Miners respond to new mining tax regime
As expected, mining companies responded with displeasure to the new fiscal regime in their sector as outlined in the 2015 national budget last week. Barrick Gold (owners of Lumwana mine) said that the change in taxation would affect the viability of their mine. First Quantum talked about the negative impact the changes would have on jobs and future investment. Analysts shaved off an average of 4 percent off the Net Asset Values (NAVs) of some of the mines that they cover.
The mining sector plays a significant role in the economy – copper exports rake in over 70 percent of forex earnings – but does not contribute much in terms of income taxes (for various reasons). According to the Minister of Mines, only 2 mining companies paid corporate tax last year. Should threats of jobs cuts and cuts in future investment scare anyone? Absolutely not! Agriculture and a higher manufacturing base are what will drive the economy in the future - not mining for FINITE resources (which also brings with it pollution). It is time for Zambia to become a truly diversified economy which could possibly come at the loss of future mining investment.
Threats of industrial unrest against continued wage and hiring freeze
The Zambia Congress of Trade Unions (ZCTU) has continued to be very vocal over the continued implementation of the civil service wage/hiring freeze. This week, they warned of mass protests if the wage freeze was maintained next fiscal year. Vice President Guy Scott said in parliament that the Government was engaged in ongoing discussions with the unions to resolve this matter.
It is very surprising that there has been little uproar against this illogical request to lift the wage freeze by the populous. In September 2013, the Government awarded civil service employees with wage increments which were one of the causes of the 2013 budget overrun. On top of that, the PAYE-exception threshold was increased to K3,000 – a double benefit on top of wage increments (depending on tax bracket). This has led to wages gobbling over 50 percent of tax revenues which leave little room for much needed development and investment projects! It doesn’t make sense for the wage/hiring freeze to be lifted unless significant new sources of tax revenues are tapped – Rental income and the informal sector, to mention a couple. The noised show a lack of knowledge and understanding of financial issues. Can the Government get their message across to quell these noises? They certainly cannot afford to budge!
Government looking for $410m to upgrade Indeni Oil Refinery
Commerce, Trade and Industry Deputy Minister Miles Sampa told parliament that the Government is looking for $410 million to upgrade Indeni Oil Refinery. They would then sell a 49 percent stake to a strategic partner which would help with long term viability. An Italian investor was previously running the refinery with the Government but ‘disengaged’ from the partnership.
Global crude price have fallen to the $80 per barrel range after trading above $100 per barrel for quite some time – which Zambians will not get to enjoy right now. Indeni is Zambia’s sole “refinery” (separator) and is part of an inefficient oil procurement process which has resulted in Zambia having perennially high fuel prices which also push up the prices of various goods and services in the economy. Many will argue (and rightly so) that $410 million is being thrown at an almost $2 billion dollar problem. Will any partner want to work with the Government on this refinery with the amount of money it will consume? This is hard to envisage. In the meantime, Bwana Mukuba refinery is set to begin construction in 2016. The Government is also engaged in ongoing talks with oil-producing sovereigns in a bid to eliminate costs brought about by middlemen in the procurement process (will this result in any sort of price reduction in 2015?).
Kwacha closed at K6.36 per USD, K10.23 per GBP, K8.11 per EUR and K0.57 per ZAR
LME 3-month Copper seller price closed week at $6,580 per MT
The LuSE all-share index closed the week at 6,212.76, up 0.03%.
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *