HomeOpinionHow state institutions are undermining mining sector

How state institutions are undermining mining sector

CHENAYI MUTAMBASERE
INSPITE of it being nearly 42 years since independence, Zimbabwe is still failing to achieve optimum output from its mining sector. Being endowed with 40 minerals and hosting the second largest chrome deposits in the world, mining should be the bedrock the country badly needs.

Mining should be the driver of the long awaited industrial revolution that has been promised over the years by the incumbent government.

The establishment of several state institutions has been   meant to promote development in the mining sector. More recently the Minister of Finance, Mthuli Ncube announced in the budget statement that US$10 million will be drawn down to re-establish Bubi Gold Service.

However, is the mining sector benefiting from the policy and state institutions?  Does the existing policy and institution architecture compliment the aspirations laid out in Vision 2030?

Exploration, extraction constraints
Prospective miners in Zimbabwe require a licence, which is obtained by making a payment to the Mining Commissioner. This licence is valid for two years and costs ZW$1 000 (US$7,23). This prospect licence allows one to explore the land for two years and peg claims at one hectare each for a total of 10 hectares of land wherein pegging is allowable.

The rural district and urban councils have to exercise rights such as granting consent for a prospecting licence to be issued.  Once this is obtained, an approved prospector then pegs.  The prospecting licence does not allow for the removal of minerals.

Once an area has been identified and pegged, the owner will need to apply for registration to the Ministry of Mines and Development offices within their province. The application must have all the relevant documents attached, including prospecting licence, prospecting notice and discovery notice in relation to base minerals.

In order to undertake mining once a claim is determined, a mining lease can be applied for to the Mining Affairs Board.  In addition to the prospecting claims, the applicant must also engage Environmental Management Agency (Ema) and other agencies for additional licences as required.

An import/export licence should also be applied as appropriate. Claims have a 12 month tenure, which is renewable and the miner is required to erect permanent beacons on the ground within three months or risk losing their claim.

Business holders can also apply for a special mining lease to the President on recommendation from the minister.  The applicant must prove that they have access to US$100 million. If approved, the applicant has a special mining lease for 25 years that is renewable every decade thereafter.

For the mining of natural oil, gas and coal, an application is made to the State President via the Mining Affairs Board. The State President approves for the Mining minister to issue the licence.

The mining prospecting licensing which allows companies to peg a claim is separated from mining production. In this sense it can mean that for 12 months, a company can hold a claim without necessarily moving into production.

In some cases, the ASMs may bargain with the claim holder to undertake small scale mining activity on their behalf. Further, companies that do not have the resources to undertake production are able to hold mining claims indefinitely.

These unproductive mining claims reduce access into mining by new market entrants who have the resource for production.  This undermines productivity capacity whereby even those with limited productivity capacity have claims over what would be large gold deposits.

Vision 2030 states that its focus is ensuring sustainable mining while harnessing the potential of the artisanal miners. The existing institution architecture however pays little focus to the exploration activities of the artisanal miners in spite of them producing more than 60% of gold mining production.

Artisanal miners do not have access to resources that enable equipment purchasing. Thus the majority of gold mined in Zimbabwe is produced using little or no equipment.This is likely to contribute to the observed declining gold production.

Institutions that exist are focussed on the tail-end of the mining cycle wherein miners can sell their gold bullions or other produced minerals.

While artisanal miners contribute more than 60% of gold production Vision 2030 also does not clearly show how the government will upgrade artisanal miners so that they have access to better equipment.

Further by nature of extraction size current legislation does not require them to have claiming rights. This has a negative on environment and is counterproductive for the sector.  Furthermore other registered corporate entities would rather buy gold from the artisanal miners than to invest directly into mining production.

Government is not clear and currently no institutions exist to capacitate small scale miners to improve safety and maximise their productivity potential

Access to markets within mining is via state owned institutions not withstanding some state approved exceptions. This monopoly by government creates a single buyer in mining as is the case with Fidelity Printer and Refiners (FPR) and Minerals Marketing Corporation of Zimbabwe (MMCZ) thus reducing competitive pricing.

If miners feel that their minerals are undervalued this may motivate smuggling of minerals in order to buy pass the single state buyer.

Smuggling impedes growth of the overall economy. Furthermore, FPR has been known to delay payments, which have been the direct result of some mining companies shutting down due to liquidity issues.

The MMCZ also being on the sanctions list is problematic as it has limited access to international markets.

Within the mining sector there are state owned enterprises, which have the dual role of being gatekeepers while also being market competitors.

This obvious conflict has an adverse impact on the mining market and can serve as a barrier to entry for foreign investors. There must be clear separation of duties so that the role of gatekeepers is independent from market transactions.

This dualism can result in corrupt activities and other negative rent seeking behaviours that seek to promote margins at the expense of gatekeeping capabilities.

Furthermore, the gatekeeping capacity leaves much to be desired given the high levels of corrupt practices within the sector.

The Minerals Marketing Corporation Act stipulates that no other persons shall export any mineral other than through the Minerals Marketing Corporation of Zimbabwe (MMCZ).

The mandate for Minerals Marketing Corporation of Zimbabwe is to act as the sole marketing and selling agent of all minerals produced in Zimbabwe.

In addition, MMCZ is also able to purchase minerals and sell them for the company’s direct benefit.  Mineral businesses will negotiate their sales via MMCZ.

In certain instances, government has allowed some businesses to make direct sales since MMCZ is under US trade sanctions.  Sellers therefore will negotiate with the MMCZ to sell on their behalf or the MMCZ can authorise the seller to do so subject to their terms and conditions.

The only exception is gold which is mandated to be sold only to the mandated Reserve Bank of Zimbabwe (RBZ) subsidiary Fidelity Printers and Refiners.

In some cases, companies may be permissioned by the government to sell their gold bullions to other customers outside of Fidelity Printers and Refiners.

This market meddling by state institutions, including RBZ has not achieved much benefit for ordinary Zimbabweans.  Interestingly the amount of gold being presented to the FPR is on a decreasing scale as businesses shun their engagement preferring instead to use clandestine methods to access   international markets specifically.

It is also not very clear which criteria is used to permission certain   market agents to source their markets directly. Such asymmetries only serve to create room for expropriation activities thus reducing national output.

The mining sector is in dire need of an overhaul in terms of policy direction and institution architecture before more money is spent on supporting a system that encourages leakage and undermines formal production.

  • Mutambasere is a Zimbabwean developmental economist and technology architect based in the UK.

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