By Sishuwa Sishuwa
In the 2019 national budget, the Minister of Finance proposed a few changes to Zambia’s mining tax regime. As well as introducing a 1.5 per cent increase in mineral royalty rates, Margaret Mwanakatwe also imposed a 5 per cent import duty on copper concentrates and a 15 per cent export duty on precious metals. Mwanakatwe further abolished the Value Added Tax and replaced it with a non-refundable Sales Tax. The response from mining companies was an immediate threat to lay off workers and scale down their operations. ‘If the 2019 Budget proposals are enacted, Zambia will have by far the highest tax burden of mining countries [and] more than half of [the country’s] copper mines will become loss making’, claimed Goodwell Mateyo, the president of the Chamber of Mines. ‘The only operational response available’, Mateyo added, ‘will be to scale back certain operations, reduce capital expenditure, and mine only the highest grades available. The unwanted effect of these survival measures will be lost production, lost investment, lost employment, and less supplies and goods procured from other parts of the economy’.
The new mining tax proposals have attracted plaudits from most Zambians who have long sought a fair proportion of the revenue from the country’s mineral wealth. Opposition United Party for National Development (UPND) leader Hakainde Hichilema is however not among them. Appearing on Radio Christian Voice’s Chat Back programme on 18 January 2019, Hichilema refused to render his support to the proposed tax measures and instead gave a series of elusive replies to the interviewer’s questions on mining policy. So disenchanted about the government’s tax proposals are mining companies, Hichilema revealed, that they have told him they cannot wait for him to get elected to the presidency in order to sort out the mess in the sector. “The mining companies are saying ‘HH [Hakainde Hichilema] we are waiting for you to come [into power]. We will pay the tax which you will introduce because we know it is a fair tax’.” What do we make of all this?
The first point to note is that Hichilema’s comments on the proposed mining policy reveal his exceptional political ineptitude and raise serious questions about the nature of his relationship with mining companies. Is Hichilema the mines’ man? I personally could not believe that anyone in his position would publicly claim that mining companies are lining up a particular political leader and expressing a wish for that leader to take power immediately. Moreover, the UPND leader had absolutely no need to say what he did, since the journalist did not ask him whether or not mining companies want him elected. All that the journalist sought was Hichilema’s simple answer to a straightforward question: does he think mining taxes should be increased, decreased or stay the same? Hichilema struggled to provide a clear response and was frustratingly vague about what policies his government would implement in Zambia’s crucial economic sector. Apart from promising to revert to a VAT tax mechanism, he failed to outline what exactly is wrong with the PF’s approach to mining and what he would do differently. When News Diggers subsequently gave him an opportunity to clarify his position on the new mining taxes, Hichilema remained largely elusive and devoted much of his response to denying accusations from the governing Patriotic Front (PF) that he is in the deep pockets of mining companies, arguing that the ruling party deliberately twisted his comments in order to gain political mileage. It would be a costly mistake for Hichilema to think that it is only PF supporters who take issue with his pronouncements on the mining issue.
Multinational mining companies in Zambia are not looked upon favourably by much of the country’s population. I know many Zambians who do not support the PF but who both support the new tax measures and have expressed huge disappointment with Hichilema’s comments. Mining companies are presently engaged in what can only be termed as an attempt to blackmail Zambia. They have threatened to sack thousands of workers unless the taxes are reduced. The PF has commendably, if perhaps only temporarily, stood up to the mines, who have had a sweet deal in Zambia in recent years. Hichilema however is choosing at this crucial juncture to identify himself with the mining companies. This will surely become a stone around his neck if he ever stands in another election. I know that division has become a characteristic of Zambia’s politics, but there are certain sectors where it is in the best interest for everyone to pull together, particularly when it comes to guaranteeing the fundamental interests and security of citizens. For example, Zambia wins if there is a unified voice against: the low public earnings from the mining sector resulting from the infectiveness of the Zambia Revenue Authority, low taxes, transfer pricing and poorly negotiated development agreements between mining companies and the government; the exploitation of Zambian workers or the dispossession of rural residents of their land and livelihoods; the prevention of instability in the country by avoiding business deals and political arrangements that would plunge the country into conflict (i.e. uranium mining, nuclear energy, asylum for warmongers etc.), or the acquisition of more public debt. Hichilema would do well to reflect on this point.
