The Albert Londres Prize, in the audiovisual category, was awarded to “Zambia: who benefits from copper?,” broadcast on “France 5″ on May 31, 2011.
In the film, two journalists, Odiot Alice and Audrey Gallet, provide an investigative report on Zambia where the Swiss multinational, Glencore, has operated copper mines for many years. The film makers explain how, through an elaborate system of tax evasion, the world’s most powerful raw materials trading company runs the Zambian copper industry for its exclusive benefit, leaving only crumbs to the government and massive air and subsoil pollution to the local population.
A poor country which could be rich
Zambia is a small country in Southern Africa with just under 9 million inhabitants. It is one of the poorest countries in the world with a gross national product per capita of $370 per year (in France, in 2010, GNP/capita was $34,440 while in Switzerland it was $50,170). Two thirds of the population live on less than a dollar a day, one in five people is infected with HIV AIDS, the illiteracy rate is 75.1%, and a third of the children do not attend primary school. Yet Zambia is potentially very rich. It has one of the largest copper reserves in the world. Copper is a strategic metal, and its price has soared in recent years.
So why this poverty?
Debt and privatization
The country, formerly a British colony called Northern Rhodesia, secured its independence on October 24, 1964, changing its name to Zambia. The copper mines were nationalized and the sale of copper allowed for the creation of the country’s infrastructure – roads, schools, hospitals – and fostered the first phase of development. In ten years, the GDP of the young state approached that of Portugal! But in the 1970s, there was a fall in copper prices. The International Monetary Fund (IMF) and the World Bank (WB) advised the country to borrow, with the idea that copper revenues would repay the debt. A second shock came in the early 1980s when the U.S., followed by Europe, increased its interest rates sharply. As a result: Zambia was obliged to repay three times more interest. This amounted to economic asphyxiation.
The country sought the help of the International Monetary Fund (IMF) and the World Bank (WB) … which conditioned Zambia’s new credit on the privatization of its copper mines. In a context of government corruption, the mines were sold off for $627 million, whereas experts considered their minimum value at $3 billion.
- Copper prices grew by 350% since the 1990s. Yet in 2007, mining revenues contributed 0.2% of GDP in Zambia.
- The global average royalties for copper is 3%. Secret agreements signed in 2000 between the state and multinationals stipulated that they would be 0.6% for Zambia.
- The government granted numerous tax exemptions to companies and that did not prevent the latter from establishing a vast system of tax evasion.
- Mopani Copper Mines is the largest mining company in Zambia and is a major producer of copper and cobalt in the country. It is a subsidiary of the multinational Glencore International PLC (Switzerland) and First Quantum Minerals Ltd. (Canada), through intermediary companies mostly located in tax havens.
- In 2009 the results of an audit by the Zambian government revealed several anomalies: an unexplained increase of $380 million in production costs, production volumes remaining surprisingly low compared to other copper operations in the region, as well as manipulation of copper prices in favor of Glencore, violating the principle of full and free competition…
- Out of 12 mining companies operating in Zambia, only one pays taxes on profits: the others are officially in deficit despite soaring raw material prices.
- Switzerland purchases more than half of Zambian copper thanks to the presence of Glencore, based in Zug.
- In 2008, at the Zambian customs, 50% of copper exports were supposed to leave for Switzerland, but the Swiss data indicate that most of the copper never reached Switzerland – the Swiss re-export and sell it at a far higher price.
- According to the NGO Christian Aid, if, in 2008, Zambia were to receive for its copper the export prices charged by Switzerland for the same material, Zambia would have added $11 billion to its GDP of $14 billion.
The role of the European Investment Bank
This organized looting has not prevented the European Investment Bank, whose capital is supplied by the European states, to financially support private mining companies. It gave a ten year € 650 million loan to mining concerns. You have read correctly: not only do these private companies pay virtually no taxes to the Zambian government, the European community financially supports them!
In 2005, the EIB lent € 48 million to the consortium Mopani Copper Mine, the largest mining company in Zambia whose majority shareholder is Glencore. The objective was to create a new smelter to reduce pollution from sulfur, generate employment, and reduce poverty. In exchange for that loan, the Mopani Copper Mine made the commitment to reduce its sulfur emissions to the point where they “should comply with Zambian legislation” by 2015: a period of nine years to comply with standards. Such laxity on the part of the EIB is puzzling!
The NGO Friends of the Earth has analyzed operations at the factory in Mopani. Friends of the Earth identified the following results: the emission of sulfur dioxide was up to 72 times the legal limit, arsenic 16 times, and those of lead 90 times the reference rate. Mining produces enormous quantities of waste: 110 tons of waste are extracted and 200 tons of material moved per ton of copper produced. Settling ponds, where toxic residues are dumped, are left open, in defiance of all safety rules.
Since 2003, Mopani uses a new extraction method – leaching – which is less expensive and more polluting. The technique involved is to inject sulfuric acid into the soil to break up the copper ore before being pumped. The problem is that the acid solution, under pressure, can pollute ground water. In 2008, 800 people visited the hospital after drinking water contaminated with sulfuric acid. Mopani Copper Mine has paid some hundreds of dollars in fines. In any case, it is the company itself that provides the feedback concerning water contamination because Zambia does not have the necessary testing equipment.
Glencore, a “model” of social responsibility
On Tuesday, May 24, the Swiss multinational Glencore was introduced to the London Stock Exchange. It employed 50,000 people worldwide and generated $106 billion of revenue in 2009. This is a true model of social responsibility and government. Judge yourself!
- In France, Glencore acquired and liquidated the French company Metaleurop and transferred the securities of the company to an offshore firm, Glencore Finance Bermuda.
- In Colombia, Glencore, which owns coal mines, is accused of violations of human rights. With the help of the army, it is said to have wiped out entire villages and expropriated the people.
- In Zambia, it is also suspected of corruption in the cobalt trade.
The company is based in Zug, the most favorable place for taxes in Switzerland. It was awarded the 2008 “Public Eye Award” as the worst company of the year.
Glencore is also regularly singled out for its questionable practices: in March 2011, Lenten Fund and Pain Pour le Prochain, two Swiss NGOs, published a report denouncing tax evasion and violations of human rights that its Katanga Mining Limited subsidiary in the Democratic Republic of Congo is said to have committed. Following this report, the multinational was excluded from the portfolio of Ethos, a Swiss Foundation for Sustainable Development.
Lessons to be learned
What lessons can be learned from this case? Our commitment to international solidarity should not prevent us from making political analysis. International capitalism, on behalf of economic liberalism, tries to release itself from any regulation or control. Only profit matters.
Despite numerous government commitments, tax havens continue to thrive. Havens allow multinational corporations to escape taxation and corrupt leaders to divert international aid. It is estimated that for every dollar of development aid paid to African countries about € 5 coming from these same countries are sheltered in offshore accounts.
According to the NGO “Friends of the Earth”, official European institutions are the first to use tax havens: “Over the past five years, the European Investment Bank lent €5.66 billion to French, Dutch and English banks which are the most involved in tax havens, while €210 million have gone to African funds using tax havens in their investment strategies. In addition, major infrastructure projects such as the West African Gas Pipeline in Nigeria, the Tenke Fungurume mine in the Democratic Republic of Congo, and the Mopani Mine in Zambia are associated with Bermuda or the Virgin Islands, prominent tax havens.
People, in the North as well the South, should denounce these practices and demand transparency rules. After the broadcast “Zambia: who benefits from copper?”, the European Investment Bank (EIB) announced a moratorium on giving credit to Glencore and, a week later, the Zambian government asked the company to pay outstanding taxes. Pressure from the public can achieve more positive reforms.