Zimbabwe’s key economic enablers

(Last Updated on February 24, 2016 by Editor)

ZIMBABWE -These will be critical in creating a new Zimbabwean economy that is based on free enterprise and the equitable distribution of opportunity and wealth.

Last week we looked at the need for macro-economic stability and the need to fairly allocate resources and distribute economic opportunity so that the country can live up to its full potential.

The test of our progress will therefore be – not whether we add more to the abundance of those with much, but whether we provide much to those with too little. (Jean Jacques Rousseau)

We also stated that we will only be able to create a competitive and vibrant inclusive economy when we fully utilise our natural resources and effectively combine and manage our exceptional human resources with long term affordable investment capital to produce goods and services that not only meet our local needs, but also increase our export potential.

This week we look at our second enabler which is:

1. The effective management of our mining resources and the maximisation of benefits therefrom.

There is no doubt that the mining sector will have a critical role to play as the engine of economic growth and job creation in the future. The Re-industrialisation of Zimbabwe will be at the centre of our economic policy as we seek to re-invent a diversified industrialised economy which creates wealth and jobs for our people.

Unfortunately natural resources continue to play a key role in the conflicts that have plagued a number of African countries, including Zimbabwe over the last decade. Revenues from the exploitation of natural resources have too often been abused by governments in power for personal enrichment and entrenching political support. As a result, they have become obstacles and not enablers to economic development where predatory coalitions involved in exploitation of mineral resources are unwilling to give up control.

In our case, the diamond find of Chiadzwa still leaves a sour taste in the mouth where ZANU (PF) behaved like a typical predator at the expense of the economy. To this day the people of Chiadzwa are still wallowing in poverty and have been dispossessed and displaced to the benefit of a predatory coalition of a local and international cabal. A looting machine exists which continues to fuel the unbridled greed of a political elite. We intend to expose and recover the looting that has gone on under ZANU (PF) since the money belongs to the people of Zimbabwe.

The African Development Bank estimated that in the last decade, Zimbabwe has lost close to $12 billion of mining revenues 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 $50 million, if not more, a month in smuggled gold. That needs to stop.

Zimbabwe is well endowed with numerous mineral resources with 40 different minerals and 800 operating mines which could contribute in excess US$8 billion to GDP by 2018 compared to the current paltry US$2.5 billion. Even this ZANU (PF) led government has admitted that it is failing to unlock the full potential of this country.

Our mining sector is technically classified into three classes: large-scale, small-scale and artisanal mining. Of the three classes of mining, artisanal mining employs by far the most people: an estimated 500,000 (or ten times the number of people employed by large-scale mines).

Small-scale and artisanal miners produce a third of Zimbabwe’s total gold output but remain marginalised and poor while they work in horrifying conditions. PDP intends to change this abusive slave labour paradigm and provide decent working conditions and opportunity to this sector.

It is our belief that without strong institutions, good macro policies and decent human resource management, even the very best mining policies will not deliver the investment output, jobs and exports which we desperately need.

In our view, the key success factors for Zimbabwe to effectively manage its mining resources efficiently and maximise benefits therefrom include;

1. New political leadership
2. Institutional renewal
3. Policy consistency and accountability
4. Crackdown on corruption and IFFs
5. Effective and fair tax laws
6. Long term capital mobilisation
7. Infrastructure development
8. Promotion of small scale and artisanal mining
9. A well-managed Public Sovereign Fund
10. Beneficiation where it makes economic sense

As PDP, our first call will be to eradicate patronage in state enterprises such as the Zimbabwe Mining Development Corporation (ZMDC) and the Minerals Marketing Corporation of Zimbabwe (MMCZ) which have been mired in corruption, lack of transparency and lack of accountability. We intend to re-examine the existing institutional architecture within the mining sector and ensure that it ultimately delivers economic value to the country.

It is fact that most of our state entities have been hijacked by a ZANU (PF) predator cabal and continue to serve their political interests and not national interest. As a result, shady deals and revenue leaks are rife costing the tax base significant resources that could be utilised for economic and social development.

The taxation of mining companies in Zimbabwe 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 nefarious “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-up or establishment costs thus having an impact on profitability and viability. PDP will re-look at our mining tax regime to ensure that it incentivises both local and foreign investment while it maximizes revenues for the treasury.

With regards to corruption, we must never forget that there is an international predatory cabal which normally partners with local predatory coalitions to exploit minerals in developing countries. This predatory coalition is highly organised and normally has support from the highest offices of the land.

As PDP we will brutally deal with corruption in this sector and promote transparency and accountability starting from State house. We will also look at government mining deals which have been entered into by ZANU (PF) and reconsider their benefit to Zimbabweans.

With regard to beneficiation, we have to be careful that any beneficiation proposals actually create viable enterprises which are sustainable. A populist political approach to business will not work. In our view, any attempt to beneficiate must be driven by business imperatives alone in consultation and in partnership with the private sector.

We will certainly move away from a prescriptive culture, where government ministers give policy directives without doing the necessary research or anticipating the unintended consequences of their actions. This means that we must promote a strong and independent Chamber of Mines which must represent the sector’s business interests without prejudice especially to small scale and artisanal miners.

Value adding in the mining sector is nothing new. 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 challenge remains how to create 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 the energy sector, the transport network, especially railways, and ensuring adequate water resources. If we are to be competitive, we will need to manage and reduce mining input costs which remain unsustainably high.

Lastly, PDP believes that a Public Wealth Fund (PWF) can indeed be viable proposition especially where there is disciplined fiscal management and there is no temptation by government to use fund inflows for recurrent expenditure. That is the greatest risk we shall face. The PWF, can shift resources from consumption, which remain far too high in Zimbabwe (90% of GDP), to savings and, if properly managed, efficient investment.

The lack of political will to decisively deal with the hidden costs of inconsistent government policy, corruption, patronage and the stream lining of state institutions is a serious problem which will need our urgent attention.

A long term vision to develop and broaden our mining base, attract foreign direct investment, create jobs, add value to our minerals including the effective transparent management of our mining revenues, are to us, the critical success factors which PDP will focus on in order to establish a viable mining sector which benefits all Zimbabweans.