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Why is Zim losing gold?

THE Reserve Bank of Zimbabwe this week announced plans to scale up the formalisation of artisanal miners, who produce over half of Zimbabwe’s gold. The plan is for Zimbabwe to benefit more from its resources. In this interview with our business editor, Shame Makoshori (SM), Selina Zhuwarara (SZ), a leading researcher in Africa’s artisanal mining sector, explains the impact of the move and tells us why Zimbabwe is losing its gold. Here is how their discussion went:

SM: Tell us about the state of the artisanal mining sector in Zimbabwe and southern Africa.

SZ: Zimbabwe has a large artisanal mining presence. This is also characteristic of the rest of southern Africa. The Sadc region is estimated to be home to over five million artisanal miners with around 80% of this number operating informally. Many of the artisanal host countries such as the DRC, Tanzania, Zambia, and Ghana have legalised the sector. It is good to note that South Africa and Zimbabwe are also at an advanced stage of policy and legislative development respectively. The region’s artisanal mining policy framework is also very progressive in its conceptualisation of the structural support and range of interventions required to formalise the sector. However, notwithstanding the progressive policy framework, the realisation of policy objectives has been weak, and the formalisation drive is also not achieving the rate of conversion that had been envisaged.

SM: This week, the central bank said it wants to formalise artisanal mining. What is your view?

SZ: The announcement of formalisation of artisanal mining is a significant development in the country’s mining industry. The introduction of a clear legislative tool to direct the participation of artisanal miners is the vital first step in formalising the sector and bringing it under effective regulatory control. The biometric enrolment of the registration process is also indicative of the willingness of the government to embrace beneficial digital competencies in creating a multi-functional framework for the sector. There is considerable socio-economic and regulatory value that can be derived from the efficient collection and management of data from the artisanal sector. For formalisation to be successful the regulatory framework needs to keep accessibility and inclusiveness as the primary objective. This is particularly important when conceiving the licensing and compliance obligations that will apply to artisanal miners. It is also important to include comprehensive structural assistance in building the framework of the sector.

SM: Do you think these miners are generating wealth out of their efforts?

SZ: Artisanal mining can be a viable and sustainable economic activity if it occurs in a properly regulated environment where the rights and obligations of players therein can be enforced. Presently the sector is caught in a vicious cycle of indigence, that is miners get enough to survive but not enough to significantly improve their circumstances. For instance, in the gold sector, while the artisanal miner may manage to get prices slightly above market rates for their grammes on the black market, the cost of producing, the quantity they produce and the time they take to produce negates profit. Resultantly, the real profit is made by middlemen, benefactors and illegal buyers who are buying the product at least cost for onward sale into the global minerals supply chain. It is important to assist artisanal miners to mine efficiently to preserve their capacity to be profitable and sustainable.

SM: Are governments benefiting from the exploitation of the resource?

SZ: Governments are still far from seeing the real value of the ASM sector in their respective economies. The illicit trade of minerals is a multi-billion-dollar industry that is depriving countries of significant mineral revenues. In 2019, Reuters reported that an examination of UAE gold annual imports data revealed approximately US$3,9 billion above what was supported by official trade data between itself and Africa. These are strong indications of irregular trade occurring and possible losses in revenues for countries where this gold originates. This is an anomaly noted in gold alone and in trade with only one country. Yet the World Bank estimates that 80% of global sapphire, 20% of gold, 18 to 30% of the world’s cobalt, and up to 25% of diamond mining is undertaken by artisanal miners. With 80% of artisanal mining being undertaken informally, it is conceivable that significant volumes of artisanal products are being channeled into the global market illicitly. Africa needs to utilise every advantage possible to improve the effectiveness of regulation in the mining sector.

SM: There have been reports that artisanal miners lack capital. But the bulk of US$1,5 billion being smuggled out of Zimbabwe annually comes from them.

