Friday, March 29, 2024

Stop Spreading the Myth: Zambia is Not Losing $3 Billion to Tax Avoidance

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By Maya Forstater

Resource-rich countries face several challenges in converting their natural resource wealth into sustained prosperity:

How to strike the right fiscal balance between attracting investment and getting a fair deal for the country?

How to stop powerful political actors diverting the country’s wealth into illicit financial flows?

How to ensure that multinational companies are not able to run rings around revenue officials?

And how to spend natural resource revenues effectively?

There is a strong argument that these questions should be answered in public—through transparency of budgets and revenue data, contracts and fiscal models, and with scrutiny and open debate by parliamentarians, the public, civil society organisations, the private sector, experts and academics, and the media.

If transparency matters then so too does the way that figures get translated into public debates.

Earlier this month the Lusaka Times published a claim that multinational mining companies were “robbing Zambia of an estimated $3billion annually through tax evasion and illicit financial flows.”

The claim that Zambia is losing $2 or 3 billion to the mining industry and Swiss commodities traders has been in circulation for some time.

The Lusaka Times article says the figure comes from a recent report by Zambia’s Financial Intelligence Centre, but this is not strictly true.

The FIC report actually repeats a claim made by the Washington DC based-think tank Global Financial Integrity (GFI).

GFI has promoted its version of the Zambia billions story strongly over the years and it has been taken up widely.

The headline that “Zambia lost $9-billion over a decade has been repeated by Reuters, in the Guardian, in the Globe and Mail and by Transparency International, for example. It made its way into a report by the UK’s International Development Committee.

The UK NGO War on Want built a whole report around it, while Christian Aid and the film Stealing Africamade a related argument that Zambia could have doubled its GDP if it wasn’t for Swiss mispricing.

In 2012, Zambia’s then Deputy Finance Minister Miles Sampa gave the figure credence in an in an off-the cuff remark, which has been much repeated, gaining apparent authority with each retelling. The FT in 2013 presented it as an official “government estimate.”

I have written about the Zambia Copper Billions before, in 2014 and 2015. I don’t think the figure is at all credible, and I am not the only one:

Nathan Chishimba, president of the Zambia Chamber of Mines calls it “malicious nonsense,” and notes that $3 billion worth of copper is about 600,000 tonnes (equivalent to 80 percent of Zambia’s total copper production).

This much additional copper would involve two “ghost” smelters secretly processing ore, and hundreds of trucks leaving the country unnoticed every day. Mooya Lumamba, director of Mines at the Ministry of Mines and Mineral Resources says the claim is “wholly untrue” and Ron Smit of the EU-funded Mineral Production Monitoring Support Project agrees, noting “no one ever offers any proof.”

This year GFI quietly withdrew the claim. But you had to be paying close attention to notice. On the second-to-last page of their regular Illict Flows Report they note:

“irreconcilable issues in the destination reporting of Zambia’s copper distort bilateral estimates of misinvoicing to such a degree that bilateral estimations of misinvoicing for these countries are of little practical use. To mitigate this destination reporting issue, we have decided to treat these countries as world reporters and apply the world aggregate method.”

Or, as the headline writers might have put it, “Zambia didn’t lose $9-billion over a decade after all.”

Similarly if you have to have been paying close attention to some fairly esoteric debates you might have noticed that Alex Cobham recognised the problems with the analysis behind the “doubling GDP” claim.

But Christian Aid did not withdraw the related reports, and the distributors of the “Stealing Africa” film also saw no need to stop promoting the claim. Cobham and co-authors promised they would revise the analysis and the paper.

But then they didn’t.

A couple of other studies (a fact-finding mission by the International Bar Association Human Rights Initiative and a study by GFI and funded by the Government of Finland) set out to investigate illicit flows from Zambia in more depth.

They could have usefully clarified the issues, but instead (presumably after finding that the huge outflows could not be confirmed) they decided that the best thing to do was to publish nothing at all.

So it is not surprising that people are still citing the large and assertively declared claims, and ignoring the quietly (or silently) made corrections. In fact, it is not even clear if the news that the $3 billion figure is no longer supported by GFI has made it around GFI’s office.

They are still tweeting media storiesfrom Zambia that feature it (but not those that question it), and when I suggested they could fact check the claim they responded, “You’re saying we’re responsible for this Lusaka Times article??” (Yes. It is based on a finding that GFI have strongly promoted, so I think there is some responsibility here.)

The problem of corruption, and associated illicit flows is very real. So too is the challenge of designing and administrating taxes for the extractives sector.

