Mining policy shift critical

via Mining policy shift critical – The Zimbabwe Independent October 23, 2015

Despite Zimbabwe’s attempts to revamp the economy and attract foreign direct investment through a number of investment conferences such as the recently held Mining Indaba, the country is yet to reap fruits from these events as the macroeconomic challenges largely remain unchanged.

Taurai Mangudhla

Since the country adopted the multiple currency regime during the inclusive government between 2009 and 2013 whose thrust was on economic revival and investment promotion, Zimbabwe has hosted numerous conferences that are sector-specific or cut across the economy, including the Euro money conferences that have since become a thing of the past.

During former mines minister Obert Mpofu’s tenure that attracted a lot of delegates from governments and the investment community, the mining indaba had become one of the major events. But the pomp and fanfare has not yielded anything for the country to write home about.

If anything, the events are fast becoming nothing more than tired calendar fixtures. In fact, the last mining indaba held at the Meikles Hotel in Harare was a pale shadow of what it used to be under Mpofu’s tenure attracting hundreds of delegates from across the world to Harare’s International Conference Centre — perhaps an indication the world has lost faith in the Zimbabwean market.

As these conferences continue featuring on annual calendars, talk of policy reform, fighting corruption and reducing bureaucracy, tax reforms, ensuring policy consistency and good governance as well as provision of adequate and affordable utilities remain promises that are yet to be fulfilled.

Whilst the country invests time in hosting these conferences, results obtaining paint a gloomy picture. Mines minister Walter Chidhakwa ironically admitted there is an unsustainable power tariff structure at the mining indaba last week.

Chidhakwa, told our sister publication, NewsDay, that prices of commodity have been on a downward trend, hence the need to review tariffs to the support mining.

“We need to do something about the price of power and the availability of power. We finished discussions with the Minister of Energy and Finance. We are looking at supply and lowering the tariff, for now we are spending time on the mining sector. I am confident that between the three of us we can come up with a solution,” said Chidhakwa.
Mining companies were paying 12 US cents per kilowatt hour, about 50% above regional average tariffs, threatening viability of the critical sector.

Mining remains a key economic contributor, accounting for 10% of GDP and has directly generated more than US$9 billion and 53% of the nation’s total exports at about US$10,5 billion from 2009 to 2014, according to the Chamber of Mines of Zimbabwe (CoMZ)’s presentation at the just- ended mining indaba.

CoMZ said mining accounts for 45 000 formal jobs in Zimbabwe and more than 50% of foreign direct investment of the US$1,9 billion inflows since 2009.

However, owing to factors beyond Zimbabwe’s control such as declining global commodity prices and internal factors like policy inconsistencies and a generally bad investment climate, the extractive sector’s performance has somewhat been on a downward trend, particularly after 2012.

According to statistics provided by CoMZ, mineral exports grew steadily from US$659,6 million in 2009 to US$1,6 billion in 2010 and further to US$2,1 billion in 2011 and US$2,2 billion in 2012 before dropping to US$2,1 billion in 2013 and further to US$1,9 billion in 2014.

Although gold production has grown steadily from 5 000 ounces in 2009 to close 2014 at slightly above 15 000 ounces, other key minerals have underperformed.

Platinum, for instance, grew from about 6 500kg in 2009 to about 13 000kg in 2013 before dropping to about 12 500kg in 2014. Platinum production is projected to drop further in 2015 by 5,5% to 11 800 kg.

Diamond production, which grew from a low base of around 1 000 carats in 2009 to 12 000 carats in 2012, has also taken a knock, closing 2014 at almost 5 000 carats with projections production of the precious stones will drop even further by about 29, 6% to close 2015 at 3 360 carats.

Coal production is expected to drop by 38,1% in the current year to 3 900 tonnes from 6 354 tonnes in 2014 while chrome and nickel production is expected to drop by 48,5% and 7,4% respectively in the current year.

The CoMZ noted the mining sector’s challenges is infrastructure and power.

“The impact of infrastructure and power is more severe in a declining commodity price environment,” said the chamber, adding there is inadequate power supply and unsustainable tariffs.

Apart from infrastructure and utility tariffs, confusions reigns over implementation of the Indigenisation Act with industry pushing for amendments or even repealing the legislation, but government insists on majority ownership of businesses by Zimbabwean locals.

Indigenisation implementation has targeted sectors that utilise natural resources, such as mining and agriculture, making investment more sensitive in such sectors.

The Zimbabwe Investment Authority (Zia), according to CEO Richard Mbaiwa, is alive to the fact that there is critical need to embark on doing business reforms that will make it easier for the investing community to consider Zimbabwe as an investment destination.

“These reforms include but not limited to business start-up, licensing and commencement of business operations as well as induce operational efficiency of the one stop shop investment center in line with best practice globally,” said Zia in its 2014 annual report.

Some of the reforms needed, specifically relating to mining, are in respect of taxes which are viewed as too high by local industry.

“Mining has 14 direct and indirect taxes to rural district councils, Ministry of Mines, (Environmental Management Agency) Ema, etc. Some of the levies are not standardised. This makes cost of starting and doing business high thereby discouraging formalisation,” proposed a Zimbabwe National Chamber of Commerce pre-budget meeting in Gweru.

“There is need to deal with corruption in Zimbabwe if the budget is to work and there is also need for whistle-blower incentives,” said one of the participants at the ZNCC meeting.