SZ: The state of the artisanal sector is indeed a paradox to its potential and actual contribution to the global economy. This is largely because the ASM supply chain has become convoluted and besieged by players who have seen an opportunity to make a lot of money at little cost. The disaggregation of the ASM market leaves the miners exposed to coercive and manipulative market dynamics. These players have seen the “economic opportunity” that governments have left unattended to by way of poor structural and technical support, inadequate regulation and poor market rationalisation. Resultantly, the black market has filled this vacuum and consequently channels resources to the ASM sector whilst acting as the main aggregator of the sectors that produce at least cost. Unfortunately, the relationship between artisanal miners and the black market is very transactional and devoid of any promotion for growth for artisanal miners. The black market thrives by keeping artisanal miners in an impoverished state because its profitability is hinged on the miner’s cheap labour, poor market access, zero compliance costs, and zero regulatory inconveniences. The revenues generated by the illicit trade in minerals end up in the global economy, in the hands of countries, corporations and individuals who either intentionally pursue the opportunity or negligently sustain the system. The sector can only access positive capital when paired with a partner who is interested in mutual growth like governments. Formalisation of artisanal mining is not an option. By fully integrating the artisanal sector into the mining economy, mineral-rich countries will be able to derive full value from small deposits. However, successful formalisation will be dependent on the ability to visualise and actualise a regulatory mechanism that can embrace and sustainably support producers who operate at small economies of scale. The sector also has significant potential to be a vehicle for sustainable transformation in the mining industry. While indigenisation and transformation have largely advanced the need for local representation in multinational structures and investment, it is a considered view that a fully formalised ASM sector can also assist in empowerment.

SM: Tell us about your concerns about this sector.

SH: On an economic level, the biggest concern relates to the sheer losses being incurred due to the poor regulation of the sector.  However, also of concern are the large range of challenges that are experienced by the sector such as lack of access to sustainable financing and lack of access to wider markets. While most efforts have been directed towards licensing and mopping up the product from the sector, it is important to realise that the sustainable transition of the sector to formalisation requires all its adverse issues to be concurrently tackled.

SM: Gold wars, machete gangs — what is driving these?

SZ: It is inevitable for violence and criminality to take root when the sector has grown to the proportions it now occupies without adequate regulation. The absence of an organised centre of control to guide the sector allows influence and coercion to be used as tools to control resources and space by different entities. The worrying increase in machete gangs only reinforces the importance of effectively coordinating and organising the sector and its market under the governments’ direction to counter the dynamics that are currently at play in the sector.

SM: Zimbabwe plans to produce US$4 billion gold a year from 2023. Is this achievable?

SZ: This is achievable. An organised artisanal mining sector can contribute significantly to the mining industry’s target. The potential of the ASM sector to contribute to the economy was best depicted by its overall contribution to gold deliveries in 2019 to date. With the right support to improve productivity and ease of doing business, all ASM minerals can contribute meaningfully to the attainment of the US$4 billion target.

SM: Tell us about child labour and environmental degradation.

SZ: We have seen a rise in child labour in Zimbabwe and other artisanal host countries. Organisations such as Green Governance Zimbabwe Trust have reported on the increased participation of children in artisanal mining especially after the onset of the Covid-19 pandemic. The Zimbabwe National Statistics Agency in its 2019 report noted that of 500 000 under 16s surveyed, 5,4% of this number were working in the mining and quarrying sector. The eradication of child labour in the artisanal sector is a natural consequence of formalising the sector because it becomes easier to monitor artisanal operations. It also enables guardians to earn a decent living. The primary driver for child labour is the inability of their guardians or parents to provide for them. Once parents or guardians can be gainfully employed in safe and predictable circumstances, it allows children to be sent back to school or adequately provided for at home. Environmental damage raises serious concern in its long-term impact on the health of the general populace, impact on nature and wildlife, and the structural integrity of various infrastructure.

SM: There have been numerous deaths in old gold shafts. Why is this happening?

SZ: The ASM sector is increasingly attracting more women and men to take their chances in very precarious circumstances in an attempt to earn a living. Unfortunately, because the ASM sector is not properly provided for in the mining industry or properly regulated, those who pursue it, are left to search for mining space on mostly unallocated or defunct concessions. ASM fatalities in old shafts are a combination of many things such as poor oversight on mine closure procedures which resultantly provides artisanal miners with unlimited access to these dangerous areas. The fatalities also confirm the lack of technical knowhow and resources on the part of artisanal miners to make their worksites safe. It is also a priority for governments to appropriately identify, demarcate and designate artisanal mining areas which can be allocated or accessed legally by artisanal miners.

SM: Tell us about tax evasion.

SZ: Tax evasion is at the heart of undermining the symbiotic relationship that should exist between mining entities, communities and host governments. The extraction and trade of non-renewable resources are customarily justified by the receipt of fair exchange in value as set by applicable regulatory obligations. The value derived by governments from taxes, dividends, licensing fees, levies and rent is what governments should ordinarily use to support strategic infrastructure and high socio-economic impact projects to create a lasting legacy from the exploitation of non-renewable resources. Therefore, upsetting this balance by evading tax only negates goodwill and depreciates the social capital which supports the industry. Governments need to keep the long-term objectives of formalisation in view when crafting an appropriate tax structure for the sector. It is important to be prepared to make concessions where necessary and to ensure that the overall tax structure, including licensing fees, levies, and administrative fees is not cumbersome.

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