Mining on death bed

Despite being billed as one of the sectors that could help boost the economy, a recent Extractive Industries Transparency Initiative (Eiti) report shows that mining sector’s contribution to the country’s Gross Domestic Product (GDP), and the economy in general, is shrinking.

The report, a third of its kind, looks at the 2016/17 fiscal year and shows that even the forestry sector—timber and wood—performed better than the mining and extractive industry.

Mining contributed just about 0.88 percent to the GDP, 0.51 percent of total government revenue, 0.32 percent of the total exports and 0.21 percent of the total employment in the country.

Natural Resources Justice Network chairperson Kossam Munthali yesterday said it is unfortunate that government has not done enough in implementing previous recommendations to reform the sector.

He said: “The state of mining in the country is worrisome and something needs to be done before it gets worse. When you look at the data that companies provide and what government discloses, you always find disparities.

“Revenue continues to go down, and all you are told is that it is because Kayelekera Uranium Mine closed down, but the small companies are also making money. Are we doing enough to follow them up?”

Eiti in its second report for the year 2014/15 showed that Malawi earned K5.3 billion from mining, which was a 10 percent drop from the previous year, which stood at K5.93 billion.

Surprisingly, forestry sector raked in K11.4 billion during that year.

The contribution of the mining and quarrying although jumped in the 2016/2017 financial year to K11.7 billion to represent about 0.88 percent of the GDP, the earnings dropped to K4.3 billion during the year 2016/17 before further plunging to K3.7 billion in 2017/18.

Worse still, as much as K262 million cannot be reconciled, due to failure by companies and government agencies to report payments.

The report also notes that there are some companies that do not submit their reporting templates while others submit them without their audited financial statements.

It also indicated that the total unreconcilled discrepancies amounted to K262 million representing 3.2 percent of total.

On reporting templates not submitted by extractive companies, it relates to one firm which did not submit its reporting templates, but total revenues confirmed by government agencies for the company amounts to K473 214 047.

The report, compiled by international auditors BDO LLP, has since recommended the need for Malawi to maintain a publicly available register of forestry concessions, disclose contracts/agreements, but also mainstream the creation of Eiti data and Eiti disclosure.

The country is also urged to follow up of non-tax payments but also deal with failure to meet the deadline by the reporting entities.

“The Department of Mines [DoM] does not have a good monitoring system in place to calculate liabilities on uncollected royalties from companies that undertook mineral production activities without declaring any payments. As a result, the lack of follow up by DoM may systematically lead to lost opportunities for the government.

“We recommend that DoM follows the payment of fees by companies and ensures these are collected promptly,” the rport reads in part.

It further urges government to improve non-tax administration and collection capacity to effectively perform its duties and maximise tax collections.

“This can only be achieved if officers are properly trained in order to monitor and follow the activities of the extractive companies,” the report recommends.

However, Munthali insists that the key issue in the mining sector is strong monitoring mechanism.

“We should not just celebrate the figures that we get from mining, but we should also ask if mining is helping people. Is the revenue helping people in the villages?” he said.

Malawi joined as an Eiti candidate country in October 2015.

The Eiti process covers three sectors: mining, oil and gas, as well as forestry. The country published its first Eiti report covering the 2014/15 financial year in April 2017.