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As could be expected, the Zambian government’s recent raising of mining royalties – replacing the 30% corporate income tax on mines – has been the focus of much media attention. However, little of this coverage has touched on the essential issue of building a more constructive relationship between mining companies and governments – be they in Africa or elsewhere.
From the perspective of an Africa-based consulting engineering firm with global reach, SRK Consulting considers the question of stakeholder partnerships to be at the heart of the royalty question, and the sustainability of mining in general.
As part of our diverse range of technical, financial, environmental and social studies, we prepare pre-feasibility, feasibility and due diligence reports for clients – which focus on the viability and value of mineral projects. To arrive at realistic conclusions, these studies must take a long-term view of the costs and risks that projects will face. Clearly, this is made more difficult if there is the possibility that royalties or taxes will change substantially over the life of the mine.
At the same time, countries reserve the right to change these rates as part of their national economic policies. In the case of Zambia, government has justified the move as a bid to achieve a more equitable distribution of the mineral wealth between government and the mining companies. It also says the royalty is easier to implement than corporate tax; it has in the past expressed concerns that many companies understate their profits by using off-shore corporate structures that charge the local company high fees for services like management and marketing.
Industry has in return warned that jobs will be lost, arguing that most Zambian mines have become marginal due to the low commodity prices and the royalties will exacerbate the situation.
This is clearly a high-stakes clash; copper mining contributes a direct 9% of GDP and almost 70% of the country’s export earnings[1]; this is important revenue for government, which is keen to narrow the fiscal deficit which doubled in 2013 due to more infrastructure spending and higher public sector wages. [2]
As serious as these disagreements over royalties are, however, they are certainly not uncommon. Neither are they specific to Africa.
In resolving these sorts of issues, the global mining sector has in recent decades recognised the importance of stakeholder engagement in working towards long-term sustainability. One leading industry body, the International Council on Mining and Metals, was formed nearly 15 years ago to focus on the role of mining in a sustainable future.
Among the 10 principles it promotes is “effective and transparent engagement, communication and independently verified reporting arrangements with our stakeholders”.
More particularly, the Extractive Industries Transparency International (EITI) was set up as a coalition of governments, companies and civil society – to provide a global standard for openness and accountable management of natural resources. Reporting on various mining countries – including Zambia – the EITI seeks to strengthen government and company systems, inform public debate and enhance trust.[3]
In much the same vein, the range of our work as consulting engineers has expanded beyond the traditional disciplines (such as geological, geotechnical, mining, hydrology and environmental services) into the increasingly vital sphere of stakeholder engagement. This includes a company’s mine-level engagement with communities and interest groups, as well as interactions with different levels of government.
And it is not just the number and diversity of relationships that is important; it is the quality and robustness of the partnerships that is key to sustainability – whether at mine level or at corporate level.
Positive steps have been made in the mining sector toward continuous engagement between stakeholders, as they work out the best ways to achieve mutually constructive goals. Despite the rocky patches, it is a path to which all parties must remain committed.
