Zambia’s new leader to keep polemic mining tax

Zambia’s new leader to keep polemic mining tax

Zambia's newly elected President Edgar Lungu has no intention of reducing or eliminating the controversial mining tax affecting most copper producers operating in the country.

What Lungu did drop from his administration was vice president Guy Scott —who was briefly Africa's only white leader — as he announced his cabinet on Monday, Ventures Africa reports.

Zambia, one of Africa’s two largest copper producers, tripled mining royalties to 20% from 6% on January 1, putting the government at loggerheads with mining firms already struggling with falling commodity prices.

According to the country’s chamber of mines, over 50% of the currently operating copper miners are losing money mostly due to the tax hike.

Lungu’s move underscores a growing trend across the continent, where governments from Tanzania to Guinea are changing tax regimes and adjusting ownership structures to get a larger share of natural resources.

Gold giant Barrick (TSX:ABX) has already announced it is halting its Lumwana copper mine, which provides nearly 4,000 direct jobs in the area.

Fellow Canadian miner First Quantum Mineral (TSX:FM), Zambia's largest foreign investor,warned in October that the new tax system would “inevitably” lead to fewer new jobs and dissuade entrepreneurs from investing in the country. Earlier in the year, the company had already delayed investment projects worth $1.5 billion in Zambia due to uncertainty over the fiscal regime.

Meanwhile, the world’s third-largest miner by market value Glencore (LON:GLEN) has said it is idling operations at its Sable Zinc Kabwe mine.

Slumping copper makes things worse

From 1997 to 2013, mining attracted $12.6bn in foreign investment to Zambia, according to industry figures. The capital injection helped the southern African nation become one of the continent’s star economic performers, with average annual GDP growth of 6.4% over the last decade.

Today, mining employs 90,000 people and contributes about three-quarters of the country’s foreign exchange earnings and 25-30 % of government revenue.

But weakening prices are hitting the industry hard. Last week, the red metal hit fresh 5 1/2-year lows of $2.49 per pound, the lowest since July 2009 and down 13% so far this year. Copper bounced back Monday at $2.51 a pound on the Comex division of the New York Mercantile Exchange.