Namibia possesses immense potential for socio-economic advancement through its mining industry.
However, the current state of resource ownership and the subsequent exportation of profits and jobs are hindering the realisation of this potential.
To address this issue, it is essential to conduct a comprehensive examination of existing legislation on resource ownership, review taxation policies, consider general valuation principles, and learn from advancements in other sectors, such as fishing.
These efforts will contribute to establishing a fairer and more equitable approach to resource extraction and ownership in our country.
LEGISLATION ON OWNERSHIP
Namibia’s Constitution, particularly Article 100 on Sovereign Ownership of Natural Resources, clearly stipulates that land, water, and natural resources below and above the surface of the land belong to the state if they are not otherwise lawfully owned.
However, the challenge lies in the lack of clarity regarding the transfer of resources from the rightful owners, the citizens, to the entities responsible for exploration and extraction, often foreign investors.
This absence of a transfer cost undermines the principle that resources belong to all Namibians, regardless of who discovers them.
Consequently, and contrary to expectations, there is no explicit requirement for governmental ownership in the mining sector.
This attractive aspect of the Namibian mining industry allows private investors, both foreign and local, to own 100% of the resources and reap exclusive benefits, with minimal sharing with the public or government, apart from taxes and royalties.
This legislation has resulted in skewed ownership, as evidenced by the National Planning Commission Report, which states that foreign ownership accounts for 88,1% of all mines combined, while local ownership stands at a mere 11,9%, with Namdeb and Debmarine distorting this figure.
Excluding these two entities, local ownership in the mining sector could be below 5%.
TAX BREAKS, VALUATION PRINCIPLES
Investors often justify their exclusive ownership of resources by emphasising the significant capital expenditure and development costs involved.
However, the Namibian tax framework presents a contrasting perspective. In the mining sector, investors are granted a 100% deduction for exploration costs in the initial years, as well as for development costs over a span of three years.
These tax deductions essentially mean that the development of mines is funded by the citizens.
Investors can offset these costs through their profit and loss accounts, thereby reducing their tax obligations for a period extending beyond three years.
Consequently, the government and its population witness the exportation of minerals without receiving any direct compensation during this time frame.
Therefore, using the magnitude of developmental costs as a justification for complete ownership raises doubts.
To rectify the imbalance resulting from the perception that investors should retain 100% of the minerals, it is imperative to assess resource ownership through the application of the general principle of a fair business transaction or valuation.
When evaluating assets and shareholding in a business transaction involving multiple parties, their respective contributions are appraised, and shareholding is determined based on the value of these contributions, which may include capital, talent, land and IT systems.
By adhering to this general valuation principle, if an investor brings N$10 billion to discover diamonds in Namibia, the government, representing the citizens, should evaluate the mineral resources discovered as part of its contribution to the shareholding.
This valuation principle should serve as a starting point for negotiations in all agreements pertaining to resource extraction.
The current system disregards the value of the resources and only considers the value of the capital invested in exploring and developing the mine.
The introduction of royalties in the mining industry was an attempt to address this issue.
However, the consistency of royalties varies across different natural resources.
Furthermore, royalties fail to account for the value accruing to shareholders through value-added activities conducted outside the country.
EMPLOYMENT AND TAXATION
Similarly, investors also often argue that they deserve concessional benefits because they create jobs and pay taxes.
However, it is important to recognise that investors are driven by profit for their shareholders, and employment is a means to achieve this value. Many non-resource-based businesses also pay taxes and employ people.
Therefore, employment creation and tax payment should not be considered a price for resources. Additionally, extracting resources without the…
Read More: Equitable Resource Ownership in Namibia