News Digest: Africa Mining Comment & Analysis – Zambia

At the ground-breaking ceremony for the Konkola North copper project, President Rupiah Banda on 15th October reiterated his government's commitment not to reinstate the windfall tax provided for in the 2008 Mining Act, which was abandoned in 2009 following the collapse of global copper prices. Banda's statement followed a similar commitment from Finance Minister Situmbeko Musokotwane at the Zambia Association of Chambers of Commerce and Industry (ZACCI).

Chris Melville, Africa mining consultant with Menas Associates today commented:

“Consistent messaging from the government on this issue will be welcomed by mining companies ahead of the election in 2011. Differences of opinion within government were a key factor in the haphazard introduction of the new fiscal framework in 2008 and it is good to see senior members of the government singing from the same hymn sheet.”

“However, political pressures for a greater tax-take are unlikely to go away, with key constituencies – notably the churches and the mineworkers' union – pushing for further revision of the fiscal terms enjoyed by mining companies. These calls are likely to become more vocal as the election campaign approaches.”

“At present, Banda has little freedom of manoeuvre – the opposition PF has switched its stance on the windfall tax, accusing the ruling party of taking an anti-business stance, and Banda was never likely to use the opening of a major new project to outline plans for a swingeing new tax.”

“However, mining companies are not out of the woods yet. In coming months and assuming metals prices stay strong; Banda and his government may struggle to resist pressure to take a more aggressive line with the mining industry once the recovery has consolidated and as the election race heats up.”

© 2010 Menas Associates

News Digest: Africa Mining Comment & Analysis – Zambia

In a letter to President Rupiah Banda, published in The Post on Tuesday 31st August, opposition leader Michael Sata reiterated his opposition to any introduction of windfall taxes on mining companies and committed himself to implementing a competitive low-tax regime if he wins the presidential election in 2011.

Chris Melville, Africa mining consultant with Menas Associates today commented:

“This completes a remarkable turnaround in Sata's approach to the mining sector. In 2006, he ran a populist campaign calling for the re-nationalisation of Zambia's mines and a much tougher line towards foreign investors".

“Today, his public statements are arguably more liberal than the self-avowedly investor-friendly ruling party. However, his 'Damascene conversion' is pure pragmatism – job losses during the economic crisis and the current government's likely reintroduction of windfall taxes have enabled him to couple populist demands for greater employment with support for foreign mining investment”.

“Sata's volte-face may be opportunistic and somewhat cynical, but his political antennae are working perfectly. The ruling MMD is showing its age and is struggling to keep up with the PF's continuous efforts to move the goalposts.”

“Having first raised the possibility of windfall taxes in an effort to win back PF voters in the Copperbelt, the government is now under-fire for threatening an industry just getting back on its feet. What this means for the election is as yet unclear, except that the campaign will be as polarising as ever”.
Background

Sata – a former fixer and campaign organiser for ex-president Frederick Chiluba – came a close second to Banda in the presidential election held in 2008 following the death-in-office of President Levy Mwanawasa, while the 2006 parliamentary election saw the Patriotic Front (PF) win nearly a third of all seats, and every single seat in the major Copperbelt towns. The ruling Movement for Multiparty Democracy (MMD) has been in power since 1991 and has been concerned by the gradual defection of its traditional Copperbelt/labour heartland to Sata and the PF.

© 2010 Menas Associates