It is a fact that Africa has not fully benefited from multinational corporations due to tax evasion, financial flaws and corruption being practiced by these companies.
In Zambia, this is a familiar situation that has left the country at the mercy of multinational corporations, especially in the mining sector. Despite Zambia being the world’s eighth largest producer of copper, revenues from the mines only account for less than 5 percent of Gross Domestic Product (GDP). This is negligible considering the increase in copper exports and favorable prices on the metal market.
What factors have then contributed to Zambia being literally robbed of her wasting assets (copper and other minerals)?
As cited earlier, tax evasion, financial flaws, corruption and other corporate frauds have made Zambia lose billion of kwacha from multinational mining corporations. Recently Vice president Guy Scott told parliament that Konkola Copper Mines has been involved in financial scam and that government was carefully monitoring the situation at the mine which has debts of about $1.5 million. It has been alleged that KCM has been falsifying its incomes to evade tax. But KCM is just among many multinationals linked to corporate fraud.
Another factor is that Zambia Revenue Authority (ZRA) and Bank of Zambia (BoZ) lack capacity to monitor the operations of not only mining companies but also other multinational corporations working in Zambia. The two institutions cannot therefore adequately tax multinational corporations resulting in the country losing its much needed resources to finance service delivery by the government.
Similarly, most of the copper that is extracted in the country end up on the international market in raw form. The country has fewer refineries to enhance the value of copper. Though Zambia is the eighth largest producer of copper, it is the fourteenth in the world in terms of producing refined copper. With more copper refineries set up the country can benefit both from taxes and employment creation for many Zambians. At the moment, the copper extracted from Zambia is creating employment opportunities outside the country, a situation which is worrisome.
Zambia is not fully benefiting from the mines
But perhaps one of the major factors is that the judiciary has not taken a keen interest in prosecuting multinational corporations for fraud and tax evasion. Apart from KCM that was fined K10 billion (not rebased) for polluting Kafue River, no multinational corporation has been criminally prosecuted for corporate fraud. Since most of the allegations against multinational corporations have come from civil society organisations and pressure groups, government institutions have appeared disinterested in the matter. The battle to ensure that multinational corporations contribute adequately to state coffers in accordance with their profits has been solely left to the civil society and pressure groups. Yet government has admitted that some multinational corporations are involved in reaping the country out of its resources.
Alongside tax evasion and other frauds, multinational corporations especially in the mining sector have greatly benefited from various incentives entered into during the acquisition of mines. For instance, the recently released Foil Vedanta Report titled “Copper Colonisation Vedanta KCM and the copper loot of Zambia” says;
“KCM’s Development Agreement only requires it to pay 0.6% in royalties, fixed until 2018, and they have even argued that this is too high. Royalties are calculated as a percentage of the market value of minerals less the cost of smelting, refining and insurance, handling and transport from the mining area to the point of export or delivery within Zambia. KCM’s agreement allows them to deduct 100% of capital allowance from any investments made – such as prospecting, buildings and equipment, and losses from bad years may be carried over into good years”.
Clearly these incentives are too generous to give a company like KCM that reportedly recuperated its investment within three months after it was sold.
How then can Zambia maximise on it benefits from multinational corporations and in particular mining companies?
Government needs to devise forensic auditing methods for multinational companies operating in the country. Some of these companies have put up deceptive Corporate Social Responsibilities (CSRs) programmes and yet they are not contributing to government coffers as much as their profits. These companies have gotten away with huge profits through falsifying their true accounts.
Further, the Ministry of Finance needs to strengthen the capacity of Zambia Revenue Authority (ZRA) and Bank of Zambia (BoZ) and Central Statistical Office (CSO) to enable them monitor operations of mining companies and other multinational companies operating in Zambia. Without adequate capacity by these institutions, the country will continue failing to account for its resources.
The government should revisit some of the Development Agreements entered with the mining companies. Though it is not easy to renegotiate mining development agreements, some which will run till 2024, the government can use its political muscle to table the matter before these companies.
Strengthening the judiciary and other investigative wings to criminally prosecute mining companies can also help to scare them and reduce cases of tax evasion, corruption, corporate fraud and vices being committed by multinational companies. At the same time government investigative wings should develop interest in issues of multinational corporate affairs.
Copper is a diminishing asset and therefore the country needs to make the most out of it while it lasts. As the Foil Vedanta Report notes, civil society organisations and pressure groups have a greater role to play in raising awareness on the need for the country to benefit from it resources.
Hopefully, the just ended 3rd International Association of Prosecutors African-Indian Ocean Regional conference held in Livingstone will also come up with solutions to the problem of multinational corporations’ illegal practices.
By Nicholas Bwalya