• Zambia doesn’t make any mining equipment.
• Talking about the multiplier effect in the Zambian economy because of US$1.2 billion is pure naivety.
• Most of the money will be spent abroad and a Zambian mine will have to bear the cost of refunding.
An Economist says the announced US$1.2 billion investment into the mining sector by First Quantum Minerals (FQM) will not benefit Zambians in any way.
According to Dr. Lubinda Haabazoka, most of the money will be spent abroad and a Zambian mine will have to bear the cost of refunding, because once a firm injects US$1.2 billion into a mine, no more tax will be paid as the expense becomes deductible under capital allowance.
In his write-up on Zambia’s mining sector, Dr. Haabazoka explained that copper worth US$1.2 billion will first have to be mined in order to payback the US$1.2 billion before the mine considers paying any income tax, therefore the country does not stand any chance of benefiting from high copper prices on the international market.
“First, Zambia doesn’t make any mining equipment so talking about the multiplier effect in the Zambian economy because of US$1.2 billion is pure naivety. Most of this money will be spent abroad but a mine in Zambia will have to bear the cost of refunding.”
“Once you inject US$1.2 billion into a mine, it means no more paying tax because the expense becomes deductible under capital allowance. Mind you in this year’s budget, the period for capital allowance was increased from 5 to 10 years if am not mistaken. In simple terms, copper worth $1.2 billion will first have to be mined to payback the US$1.2 billion before the mine considers paying any income tax. So it is safe to say that we should even forget about thinking of benefiting from high copper prices,” Dr. Lubinda explained.
He observed that Zambia has seen mining firms like Mopani Copper Mines announcing capital injection worth billions of dollars but no one in Kitwe or Mufulira has benefited from the investment.
“Then the US$1.2 billion is maybe a loan from somewhere so we also expect the interest payment burden to fall on copper that sits in North-western province. We have seen these billions announced before in Zambia. At Mopani I think it was US$1.3 billion but no one in Kitwe or Mufulira saw that money,” he stated.
On Sunday, First Quantum Minerals (FQM) announced that it has approved plans to invest US$1.25 billion in its long-awaited expansion of Kansanshi’s operations in Solwezi, known as the ‘S3’ project and a final US$100 million to start its $250 million Enterprise nickel project in Kalumbila district, North-western province and a number of stakeholders including government have commended the move.
President Hakainde Hichilema said the US$1.25 billion in the sector will lead to jobs and business opportunities that come with mining investment.