Mining & Trade News

The Malawi Stock Exchange (MSE) has urged the private sector, including mining companies, to utilize the local stock market in accessing a wide pool of funds through multi-platforms provided by the entity, especially during this period when a lot of companies have been affected by the Covid-19 pandemic.

MSE Operations Manager Kelline Kanyangala said after observing the country’s growing infrastructure developments that are capital intensive, MSE has been motivated to step into play with investment capital for private companies.

Kanyangala said strategic utilization of MSE funding can fast track the recovery process, reduce unemployment and increase individual’s disposable income since, as a platform for business investment capital, it is designed to facilitate growth of the private sector. 

She explained that currently MSE has three platforms that companies can utilize; The Main Board is for well established companies; the Alternative Capital Market Board targets small and medium enterprises while the Debt Board is for entities that would prefer not to use equity financing.

“Raising capital through the Exchange offers various benefits for a company including access to a wider pool of funds, access to cheap capital, increased visibility, enhanced corporate governance among others,” she said stressing that the role of the MSE is more pronounced now during the economic recovery process.

In a bid to secure its insurers, MSE has been offering Covid-19 compliant guidelines to listed stakeholders to facilitate holding of virtual meetings at a time when face-to-face meetings are discouraged due to Covid-19. Plans are underway to engage the listed firms on how best to utilise the Exchange in raising additional capital.

“The Covid 19 pandemic had a significant impact on the traded volumes transacted in 2020,” said Kanyangale. “In as much as the performance was positive, we so believe it could have been better had we not experienced Covid 19,”

She also expressed optimism to register new listings on the market having engaged several firms on the importance of being listed.

“We have had a number of engagements with potential issuers who had expressed interest to raise capital through the equity and bond platforms. It is too early to confirm on anything but we are hopeful that we will register new listings on the market,” she said

Established in 1994, MSE started equity trading in 1996 with National Insurance Company Limited (NICO) as the first listed firm and it has so far listed 16 companies.

The Competition and Fair Trading Commission (CFTC) has warned traders in the country to stop claiming that some of their products cure the novel coronavirus (Covid-19) pandemic.  

CFTC Executive Director James Kaphale says in a statement that it is unfortunate that some traders in the country have been promoting and marketing certain products as cure or treatment for Covid-19 but currently no Covid-19 cure has been identified and approved by World Health Organization (WHO).

Kaphale says: “According to international health authorities, there is no clinically tested and approved product which can cure Covid-19.”

“Any trader found presenting that their product can cure Covid-19 would be violating the Competition and Fair Trading Act and the Consumer Protection Act.”

“Similarly, any trader found pricing excessively would be infringing the law.”

One of the mandates for the Commission is to protect Malawians from unfair trading practices.

Kaphale, therefore, says since the outbreak of the pandemic, CFTC has been actively monitoring the market and inspecting business premises to ensure that opportunistic pharmaceuticals companies and traders were not taking advantage of the pandemic to infringe on the rights of consumers.

He says during the campaign, the Commission observed that some pharmaceuticals companies and traders were taking advantage of the pandemic to exploit consumers through deceptive conduct and excessive pricing of essential personal protective equipment (PPEs) used in the management of Covid-19.

Kaphale says: “To deal with the suspected infringements, the Commission has instituted formal investigations against five pharmaceutical companies and traders.”

“The Commission will impose stiff sanctions against any pharmaceutical company or trader found engaging in deceptive practices or any other trade malpractices such as excessive pricing in the supply of products used in the management of Covid-19.”

Meanwhile, Kaphale has appealed to consumers to observe laid down health rules as a way of mitigating the spread of Covid-19.

The Malawi Government reduced tax on any essential imported products used in the management of Covid-19 pandemic including hand sanitizers, face masks, hand washing soaps, oxygen and oxygen regulators.

Malawi has registered over 30 thousand covid-19 cases, with total deaths at 1021 and total recovery at 17184.

During the second wave of the pandemic, majority of the confirmed cases are from local transmissions which means abiding by preventive measures could be a remedy to tame spread of the virus in the country.

According to section 43 (1)(d) of the CFTC, a person shall not, in relation to a consumer, engage in conduct that is likely to mislead the public as to the nature, price, availability, characteristics, suitability for a given purpose, quantity or quality of any products or services.

Further section 43 (1)(g) of the CFTC explains that a person shall not, in relation to a consumer, engage in unconscionable conduct in trade of goods and services.

