HomeBusiness DigestMining sector: Call for workable policies

Mining sector: Call for workable policies

Gold trade with Arabs, which dates as far back as the 11th century, made British explorers think they had stumbled on King Solomon’s mines when they first saw Great Zimbabwe in 1870.

Years later, King Lobengula was duped into signing the Rudd Concession ceding all mining rights to Cecil John Rhodes. 

The discovery of copper in Zambia led to the development of the Rhodesian Railways connecting gold-rich South Africa to Zambia and the Congo between 1904 and 1909.

Still in keeping with Rhodes’ Cape to Cairo dream of a colonial super state, 50 years later, Kariba Dam was primarily built to supply hydroelectric power to copper mines in Northern Rhodesia and the Belgian Congo. 

Even though Zimbabwe was not as “mineral rich” as her regional counterparts, chrome, iron ore and gold helped sustain the colonial economy when Ian Smith’s regime faced sanctions for its unilateral declaration of independence in 1965.

Today, Zimbabwe’s mines have more than 60 minerals, and the recent discoveries of new deposits of platinum and diamonds as well as economic recovery, has placed mining as the top revenue earning sector.

At last week’s Chamber of Mines annual general meeting in Victoria Falls, the chamber’s president, Winston Chitando, said mining now contributed 13% of GDP and 50% of exports.

Currently, mining is Zimbabwe’s single fastest growing sector and attracts more than half of the country’s foreign direct investment. If growth trends continue, analysts expect the sector to grow by 15 to 20% in the coming years with revenues of up to US$5 billion a year by 2030.

Despite the troubles which faced foreign mining firms during Zimbabwe’s crisis years after 2000, new local and foreign investors, mainly from South Africa, the United Kingdom and later China, marked a new era in Zimbabwean mining in which the government played a leading role.

The discovery of vast platinum reserves resulted in  government brokering two of the biggest mining deals in Zimbabwe’s history. For US$225 million, South Africa’s Impala Platinum acquired Zimplats, while Anglo Platinum invested US$300 million in Unki Mine.

Diamond exploration also attracted a US$61 million investment from Rio Tinto into Murowa Diamonds in Mazvihwa, south central Zimbabwe, about 40 kilometres from the asbestos mining town of Zvishavane in the Midlands Province, but these new capital injections did not automatically translate into growth for the struggling mining industry.

Professor Richard Saunders of the University of York in Toronto, Canada, noted that “mining restructuring by means of investment focused mainly on mergers and acquisitions that involved the transfer of asset ownership without an accompanying renewal and boosting of production”.

Apart from developments in platinum projects, mining productivity was low, especially from the traditionally strong producers such as asbestos, coal, gold and nickel.

Although Zimbabwe had been among the top gold producers in Africa, productivity was hit hard by the economic meltdown.

Between 1999 and 2008, mining contribution to the GDP was as low as 4%. In 2000 to 2001, more than 10 gold mines shut down or were struggling and by 2007, gold output had fallen to “it’s lowest levels in more than a century”, according to University of Zimbabwe economics professor, Tony Hawkins.

Hawkins said the Reserve Bank’s failure to pay gold producers for sales worsened the slump as even “the country’s largest producer, Metallon Gold, responsible for some 60% of annual output, was at a standstill in January 2009 because it was owed some US$20 million by the RBZ”.

On the bright side, the combined effects of introducing the multi-currency in 2009, increased Asian investment in Africa due to a higher demand for mineral and energy resources, and thus helped revive a dying sector and fuelled economic recovery.

Since then mining export revenues have grown in leaps and bounds from US$600 million in 2009 to US$1,3 billion in 2010.

However, Hawkins believes continued gains in revenue are critically dependent on global market forces and internal political stability as well as government policy.

The majority of mining companies have submitted indigenisation implementation plans, but submissions are still outstanding from Metallon and Duration Gold and the Chamber of Mines’ proposal on how to resolve the empowerment issue was rejected.

Chitando said one foreign-owned company had offered to transfer 26% of its shares to indigenous Zimbabweans while 25% would form part of its corporate social responsibility projects.

Commenting on the rejection, Chitando said: “They (government) said they preferred to handle each mining company differently for them to comply with the indigenisation requirements. As we speak, that exercise is being done.”

The company specific nature of indigenisation laws means each and every company has to comply, rather than a conglomerate offering a blanket indigenisation implementation plan.

The top-down approach of government in mining policy formulation has also come under fire from Chitando.

“Lack of consensus on the contribution of the mining industry to the economy is the prime reason for some policy interventions working to the detriment of the industry,” said Chitando.

Further to the controversial indigenisation policy, the highly militarised nature of mining, especially diamond mining in Marange, has drawn criticism of the government by local and international human rights groups.

Next week’s first-ever visit by the UN Human Rights Commissioner, Navi Pillay, includes a trip to the Marange diamond fields. Private media and rights groups expect Pillay to comment on human rights abuses there, but government says it had invited Pillay on its own initiative and “had done nothing wrong” in Marange.

In other more stable African countries, the true potential value of mining remains to be seen because although the continent sits on a vast array of mineral deposits, mining still remains an under-funded and underdeveloped industry. Countries continue to export raw minerals and lose revenue due to lack of beneficiation and value-addition. 

For Zimbabwe, the numerous potential economic benefits of mineral exploration emphasise the need for a more cautious indigenisation policy and the development of sound macro-economic policies which safeguard the interests of all stakeholders, including local communities, government and multinational corporations.

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