In 2009 officials from the Zambian Revenue Authority decided to contact Norwegian tax auditors Grant Thornton and Econ Poyri to assess, with assistance from the Norwegian government, the income generated by tax revenues from the mining industry, which has been the biggest source of revenue for the country since it gained independence in 1964. Zambia remains the 25th poorest country in the world, and is still afflicted by an average life expectancy of just 47 years. Officials from the Zambian Institute of Chartered Accountants (ZICA) had noticed some anomalies in the behaviour of the biggest mining company in Zambia, known as Mopani Copper Mines Lpc.
Having gained access to the confidential report, several groups including Mining Watch, the French NGO SHERPA, the Zambian Center for Trade Policy and Development, the Switzerland-based Berne Declaration and Canadian l’Entraide Missionaire have now filed a complaint against mining giants Glencore International and First Quantum Minerals Ltd. before the Swiss and Canadian National Contact points for violating the OECD guidelines for multinational enterprises.
Mopani was acquired by Glencore in 2000. It employs 7600 miners, controls four underground mines, a concentrator and a cobalt plant in the town of Kitwe and an underground mine, a concentrator smelter and a refinery in the town of Mufulira. Mopani has been a prominent corporate player – in fact the second largest mining company in Zambia – since Glencore acquired it in 2000.
Now that this issue has been unearthed, it can’t be just as easily swept under the carpet. Since it gained independence, Zambia’s economy has heavily relied on the copper-mining industry. According to the Central Bank of Zambia, the country earns 70% of its foreign currency from copper exports – despite the fact that the mining industry only contributes 10-15% to all fiscal revenues in the country. According to the audit report, most of the taxes for these revenues are effectively paid by the miners themselves. The corporations actually pay less taxes than the workforce, adding up to a mere 4%.
These revelations become even more striking when considering that on February 2005 Mopani received a €48 million grant from the European Investment Bank to develop its activities and contribute further to the development of the region. Since then, the Zambian government had been incredibly generous, nesting what is tantamount to a fiscal paradise for the mining industry. During the financial crisis when the country was plagued by a dramatic fall in copper prices, the government decided to eliminate the windfall tax. Despite prices recovering, the windfall tax has not been re-introduced. Given the benevolence of the Zambian government, it may come as a surprise that their management of revenues has come under attack from none other than Mopani’s CEO, Emmanual Mutati. In what looks like a pre-emptive move to stifle attacks once the audit report was leaked to the press at the beginning of the year, Mutati spoke out against the lack of welfare systems and public infrastructure in the impoverished state, implying that the Zambian government was not using its revenues wisely. He is reported to have said: “It is imperative for government to share the burden with mining companies to improve the livelihood of people.”
The mining publication SteelGuru published the following account:
“Despite the reports, which the company clarified, Mr Mutati stated that the mining company has not declared a dividend for its shareholders because it has had to reinvest profits to improve production of the metal in various units it operates in Zambia. He stated that the ploughed investment is planned to extend the lifespan of the company by another 25 years, a strategy which he claims is more tangible than declaring dividends.
He also defended against the findings of the auditors’ report by claiming that the practice to recapitalize operations was intended to ensure more job creation for the local people during the stipulated time. Hence the need for the government to reciprocate “by ploughing back the tax profits into communities to better the people’s lives many who are living in squalor despite hosting key mining companies.”
read more revelations here.