New mining duties and increased royalties intended to help offset Zambia's mounting debt, combined with the country's legal battle with India's Vedanta Resources Ltd., could discourage investment in its mining sector, according to a recent S&P Global Ratings report.
Vedanta launched international arbitration proceedings in May after subsidiary Konkola Copper Mines PLC was placed into provisional liquidation by the Zambian government, which alleged the company had violated its operating license.
The rating agency noted that Zambia's copper exports, which comprise about 70% of total export receipts, are keeping its account deficits relatively low. The country accumulated significant external debt since 2015 due to infrastructure spending and is dependent on copper production as a source of foreign currency.
The comments on Zambia's mining sector came as S&P Global Ratings announced it had lowered Zambia's long- and short-term foreign and local currency sovereign credit ratings to CCC+/C from B-/B on low foreign currency reserves and increasing external debt-service obligations.
S&P Global Ratings kept a stable outlook on the country, saying Aug. 23 that it expected the government to meet commercial debt obligations over the next 12 months.
Earlier in August, Zambia further delayed the implementation of new taxes to January 2020, after plans for a 9% tax on all sales of goods and services drew opposition from various business groups including the mining sector, with companies including First Quantum Minerals Ltd., Glencore PLC and Vedanta Resources raising concerns over rising operating costs.
First Quantum Minerals said in December 2018 that it had taken the "difficult and sad decision" to lay off 2,500 workers at its Trident - Sentinel and Kansanshi mines, citing looming tax hikes to be imposed by the Zambian government.
Zambia's Finance Minister Margaret Mwanakatwe outlined plans in a 2019 budget speech to reduce the country's deficit from 7.4% of gross domestic product to 6.5% this year. Changes included new mining duties and increased royalties with a highlight on copper and cobalt as well as gold, precious stones and manganese.
The Zambia Chamber of Mines has been critical of the new tax regime since it was first announced, maintaining that it would be harmful to the sector.
At a conference in June, Chamber of Mines President Goodwell Mateyo said he remained hopeful the chamber and government would find a solution that encouraged investment in the sector while ensuring that government was able to generate sufficient resources to reach its finance and developmental goals.
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