4 February 2014

Kenya: Owning Mining Shares Can Have a Downside

THE National Assembly will soon debate the Mining Bill 2013.

The Bill has many positive aspects, especially the proposal to set up a sovereign wealth fund to receive 25 percent of all mining revenues.

However it also proposes that mining companies should give the state a 10 percent share in their 'operations' for free.

In principle, this sounds good. Mining companies, whether local or foreign, are extracting non-renewable resources and selling them on the world market. Kenya should share in that bonanza.

However this can end up in a dispute over extra investment like that between Telkom and Orange. What happens if that mine loses money? How would Kenya pay its share of the losses?

And how would the state deal with creative accounting by the mining company to hide its profits?

Government should not insist on a 10 percent stake in mining companies, whether local or foreign.

Whatever happens, a vibrant mining sector will generate foreign exchange, corporation tax, PAYE and VAT for the state.

If government feels that mining companies should pay more, they should increase the royalties paid on mineral exports.

Royalties are simple and easy to collect. And they have no downside, unlike owning shares in mining operations.

Quote of the day: "The biggest risk is not taking any risk. " - Mark Zuckerburg founded Facebook on February 4, 2004

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