ZEITI to publish topical reports on thematic issues in mining sector

The ZEITI has embarked on a new activity to publish topical reports on thematic issues arising from the extractive sector. The knowledge publications will seek to fill the knowledge gap in the extractive sector and help the public to engage in informed debate. “It is hoped that the topical reports will give the government policy options that can be implemented in the mining sector in line with the current Seventh National Development Plan (SNDP)” says Mr. Siforiano Banda who is the Head of the Zambia EITI Secretariat.

The proposed thematic areas to be tackled are Beneficial Ownership, local procurement practices in the mining sector, and the role EITI can play in enhancing transparency under the African Mining Vision domestication process.

With the adoption of the 2016 Extractive Industries Transparency Initiative (EITI) Standard, the EITI has agreed that all implementing countries must ensure that oil, gas and mining companies disclose the identities of the ultimate individual beneficiaries (beneficial owners) of such companies for purposes of arming citizens with information needed to scrutinise their activities and guard against corruption.

The EITI Standard also requires disclosure of the identity of any politically exposed person (PEP) connected to an extractive company. This is because some dense and opaque company ownership structures mask problematic, status, interests and influence of certain persons holding stakes in a company.

However, many people have wondered whether there exists a link between Beneficial Ownership disclosure and the fight against illicit financial flows. Like many other countries in Africa, transfer mispricing poses serious risks to the mining industry revenue base in Zambia. Transfer pricing is the mechanism by which prices are chosen to value transactions between related legal entities within the same multinational enterprises (MNEs). These are referred to as “controlled transactions” and may include the purchase and sale of goods or intangible assets, the provision of services, the provision of financing, cost allocation, and cost sharing agreements. If the price that is set matches the “arm’s length” price at which a transaction would have taken place between unrelated parties, this is not problematic. However, transfer pricing may become abusive or illegal when related parties seek to distort the price as a means of reducing their overall tax bill. In these instances, the practice may be referred to as “transfer mispricing.”

The local procurement practices in the mining sector have for a long time been a source of public interest for the Zambia. According to the International Council on Mining and Metals (ICMM) report of 2014 dubbed enhancing mining’s contribution to the Zambian economy and society, in most cases mining procurement of goods and services is the single largest in-country payment. Many of the goods and services to the mining sector are imported, in some cases, even by Zambian agents who are awarded contracts by mining companies. Thus, very few of the goods procured by the mining sector are manufactured in Zambia.

In this regard, local content policies are key in ensuring the country benefits from its natural resources through the promotion of a higher portion of local content in inputs and services. This represents a promising way of increasing the positive impact of mining on the local economy.

Local content polices can lead to improved internal management in mining companies to create more benefits for host countries and to strengthen their social license to operate. In addition, local content policies empower suppliers, host governments, and other stakeholders with practical information that helps them to collaborate with mine sites. And in relation to transparency and accountability, local content policies increase transparency in the procurement process to deter problematic practices such as corruption.

The role of the EITI process in enhancing natural resource governance under the African Mining Vision to foster sustainable economic development has been a source of discussion especially among civil society organisations. Developing a country mining vision is the first step in ensuring that a country’s mineral resource contributes to the overall economic development. Transparency and accountability plays a critical role in ensuring that all the benefits that accrue from the mineral sector are prudently managed for the benefit of all citizens. In this view, it is believed that developing a country mining strategy creates a mining sector that is transparent, equitable, and one that promotes optimal exploitation of mineral resources. That is why the link between the EITI and the African Mining Vision is indispensable for promoting Good Governance in the mining sector.  

The knowledge publications will be published once per quarter beginning in September 2017. The publications can also be accessed from various ZEITI social platforms such as Facebook, twitter and the website.