Malawi has abundant natural resources as one of the extractives and yet gains little tax revenue from the extraction of its resources, leading to lost opportunities to invest in public services such as education and health which are essential in tackling poverty. Multinationals/Privately owned companies are always caught up dodging in paying their fair share of taxes to host governments. In Malawi, there might be a considerable calculated amount that is avoided by mining companies only that it is not exposed. Prominent companies that were/have been in the playing field are exploration companies who do not owe much to the government because they are not yet into mining, the Kayelekera Uranium Mine(KUM) now under Lotus Resources, Cement and Coal companies just to mention at the moment. There have been complex reporting by OXFAM on details of tax avoidance including mispricing/dodging, production sharing agreements of oil/gas blocks. The report also describes other ways in which Malawi loses out on tax revenue, including illegal tax evasion by companies. One aspect of tax avoidance is the lack of access by government officials to information on company operations, production and pricing.

Combating tax dodging strategies will require adequate government capacity and expertise which currently does not exist in Malawi. With such developments, so many billions of kwachas are lost where if it was realized by the government, money could be spent on essential public services such as health and education. There is a heavy public outcry from civil society over lost tax revenues in Malawi and the nation hasn’t seen any action by the government to address how mining companies in particular avoid tax. There is need to reform the tax system although there can be resistance from mining corporations. An example is Zambia where when there was an attempt to introduce reforms in tax systems in mining, multinational companies threatened to cut thousands of jobs and billions of dollars of investment. The IMF also expressed concern over the impact of the measures and the impact of lower global commodity prices on government revenues. This pressure had an effect and the government rolled back on the proposed new measures.

Malawi is earning very little from mining and one of the contributing factors is the proliferation of illegal gold mining. During the SONA (State of Nation Address) by the State President Dr Lazarus Chakwera made during the official opening of the budget meeting of the National Assembly in 2020, it was alleged that about 85 million US dollars is lost by smuggling/exporting gold that finds its way to points of sale to the Middle East annually and this drew mixed reactions from stakeholders in the mining sector. In other countries, a string of NGO, media and academic reports in recent years have highlighted how mining companies, while producing a large amount of minerals, have been paying few taxes to the government.

1. Corporate tax avoidance

There are various reasons why mining companies pay lower taxes than they should, but one major reason is corporate tax avoidance. In most African countries the mining industry is identified as the biggest culprit in tax avoidance. The reason is that most of the mines for one reason or another always claim that they are making losses. Most of it is due to transfer pricing or tax avoidance. It is therefore very important for countries to develop laws that will criminalize false reporting. Mining companies avoid paying tax by means of two methods. One is through transfer pricing – the widespread practice whereby parts of the same company trade with each other at artificial prices determined by themselves, to minimize taxes. The other is that some parent companies lend money to subsidiaries at interest rates higher than market rates, in order to inflate costs and reduce taxable income. This in essence makes companies to be presented with a variety of ways to avoid paying tax, including over-reporting of costs and under-reporting of production.

2. Tax evasion

The big global mining companies are robbing the opportunities for the countries to advance. In addition to legal methods of tax avoidance, countries lose more revenues from illegal tax evasion. US-based organization Global Financial Integrity, which has pioneered recent research into illicit financial flows, estimates that some billions of US dollars from other countries must have left from the proceeds of crime, corruption and tax evasion. If this money were taxed at the prevailing corporate tax rate, it would increase the countries revenues. Some illicit outflows is attributed to trade misinvoicing, a process that deliberately misreports the value of a commercial transaction on an invoice submitted to customs. This form of trade based money laundering is the largest component of illicit financial outflows measured by Global Financial Integrity and is sometimes facilitated by global tax havens.

3. Tax incentives

Tax incentives given by the government to companies, especially in the mining sector, are another cause of lost revenues. Government offers a bunch of tax incentives to domestic and foreign companies. For example in other African countries companies investing over a certain amount pay no taxes on profits for the first five years, along with no import duties on raw materials, capital goods, machinery including dump trucks and specialized motor vehicles. Mining companies are entitled to 100% capital reductions on mining equipment and preproduction capital expenditure, the ability to carry forward losses and offset them against tax, and a rebate on import duties for certain mining equipment. In addition, all companies investing over certain million US dollars are entitled to negotiation with the government for additional incentives, thus all mining companies are given special tax deals. This is a major reason why many mining companies consistently declare tax losses. Malawi signed one of the funniest deals for a 10 year tax holiday with Paladin Africa Ltd, a company that held the Kayelekera Uranium Mine and yet production was run for less than 10 years until it was placed under “Care and Maintenance’

4. Key tax avoidance strategies

Companies seeking to avoid paying tax can use a number of different strategies. The key is for the government authorities to stop them doing so. Officials face problems with four key tax avoidance strategies.

