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Zambia achieves high score in EITI implementation

The EITI Board concluded that Zambia has achieved a high score in EITI implementation. Zambia has used the EITI to inform public debate and policy, thanks to a strong foundation for implementation through its multi-stakeholder group, the Zambia EITI Council (ZEC). Some gaps remain to be addressed to build a more transparent extractives sector.

As Africa’s second largest copper producer, Zambia is highly dependent on its extractive sector. In 2019, its mining sector accounted for 77% of exports earnings and 28% of government revenue, of which more than 85% was sourced from copper companies.

Zambia’s copper production is likely to surge in response to increased demands for cleaner energy technologies which, according to some estimates, require up to 12 times more copper than traditional energy systems. Yet the government faces financial pressure to deal with debt distress and the impact of COVID-19. Transparency is paramount to understand how one of Zambia’s most important sectors is managed in response to these challenges.

“We commend Zambia's use of the EITI as a platform for supporting key government mining reforms. EITI has established a benchmark for good practice among EITI implementing countries globally. As a producer of critical minerals, Zambia has an opportunity to strengthen its disclosures on mining production and exports further, including on revenues at the level of each mine which would enable citizens to have a more complete picture of how the sector is managed,” said Helen Clark, EITI Board Chair.

Zambia and the “transparency triangle”

Analysis undertaken by ZEC has informed policy decisions on mining taxes by modelling the potential impacts of fiscal regime changes, and by comparing the performance of Zambian copper mines to those in other copper mining countries. Yet there are opportunities to undertake more complex analyses on copper mining performance. Specific disclosures on how much extractive companies are paying to government for each project, who benefits and under what terms the projects take place can further guide policies to ensure Zambia’s government and citizens benefit from their natural resources.

What are the terms?

All EITI countries are required to publish the full text of licenses and contracts that awards rights to exploit oil, gas and mineral resources. Zambia’s ability to fully meet this requirement is currently hampered by legal and practical barriers, although ZEC are undertaking measures to address this and using publicly available licensing information to conduct analysis of whether Zambia is benefitting from its copper resources. Further legal and policy reform is needed to mitigate the gaps in disclosures and shed light on the obligations entered into by extractive companies.

Who benefits?

An array of document leaks in recent years, most recently demonstrated through the Pandora Papers, reveals the prevalence of anonymous company ownership in proliferating tax evasion and illicit financial flows. Zambia has taken steps to disclose the ultimate beneficiaries of extractive companies – namely by strengthening its legal framework through the Companies Act and Regulations and establishing a platform for collecting and publishing data through its corporate registry – but disclosures are not yet comprehensive and publicly accessible. Zambia recently joined the Opening Extractives programme to accelerate its work on beneficial ownership transparency.

How much do companies pay?

Disclosing data at a project level enables effective oversight on whether companies are fulfilling their obligations. In Zambia’s 2018 EITI Report, 30% of relevant data was reported at a project level. Yet Zambia EITI also found that government systems were not able to monitor company payments for each individual license. In the interim, companies were asked to publicly disclose this information, which increased project-level reporting to 70% in the 2019 EITI Report. To enable the government in monitoring these payments, ZEC is also exploring legal and structural reforms to government systems.

Next steps

While progress has been made, opportunities for further disclosures remain as Zambians are faced with pressing challenges, including mounting external debts of up to 60% of national GDP. Accountability around the terms of extractive projects could help the government navigate these challenges, ensure that resources are managed sustainably, helping to increase public trust and investor confidence, including those of multilateral creditors.