In an effort to boost revenues from its cash cow, the government of Congo is on the verge of enacting a mining code that will raise corporate taxes to 35 percent, from 30 percent, while introducing a new 50 percent windfall in taxes. This move could backfire, however, in a way that stifles further investments into the sector and scares off investors to rival markets across the continent.
These are the sentiments of Mark Bristow, CEO at Randgold Resources Limited. “All those (proposals) really hurt, to a point where a standard gold mine doesn’t make a return for the investors so no one will invest,” he told Reuters.
According to him, the $2.5 billion Kibali gold mine, which his company operates, could never have been developed under the current proposal. This, he says, is the reason behind his aggressive lobbying for the government to roll back the proposal.
The mining industry, which has been the main driver of GDP growth, has most mines in the country protected by a 10-year stability clause – meaning the owners would not pay any new taxes for 10 years after such provisions were passed into law. New mining ventures are, however, vulnerable to the evolving legislation.
Congo holds the world’s largest cobalt reserves and a significant amount of diamonds, gold and copper. But it is among the most difficult places in the world to invest in. It ranks 184 out of 187 in the World Bank’s ease of doing business index. Firms in the mining business believe the regulatory environment must be developed to become attractive if the country aims to lure investors. The country’s business environment has suffered largely from poor infrastructure and political instability.
A number of African nations have attempted to make similar moves by hiking tax rates from the mining sector, only to quickly reverse such decisions. These countries include Zambia, Ghana, Mali, and Cote d’Ivoire.
By Emmanuel Iruobe