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Zambia to double copper royalties

Reuters & Miningmx | Fri, 11 Nov 2011 15:31

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[] -- ZAMBIA's president Michael Sata has made good on pre-election promises he would tap the mining industry for develop Zambia quicker by doubling state royalties on copper to 6%, according to a report by Reuters.

The newswire said that Sata's finance minister, Alexander Chikwanda, unveiled "an expansive" budget for 2012 with large increases in social spending and farming subsidies which would be paid for by a rise in mineral royalties. A debut $500m Eurobond was also on the cards.

Overall spending would rise to 27.7 trillion kwacha, or 26.5% of gross domestic product (GDP), from 21% in 2011, Chikwanda said.

Most of the extra spending would go on 45% and 27% increases for health and education respectively, and a 38% boost for a farming subsidy programme that has underpinned nearly a decade of 6%-plus annual growth.

"The Patriotic Front (PF) won the 2011 election because it listened to the needs of the people at all levels," Chikwanda said in his budget speech. "Now that we are in government, we have not and will never distance ourselves from the people."

PF leader Sata, a gruff populist who spent 10 years as opposition leader in the southern African nation, has caused slight nervousness among foreign investors, not least for his vitriolic criticism of Chinese mining firms.

However, he toned down his rhetoric in the latter stages of campaigning, and since coming to office has been at pains to ensure a working relationship with a sector that accounts for more than 70% of all foreign exchange earnings.

However, Chikwanda put some pressure on the mining firms, raising minerals royalties to 6% from 3% for base metals such as copper, and to 6% from 5% for precious metals.

He also said Lusaka would resurrect the previous administration's plans to tap international capital markets to raise infrastructure funds, with the launch of a debut $500 million 10-year Eurobond during the year.

However, he also made clear that Zambia, a nation of 13 million people, would not get sucked into an unsustainable debt trap - as has happened with many far richer governments in the euro zone.

"As we spend more on our socio-economic infrastructure, our ability to meet our debt obligations should not be ignored," he said. "In this regard, the government will target concessional borrowing as the first option."

Domestic borrowing for the year would amount to 1.3% of GDP and foreign financing would be 4.3 percent, Chikwanda said. Foreign grant aid would amount to less than 2% of GDP, he added. He also assuaged fears of a looser monetary policy, saying the Bank of Zambia would continue to target single-digit inflation through its control of money-supply growth.

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