What hope Africa?

Letter to Metal Bulletin:

I read with interest the article written by Fleur Ritzema and posted on Metal Bulletin yesterday (January 8, 2015) entitled ‘Political uncertainty in DRC and Zambia alarms mining sector’. 

It is an accurate and informative report but, naturally perhaps, written from the point of view of the trade (miners and metal merchants) and not taking too much time to look at matters from the other end of the telescope – the Zambian or Democratic Republic of Congo (DRC) end. 

From the other side, things look rather different. 

In Zambia, which I have visited frequently, ordinary Zambians have seen decades of supine government dominated by overbearing foreign mining companies, possessing more power than their sovereign nation. 

According to a letter I received from the High Commission dated September 23, 2011, in answer to a question of mine about how much tax had been raised from the mining industry as a whole from 2000, (the year of privatisation), until 2010, the cumulative figure was no more than $1.5 billion. 

That compares to the many billions in ores, concentrates, scrap, anode slimes (containing gold and silver) and cathodes that have left the country in that period. 

The problem for Zambia and all developing countries, is how to hold on to a share of the wealth that is removed from under their feet. Many methods have been tried and failed. 

Matters are not helped by the intrinsic imbalance of the mining industry – all or most of the costs of extraction are accumulated in the host country (cost of labour, capital equipment), while the profit is earned overseas. Naturally, a foreign investor, even if acting within the law, is favoured by this structure. 

Thus it is all too easy to bring in foreign capital from outside and repatriate profit via shipments whose value is only realised on sale. In the case of copper, the ultimate destination might be China, while the profits might be returned to the country where the foreign-owned miner is domiciled, and where a low tax regime can exist. 

So, the problem for developing countries of how to hang on to a bit of rightful tax becomes very difficult as so little profit is made in the host country. What is happening now is that local governments, such as the one in Zambia, are being held more and more to account by their own, increasingly politicised, populace who are getting less patient with their politicians’ platitudes. 

This, therefore, is the impetus that lies behind the idea of the increased royalty tax (from 6% to 20%) because, blunt as it is, it is simple – applied to ‘tonnage’ rather than un-trackable ‘profit’. In Zambia, it is the legacy of under-collection of tax that has now resulted in the apparent illegality of withholding VAT. It puts Zambia in the wrong, but for something whose cause is possibly an even greater wrong. 

So, you might say, why should we in the UK, or international readers of Metal Bulletin, be unduly worried? 

One reason would be that, what we see all too clearly in Africa is only a more vivid example of what is happening here in the UK. We see declining revenue collection and a budget deficit which is now being followed by social problems as exemplified by food banks. Large multinational companies, such as Google, Starbucks and others who offer services in the UK (like miners in Africa) are able to avoid normal levels of corporation tax (the type that a small metal merchanting company like ours, happily domiciled in Hampton Court, pays.) 

So my point is, if the UK government has trouble collecting rightful tax, what hope is there for Africa? 

To go back to the title of your piece which uses the word “alarm” – yes alarm is the right word, and much greater instability could so easily follow, especially to the landlocked country of Zambia. It might have been peaceful for a while, but with refugees from other conflict zones in Africa now making up their populace, who do not take such a passive view of their country’s inability to hold onto a part of their wealth, the dangers are growing. It all looks good for foreign investors while the country is stable, but push Zambia too far and the assets of companies, some listed on the London Stock Exchange, could be vulnerable to a collapse in share prices in net proportion to their African exposure. 

My solution? For large companies, (as I said, often more powerful than sovereign governments) to engage more fully with the host country at government level to increase transparency and to build standards of governance to the state where both parties can be seen to be working together equitably. 

In the case of Zambia, successive governments have not delivered to their people and that cannot all be blamed on the foreigners. More needs to be done to improve collection of verifiable export statistics, more to improve and employ a cadre of modern well educated young Zambians at all levels of government, more to implement programmes for schools, roads, health and education paid for by rightfully collected tax rather than borrowing. It is something that governments of every hue need to do if they are to remain in power. 

In Zambia and DRC, I regret to say, if it is not done soon, we may soon be beyond the point of no return.

Published by Metal Bulletin online on Jan 9th 2015