Stop Spreading the Myth: Zambia Is Not Losing $3 Billion to Tax Avoidance

Resource-rich countries face several challenges in converting their natural resource wealth into sustained prosperity:

• How to strike the right fiscal balance between attracting investment and getting a fair deal for the country?
• How to stop powerful political actors diverting the country’s wealth into illicit financial flows?
• How to ensure that multinational companies are not able to run rings around revenue officials?
• And how to spend natural resource revenues effectively? 

There is a strong argument that these questions should be answered in public—through transparency of budgets and revenue data, contracts and fiscal models, and with scrutiny and open debate by parliamentarians, the public, civil society organisations, the private sector, experts and academics, and the media.

If transparency matters then so too does the way that figures get translated into public debates. Earlier this month the Lusaka Times published a claim that multinational mining companies were “robbing Zambia of an estimated $3billion annually through tax evasion and illicit financial flows.” The claim that Zambia is losing $2 or 3 billion to the mining industry and Swiss commodities traders has been in circulation for some time. The Lusaka Times article says the figure comes from a recent report by Zambia’s Financial Intelligence Centre, but this is not strictly true. The FIC report actually repeats a claim made by the Washington DC based-think tank Global Financial Integrity (GFI).

GFI has promoted its version of the Zambia billions story strongly over the years and it has been taken up widely. The  headline that “Zambia lost $9-billion over a decade has been repeated by Reuters, in the Guardian, in the Globe and Mail and by Transparency International, for example. It made its way into a report by the UK’s International Development Committee. The UK NGO War on Want built a whole report around it, while Christian Aid and the film Stealing Africa made a related argument that Zambia could have doubled its GDP if it wasn’t for Swiss mispricing. In 2012 Zambia’s then Deputy Finance Minister Miles Sampa gave the figure credence in an in an off-the cuff remark, which has been much repeated, gaining apparent authority with each retelling. The FT in 2013 presented it as an official “government estimate.”

I have written about the Zambia Copper Billions before, in 2014 and 2015. I don’t think the figure is at all credible, and I am not the only one: Nathan Chishimba, president of the Zambia Chamber of Mines calls it “malicious nonsense,” and notes that $3 billion worth of copper is about 600,000 tonnes (equivalent to 80 percent of Zambia’s total copper production). This much additional copper would involve two “ghost” smelters secretly processing ore, and hundreds of trucks leaving the country unnoticed every day. Mooya Lumamba, director of Mines at the Ministry of Mines and Mineral Resources says the claim is  “wholly untrue” and Ron Smit of the EU-funded Mineral Production Monitoring Support Project agrees, noting “no one ever offers any proof.”

This year GFI quietly withdrew the claim. But you had to be paying close attention to notice. On the second-to-last page of their regular Illict Flows Report they note:

“irreconcilable issues in the destination reporting of Zambia’s copper distort bilateral estimates of misinvoicing to such a degree that bilateral estimations of misinvoicing for these countries are of little practical use. To mitigate this destination reporting issue, we have decided to treat these countries as world reporters and apply the world aggregate method.”

Or, as the headline writers might have put it, “Zambia didn’t lose $9-billion over a decade after all.”

Similarly if you have to have been paying close attention to some fairly esoteric debates you might have noticed that Alex Cobham recognised the problems with the analysis behind the “doubling GDP” claim. But Christian Aid did not withdraw the related reports, and the distributors of the “Stealing Africa” film also saw no need to stop promoting the claim. Cobham and co-authors promised they would revise the analysis and the paper.

But then they didn’t.

A couple of other studies (a fact-finding mission by the International Bar Association Human Rights Initiative and a study by GFI and funded by the Government of Finland) set out to investigate illicit flows from Zambia in more depth. They could have usefully clarified the issues, but instead (presumably after finding that the huge outflows could not be confirmed) they decided that the best thing to do was to publish nothing at all.

So it is not surprising that people are still citing the large and assertively declared claims, and ignoring the quietly (or silently) made corrections. In fact, it is not even clear if the news that the $3 billion figure is no longer supported by GFI has made it around GFI’s office. They are still tweeting media stories from Zambia that feature it (but not those that question it), and when I suggested they could fact check  the claim they responded, “You're saying we're responsible for this Lusaka Times article??” (Yes. It is based on a finding that GFI have strongly promoted, so I think there is some responsibility here.)

The problem of corruption, and associated illicit flows is very real. So too is the challenge of designing and administrating taxes for the extractives sector. In Zambia the Extractive Industry Transparency Initiative (ZEITI) works carefully to create a common fact base to support public debate and accountability. The Ministry of Mines and the Zambia Revenue Authority, with support from the donors such as the EU and Norway have been working to improve the governments’ monitoring of minerals production and the  mineral value chain. Zambia has adopted a common system for companies to record mine production. This will ultimately enable customs inspectors to reconcile the quantities of minerals being exported with export permits and production data in real-time. Mooya Lumamba and Ron Smit say that some instances of inaccurate production statistics have been found through this work, although no estimates of the revenue implications have been made public yet. They say that they don’t think there is systematic misreporting throughout the industry.

According to Zambia’s most recent EITI report, export earnings by the mining sector were $5.46 billion in 2015, and tax receipts were 9 billion Kwacha (about $0.92 billion by my maths). Should this amount be more, and if so by how much?

I don’t know. But we can be sure that the answer is not going to be $3 billion. The careful work of the Zambia Revenue Authority, the Ministry of Mines, and the donor-supported projects should improve the ability of the government to collect mining revenues, and provide assurance that the right amount of tax is being paid. Inflated public expectations do not help, and may very well hinder the development of the strong and capable national institutions and informed debates that are needed for accountability.

Organisations that have allowed this myth to spread have not done any favours to the people of Zambia, and they have a responsibility to put it right.