The African Mining Vision and

Tax Policy
Tetteh Hormeku, TWN-Africa
TAX JUSTICE NETWORK-AFRICA
International Tax Academy, 1-6 Dec 2014 Machakos, Kenya

Introductory
Main argument:
The logic of the African Mining Vision poses a
broader role for taxation as a policy tool than
what it has been so far (since the mid-1980s)
From a narrow tool generate revenue in a way
that is consistent with attracting FDI
To one that: (a) optimises mining revenue to
African countries; (b) helps link mining to
development; (c) minimises social and env.
damage.

Outline:
I. Broader Agenda of Mining and Development
II. The World Bank-IMF mining policy
framework in place since the mid-1980s, the
role of taxation, and the effects;
III. The Alternative Logic of the African Mining
Vision;
IV. A New Approach to Taxation and the
Extractive Sector.

Mining-Development Nexus: Key

Pillars
I. Revenue
(a) How much is generated?
(b) How much of it stays in the economy?

II.Economic Development
(a) Enclave?
(b)inter-sectoral linkage & structural transformation?

III. Social Disruption and Environmental Degredation?

A Bit of History
I. Colonial: Scramble, Appropriation and Expropriation
II. Immediate Post-Colonial: Capturing commanding
heights nationally, sub-sumed within international
fmwk.
Nationalisation, Joint ownership, royalties.
Limitations:
Companies had day to day managment; devices to control earnings
Global mining framework mining, processesing, trade, etc controlled by
companies

III. Crisis and World Bank 80s

Existing Mining Policy Regimes

The recovery of the mining sector in Africa will require a shift in
government objectives towards a primary objective of
maximizing tax revenues from mining over the long term,
rather than pursuing other economic or political objectives
such as control of resources or enhancement of employment.
This objective will be best achieved by a new policy emphasis
whereby governments focus on industry regulation and
promotion and private companies take the lead in operating,
managing and owning mineral enterprises.
Strategy for African Mining World Bank, 1992

Role of Taxation
Attract Foreign Investment. In context of race
to the bottom. Thus, roughly similar overgenerous tax regimes in all countries:
-

No VAT
No import or export taxes (except SL)
CIT rates down from 40% during 70s/80s to 30% or lower
Extremely low witholding taxes (between 10 and 15%) on dividends,
loan interest and consultant fees compared to other mining
economies (20-35%).
- No windfall or additional profit taxes
- Very low royalties: average 3%
- Stability agreements

Supplemented by:
Tax avoidance and evasion practices by TNC
Transfer mispricing
Tax Havens
Abuse of Tax Holidays
Etc

Effects: 1
Revenue capture by TNCs at the expense host
countries
Case of Zambia in Copper Bonanza.
From 2004-2008 copper prices rose from $1000 to $8,000 per
tonne.
Konkola Mining Firm profit rose from $52.7 million to $206.3. First
Quantum profit rose from $4.6 million to $152.8 million.
Zambia got: $10million (2005/2006). 2004- copper price $2,868;
400,000tonnes export- Zambia $8m; from same volume and price
Zambia got $200m in 1992, i.e.- before privatisation

Effects: 2
Perpetuation of Primary Commodity Export
Dependence and Consequences:
Global crisis and collapse of export revenues and economies: e.g.
dramatic case of Botswana. [At height of crsis loan up 1.5billion euros
from ADB. Largest ever ADB loan]
Terms of trade declined by 24% and 21% respectively for North and
Sub Saharan Africa Cumulative terms of trade losses in 1970-1997
represented almost 120% of GDP, a massive and persistent drain of
purchasing power. (World Bank, (2000)
UNCTAD: resources lost would have raised Africas investment ratio by
almost 6% in non-oil producing African countries and added 1.4%
yearly to annual growth. This would give a per capita GDP of $478 for
1997 instead of the actual level of $323.

