Tax in Developing Countries: Increasing Resources for Development

Supplementary Written evidence submitted by the London School of Economics and Political Science

Professor Timothy Besley, LSE

IGC Advice on Minority Rights of Mineral Operations in Zambia

The IGC Zambia programme, established in 2010, has been working with the Government of the Republic of Zambia (GRZ) to provide research and policy advice in several areas: Domestic resource mobilisation and tax collection, infrastructure, and development of the tradable sector. In the area of domestic resource mobilisation and tax collection, the IGC has been working with the GRZ for the past two years on mineral tax regulations and administration. The IGC has recently provided advice on GRZ’s minority shares in mining operations, held by ZCCM Investment Holdings (ZCCM-IH). The IGC Zambia programme engaged a mineral expert from South Africa, Dr Paul Jourdan, to examine these issues and provide advice to ZCCM-IH and GRZ.

The new Zambian government is seeking to get the best value out of its natural mineral resources. It has communicated its concern that ZCCM-IH operations and structure do not meet the country’s needs, especially in the context of Government’s desire to see more revenue raised from the mining sector, and to develop a new relationship with the mining companies. In addition, there are concerns around ZCCM’s accountability and transparency. ZCCM-IH was created at privatisation as a holding company for government’s minority equity (10-20%) in the mining companies that were privatised in 1997-2004. ZCCM-IH formally reports to the Ministry of Mines and the Ministry of Finance and National Planning (the majority shareholder in ZCCM-IH), with the Secretary to the Treasury sitting on the ZCCM-IH Board ZCCM-IH is already listed on Lusaka Stock Exchange, London Stock Exchange (London) and Euronext in Paris.

ZCCM-IH’s remit has since been expanded to include investments in other assets, within and outside the mining sector. At the same time, the company carries the liabilities of the former state-owned company relating to environmental damage and pensions, amounting to about $450 million. Against this, its assets have not been re-valued to reflect market values; and dividends have been sporadically paid, thereby rendering it impossible for the company to service its liabilities. In addition to these financial difficulties, the new Government wishes to consider options for increasing its interests in the mining companies, (for which ZCCM-IH would be the vehicle), and fostering new private investment in the mining sector.

Dr Jourdan travelled to Zambia in the first week of April and drafted a report based on desk research and interviews conducted in Zambia. His draft report was sent to the Ministry of Finance and National Planning and ZCCM-IH in the third week of April. Last week, initial feedback was received from the CEO of ZCCM-IH, Mukela Muyunda, thanking Dr Jourdan and IGC for the invaluable recommendations. Some of this advice is expected to feed into ZCCM-IH’s restructuring programme and their strategic plan. Further feedback and commentary is also expected from the Ministry of Finance and National Planning.

Specifically, Dr Jourdan, CEO of Mintek, a South African state mineral processing and metallurgy research and development science council, examined ZCCM-IH’s mandate, governance structure, and performance. These recommendations fell broadly under the headings of potential investments to diversify the mineral sector, investments in artisanal and small-scale mining, investments to develop skills and technology and potential upstream and downstream linkages in the value chain.

May 18, 2012

Prepared 14th June 2012