Zambia needs money, and mines in Africa’s second-biggest copper producer may be the first place the finance minister looks when he presents his 2015 budget.
Alexander Chikwanda, who delivers his budget today in the capital, Lusaka, faces pressure to reduce the fiscal deficit from the 5.8 percent of gross domestic product Fitch Ratings Ltd. predicts for 2014. He also needs to spur growth and job creation. Failure to rein in the shortfall will make it more difficult in 2016, when an election is due, said Yvonne Mhango, a sub-Saharan African economist at Renaissance Capital.
“The mining sector will be an important part of this year’s budget, unfortunately to the detriment of the mining companies,” Mhango said by phone from Johannesburg yesterday. “Government is trying to mobilize revenue wherever they can.”
Chikwanda is considering scrapping corporate income taxes for mines and increasing royalties instead, as this would be simpler to administer, a person with knowledge of the matter said last week. At the same time, the Zambia Revenue Authority has withheld more than $600 million in value-added tax refunds from mining companies as part of a dispute.
Mineral royalties will rise to 8 percent for underground mines and 20 percent for open-pit operations, the Lusaka-based Post newspaper reported today, citing people it didn’t identify. Chikwanda doubled the rate to 6 percent in 2011.
Tax Avoiders
Mineral producers have repeatedly been accused of tax avoidance in the country, allegations they deny. First Quantum Minerals Ltd. and Barrick Gold Corp. have open-pit mines in Zambia, while Vedanta Resources Plc (VED) and Glencore Plc have underground operations. The country lost its place last year as Africa’s biggest copper producer to the Democratic Republic of Congo.
It will be important for the finance minister to address the issue of the VAT refunds, which has hurt business confidence in Zambia, Mhango said.
“If there’s uncertainty in the operating environment for investors, you’re going to see the currency come under pressure,” she said. “The performance of the kwacha has markedly reflected sentiment more so than almost any other currency in the region.”
Zambia’s kwacha is Africa’s worst performer this year after the Ghanaian cedi among 24 African currencies tracked by Bloomberg, slumping 12 percent against the dollar. It fell less than 1 percent to 6.32 per dollar by 11:22 a.m. in Lusaka, weakening for an 11th day.
Top Priority
Clarification on the VAT dispute is the top priority for the Zambia Chamber of Mines, Jackson Sikamo, president of the lobby group, said by phone from Kitwe in Copperbelt province. He declined to comment on whether royalties may rise.
The timing of a potential increase in mineral royalties would be “unfortunate,” as “we’re in a softening commodities environment right now,” Mhango said.
Chikwanda will maintain a wage freeze for government workers next year, the Post reported yesterday, citing people it didn’t identify. He’ll probably announce 46 billion kwacha ($7.3 billion) in spending, the Post said. That’s a 7.7 percent increase on the 42.7 billion kwacha announced for 2014.
To raise revenue, government will sell 27 percent of the shares it holds in ZCCM Investments, through which it owns minority stakes in mines, the Post reported. ZCCM Investments, 87 percent-owed by the government, has a market value of about $763 million on the Lusaka Stock Exchange. The company is considering listing in London, its chief executive office said this week.
“We believe the government will look to further consolidate its fiscal position,” Standard & Poor’s analysts including Benjamin Young said in an Oct. 3 report. “Measures to increase revenues are uncertain, and expenditure pressure from important infrastructure projects and the need for job creation remains significant.”
By Matthew Hill
Source: Bloomberg News
Zambians and the Zambian Govt should realise that these so called investors are not in Zambia as “saviours” of the dying nation. But rather in Zambia to make money. Therefore, like you and me, they will do anything within their powers (and they have loads compared to our useless Ministers and perhaps Govt), to maximise their profits, including Tax avoidance, extenalisation schemes and recruiting of their nationals, and exclusive business opportunities to friends or companies of preference. They all do it at the loss of Zambians. It then leaves Govt to be stern and demand the fair share of what Zambia deserves. Congo demand infra structure development as part of the licences (FQM were chucked out because they didnt deliver) Zimbabwe has gone for 51% owenership while Zambia shys away.
Please let Zambia hold its ground. These miners are here to reap money hard. We should make it clear to them that now its win-win business. Let them not steal from us at will. we must make sure that we get our share from the mines.
Peace and Prosperity to Mother Zambia.
ZRA should be the gov’t! At least they care enough to scrap fight for revenue. As for Mhango et al……they need to stop speculating our Mine operations. These bankers are just a bunch of gamblers. No one with a cautious brain would buy into their new ‘prime’ financial products. We need to control our mines, bottom line! We need creative thinking mine experts.
The mining investors are are business men who came to make money not to play games. Zambians are just dull and crybabies who cannot manage anything including govt or ZCCM.