Effects:3
Environmental Degradation and Social
Disruption Borne by Mining Communities

The AMV Alternative

A short history
Adopted in 2009 by AU Summit
Action Plan with nine programme clusters to be
implemented at national and regional levels
approved by Ministers in December 2011
Report: Minerals and Africas Development
published December 2011
Implementation coordination centre AMDC being
established at ECA
12

The AMV Alternative (Contd)

A knowledge-driven African mining sector that catalyses &
contributes to the broad-based growth & development of,
and is fully integrated into, a single African market through:
Down-stream linkages into mineral beneficiation and
manufacturing;
Up-stream linkages into mining capital goods, consumables &
services industries;
Side-stream linkages into infrastructure (power, logistics;
communications, water) and skills & technology development
(HRD and R&D);
Mutually beneficial partnerships between the state, the
private sector, civil society, local communities and other
stakeholders;

Related Policy Interventions

Trade:
regulating import and export policy in favour of
domestic supply, production

Technology
access to and transfer of technology; local adaptation; and
development.

Investment
setting terms for foreign investment to promote
productive capacity in local economy; primacy to national
investment

Related Policy Interventions (contd)

Finance:
Moblising mining revenue in support;
developing finance insitutions and mechanisms
A domestic procurement and processing fund?

Enterprise Development
state support for local enterprises
state enterprises (fully, joint with local private...)

Cross-cutting: knowledge, infrastructure, etc

Tax and the AMV Alternative

Taxation and Optimal Revenue:
Review of existing regimes of incentives,
frameworks, and contracts to ensure a better fit
between revenue purposes:
royalties, windfall tax, capital gains tax

Remove the immense and unjustifiable

subsidisation of mining companies through the
generous tax regimes
More stringent/holistic regimes to combat
transfer mispricing and other illicit flows. Eg:
W.U.T

Tax and the AMV Alternative: Contd

Linkages and Diversification:
Domestic Procurement- Optimally, suppliers based
in national and/or regional markets supply inputs
into mining that are produced from region.
Beneficiation or more local use/processing of end
products of mining by operators in local/regional
economy
Migration of mining technology, skills, products to
other sectors.

Domestic Procurement: An example

ACTIVATED CARBON

Used for : Absorbing Gold in Cyanide bleach solution. Wider use: To

remove mercury vapour from water and air

Total Global Imports: 2009: US $1.08 billion: Japan (13%); US (12%)

Germany (8%)

West Africa imports: Ghana: ($3.8m (2008); from Philippines (62%),

Nertherlands (24%) and India (6%)
Burkin Faso $2.3 million in (2010); from Philippines (76%), Indi (15%),
and Ghana (4.8%)
Guinea-$251,000 (2008); from India (54%); Netherlands (34%)
Indonesia (12%)

Raw Materials: Conconut Shell, Palm Kernel, Wood Chips, Sawdust,

Corncobs, Seeds

ALL LOCAL MANUFACTURING

SUPPLIER NUMBER 4

EXTENT OF LCOAL VALUE ADDED

LOCALLY BASED
FOREIGN
MANUFACTURER/
SERVICE PROVIDER

SUPPLIER NUMBER 5

LOCALLY BASED FOREIGN

MANUFACTURER/
PROVIDER

SUPPLIER NUMBER 6

LOCAL
MANUFACTURER/
PROVIDER

WITH SOME LOCAL

PARTICIPATION

FOREIGN EXPORTER

FOREIGN EXPORTER /

LOCAL IMPORTER

WITH SOME LOCAL

PARTICIPATION

SUPPLIER NUMBER 1

SUPPLIER NUMBER 2

SUPPLIER NUMBER 3

NO LOCAL MANUFACTURING
LOCAL PARTICIPATION, OWNERSHIP, MANAGEMENT AND EMPLOYMENT

Tax and the AMV Alternative: Contd

Equity: Support of local producers, including
ASM
Environmental Sustainability: Factoring in the
cost.

Tax and the AMV alternative: Fin

The Fiscal Challenge:
Raise Revenue
Re-orient tax devices and policies and target them
to support the development of domestic
production capacity
in extractive sector,
domestic manufacturing
overall economy.

AMV Follow-Up Steps and CSOs

Action Plan
AMDC
Regional Mining Policy
Ecowas Mineral Development Policy (EMDP)
SADC Mining Protocol

Country Mining Vision

CSO Mobilising and Engagement