care and community projects.
The CMZ observed that Lumwana’s decision to suspend operations would also impact adversely on the operations of the three smelters on the Copperbelt which heavily depend on the Lumwana copper concentrates.
If the implementation of the proposed mineral royalty based single tier tax system is implemented, the suspension of Lumwana could see the loss of around 4,000 direct jobs.
The Chamber estimated that in 2015 alone, as a direct result of the new tax system, mine suspensions and the postponement of major capital projects would also lead to job losses of more than 12,000.
Production losses next year would also exceed 158,000 tonnes of copperand that over the next five years lost production would exceed1,100,000 tonnes of copper.
Zambia stands to lose more than US$1 billion of export earnings in 2015, and a staggering US$ 7 billion over the following five years, equalling to around 30 percent of Zambia’s GDP.
There is need for Government to further undertake consultations and conduct a thorough analysis to fully understand the looming serious financial and social impacts which would be triggered by the introduction of the changes reflecting in 2015 Budget in its current form.
A local entrepreneur, Enoch Kavindele accused Government of listening more from the Non Government Organisations (NGOs) and Civil Society Organisations (CSOs) than industrial players.
Mr Kavindele who is former vice president feels Government should be consulting various stakeholders.
“This budget seems to be addressing concerns by the CSOs and NGOs, but it was supposed to include stakeholders to create a win-win situation,” he said.
However then Mines, Energy and Water Development Minister Christopher Yaluma is optimistic that the country may still achieve its projected annual copper production of 900,000 tonnes for this year despite plans by Lumwana Copper Mines to suspend operations.
In the first eight months of 2014, Zambia had produced 448,673 tonnes, which was about 50,000 tonnes lower than what the country produced in
the corresponding period of 2013. In 2013 output was about 763,000 tonnes.
“We might get what we had projected for this year, because of the new mines coming on stream, like Kansanshi Mines and if Kansanshi does not come on line and with Lumwana closing down, we might not achieve our projection,” Mr Yaluma said.
He said the closing down of Lumwana Copper Mines would greatly impact negatively on Zambia’s position in Africa in terms of copper
production as well as on government’s projections.
Zambia is traditionally Africa’s largest copper producer and was last year surpassed by the neighbouring Democratic Republic of Congo (DRC) which produced 846,000 tonnes of the metal compared to Zambia’s 763,000 tonnes.
Mr Yaluma said the pulling out of Lumwana Mine would have a serious impact on the growth of the mining sector but that will not impact much on the performance of 2014 but that of 2015.
Lumwana Mine has announced plans of closing down operations in Zambia following the increase of underground mining royalties.
Mr Yaluma was further optimistic that the situation might be offset by the new mines coming on stream like Kalumbila and Muliashi projects.
“Greenfields projects which have been on the cards over the years will start production hence pushing production up,” Mr Yaluma said.
There is need however to strike a balance so that no one between the Government and mining houses gets reduced benefits in view of uncertainty surrounding the tax system.