By Vince Musewe
PARADOXICALLY, despite the prospect of wealth that accompany the discovery of natural resources in Africa, such endowments all too often impede than rather than accelerate development. Zimbabwe is no exception.
Natural resources have been shown to play a key role in the conflicts that have plagued a number of African countries over the last decade, both motivating and fuelling armed conflicts. Revenues from the exploitation of natural resources are not only used for sustaining armies, but also for personal enrichment and building political support. As a result, they can become obstacles where predatory coalitions involved in exploitation of mineral resources are unwilling to give up control over these resources.
As long as the majority of African communities face poverty with increasing unequal distribution of income that is fuelled by skewed ownership of mining resources, Africa will continue to be underdeveloped.
In the case of Zimbabwe, although the country is at “peace”, the exploitation of mineral resources continues to be used by the ruling ZANU-PF party’s predatory cabal as a source for self-enrichment and patronage at the expense of development.
The African Development Bank estimated in the last decade, Zimbabwe has lost close to US$12 billion worth of mining revenue that have found their way out of the country through illicit financial flows ranging from secret financial deals, tax avoidance and illegal commercial activities. It is also estimated that Zimbabwe loses close to US$50 million a month in smuggled gold.
The Zimbabwean mining sector is technically classified into three classes: Large-scale, small-scale and artisanal mining. Zimbabwean legislation recognises large-scale and small-scale mining but does not differentiate between the two. Of the three classes of mining, artisanal mining employs by far the most people: 500 000 (or 10 times the number of people employed by large-scale mines). Small-scale and artisanal miners produce a third of Zimbabwe’s total gold output. Most of this gold is smuggled out of Zimbabwe resulting in massive illicit financial flows (IFFs).
According to the World Bank (WB), small-scale diamond mining “is often a poverty driven activity, typically practiced in poor and remote rural areas of a country by a largely itinerant and poorly-educated population with few other employment alternatives. More often than not, in the absence of functioning state regulatory frameworks and enforcement capabilities, it is conducted illegally”.
Despite this, WB projects Zimbabwe’s value of minerals to increase from about US$2,1 billion in 2012 to around US$8 billion, if not more, by 2018. The mining sector remains the leading economic sector in Zimbabwe and is expected to contribute in excess of 20 percent to gross domestic product in 2017. In 2012 alone, the sector contributed US$2,3 billion to national exports, representing far above 50 percent of the country’s total merchandise exports and the country’s total foreign exchange earnings.
Zimbabwe is well endowed with numerous mineral resources with 40 different minerals and 800 operating mines, but even this government has admitted that it is failing to unlock the full potential of this country. Without strong institutions and good macro policies, even the very best mining policies will not deliver the investment output, jobs and exports that we need.
The key success factors for the effective management and allocation of mining resources lie in;
1. Policy consistency and accountability
2. Crackdown on corruption and IFFs
3. Effective and fair tax laws
4. Capital mobilisation
5. Infrastructure development
6. Beneficiation where it makes economic sense
The lack of political will to decisively deal with issues of government policy and institutions is a recurring problem in all sectors of the economy. In addition, Zimbabwe’s resources predator coalition remains intact backed by the army and intelligence services and it will be difficult to dismantle it. But as long as it is in place, I doubt that we will be able to have full accountability of the country’s mining assets and the revenues there from.
We have to deal with patronage in State enterprises such as the Zimbabwe Mining Development Corporation and the Minerals Marketing Corporation of Zimbabwe, which have been mired in corruption, lack of transparency and lack of accountability. These companies have been hijacked by a predator cabal and continue to serve political interests and not national interest. As a result shady deals and revenue leaks are rife costing the tax base significant resources that could have been utilised for economic and social development.
The issue of the taxation of mining companies continues to discourage foreign direct investments. Mining companies in Zimbabwe are required to pay a plethora of taxes which include, royalties, corporate tax, resource depletion fee, marketing fees and withholding tax on dividends. This excludes any “deal introduction fees” negotiated under the radar by politicians and politically connected compradors in order to issue permits and licences. Such practices are not only un-attractive to foreign investors, but can result in opaque high start or establishment costs.
With regards to corruption, we must never forget that there is an international cabal that is predatory which normally partners with locals predatory coalitions to exploit minerals in developing countries. The international “looting machine” is highly organised and normally has support from the highest offices in Africa. This predatory cabal continues to bleed Africa of its heritage and Zimbabwe is no exception.
With regard to beneficiation, this is a good policy, but we must be careful that any beneficiation proposals actually create viable enterprises that are sustainable. We must stop exporting our raw minerals and re-industrialise to create sustainable incomes and manufacturing enterprises.
Zimbabwe has historically added value to its chromite to produce ferrochrome, the use of coal in power stations, gold refining, iron ore to steel, smelting of nickel, the production of platinum concentrate and matte. The issue has been the creation of linkages with the industrial sector to manufacture finished products and that requires a paradigm shift and new technologies.
However, underlying all this must be the rehabilitation of energy sector, transport network especially railways and water resources. This includes a cost reduction of these mining inputs which remain unsustainably high.
The establishment of a Sovereign Wealth Fund (SWF) is a good idea, however without the necessary ethics; it could turn out to be another slush fund for a government that is not accountable. The SWF can indeed be viable where there is disciplined fiscal management and there is no temptation to use that money for recurrent expenditure. That is the greatest risk we shall face. The SWF, can shift resources from consumption, which is far too high in Zimbabwe (90 percent of gross domestic product), to savings and – if properly managed — efficient investment.
Above everything else a long term vision to develop and broaden our mining base, attraction of foreign direct investment and transparency with regard to transaction and revenues, will be the critical success factors for a viable mining sector that benefits all Zimbabweans.
Vince Musewe is an author and independent economist. You may contact him on email@example.com