(a) Transfer pricing abuse

In light of the fact that the global mining industry is dominated by multinational companies trading between different operating units in different countries, companies can reduce their overall tax payments by selling goods and services from an operating unit in a low tax jurisdiction to one in a higher tax jurisdiction at a relatively high price, transferring income away from the high tax jurisdiction.

 (b) Under-reporting production values

Mining companies report to the tax authority that their production is less than the market value. In such situations, they can under-report the volume of production or the grade of the mineral. A problem for the government is to check the quality and content of all production line which requires an understanding of the geology of the area being mined and the processing technology employed which requires close cooperation between the mine and the tax authority in providing sustainable checks and balances. This process becomes complicated by the often complex value chain involved in large-scale  mining like copper, where some refining and/or smelting is often carried out by separate or associated companies and elements of the potential tax base can be transferred.

(c) Interest payments on debt

 Involves deductions from profits when determining taxable income. This creates an incentive for a company to lend funds to a subsidiary at a high interest rate in order to reduce the subsidiary’s taxable profits.

(d) Purchase of derivative contracts

Mining companies that face volatile prices of their product, can guarantee a specific price for their output in the future. This acts as an insurance against a fall in the price of the commodity. It becomes a legitimate business activity but can also be used to shift income out of high tax jurisdictions. In this case, firms can deliberately trade in order to lose money in a subsidiary facing a high tax rate and to gain in another subsidiary facing a lower tax rate.

To combat these policies, it requires adequate government capacity, which in most cases does not exist. The trickiest part is that no one, except the mining companies themselves, knows what the costs of production really are and that it is not possible to determine how much return the mining companies make. Furthermore, excessive lack of resources and efforts by mining companies to hide data and manage perceptions leaves most states with virtually no information on the operations or production of the mining companies. Greater capacity and expertise is needed not only to monitor the mines’ production and accounts but also to propose different tax designs during the course of negotiations with companies. Ofcourse in other countries there may be support from donors/lenders to increase tax capacity in a form of cooperative programmes. It is on record that this also happened between the IMF, the Norwegian government and the Zambia Revenue Authority at one time.

The Malawi Revenue Authority (MRA) says it is impressive with its revenue collection figures despite the prevalence of the novel coronavirus (Covid-19) pandemic which has hit the industry.

MRA’s Head of Corporate Affairs Steven Kapoloma told Mining & Trade Review in an interview that the impressive performance is as a result of interventions that the tax collector has put in place to widen the tax net.

Kapoloma explained that to ensure that it continues meeting its targets, the body is persistently working on bringing new members into the tax net, conducting public awareness meetings on the importance of tax remission and protecting its clients from Covid-19.

Despite the pandemic, MRA managed to collect a significant amount of money during the first half of 2020/2021 financial year. From July to December 2020, it collected K530.86-billion against the overall target of 1.1-trillion the development he described as impressive and attributed to the spirit of dedication of MRA officers.

“We believe the performance will improve in the third and last quarter because we have put in place a number of interventions aimed at increasing revenue collection, despite Covid-19 pandemic,” said Kapoloma.

In a bid to reduce Covid-19 transmissions among its clients and employees, MRA ensures that people visiting their offices follow all government set preventative measures.

Kapoloma also said the organization has decongested its offices through the use of automated service delivery kits such as electronic payments.

He said those at the borders have been provided with a pre-clearance facility which allows importers and exporters to submit their declarations and supporting documents for processing before the arrival of their goods.

“We have online transaction platforms that allow importers and exporters to process Customs transactions on line and real time, which use Customs Management Systems called ASYCUDA. The systems also interface with government agencies such as Directorate of Road Traffic and Safety Services (DRTSS), Reserve Bank of Malawi (RBM), Malawi Police Services (MPS) and International Police (INTERPOL),” said Kapoloma.

He, however, bemoaned the increase in cases of tax invasion and smuggling of goods but said the tax collector is tirelessly working on combating the malpractices.

Kapoloma sounded hopeful that the organization will soon win the fight against tax evasion and smuggling, through sensitizing the general public on the importance of tax remission.

He said MRA also encourages the general public to report to their offices anyone evading tax and smuggling goods.

“MRA conducts routine intensive patrols through the Flexible Anti-Smuggling Teams (FAST). We have fixed roadblocks operating in all the three regions of the country, which are in addition to mobile roadblocks we mount from time to time to control smuggling.

