Govts go for bigger slice of the mineral pie as...
Kenya, Tanzania mining reforms earn them poor investor ratings
A JOINT REPORT
ONE BY one, the biggest names in African mining are getting squeezed. The tactics might be blunt, but the message is clear: The countries where they operate want a bigger share of the proceeds.
The collapse in commodities through 2015 hobbled some of Africa’s biggest resource economies, stunting growth and leaving budgets short. Since then a recovery in prices has sent the continent’s biggest miners soaring, boosted profits and rewarded shareholders with bumper payouts. But a lack of returns to governments is drawing a backlash from Mali in the Sahara to Tanzania on the Indian Ocean.
Zambia is the latest flash point. Africa’s second-biggest copper producer slapped a $7.9 billion tax assessment on First Quantum Minerals Ltd and said it plans to audit other miners in the country, which includes units of Glencore Plc and Vedanta Resources Plc.
In the DR Congo, Glencore, the world’s biggest commodity trader, is dealing with a dispute over a new mining code that dramatically boosts taxes, while major gold producer Mali has reportedly said it might follow Congo’s example. In Tanzania, President John Magufuli government slapped its biggest gold miner Acacia Mining Plc, a unit of Barrick Gold Corp, with export bans and a whopping $190 billion tax bill, for under-declaring export revenue.
Barrick also has a copper mine in Zambia, though it says it has not received any notifications from Zambian authorities about a potential audit or tax reassessment, according to spokesman Andy Lloyd.
Countries “want a larger share of the rent,” Hunter Hillcoat, an analyst at Investec Securities Ltd in London, said. “The mining companies are doing extremely well and governments are taking the opportunity to seize a slice of that.”
Part of the governments’ motivation is pecuniary. Zambia’s economy, for example, grew in 2016 at the weakest pace since the start of the millennium and the government is struggling with a budget deficit.
Zambia’s President Edgar Lungu has urged First Quantum and the tax authority to reach a swift resolution. In Congo, economic growth has also slowed and the country’s foreign exchange reserves have plunged.
There is a wider dissatisfaction than just money. Many governments feel the companies have not delivered on their promises, either through operational setbacks or the use of legal tax planning to transfer profits offshore.
In Congo, the state-owned copper miner has accused its joint-venture partners, including Glencore’s Katanga Mining Ltd, of using intercompany loans to reduce the profits that are declared in the country and promised to investigate.
The aggressive rhetoric has been contagious, according to Charles Robertson, the global chief economist at Renaissance Capital.
“The approach taken by President Magufuli did not deliver what was initially demanded, but it did see the company pay more tax,” Robertson said by phone.
A worker descends into a gold mine shaft at Olini in Migori, Kenya.