In Zambia the Extractive Industry Transparency Initiative (ZEITI) works carefully to create a common fact base to support public debate and accountability.

The Ministry of Mines and the Zambia Revenue Authority, with support from the donors such as the EU and Norway have been working to improve the governments’ monitoring of minerals production and the mineral value chain. Zambia has adopted a common system for companies to record mine production.

This will ultimately enable customs inspectors to reconcile the quantities of minerals being exported with export permits and production data in real-time.

Mooya Lumamba and Ron Smit say that some instances of inaccurate production statistics have been found through this work, although no estimates of the revenue implications have been made public yet. They say that they don’t think there is systematic misreporting throughout the industry.

According to Zambia’s most recent EITI report, export earnings by the mining sector were $5.46 billion in 2015, and tax receipts were 9 billion Kwacha (about $0.92 billion by my maths). Should this amount be more, and if so by how much?

I don’t know. But we can be sure that the answer is not going to be $3 billion.

The careful work of the Zambia Revenue Authority, the Ministry of Mines, and the donor-supported projects should improve the ability of the government to collect mining revenues, and provide assurance that the right amount of tax is being paid.

Inflated public expectations do not help, and may very well hinder the development of the strong and capable national institutions and informed debates that are needed for accountability.

Organisations that have allowed this myth to spread have not done any favours to the people of Zambia, and they have a responsibility to put it right.

CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.

48 COMMENTS

  1. Peddling of lies and spreading alarming false stories is what the opposition in Zambia consider as checks and balances. Politicians currently have now resolved to accuse anyone even without evidence of corruption and they expect voters to buy into their lies.

    • Pay attention to the following statement in the article; “Should this amount be more, and if so by how much?I don’t know. But we can be sure that the answer is not going to be $3 billion”. The author acknowledges that there has been some ‘tax payment avoidance’ somewhere but is short of giving us the exact figures.

    • Maya Forstater is nothing but an economic assassin. A hired gun to defend corporate fraud. The deficiencies at ZRA are being exploited to the max by the multinationals. When we say we need professionals at places like ZRA (not political cadres), this is result.

    • The problem with this mineral tax collection in Zambia is that everyone claims billions are being stolen with out any credible data and analysis. I totally agree with the author. Perhaps the question no one ever asks in how much tax is collected from the mines annually? Lets put the figures on the table for the last 10 years. ZRA has these figures. Then ask the question where has this money gone? I know the answers. Its billions of dollars which has ended with GRZ how has it been used when GRZ is daily contracting loans????

    • Ba Sebenza – I can contribute to that question. A tax of 0.92 billion out of 5.46 billion is 16.8%. I think it would be fair for the tax to be around 25%. Obatala – Maya may be an economic assassin, but it is interesting when she reminds you that $3 billion is equivalent to 600,000 tons of copper (more than 60% of Zambia’s copper production). Makes the $3 billion claim outrageous.

    • Abilima, over what period of time is that 600, 000 tons of copper produced? And what period in terms avoidance are we talking about?

    • I am a neutral lawyer who wants to assist. Please note that attendance to independence celebrations is not compulsory but very voluntary, thereby no body should be blamed, ridiculed or brought into ridicule for not attending the celebrations – It is not necessary. With my little advice above, I would rather we concentrate on developmental issues

    • Hon miles sampa planted this lie not as opposition as per your assertion but as deputy minister why are you so obsessed with the opposition ,cant you contribute without showing your hatred for democracy.

    • @Jonas Chirwa it is precisely because “attendance to independence celebrations is not compulsory but very voluntary, that absentees will be ridiculed ” If it was compulsory why would we ridicule anyone?

    • [email protected],,,
      You getting off on a tangent here. The focus of the article is on the acciracy of the taxes collected on the reported copper exports. It is very light on the application of the purportedly miscalculated revenues.

      While your point is important it does not advance the debate. We need a system of tracking copper production, the cost associated with such production and the dictating corresponding market prices at the time of export.

    • Zambia is not losing $3billion via mines s tax planning but it has lost more than $12billion via Chagwa and his stooges s theft.

      I will make all this money is traced and paid back.

    • @Wanzelu … we all would love to ensure that corrupt officials are brought to account and incarcerated for long periods including adding controls and other deterant measures. Though it may be true with your claims, I must say, there is no “i” in team. You seem to be coming across like you are superman and will do this on your own. You have already failed before you even started is what comes to mind.

