WINDHOEK – The local mining sector has the potential to contribute more to the country’s socio-economic development if government can address all policy and regulatory uncertainties facing the industry, specifically the non-deductibility of royalties in assessing income tax for non-diamond mining companies. This view was expressed by president of the Chamber of Mines of Namibia Zebra Kasete, during the chamber’s annual general meeting in Windhoek last week.
“While most of the outstanding policy uncertainties have been addressed, the elephant in the room remains the non-deductibility of royalties in assessing income tax for non-diamond mining companies. This will strangle growth of existing mines and prevent new investments into exploration and new mining projects. An improved investment climate is critical to attracting investments into exploration that may lead to discovery of mineral deposits and eventually, opening of new mines. More new mines and reinvestments by existing mines would result in job creation and widening of the tax base for the fiscus,” said Kasete during the AGM at the Windhoek Country Club.
Towards the end of 2018, the Ministry of Finance proposed changes to the Income Tax Act, in the draft Income Tax Amendment Bill, for consideration and consultation with mining industry stakeholders. However, Kasete and other mining executives feel the unintended consequences of certain amendments will make most mines unprofitable, possibly resulting in the inevitable scaling down of production and the eventual decision to place these mines under care and maintenance which would result in inevitable job losses, while stalling any new investment into the mining sector.
“This is particularly concerning given that many major mining operations are due to reach their life of mines in the next two to ten years and certain clauses in the Bill will unquestionably reduce the value of new projects and eliminate any planned reinvestment by existing mines. Ultimately, this would undermine broad—based growth in Namibia, bringing the mining sector to a standstill. As mining is one of the biggest sectors in Namibia’s economy, other sectors of the economy would shrink, particularly in the local mining supply chain resulting in a second round of job losses and economic contractions,” Kasete cautioned.
During 2018 the local mining industry was one of the few sectors to record a positive growth rate and was the best performing sector. According to the Namibia Statistics Agency, the sector grew by 22 percent in 2018 in comparison to a growth rate of 13.3 percent in 2017. Mining contributed 14 percent to GDP in 2018, compared to 11.9 percent GDP contribution in 2017.
According to Kasete, the strong performance was a result of production increases in uranium and diamonds which grew by 64.8 percent and 13.7 percent respectively. Increases in uranium output were propelled by the ramping up of operations at Husab Mine, and increased production from Rössing despite a stagnant uranium market and low prices for the first half of the year. Diamond production was driven by improved output from the Namdeb and Debmarine Namibia operations.
However, a positive growth rate did not mean plain sailing for the entire sector in 2018. Unfortunately, the industry suffered 822 retrenchments as a result of volatile mineral commodity markets in the second half of the year, and a stagnantly low uranium price in the last nine years.
“The Chamber of Mines regrets the loss of jobs in the industry. However, this is in conjunction with the understanding that successes and failures of mining operations are determined by mineral commodity price cycles which are a result of market forces beyond our control. Thus, downsizing and retrenchments are a last port of call in mineral commodity price downturns. Through the Chamber of Mines, member operations shared details of the affected employees for possible redeployment to other operations and thereby mitigating the impact of retrenchments,” Kasete explained.
He added that the re-opening of some old mines and the development of another new cement plant with limestone mining operations created 710 new jobs, resulting in net job losses of 112.
The local mining industry directly employed more than 16 000 people in 2018, compared to direct employment of close to 17 000 people in 2017.
In 2018, the mining industry generated N$33.545 billion in revenue, through the sale of mineral products, of which 40 percent was spent on goods and services from local suppliers. Kasete emphasised that it is through this linkage where the mining industry has the greatest impact on local economic development, primarily in job and wealth creation.
The mining industry also makes a sizeable contribution to the Namibian fiscus, which on average generates around seven percent of government income. In 2018, the sector paid N$1.707 billion in corporate taxes, N$2.063 billion in royalties and N$214.5 million in export levies.