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Saturday, June 6, 2020

Effects of COVID-19 Disease on the Zambian Mining Industry

Columns Effects of COVID-19 Disease on the Zambian Mining Industry

By Webby Banda CTPD-Senior Researcher (Extractives)

The Centre for Trade Policy and Development (CTPD) has observed that Mineral commodity prices have plummeted in recent days due to a growing global social panic over the coronavirus disease.

In the case of copper, prices have plummeted from US$ 6,165 in January 2020 to US$ 4,776/tonne on Thursday 26th March 2020. This rapid decrease has put a lot of financial stress on the Zambian mining industry and the economy at large.

A slump in copper prices has an immediate short term effect of reduced generated tax revenue and export earnings. This is likely to affect tax collection because tax instruments like mineral royalty are price-based. These impacts will thereafter affect the exchange rate and translate into higher inflation because Zambia is an import-dependent country. This will further induce macroeconomic instability and negatively affect the growth prospect of Zambia in the short term.

Further in cushioning the impact of plummeted Mineral commodity prices, mining companies are likely to undertake cost savings measures such as cutting down of labour and suspending non-essential projects as a way of responding to the drop in mineral commodity prices. This will be done in an effort to minimize cash outflow.

It must be mentioned that a cut down in labour will have ripple effects to other industries linked to mining. This is so because many businesses surrounding mining investments depend on the consumer spending of income emanating from mining companies.

Persistence spread of the coronavirus will negatively affect production and this will further exacerbate the collection of mineral royalty.

Nevertheless, CTPD wishes to commend Government on the fiscal relief package that has been given to the mining industry communicated through a press briefing by the Minister of Finance. These measures include suspension of import duty on concentrates and export duty on precious metals.

However, recognizing the fact that the mining industry is Zambia’s largest foreign exchange earner, the government needs to widen the incentives by temporarily suspending import duty and VAT on important capital assets that drive production in the mining industry.

The government should also increase capital allowances to 100 percent. These fiscal measures should be applied to help sustain production levels of mining houses amid the COVID-19 crisis.

Other fiscal measures the government can undertake to ameliorate the transmission effect of plummeted mineral commodity prices on the economy include:

  1. Adjusting the money supply;
  2. Taking corrective measures such as the promotion of non-traditional exports; and
  3. Diversification within and outside the mining sector instead of being over-reliant on
    copper.

To prevent the further spread of the virus, Government needs to establish monitoring mechanisms through the Mines Safety Department (MSD) to ensure that mining companies are following the laid down health and safety protocols issued by the Ministry of Health.

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6 COMMENTS

  1. I am told that during the 2008 world financial crisis, Zambia largely rode through the turmoil because it had sufficient reserves, the economy would hve taken a hit but citiizens were largely cushioned by the measures taken by government then. I tend to agree because as ordinary citizens we hardly knew that there was financial turmoil in the world. I just remember RB advising us to wait a little while before we could embark on roads and other major projects.

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  2. It is expected. The entire global market is in down turn. We have more important things to worry about like saving lives and reducing transmissions of covid 19. Take your article to HH. I am sure he will appreciate it more,given his love for money more than life itself. Kz

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  3. I hope lazy lungu catches corona before the vaccination is found. That way our fellow Tonga can rule this country for better. I call a spade what it is. Why should one tribe or 2 regions continue ruling us to poverty

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  4. @ tarino tonga
    YOU AND YOUR hh WILL RULE IN YOUR DREAMS ONLY
    ZAMBIANS WILL NEVER ALLOW TRIBALISTS TO RUN AND RUIN ZAMBIA
    WHY DO YOU BACKWARD PEOPLE ONLY THINK OF TRIBE?

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