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Tax instability, low commodity prices stifles Zambia FDI

Cape Town - Unstable tax regimes and policies have cost Zambia dearly in foreign direct investment, especially now that commodity prices are low.

Hakainde Hichilema, a prominent businessman and presidential candidate in Zambia’s upcoming general elections in August this year, said Zambia’s tax regime has changed three times in a very short space of time and it’s not good for business.

He was part of a panel discussion at the Mining Indaba conference about how to ensure sustainability in the mining industry beyond the commodity cycle.

“We have issues with royalties which have gone up and down in a short space of time and that is all but attractive for investors, especially when prices are low.”

In June last year, Zambia's government set the royalty tax rate for underground mines at 6% for underground mines and at 9% for opencast mines after initial plans to charge as much as 20%.

Hichilema, leader of Zambia’s opposition party the United Party for National Development's (UPND), blamed policy uncertainty and inconsistency on the general lack of leadership across various African countries.

“If the politics are bad, business is bad. The role of those who manage public affairs is to ensure policy stability. They must also make sure they deal with the mundane things in running public affairs, such as reducing the cost of doing business, cutting red tape and reducing licence fees, because the value of investment doesn’t lie in high licence fees." 

Like many other African countries Zambia is also plagued by frequent electricity shortages, which hampers economic growth.

According to Hichilema the energy deficit in Zambia contributed to major job losses in the mining sector in Zambia. “If there’s no electricity certain functions of a mine can’t operate. Naturally it will result in job cuts.”

Another panellist, Rick Menell, chairperson of the financial services group Credit Suisse South Africa, said the continent finds itself in a unique situation.

“The current downward cycle in commodities coincides with a period in which we need urgent infrastructure projects for economic development.”

The regulatory environment and the impact it has on business is something governments should take cognisance of, Menell said. “A tight royalty regime for example has the potential to reduce profit margins.”

He added that South Africa over the last couple of years has had more than 300 “material changes” to regulations that have a profound impact on business.

In Ghana there were less than 20, in Australia we tracked around 30 and Peru had 17 changes that related to water usage.

“Credit Suisse is keen to help people find business partnerships,” Menell said, “but one of the challenges is the ideological baggage people are carrying. Let’s get practical and stop talking about monopoly capital and such."

           
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