commodity and metal prices have been on a freefall over the past two years as the global economy continues to experience challenges. The drop in prices particularly for metals is attributed to scale down of mineral purchases by China owing to poor performance of its industrial and manufacturing sectors.
China has been a top metal buyer before challenges hit its manufacturing sector about two years ago. This, and the challenges in the global economic arena are giving local miners sleepless nights as earnings continue to drop despite high cost of operation. This has led to an outcry among stakeholders who are calling for more support, saying high taxes and other fees levied on the industry were hurting the struggling sector.
For instance, during a recent dialogue with Rwanda Revenue Authority (RRA) and the Rwanda Development Board (RDB), the miners complained about the 15 per cent withholding tax charged on mineral transactions, saying it is high and compounds the challenges the industry is already facing.
Jean Malic Kalima, the president Rwanda Mining Association, also said the 4 per cent loyalty tax, as well as import duty on equipment used in the mining sector have made it difficult for most players to break even and earn any profits.
“The cost of mining production is already high and the inclusion of the 15 per cent withholding tax arrears has made it more difficult for mining businesses to operate,” Kalima said at the meeting.
He attributed the growing cost of production to high electricity charges, and hiring of foreign personnel as there are few skilled Rwandans to handle some of the key roles in the sector.
“So, it has become costly to venture into mining. That’s why we are calling for review of the loyalty tax policy as it is affecting the mining industry and its potential to continue as one of biggest contributors to the country’s GDP,” he said.
Kalima, however, urged sector players to embrace value addition to increase the value of Rwanda’s minerals besides creating more jobs along the value chain. He also called for diversification to help make the sector sustainable.
With the current low prices for minerals such efforts could help boost Rwanda’s export revenue from minerals.
The prices for country’s main minerals, coltan, tin and wolfram, have declined by almost 50 per cent on the international market, according to statistics from the National Bank of Rwanda (BNR), raising concerns among local miners and exporters. This (drop in global metal prices) has been largely blamed for the poor performance of the country’s mining industry, particularly in 2015 when it registered decline in both value and volume of 42.1 per cent and 30.5 per cent, respectively.
The low performance of the sector weighed down on the economy during the first six months of 2016, with BNR data indicating a decline in the country’s total export earnings of 2.4 per cent to $268.57 million during the first half of the year, down from $275.12 million the same period in 2015. Generally, the sector’s production was down by 36.6 per cent during the period under review.
According to central bank, earnings from cassiterite exports dropped by 23 per cent between January and March, while those of coltan plunged by 41.5 per cent due to 6.8 and 25.2 per cent reductions in prices of the respective minerals. The price of wolfram fell by 38.2 per cent, which led to a 46.9 per cent decline in export value, while its volume was down by 14 per cent over the reporting period.
Calling for more government intervention, industry players say the sector’s outlook is still gloomy despite the initiatives put in place. However, some players say recent developments could reverse the trend.
They say recent issuance of new mining licences and signing contracts with 20 mining companies, is a silver lining for sector given the ongoing decline in metal prices on the global market. Attracting new players with the financial and technical capacity is essential to help strengthen the industry and create new jobs, they argue.
This will supplement efforts by the Ministry of Natural Resources and Rwanda Development Board (RDB), which have been signing agreements with sector investors that aim at building the capacity of miners to bolster the sector and the country’s mineral exports, the experts add.
This and other strategies is expected to help local mining companies, especially the small-scale miners and artisans, to gain more skills as the sector focused on building the capacity of players in a bid to professionalise the sector.
“But this can only work if government gives more support in terms of tax relief to the sector,” Patrick Gatete, the industry expert said.
The mining companies that were slapped with penalties for delaying to remit their withholding tax and interest on arrears were pardoned by the tax body, but they will have to pay the principle amount of the tax due. However, mining companies claim that this is still too much, adding that it is an impediment to sector growth.