MRA is a public agency which was established by Act of parliament 1998 to assess, collect and account for tax revenues

Local agricultural experts have forecast bumper yields in Malawi this year, a development they attribute to good rains being received throughout the country and government’s initiated Affordable Input Program (AIP)

The experts predict that small scale farming households will achieve national food security while surpluses will be sold to strengthen household financial bases.

Famine Early Warning Systems (FEWSNET) published on its website this week: “Farmers are anticipating good harvests this year, as overall cummulative rainfall from October 2020 to March 2021 is expected across the country, with localized areas above average and below average possible. At national level, average to slightly above average production is expected,”

Agricultural analyst Tamani Nkhono Mvula agreed that good rains coupled with the subsidized farm input program have given the country hope for bumper yields. He expressed optimism that there is a possibility of continued good rains, until the end of the season.

“We have really been receiving good rainfall in almost all parts of the country which coupled with the increase in number of AIP beneficiaries who planted hybrid seeds gives us hope for better yields this year. If rainfall continues with the current pace, then bumper yields are guaranteed,” said Mvula.

But Mvula complained that the only thing that might affect the yields are the fall-army worms that have attacked some gardens in some parts of the country, particularly in the central region.

Farmers Union of Malawi (FUM) also complained that the fall army worms might have a negative effect to the anticipated yields.

FUM President Frighton Njolomole, therefore, urged all Extension Planning Areas (EPA) to be alert.

Ministry of Agriculture spokesperson Gracian Lungu said even if results of first round yield estimates were not yet officially released, there were strong indications that the country would produce more maize this year, due to the increased uptake of inputs and good rains.

At the onset of the rainy season, the Meteorological and Disaster Management Department (MDMD) forecasted that the country would receive good rains this season.

Tobacco Association of Malawi (TAMA) says there is still hope for the tobacco industry as demand for the local leaf is high despite a slump in global economy due to the novel coronavirus (Covid-19) pandemic.

“Demand for Malawi tobacco is still there, all we need is promoting growing using recommended agricultural practices that also include recommended labour practices. Agricultural Extension advisors from different players in the industry are working together to ensure these messages reach the farmer and are adhered to,” said Kalimba.

He, however, said the local tobacco industry has not been spared from Covid-19 which has affected most economic sectors.

Kalimba said in a bid to minimize challenges the industry is currently facing due to Covid-19, TAMA has put in place some initiatives aimed at protecting producers of the country’s prime revenue earner.

He said labour in the tobacco sector is one of the areas that have been affected this season, as farmers are advised to reduce their labour force to decongest their farms as a way of preventing transmissions, which the TAMA spokesperson said is a threat to the industry that requires more people to produce quality leaf.

TAMA in conjunction with the Ministry of Health is currently conducting sensitization meetings with farmers who are advised to follow all preventative measures government set in the fight against the respiratory infection.

“The impact of Covid-19 has not spared any sector including tobacco production. Labour is one of the factors impacted as efforts to have work places decongested are being enforced and there is also labour scarcity where communities have been hit. TAMA is advising farmers to follow government’s set preventative measures so that farm operations do not stall,” explained Kalimba.

Meanwhile, TAMA has suspended this year’s Growers Meeting which is held in February every year, as enshrined in TAMA’s constitution as a prevention measure against the spread of Covid-19.

TAMA in collaboration with Ministries of Health and Agriculture has developed Covid-19 messages which are being distributed to farmers, advising them on how they can help in the fight against the pandemic. The messages are in languages used by targeted farming communities for them to easily understand.

Besides Covid-19, low tobacco prices and World Health Organization’s (WHO) championed anti-smoking lobby are some challenges affecting the tobacco industry which remains Malawi’s top foreign exchange earner.

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Malawi’s multi-million dollar Agricultural Commercialization Project (AGCOM) is on course leveraging local agriculture through the promotion of agricultural value chain products.

Using an approach known as the Productive Alliance (PA), the US$95 million World Bank credit facility project links together producers, service providers and off-takers in different value chains.

AGCOM National Coordinator Dr. Teddie Nakhumwa said the project’s development objective is to increase commercialization and competitiveness of agricultural value chain products in crops, livestock and fisheries.

Dr. Nakhumwa explained that the project was developed to respond to some of critical problems facing the small and medium scale farmers such as poor access to organized markets, poorly organized farmers and farmer groups, poor access to competitively priced finance and poor market infrastructure.

AGCOM provides 70% matching grants for the purchase of capital equipment and also insures that farmers lend from commercial banks to finance operations by guaranteeing 70% of their loans. The project also provides public infrastructure through connecting producer organisations to power, irrigation and road infrastructure—in what is known as Last Mile Infrastructure.

