Wider impact of new Zambian copper import duty

Posted in Mining Southern Africa Central Africa Blog post

On 28th September 2018, Zambian finance minister, Margaret Mwanaktwe, announced plans to change the current mining tax regime in the country. An increase in the mineral royalty rates and the introduction of an export duty on precious metals including gold were among several changes, as was the new 5% import duty on copper concentrate, which is having severe ramifications for the second largest copper producer in the world. According to a report released by the Zambia Chamber of Mines, these changes now make Zambia one of, if not the, most expensive mining country, in terms of operational costs, in the world.

Zambia has a considerable domestic copper smelting capacity and unlike many other markets in the region, copper that is mined in Zambia is refined locally before being exported. In addition, Zambian smelters process significant copper concentrate imports. The South-Central African country had an estimated output of 58200 tonnes of refined copper in 2018 with a substantial amount of this refined copper production relying on imported copper concentrate. In 2017, copper ores and concentrates were Zambia’s most imported product worth almost US$850 million and totalling nearly 10% of Zambia’s overall imports.

The new regulations came into operation on 1 January 2019, and the effect of the copper concentrate import duty has already been felt in the mining industry. On 21 December FQM announced it would be letting go of 2500 workers in Zambia as the import duty coupled with the tax hikes would result in greatly increased costs for Zambia’s largest individual taxpayer. FQM have since softened their stance in anticipation of talks with the Zambian government. The initial announcement of FQM’s cuts was followed shortly after by an announcement that Vedanta Resources had suspended operations at the Nchanga copper mine which was being run by Verdanta’s subsidiary Konkola Copper Mines (KCM). KCM explained that downsized operations at the Nchanga smelter had been caused by a lower availability of copper concentrates following the 5% import duty which has made the importation of concentrates ‘commercially unviable’.

The possibility of these cutbacks was flagged in October 2018 by the CEO of the Chamber of Mines, Sokwani Chilembo, who said that copper output in the country would not continue its upward trend into 2019 and more than half the mines in the country would be unprofitable.

However, the Nchanga Member of Parliament, Chali Chilombo, continues to support the move by the government as he believes that this change will help support local copper production as smelters move away from sourcing unrefined copper from neighbouring Democratic Republic of Congo and Botswana. The DRC, the largest copper producer in the world, is expected to divert some of its copper concentrate that would otherwise make its way into Zambian smelters, to other markets including China for refinement.

Mining companies in Zambia were given the opportunity to demonstrate to the government how the increased taxes would affect their profitability, however as of January 2019, the government has only heard from two companies, both of which have asked for extensions to make their submissions.

It remains to be seen whether or not the government will continue to use these fiscal changes to protect Zambia’s local resources despite the threat of cuts by the major mining companies. In particular, the leader of the opposition, Hakainde Hichilema, has refused to support the new taxes on a recent radio program and maintains that he has the support of the mining companies.

The Inside Africa team would like to thank James Dainton, summer clerk, for his contribution to this blog post.

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