Copper, poverty and tax dodging: At the heart of Zambia’s high stakes elections
Posted on August 9, 2016 by Joy Mabenge
With inflation soaring and the kwacha losing value amid plummeting
copper prices, economic issues will be front and centre of voters’
concerns as they vote this Thursday.
At a copper smelting plant in Zambia. Credit: mm-j.
At a copper smelting plant in Zambia. Credit: mm-j.
In advance of this Thursday’s presidential and parliamentary
elections, historically-stable Zambia has seen a rise in political
violence. Over 50 incidents of violence have been reported, much of it
been between supporters of incumbent President Edgar Lungu of the
Patriotic Front (PF) and those backing his main challenger, Hakainde
Hichilema of the United Party for National Development (UPND).
[See: Zambia gears up for unsettlingly close elections]
There are a number of reasons why the stakes seem so high in this
election, but the importance of the woeful economic context in which
Zambia finds itself is difficult to overstate. Falling commodity
prices, lay-offs in the copper industry, tax avoidance by
multinationals, and the government’s failure to alleviate poverty
during boom times have all contributed to the intensity with which
this contest is now being fought.
Zambia’s economic difficulties are front and centre of voters’
concerns. Inflation is over 20%. The kwacha has lost more than 50% of
its value since Lungu took office in January 2015. And nearly 15,000
people have lost their jobs as copper prices have faced a global
slump.
In fact, these layoffs triggered some of the first violent protests of
the election cycle as discharged miners in Chingola last December
demonstrated against reduced retrenchment packages as well as the
government’s failure to protect them. They were forcefully suppressed
by state police. Similar protests in the mining towns of Kitwe and
Mufulira soon followed.
[See: Zambia’s 2016 elections: is a disputed outcome now inevitable?]
Political solutions?
Zambia, which relies on copper mining for about 70% of its total
exports, has long failed to use revenues from high copper prices to
effectively fight poverty. And low tax revenues have dogged the
government’s ability to deliver socioeconomic development, even during
times of plenty.
An important part of the reason for this is tax avoidance by
multinationals. When copper prices reached a recent high around the
early 2010s, tax avoidance reached an estimated $2-3 billion/year
according to NGO analyses – which is equivalent to as much as 70% of
the national budget – or at least $1.5 billion/year according to the
government’s figures. Most of this is lost through commercial
mechanisms such as companies’ overestimates of costs and
understatement of revenues.
[See: How to steal from Africa, all perfectly legally]
As copper prices have plummeted over the past couple of years, the
government’s ability to fund development programmes has deteriorated
even further. Job cuts and tumbling royalties dealt a double blow to
the government budget. And this situation was exacerbated in February
when Lungu’s government approved a new, lower mining royalty scheme –
halving royalty rates on open pit mines – at the insistence of mining
companies.
On the campaign trail, Hichilema has spoken of his plans for the
mining industry if he were to win the election. In particular, he has
criticised the current administration for failing to develop domestic
manufacturing of copper products, pointing to the fact that most of
Zambia’s copper is exported raw, yielding enormous value-added
opportunities to other countries. And if he becomes the next
president, Hichilema – previously a senior executive with accounting
firms that advise mining companies and board chair of Barclays Zambia
– has promised that he will implement pro-business laws to encourage
investment and remove “red tape”.
These steps are likely to please mining companies, but it is unclear
if such deregulation would make any more difference to the lives of
most Zambians than the PF government’s policies.
[See: Hichilema: It’s high time to fix Zambia after 5 years of failed
leadership]
Meanwhile, for his part, Lungu’s response to the country’s economic
crisis in his campaign has been less clear. His party’s electoral
promises have focused on increasing access to health and education,
but they have lacked a clear sense of how these programmes would be
financed.
Solutions from civil society
Zambia’s economic woes are complex and will be difficult to alleviate
regardless of the election result, but there are clear solutions being
proposed from some quarters.
This June, for instance, civil society organisations, churches, social
movements, and community-based groups came together at the Zambia
Alternative Mining Indaba to discuss and demand alternative policies.
At the meeting, the participants urged the government to end tax
evasion, concluding: “if we plug this hole on illicit financial flows,
we would fully finance our national development plans”. As Saviour
Mwambwa of ActionAid says, such tax reform “will be key to
guaranteeing that there are sufficient domestic resources to achieve
campaign promises”.
Mwambwa also points to Zambia’s new constitution, which will be voted
on this Thursday too, saying: “For any government to deliver on its
promise of ensuring economic, social and cultural rights under the new
constitution, it will have to mobilise sufficient reliable and
predictable financial resources. Tax revenue, including from mining
companies, is the surest way of making this a reality.”
Civil society groups are thus clearly demanding tighter regulation
when it comes to mining, so it is worrying that Hichilema is proposing
deregulation, especially given that protections against mining
companies’ local impacts are already weak.
As Edward Lange, Zambia Country Coordinator for Southern Africa
Resource Watch, explains: “The relationship between multinational
corporations and the government has brought a lot of displacement of
indigenous and local communities, thereby contributing to widespread
poverty in mining zones.”
The participants at the Alternative Mining Indaba urged mining
companies to seek and respect the free, prior and informed consent of
local people for any projects that require such displacement.
“Campaign messages have not taken on board companies’ records of human
rights abuses, [and are] instead prioritising steps to attract foreign
direct investment,” adds Lange.
Whatever the result of this week’s election, the new administration
will face serious challenges in trying to alleviate Zambia’s crushing
poverty, deliver decent jobs, curb illicit financial flows, and
finally deliver on the country’s huge promise.
In doing so, whoever emerges victorious would do well to heed Father
Cleophas Lungu’s advice that: “In the extractive industry, we must
put people and not money first…Mining should not dehumanise people but
should instead help to uplift their human dignity.”
Joy Mabenge is a Researcher & Representative for Anglophone Southern &
Western Africa, Business & Human Rights Resource Centre.
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One thought on “Copper, poverty and tax dodging: At the heart of
Zambia’s high stakes elections”
Maya Forstater says:
August 9, 2016 at 2:55 pm
Does anyone think these $2/1.5 billion numbers are credible? I
know they get repeated a lot, but they seem to be based on a whole lot
of wishful thinking.
https://hiyamaya.wordpress.com/2015/10/28/zambia-copper-again/
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