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Innovative solutions for resource mobilization in Zambia

Srinivas Gurazada's picture
Industrial area in the city of Kitwe, Zambia - located in the copper belt. Photo: Arne Hoel

What would you expect in a mineral rich developing country? High Government revenues from the mineral resources? Not always, and definitely not in the case of Zambia - until recently.

Zambia has a considerable wealth of mineral resources and its economy depends heavily on these minerals. Zambia's primary export, copper and copper-related products, account for as much as 77% of the country's exports.

Despite high copper exports, however, the Government revenues are significantly lower than the global averages. While worldwide resource taxes tend to be about 25-40 % of exports for major resource-rich developing countries, they amount to only 3–5 % in Zambia.

Why wasn't the Zambian exchequer receiving adequate revenue from copper production in the form of royalties, taxes, and customs duties?

The answer lies in the way the minerals value chain was managed. The Zambian Government agencies lacked a reliable information system for the production and exports.  

Multiple regulatory agencies, all operating in silos, had different figures with regard to mining activity in the country. There was neither a harmonized and reliable industry-wide coordination nor a common database on which to rely upon when compiling national mining production figures.

The reporting systems were manual and the mining companies used self-reporting systems (both for quantity and quality of minerals).

The Zambia mineral value chain, as in many resource-rich nations, is complex. From exploration to exports it involves a myriad of complex operations -- from licensing, exploration, mining, beneficiation, sales, toll treating, taxation, royalties, issues of export permits and finally exports.

The Zambian Government, however, believed that even complex systems can have simple solutions. It embarked on the USD 10 million Minerals Value Chain Monitoring Project (MVCMP) supported by the World Bank and funded by United Kingdom (DFID), Germany (KfW), Finland, Norway and the Government of Zambia.

Here are a few simple solutions that Zambia is focusing on to leverage its mineral wealth.

  • Integrate IT across institutions and stakeholders: MVCMP is an IT solution to integrate all the institutions and stakeholders in the mineral value chain from ‘exploration to exportation’.
  • Use an online, integrated and centralized system: The MVCMP System Modules is an Online, integrated and centralized system that is accessed by the Mining Companies and Government Institutions/Agencies from their respective offices.
  • Capture information once and share: Focus on the principle of information reported by Mines only once and share it between the relevant Government departments/ agencies.
  • Build on UNCTAD’s ASCYDA World System:  Instead of creating a new system, Zambia chose to build on an existing system by engaging United Nations Conference on Trade and Development (UNCTAD) as the consultant agency to support MVCMP. UNCTAD is the developer of the Asycuda World System which is used by customs at the export stage of mineral declaration in the context of the MVCMP.
  • Use modern tools for verification of mineral content: One of the key challenges in the mineral value chain is the risk of incorrect declarations of the quality and quantity. MVCMP implemented handheld Mineral Analysis Equipment for spot checks when clearing Export Bound Minerals, and a Mineral Analysis Laboratory for more accurate verification of mineral content.
  • Create a national project, with the Zambia Revenue Authority as the lead implementation agency: Considering the need to coordinate and lead the implementation, which involves multiple Government agencies associated with monitoring the value chain, the Zambian Government appointed the Zambia Revenue Authority as the lead implementation agency.
  • Change management: MVCMP implementation is supported by continuous communication between multiple stakeholders, including the mines, and senior Government leadership. All key information about the project was also made available through its portal www.mvc.org.zm.
Zambia is the eighth largest producer of copper in the world. The successful completion of implementation of MVCMP, targeted in 2017, could be a game changer for Zambia.  The benefits envisaged of the project are:
  • The reduction of cost of compliance and of doing business with Government by the Mining Companies;
  • The reduction of cost of monitoring and regulating on the part of the Government as the information will be accessed from a single centralized database;
  • Greater  transparency;
  • Improved resource mobilization and
  • The development of Zambia as a more attractive investment destination.
This innovative project of Zambia could be a torchbearer for other mineral rich countries, particularly in Africa, to emulate.
 

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While Zambia is the 8th largest producer of copper, its revenues are less than the global average.

The Zambia mineral value chain is complex - but even complex systems can have simple solutions.

Here are a few simple solutions that Zambia is focusing on to leverage its mineral wealth:

Comments

Submitted by Mofya on

I like the fact that suggested solutions are mentioned here and not just criticism.

Submitted by abhilasha on

Great and very informative content and i like the best thing about this article is detailing of topics.

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