Africa is struggling to benefit from its natural resources. Zambia proposes a solution

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RESOURCE nationalism is a potent intoxicant in Africa, understandably so. As one journalist wrote, Africa ‘is at once the world’s poorest and, arguably, the world’s richest,’ continent. For decades Africans have failed to benefit from the wealth their natural resources potentiate, watching instead as global corporate interests line their pockets with African fuels and minerals.

Indeed, the frustration and anger amongst the leaders of Africa’s resource rich nations are palpable, perhaps now more than ever, writes Noah Kerr, an economist and junior lecturer at the University of Witwatersrand in South Africa.

The recent collapse of the global commodities boom has only intensified the challenges that dwindling government revenues and fading economic horizons pose to African leaders. As a result, the region’s governments have, one by one, taken steps to reclaim control of their coveted resources. But lifting the ‘resource curse’ is easier said than done.

Earnest interventionism and sweeping regulation tend to do more harm than good, a realisation that, unfortunately, appears to be lost on some African leaders who tend to conflate action with results. Their reactionary steps not only discourage extractives investment, but also stagnate growth across other sectors. Unabated, these circumstances only tighten the grip of the resource curse.

The problem is common across numerous African states.

Over the last two years in Tanzania, President John ‘The Bulldozer’ Magufuli has rolled out a series of radical mining sector reforms requiring, among other things, that international mining houses cede controlling stakes of their operations to Tanzanian companies, pay higher taxes and royalties, and list their stakes in local stock exchanges. Affected multinationals have been quick to object, threatening divestment and job cuts as mining regulations, and in some cases enormous fines, tightened their revenue.

The Democratic Republic of the Congo (DRC) has also struggled to balance social development with conditions that attract foreign investment. A new series of mining code regulations has prompted a negative response from multinationals. The same can be said of Zimbabwe or Kenya, where recent attempts to achieve a fair share of mineral wealth have faltered and been ineffective.

But some African governments are learning from past confrontations with the mining industry. Lower global commodity prices are pressuring multinationals as well as the continent’s resource-reliant governments, underscoring the importance of measured, cooperative regulation. Moving forward, political leadership and investors would do well to seek out best practices, rather than continue their gamble with trial and error.

This is why Zambia’s new tax regime makes for an interesting case study.

A recently minted mining-tax regime in the copper-rich nation has yielded some promising results. The reform includes a 1.5 percent increase in royalties and an additional 10 percent windfall tax when copper prices exceed $7,500 per metric tonne, as well as a 5 percent import duty for copper concentrates, among new royalties and taxes for other non-copper minerals.

Industry leaders and lobby groups responded as one would expect – with exaggerated criticism. Citing divestment and job cuts, affected multinationals invoke their tired story that the reforms would hurt their margins and, in turn, derail the Zambian economy.

But there’s evidence to the contrary. According to the Economist Intelligence Unit, the sentiment amongst the reform’s critics is unduly negative, if not outright irrational. In fact some firms even recorded bumper profits at their Zambian copper mines last year, a period in which the sector managed to attract at least $1bn in new investment. Despite their outrage, the numbers suggest that confidence in the profitability and governance of Zambia’s mining sector remains steadfast among investors.

This is what sets Zambia’s new regulations apart from those of say, Tanzania or the DRC. It’s not so much the content of the legislation itself, rather it’s the process through which it was designed, implemented and made open to adjustments. The procedure is rooted in the government’s commitment to engage and consult with the multinationals impacted by the reform, a practice not unprecedented in Zambia’s previous mining-tax overhauls.

And it seems the Zambian approach has been well received. Both Barrick Gold and First Quantum, two of the largest foreign miners in Zambia are negotiating with the government, mapping constructive avenues toward continued investment in the country’s copper industry. Though there are foot-draggers.

By the time the regulations were enacted earlier this year, many firms had failed to show government authorities how higher taxes and royalties would damage their businesses.

To combat this, Zambian authorities have begun working with international organisations to strengthen Lusaka’s data collection and financial modelling capacities to better inform public debate and design regulatory policy. This practice is similar to those of Sierra Leone and Côte d’Ivoire, two African countries that, like Zambia, have made incredible strides in developing responsible regulatory policy. This effort is complemented by the Zambian Ministry of Finance’s recent strengthening of transfer pricing rules, which empowers tax auditors with the information needed to be more responsive with tax adjustments.

The imperative to protect a nation’s resources for the benefit of its proprietors is well understood across Africa. Zambia needs good and faithful partners, and if the current mining houses can’t be bothered to become more transparent, then it is their right to look elsewhere. I think that there are many others who can take their place and work collaboratively to ensure that mining copper and other metals in Zambia is a win-win-win, for the company’s profits, the government’s tax revenue base, and the health and safety of the local communities.

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