  2. This rebuttal is also sponsored. For it to have credence, please provide the alternative amounts. I request this, because you are acknowledging that someone is stealing (a lower amount than the one being peddled). Tell us the true amount!

    • Flag Mas you are right. This is a sponsored rebuttal. Zambia is losing much more that $3 billion per year from crooks in the mining sector. I can actually put the amount at $5 billion.

  3. @Mas I agree totally that the author is not independent.Tha fact is the mines are stealing in its in billions.Acacia mines and a diamond miner had to be caught red handed in Tanzania.The fact remains that mines are robbing Zambia revenue although we do not know how much because of their secrecy and sophistication.We need to make this front and centre of our debate given our level of debt now.Develpment agreements need to be revisted.

  4. Surely can a mine make loses for 17years and still be operational and maintain a wage bill like it does for it’s foreign bosses.
    Rubbish article…trying to defend thieves…

    • It depends on what kind of a loss we are talking about. It cannot make economic loss for too long before the financiers come knocking on the door.

      As a matter of fact, if one wanted raw data on how much the mines are making, this is who to go to.

  5. FACT

    Mining houses deduct PAYE from their workers.

    FACT

    This PAYE is then ceremoniously included in the TOTAL TAXES PAID by mining houses in their PR adverts.

    The workers sweat is taxed. The mining house calls it their own cintribution to fiscus.

  6. All I have gotten from the article is mines are stealing and the government is not accountable in what it collects so they will both continue stealing.

    • @6 Arms, GREAT OBSERVATION, for how long was Accacia Mining operating in Tanzania before a VIGILANT AND NATIONALIST PRESIDENT CAUGHT THEM with under paying taxes. He later caught Williamson Diamonds with similar problems, SO ONCE WE GET AN ACCOUNTABLE GOVERNMENT, THEY WILL MAKE EVERYBODY ACCOUNTABLE INCLUDING MINES, today when we read or hear Auditor General’s Report, you would think Prisons will be full with people stealing and abusing public resources, but NO, it a standard practice to hear these stories and they die down just like that!!

  7. The key issue is proof of fraudulent conduct by mining companies. In the absence of evidence, the only logical conclusion is no case to answer. It is wrong to make wild allegations without proof. Calling investors names is the wrong way to go. It is prudent to provide strong evidence to competent authorities. These include ACC but other law enforcement bodies can also facilitate fair trial and possible conviction.

    • This line of reasoning is causing the investigative agencies to take relaxed stance towards potential crimes. It is the duty of the so called relevant agencies to roll up their sleeves, elongate their antennas, and establish prima facie evidence to warrant further investigation. When we begin to demand tha the one pointing fingers must also provide evidence, we will rendering the investigative wings materially useless.

  8. It is very clear what needs to be done here:

    Transparency of profits made and how tax is divided off of those profits in regards to extractive taxes, PAYE taxes, and other costs demanded by the ZRA is urgently needed.

    With a lack of transparency we loose sight of what is being done with Zambias rightful wealth.

    And we end up with either underestimated or even highly doubtfully overestimated losses for the Zambian people.

    Why is it that we need an international company to manage our mineral wealth? Why can’t a Zambian manage a Zambians mineral wealth? Its perplexing.

  9. The $3 billion loss when ones takes into account the loss of unaccounted precious minerals like gold, cobalt and other special metals that are a by product of copper extraction can be true……infact the visionless corrupt violent theif lungu alluded to the fact that he hears “rhumers ” of such active loss of precious metals…….

  10. I am a neutral lawyer who wants to assist. Please note that attendance to independence celebrations is not compulsory but very voluntary, thereby no body should be blamed, ridiculed or brought into ridicule for not attending the celebrations – It is not necessary. With my little advice above, I would rather we concentrate on developmental issues

  11. We are politically free but economically enslaved….as long as we have selfish,greed people in government nothing will change…everyone is looking for this animal called evidence i bet no one knows were it is…To be economically free as Zambians we need to wake up and work extreme hard open our eyes and take control of our own economy.

  12. Maya, the fact that you have acknowledged that theres tax avoidance which is done through suppressed revenue amounts as a result of price transferring, you indirectly acknowledge that Zambia is being abused. The argument of $3 billion being equal to 600,000 tonnes of copper is cheap politicking on the part of Zambian Chamber of Mines. Who doesn’t know that copper is not the only mineral being mined by these so called investors. Cobalt is more expensive than copper. As of today cobalt is over $28,000 per tonne on the world market and thousands of tonnes of cobalt leave Zambia every year. Don’t just talk about copper. Talk about every mineral being illegally exported out of Zambia mining companies. If its not theft what should we call it?