The problem with the multinational mining companies in Africa is that they are the leaders of neo-colonial exploitation and expropriation. In real terms, Zambia gets far less from the mines today than it did in the early years of independence, particularly following the Mulungushi economic reforms of 1968 that increased the national stake in the sector. Zambian miners also get far less today in purchasing power parity and social benefits from the industry. The mining companies have devised various methods for ensuring that most of the value of the copper is collected by their shareholders and the company management, and very little goes to local workers or the Zambian government. There are various tricks for maintaining this system, such as giving kickbacks to government officials, employing foreign companies as contractors, using expensive expatriates for management positions (despite Zambia having had a School of Mines for close to fifty years!), and by transfer pricing. But perhaps the main method for expropriation of value is to keep local taxation low, both as profits tax and mineral royalty tax. The main strategy that mining companies deploy to maintain low taxes is to threaten government that they will reduce mining operations, or even move out of Zambia altogether if taxes are increased. These are credible threats for two main reasons. First, any pulling out, or even reduction of expansion programmes, will affect employment in Zambia and reduce tax revenue, thus the government may be ‘cutting its nose to spite its face’ if it tries to increase taxes. Secondly, the threats are credible because the mining giants are truly global multinational corporations, and they can fairly easily move their operations in the direction of a country where production costs are cheaper, taxation rates are lower, and bribing of government officials is even easier (the Democratic of Republic Congo, for instance, would arguably fit all three of these criteria). In other words, a large rich multinational is in a strong position to bully a weak African state such as Zambia, and has a large influence over government policies to support the mines by tax holidays, lower taxation rates, providing subsidies (such as cheap electricity), degrading the trade unions, overlooking environmental degradation, and so on.
The attempts by President Edgar Lungu’s administration to increase the mineral tax is therefore – on the face of it – a laudable effort to stand up to the mining companies and to make sure we Zambians are not bullied into complete poverty, but rather able to limit the levels of externalisation of profits so that the country can at least collect a decent proportion from its mineral wealth. Of course, with Lungu’s corrupt regime, one has to wonder whether the threats of increased mining taxation are just a bluff, and the underlying demand is instead for higher kickbacks or even shareholdings for government officials. In addition, there is the question of whether, if the government ever succeeds with its demand for higher taxation of the mines, the proceeds will ever reach the poor people of Zambia – or will instead merely provide more revenue for government officials to steal. Bearing in mind the preceding situation analysis, one can only wonder what on Earth Hichilema is doing. What exactly is his interest in protecting the mines from increased taxation? Why is Hichilema siding with the interests of the predator and against the interests of Zambia? Is he looking for his own share in the mining companies? Does he have some longstanding business interests with the mines, which may have been obscured by his entry into active politics? What ‘fair tax’ has he told the mines that they will pay under his presidency? Given the present situation, his implied claim that the new mining policy is unfair can only be read to mean that he is supporting the unwillingness (or is it blank refusal?) by mining companies to pay an increase in taxes. If Hichilema claims that the mining companies are saying ‘we are waiting for you to come’, it is reasonable to suspect that they think he would offer them a better deal: lower taxes, lower mineral royalties and looser local content requirements. Does Hichilema advocate these things and if so, why not admit and publicly defend them? Is he reticent because he knows such a position will be unpopular with Zambian voters? Hichilema is seeking to occupy the most important office in Zambia. He cannot afford to have private thoughts on public matters. We, the public, need to know where exactly he stands on the new mining tax regime. His silence, if anything, suggests a secretive closed-door approach to policy not much better than the openly incompetent approach of President Lungu and the PF.
