The World Bank has urged Malawi Government to tread cautiously in mining deals and stressed that projected annual revenues of $600 million (about K1 trillion) depend on progressive fiscal regime and investment in energy.
In a report titled ‘From potential to prosperity: A roadmap for Malawi’s energy transition minerals’, the bank said Malawi needs to mobilise about $5 billion (about K8.7 trillion) investments, with approximately 80 percent to be financed by the private sector, to be on sound footing to reap the benefits.
The bank said Malawi’s mining sector has the potential to generate over $30 billion (K52.5 trillion) in exports between 2026 and 2040 on condition that the $5 billion investment is injected.
self-generation. | Nation
Key outcomes of such investments will be reducing permitting timelines, policy and regulatory uncertainty, including clarifying government equity caps, that is, mining investment climate.
Here, the bank urged government to avoid the pitfall of trading lower taxes and royalties for higher State equity participation.
Key components of the Mining Development Agreements (MDAs) in the country include five percent royalty of gross revenue, 30 percent corporate tax, exemption from customs and excise duties, 10 years’ stability period and 10 years tax loss carry forward as well as 0.45 percent for Community Development Agreement (CDA).
Reads the report: “A non-contributing, minority equity stake is a weak fiscal instrument compared to well-designed royalties and corporate income taxes, which provide earlier and more predictable revenue.”
The bank further said Malawi needs to strengthen its fiscal framework and tax administration capacity to effectively collect, manage and allocate mining revenues and enhance environmental and social governance to expand benefits for communities.
On energy, the report called for upgrading of infrastructure capacity, especially energy as demand from mining is likely to exceed 200 megawatts (MW) by 2032 as well as transport and logistics requires an investment of $1.9 billion.
Regime too soft
Commenting on the report, geo-science expert in minerals, mining and metals Ignitious Kamwanje described the MDAs as soft, saying they lack critical clarity in benefits on tax regimes as they are on the lower side and not harmonised. He said there is need for revision.
“Fixed royalties are not good for a country. They must provide flexibility of amendments due to economic dynamics overtime,” he said.
In a separate interview, development economist Dalitso Kubalasa observed that a majority of past and current agreements have allowed investors to carry forward their losses for 10 years before paying corporate tax.
He said: “This means that a mine might have been digging and exporting for a decade without the Malawi Revenue Authority actually seeing a single tambala of profit tax until the 2030s. That is why royalty is sacred.”
Kubalasa said Malawi has seemingly been ill-prepared and “rather naïve”, sending amateurs to negotiate terms, urging government to “please hire experts now, or get fleeced later”.
Commenting on the energy aspect, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Daisy Kambalame said mining operations are highly energy-intensive and require stable, uninterrupted power to remain viable.
“In an environment of unreliable electricity, mining companies are forced to invest in costly self-generation,” she said.
Minister of Energy and Mining Jean Mathanga could not be reached for comment, but she is on record as having told Parliament in Lilongwe in February that the government is developing regulations and policies to cover existing gaps for proper enforcement and enhancement of economic benefits.
Key mining projects for Malawi include Kanyika Niobium Project in Mzimba/Kasungu, Songwe Hill Rare Earth Project in Phalombe, Kayelekera Uranium Project in Karonga and the Malingunde Graphite and Kasiya Rutile Project in Lilongwe.