  13. Zambia has lost much more money than this $3bn this moron is talking about. In the Metro of 24 October 2017, business section, it said investors in the UK , will be paid £96bn in dividends for the second half. This is the highest since the record payment in 2007. The report said thanks to good performance by mining companies.

  14. I totally agree with 14 above. The author conviniently concentrates on copper leaving out other metals/ minerals. Only recently we have just learnt that Kansanshi Mine generates more revenue from gold that from copper, making it a gold mine and not a copper mine. During the Kaunda era there was the precious metal plant (PMP) in Ndola that processed refinery slimes to recover gold, silver and selenium. Chiluba stole all the gold bars that came from there and closed the plant! Who accounts for all the precious metals that would ideally have been recovered from that plant?

  15. Am not criticising current leadership… But hell! We are a nation far much educated than we were when we took independence. Sata used to talk about renationalising the whole damned thing! I now see a lot of sense. It would make much more sense to renationalise and work with China under structured proper agreements – these guys don’t just know when to stop. They colonised and stole, yes stole, they know it, we know it… need I say killed too (Kenya’s Mau Mau “check your history and many more” and muliply that across the continent). (—cont)

  16. Agree with the author. Zambia politicians corruptly fill their pockets and turn the blame on the foreign extortion of revenue. On the other had we demand transparency in both sides Mining companies and GRZ to report objectively on resources mined and sold outside Zambia.

    • We would love to agree with them, if they are going to defend themselves, they should really do a better job than give us a few values and variables. If you are going to defend yourselves, please be transparent and include all minerals and their values. Let us be the judge… don’t shove what you think down our throats. Do not insult our intelligence. We are not as dull as they found us in the 1900s.

    • …We would never have been colonised with our intelligence!for one and when we renationalise, we would have had the knowledge, experience and technical competeance to run the mines and parastatals successfuly. Where was the intelligence in all that bruv?

  17. You did not have the knowledge, experience and technical competence because you chased the whites before you learnt how to their jobs in the name of Zambianisation. I saw grade sevens become mine captains in the mines, chief purchasing officer at UBZ ,Inspector Generals and the list goes on. Appointments were made with no regard to competence but UNIP cader.

    You seem surprised but this is what is happening now with PF-fools. You have a reasonable number of educated Zambian, but failures and PF caders are being given positions just like in Kaunda’s days. At least Kuanda would claim that there were not many educated people at that time.

  18. You did not have the knowledge, experience and technical competence because you chased the whites before you learnt how to their jobs in the name of Zambianisation. I saw grade sevens become mine captains in the mines, chief purchasing officer at UBZ ,Inspector Generals and the list goes on. Appointments were made with no regard to competence but UNIP cader.

    You seem surprised but this is what is happening now with PF-foo-ls. You have a reasonable number of educated Zambian, but failures and P-F ca-ders are being given positions just like in Kaunda’s days. At least Kuanda would claim that there were not many educated people at that time.

    • @Alibaba … Correct, we did chase them and rightfully so, though prematurely… as I said, we were not too clever. Exactly my point! You say am surprised… am not surprised of what is happening now. What am surprised of is people getting surprised of what we are witnessing now. Whatever situation we are in right now, we should put this wholly and squarely on the educated masses. We have a large population that has been mis-educated either by design or stupidity by our own, whom themselves are either a product of inferior education or educated with “a moral hazard” to meet their individual agenda. So no, am not surprised… (—cont)

    • NSCS,,,
      I think our method of valuation of the resources we had was different from the people who came knocking on our door. And to a significant extent that is true today. Interestingly that is not confined to us. For instance, there is sand being sold by one group of people in the USA. Plainly, they don’t have much use for it.

      We cannot beat ourselves down for valuing our resources differently. We cannot abuse ourselves just because our method of valuation is different from other people’s.

      We may not have the same use as they do anytime soon. But we need to change way we view them now that we know other people need them more than we do.

      Great debate

    • (—cont) … we have let this happen to us by allowing uninformed individuals voice out, whilst we say we are too busy in our offices or just cannot be bothered to participate in elections as “politics is a dirty game” and turn to blame God at every opportunity we kneel to ask why this evil is upon us. My simple advice and my opinion is, do not complain and argue with us in here cause you are complicit with the status quo. AND to be frank is annoying seeing arm chair critics arguing without a base!!!

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