Zambia Opposition: 2008 Mining Tax Regime Triggering Job Losses

The continued implementation of Zambia's latest mining tax regime, introduced in 2008, is to blame for the job losses and reduced investments in the country's copper mining sector, Zambia's opposition leader told Dow Jones Newswires late Thursday.

According to Michael Sata, president of the Patriotic Front, Zambia's largest opposition party, the tax regime has hiked tax rates in the sector by more than 50%, increasing mining costs. A dispute between the government and mining companies over the regime also threatens to derail future investments in Zambia's copper mining sector, he added. Zambia is Africa's largest copper producer.

"No one in the government cares about the jobs that are being sacrificed by the delinquent and illegal tax regime," he said.

Zambia introduced the latest tax regime after amending its Mines Act in 2008. The amendment also abolished mining development agreements signed with international companies operating in the country, a development that has since put the government on a collision course with mining companies, with some threatening to seek legal redress.

Zambia's mining companies laid off more than 10,000 miners starting in mid-2008, after global copper prices dipped. Although around 2,500 miners have since been rehired following the reopening of the Luanshya Copper Mines, most companies are yet to rehire the remaining 7,500 redundant miners, a situation Sata blames on the tax regime.

Last month, Sata wrote to President Rupiah Banda asking for the scrapping of the regime in order to save jobs and attract investments.

Earlier this year, the U.K.'s Standard Chartered Bank warned that the tax regime had created fiscal uncertainty, threatening future mining projects.

"Mining companies are now reacting to the tax regime uncertainty by winding down investment activity...new investment--which may be necessary even to extend the current life of more marginal mines--has stalled," Razia Khana, Stanchart's regional head of research in Africa, said in a report earlier this year.

Industry officials say that with increased costs of production, mining companies have adopted cost-saving measures which include labor outsourcing, a situation that is threatening to stir miners' unrest.

Last week, Konkola Copper Mines, Zambia's largest copper miner by output, was forced to call off plans to outsource labor at its Nchanga unit after union representatives threatened to hold protests over the decision.

Copper mining companies operating in Zambia include Toronto-listed First Quantum Minerals Ltd. (FM.T), Equinox Minerals Ltd. (EQN.T), London-listed Vedanta Resources PLC (VED.LN) and Swiss commodity trader Glencore International AG.

-By Nicholas Bariyo, contributing to Dow Jones Newswires; 256-75-2624615 [e-mail]