last week I focused on the significant contribution to economic recovery that would be achieved by the revival of Zimbabwe’s manufacturing sector.
Such revival and subsequent growth would be a source of considerable job-creation, lessening of imports and increased export revenues, monetary flows to the fiscus and other invaluable contributions to economic growth.
Notwithstanding that it is important for government and the private sector to focus on the transformation of industry, they must not ignore other economic sectors that have a major role to play in achieving economic transformation.
Of the diverse areas that can fuel a viable economy in Zimbabwe is the mining of the country’s extensive mineral resources. This would subsequently effect value-addition to those minerals.
Although the last four years have witnessed some significant increase in mining operations, the improvement is relatively minimal compared to that which can, and should, be achieved.
In the national interest, government should urgently, stimulate the development and operations of the mining sector. But, to date, it has abysmally failed to do so, creating many deterrents and hurdles to that end.
Government’s failure to maximise the contribution that mining could make to economic wellbeing has been, and continues to be, centred on a determination to maximise ownership and the income generated from the minerals to such an extent as to preclude private sector participation.
Government officials vigorously assert that as the minerals are situated in Zimbabwe, they wholly belong to the Zimbabwean people.
In so doing they are increasingly alienating possible foreign investment, which is key to the exploitation of the minerals and to the downstream benefits of value-addition after those minerals have been mined.
The ill-considered and destructive stance of government has, since 2008, been that each and every mine (including those yet to be developed), should be at least 51% owned by indigenous Zimbabweans, including in many instances the Sovereign Wealth Fund and the National Youth Development Fund, in addition to community share trusts in the regions of the respective mines.
None of the indigenous shareholders are, in the perspective of government, liable to provide any capital for the shareholdings they are to acquire, with the state asserting that the indigenous 51% shareholdings are fully paid for by the state according the mining venture’s access to the minerals.
In persisting with such a stance, government is disregarding the value of funding provided by non-indigenous investors to enable access to the minerals thereby realising economic benefits for the country as a whole, as well as for the non-indigenous investors.
That contemptuous disregard for international economic investment criteria and norms is a major deterrent to foreign and domestic non-indigenous, would-be investors.
Compounding the negatives which create potential reluctance to invest is the fact that investors have no authority and control of the mining venture by virtue of being minority shareholders, regardless of the magnitude of their investment, technical expertise and state-of-the-art technology transfers which they provide to the mining entities in which they invest.
Adding insult to injury, and rendering diminished yields to any investors, government prescribes diverse additional diminutions in the yields to the investors. Before development of the mine even begins and production generates income, the new mining venture has to effect payments to the state for claim registration fees and for a mining licence.
Thereafter, once the mine starts producing, it has to pay royalties to the state on the minerals extracted from the mine. Thereafter, the mine has to pay income tax on its profits, and must deduct withholding tax on any and all profits distributed to the shareholders.
While it is wholly equitable that any business venture should pay income tax, and recipients should be taxed on dividends earned, it is both incomprehensible that the state demands that non-indigenous investors be required to fund the indigenous investors by such investors contributing naught to the venture other than the state releasing access to the minerals, and thereafter to pay immense royalties and taxes, and import duties on many operational inputs imported in order to achieve effective exploitation of the mine.
The tragedy is that these unrealistic government policies inhibit the recovery and growth of the economy. If the exploitation of Zimbabwe’s vast mineral wealth would be facilitated and constructively incentivised, there would be a big upturn in the economy, and in national wellbeing. Key economic beneficiations which would come from the development and growth of the mining sector include, among others:
l Employment for thousands of Zimbabweans, affording them and their dependants a decent life;
l Generation of substantial monetary inflows, thereby progressively eliminating the massive trade imbalance which has plagued Zimbabwe for too long;
l Considerable downstream economic enhancement from the expenditures of the mines, and their employees thereby restoring viability and growth to commerce and industry;
l Revenue flows to the fiscus.
It is long overdue for government to recognise these realities which will benefit the country immensely.