Zambia mines to pay mineral royalties in dollars to shoal reserves

Mining companies in Africa’s second largest copper producer Zambia, will now pay mineral royalties directly to the central bank in dollars, Finance Minister Margaret Mwanakatwe said.

Margaret Mwanakatwe said in parliament that pressure on the kwacha had mounted lately due to demand for dollars from importers of petroleum products and external debt servicing obligations.

“One of the key measures that we put in place is that mining companies will pay their mineral royalties in dollars directly to the Bank of Zambia,” Mwanakatwe said.

This measure will see the southern African nation boost foreign exchange reserves which have declined significantly to USD1.815-billion (2.1 - months of import cover). However, in the immediate term this move has eased the kwacha of support from the dollar to kwacha conversions that the market experienced on a monthly basis helping stabilise the currency. The kwacha has been on a depreciating streak due to rising dollar demand as investor confidence in the copper producer wanes at a time when global dollar strength has heightened. The kwacha weakened to K12.89/USD levels before reversing losses 6.45% to K11.45/USD after corporates sold dollars in readiness for the tax season. However, currency risk remains high.

Zambia on 28 Sept announced introduction of a new mining tax regime that is aimed at aiding the state to raise fiscal funding to address ballooning debt. This has been strongly opposed by the mining entities.