Africa could see increased capital flows-analyst

| Monday June 7, 2010 00:00

The company reports that the envisaged flight of capital from Australia since the government announced its intention to impose a 40% super profits tax, the world's heaviest tax on resource companies, as well as the collapse of resource stocks on the Australian bourse and the increase in the cost of equity capital for mining in that country, has set the scene for an outflow of mining investment.

Similarly, in Canada, mining companies are looking elsewhere to markets that may have previously been considered as carrying greater political risk, but where the start-up capital for projects would be sustainable for prolonged growth.

Put simply, the C-300 Bill proposes to give the Canadian government authority to investigate complaints about the behaviour of resources companies based in the country operating abroad and withhold public money from companies found to have breached any laws.

Many of these companies have identified the potential that Africa has to offer. BDO director Kemp Munnik reports that, since the announcement of the super profits tax, a significant number of companies have made moves to reduce scale in Australia. These include Xstrata, Santos, Cape Lambert and Peabody.

This future outflow is likely to challenge government's stated intention to raise $3-billion in its first year of the super tax.

The African operation of BDO has already seen increased appetite for mining and exploration in Africa with companies putting out feelers.

Companies have noted interest in three commodity-rich countries, namely Zambia, Botswana and Mozambique, which offer attractive tax rates.

'All three of these countries have attractive tax royalties payable on minerals.

Zambia's royalties range between 2 percent and 10 percent, depending on the mineral, Botswana's between 3 percent and 10 percent and Mozambique's between 3 percent and 10 percent,' says Munnik.He adds that this would be particularly attractive to the major mining companies, such as BHP Billiton and Rio Tinto.

Under the new Australian super tax, BHP would be expected to fork out 57 percent in royalties. In addition to the royalties, the investment climate in Africa is conducive to high profits.'Zambia offers a variable tax rate of between 15 percent and 35 percent and has no exchange controls, which allows companies to expatriate funds easily.

'Botswana has a tax rate of 25 percent and Mozambique offers a ten-year discount on its tax rate of 35 percent and offers other exemptions, including sales tax and duties on mineral exports,' says Munnik. In addition, despite ongoing challenges in Zimbabwe, which has a tax rate of 15 percent, the mining sector has overtaken agriculture as the main foreign currency earner and is attracting major investment, particularly in platinum and gold.