“These interventions are aimed at transforming agriculture by increasing productivity and efficiency in scarce land and labour use,” said Dr. Nankhumwa adding that AGCOM also invests in capacity development and organizing producer organisations into cooperatives to operate at economies of scale.

The project only supports producer organization that have formal arrangements with off-takers to ensure they are producing for the market and therefore promoting business culture among small and medium scale farmers that do the bulk of the country’s production.

Dr Nankhumwa highlighted that the project has, meanwhile, made significant progress in putting the system and establishing all strategic documents to guide implementation such as: AGCOM matching grants manual, Risk management manual, Partial credit guarantee (PCG) manual, M&E Manual, Communication manual, Institutional and organisational development guidelines.

“To promote independence and transparency, the project established independent committees such as Independent Evaluation Committee (IEC) and Investment Committee to independently evaluate proposals submitted to AGCOM for matching grants and Patrial Credit Guarantee. These committees comprise members mainly from the private sector and a few from the public sector,” he said.

The project has also a Contingent Emergency Response Component, which can be triggered by Government to respond to natural disasters.  During the 2019 Cylone Idai flood disaster, the project provided US$20 million (US$7-million for maize purchase; US$7.5 million for rehabilitation of public irrigation schemes) among others, after government requested AGCOM for assistance.

Meanwhile, AGCOM has so far managed to approve 45 PAs, out of which, 25 have already paid the required 30 percent contribution and are already accessing funds from AGCOM for implementation of the sub-projects. Over 400 hectares of land for local and foreign investments have been identified to secure an enabling business environment for PAs

Nakhumwa, however, pointed that the project has also encountered numerous constraints such as optimal commitment for PAs to make the 30% contribution and aftermaths of Covid-19 pandemic that has delayed in delivering some strategic capacity building trainings.

Malawi’s Ministry of Energy says it is making progress in preparations for recruitment of energy officers in all the country’s districts.

The officers will, among other things, be responsible for presiding over energy related activities at district level including the Malawi Rural Electrification Program (MAREP).

Spokesperson in the Ministry of Energy Saidi Banda has told us that so far the Ministry of Energy has put together concept notes for the implementation of the initiative.

“The concept note contains the roles that District Energy officers are expected to perform in the districts, the initiatives Budget, and roadmap of activities to be carried out in implementing this initiative, among other things,” Banda said.

According to Banda, currently the Ministry is engaging Ministry of Local Government and Rural Development and other stakeholders to agree on how this initiative will be implemented.

The Ministry has therefore assured the general public that everything will fully be implemented by the end of 2021/2022 financial year.

“Since the implementation of this initiative is a huge process, the Ministry is hopeful that the implementation of this initiative will be completed in all districts within the 2021/2022 financial year which also covers the period that our Minister indicated,” he said.

According to the Ministry, individuals who will be qualified as Energy Officers are those that hold at least a Bachelors Degree in Renewable Energy or related fields, coupled with extension work skills.

Meanwhile, Banda has disclosed that their Ministry is struggling to discharge its duties due to the complications resulting from Covid-19.

The Malawi Government has urged tobacco growers to improve their farming practices if the industry is to reclaim its lost glory.

Minister of Agriculture, Lobin Lowe, made the call during TAMA’s 33rd Annual Congress held in Lilongwe under the theme “Adherence to Agricultural Labour Practices in the Wake of Withhold Release Order.’’

The minister expressed government’s commitment to ensuring that local farmers continue benefiting from their work.

He disclosed that his ministry has engaged the Tobacco Commission and other relevant stakeholders to strategise on best ways that can assist in promoting the sector. He said the strategies will be consolidated and developed into notices for parliament to enact into laws that will benefit tobacco farmers.

The minister further revealed that while his ministry is working at identifying an alternative crop to replace tobacco as the country’s major foreign exchange earner, efforts are also underway with other relevant government departments and agencies to come up with laws preventing illegal tobacco exports, a practice that has greatly affected crop’s local earnings.

TAMA president, Abiel Kalima Banda, described the meeting as a success and an eye opener to tobacco farmers considering that the crop is experiencing global challenges. He assured the farmers that it is TAMA’s responsibility to end woes affecting the once upon a time vibrant sector.

Commenting on 2021 tobacco selling season, the TAMA leader said he was satisfied that the year saw reduced rejection rates and increased prices offered to the farmers for their leaf.

Reports indicated that the reduction in the rejection rate from all the Auction Floors in the county was mostly attributed to high sensitization of farmers on Non-Tobacco Related Materials (NTRM) which affect yield quality and its market pricing.