It is worth noting that the basic economic position is that, for almost a hundred years, mining companies in Zambia have been milking our riches and engendering poverty and destitution. Our feet walk on copper, yet we remain absolutely poor, thanks to inept leadership from a succession of corruptible political leaders who pawn off the country for a few trinkets at a time, accumulate through brazen theft of public resources and the massive sale of Zambian assets to so-called investors, and strut around with self-importance when they are nothing but the disposable playthings of even bigger global kleptocrats. Our mineral wealth has been and continues to be taken from us, and when they have taken the whole lot, we shall remain with nothing and probably be the poorest country on Earth, with all our wealth transported to Geneva, Beijing, New Delhi, Ottawa, London and New York. From this point of view, Hichilema’s apparent intention to continue with and to support unbridled exploitation by mines is nothing less than an act of treason. Whereas he failed to be convicted of treason for a traffic violation, he appears to have now invented a much more substantive reason to be successfully convicted on the same charge. If these really are his plans, the most fantastic aspect of such plans are that he should be so naive as to make them plain before he is elected, thereby ensuring that we shall never be so stupid as to elect him into office. For a man who has said little or nothing about what he is going to do about massive poverty and corruption in Zambia, he now opens his mouth to reveal that his one big idea is to support and encourage the continuing exploitation of Zambia by foreign commercial interests!
The truth is that the benefit of keeping minerals in the ground, or banking them for the future, far exceeds the economic, environmental and social costs of a bad deal. So if mining companies threaten to leave because of the proposed small tax increments, Zambia would do well to pave the road for them. It is time we looked to longer-term strategies rather than short-term expediency. Banking our resources until such a time that we are in strong negotiating position or there is broader scarcity for metals that would enable us set improved terms for ourselves is better than emptying our underground wealth to largely benefit foreign commercial interests. One of the major downsides of the current extractive industry ownership structure is that it is made for corruption and for as long as the State does not have a decisive ownership stake in the strategic mining industry, (i.e. more than 50% as is the case in countries like Botswana, Norway, Sweden, China etc.), Zambians will also have limited means to public accountability for stolen resources. This is because a limited ownership structure (even with greater taxation) gives leverage for the majority shareholders to hide profits and obscure minority shareholders. In effect, accountability is increased where a publicly owned state enterprise exists. This is a problem that extends beyond Lungu and his administration; it is an issue that greatly benefited Frederick Chiluba and his corrupt friends in the Movement for Multiparty Democracy and, unless changed, would in the unlikely event of a Hichilema presidency also shape his behaviour (given his possible business interests in the sector).
Another implication that emerges from Hichilema’s bold claim that the mines ‘are waiting for [him] to come’ is that the mines now seem to feel themselves to be in such a bold and commanding position that they can publicly intervene in Zambian politics. Perhaps the mines now feel powerful enough to act as king makers, and provide the necessary funds and support to put Hichilema into office. How exactly will they do this? By deliberately causing unemployment to be blamed on President Lungu and the PF? By funding Hichilema’s election campaign ahead of Zambia’s 2021 election? Moreover, his assertion that mining companies support him could easily encourage the ruling party to be publicly more hostile during negotiations and justifiably accuse them of undermining the government. Mining companies may respond by distancing themselves from Hichilema and he may end up alienated from both their support and the support of Zambians. If this is the basis for Hichilema’s strategy, then he has carefully planned his own downfall. By declaring that Zambia’s mining companies are apparently so keen to place him in power, Hichilema has, in effect, put himself as the candidate of the mines and consequently cast Lungu as the candidate of the people (yes, Lungu, probably the most incompetent and divisive president that Zambia has ever had). In so doing, the UPND leader may have succeeded in extinguishing the little hope he may have had of winning the Copperbelt Province, without which it is almost impossible for any presidential candidate to win power.
