Friday, January 30, 2009

Zambia caves in on mineral taxes

Richard Murphy recently had a blog entitled "Please Don't Do It Zambia - You Must Tax Copper."

It started like this:

"Some stories really hurt. This one in the FT does:
Zambia, Africa’s biggest copper producer, appears poised to drop plans to secure more of its mineral wealth. The move could mark the start of a retreat from resource nationalism among poor countries with plentiful commodities."


Now we've just noticed this, on Reuters:

"Zambia said on Friday it would scrap the controversial 25 percent windfall tax this year to cushion its key copper mining industry from the impact of the global financial crisis.

Finance Minister Situmbeko Musokotwane said in his budget speech in parliament the government would abolish the windfall tax to ensure the copper mines were kept afloat at a time when commodity prices have fallen due to dwindling demand.

"I propose the following refinements, to remove the windfall tax and retain the (15 percent) variable tax, which will still capture any windfall gains that may arise in the sector," Musokotwane said.

Dependence on mineral resources can be very harmful - there is ample literature on the subject of the "Resource Curse." But that is by no means an argument for selling off the family silver (or copper) for the equivalent of a few beads and reams of cloth. The key is to manage the resource well.

Murphy said:

"I quite literally want to cry at the continuing exploitation of the people of Zambia for the benefit of those in developing countries, and the wealthiest in the world who own these companies."

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