Can Hichilema overcome popular perceptions that he is beholden to mining interests? I seriously doubt it. Hichilema’s cozy relationship with the Brenthurst Foundation, a mining lobby established by the Oppenheimer family that favours a low mining tax regime in Africa, places him firmly within the bosom of the interests of mining capital. The UPND leader has consistently in public statements portrayed himself as more empathetic to the concerns of mining companies rather than the mining communities. I have personally never heard Hichilema speaking in defence of workers against mining companies. Neither have I heard him expressing outrage against what is happening in North-Western Province, where we have allowed the re-creation of spatial apartheid in the new mining areas. Much like during the colonial era, mining companies on ‘the new Copperbelt’ have replicated the notorious racial colour bar: white mineworkers are paid exceptionally high wages, live in segregated estates with lavish housing and social facilities, while their black counterparts who do much of the labour are paid significantly less, housed in distinctively less lavish settings, and effectively left to fend for themselves. Where is Hichilema in identifying what looks very much like a new wave of colonialism? His solution to the woes of mining communities, that he will bring back Anglo America Corporation, sounds very much like the promises of a mining CEO, not a potential Head of State. This position has never been obscured by him or hidden from Copperbelt residents. It is in most public pronouncements he makes, and this probably explains why most Copperbelt voters will never fully trust Hichilema, or seen him as a viable alternative.
On a recent trip to Chingola, I struck a conversation with a miner at Konkola Copper Mine, who told me why many of his colleagues do not support the UPND leader. His observations, which I have translated from Bemba language to English, are worth quoting at length:
‘Hichilema does not speak for us. When he speaks on mining issues, it is to condemn the government or the PF, not the workings of mining companies or to draw attention to our low wages, poor working conditions and the general lack of safety standards. So many of my colleagues have died in Chingola and Chililabombwe mines owned by Vedanta’s KCM. For example, between April and August 2018, my colleagues Kelvin Chongo, Ezekia Mwape, Benson Solochi and Frederick Musonda all died tragically due to KCM’s lamentable safety record. They died from mining blasts or preventable accidents such as earth movements. Their deaths, like so many that happened before them, were never reported in the mainstream media. [Michael] Sata, when he was in opposition, used to speak for us. Now, we feel orphaned, as Hichilema appears to have no interest in highlighting our plight. Even Chishimba Kambwili, who is so vocal against AVIC, is silent on our plight because he is a supplier to the mines… Death trails us from the moment we enter the mine. Every time I leave my house for work, I say goodbye to my family because when you go underground, there is no guarantee that you will return home… Then you have the problem of suppliers and contactors not being paid on time. KCM is probably the worst on this score of all mining companies. On the Copperbelt, if you are not a miner, you are a contractor or supplier of goods and services to the mining companies. How do suppliers sustain their businesses and livelihoods if they are not paid? These are some of the issues that are important here, but we never hear Hichilema raise them.’
The question is: why? Between foreign commercial interests and Zambia, on whose side is Hichilema? If his few public pronouncements about mining are anything to go by, Hichilema’s affinities lie with the mining companies he once advised rather than the miners who live, work and sometimes die bringing copper to the surface. This reveals his poor political judgement, as despite their diminished numbers, Zambia’s miners remain politically important. All things considered, Hichilema is a very fortunate politician. The UPND leader is ridding the waves of weaknesses and mediocrity in Zambia’s politics that have created favorable conditions for him to emerge as the leading political alternative. In truth, he is simply competing for ‘government’ among basically a lumpen middle class that exploits regional, ethnic and mass poverty in their politics. In fact, our leading political elites, both in the opposition and ruling party, are all cut from the same class – a parasitic and uninspiring lot that has no real desire for genuine radical emancipatory politics the country is so desperately in need of. My wish ahead of Zambia’s 2021 election is that neither Lungu nor Hichilema appear on the presidential ballot. In some ways, the two need each other. Lungu’s manifold failures encourage many Zambians to support Hichilema even though he offers little other than that he is not Lungu.