High mining royalties turn away investors

via High mining royalties turn away investors | The Zimbabwean by Farai Mabeza 01.10.13

High rates of royalties in the mining sector are scaring away investors, making Zimbabwe a less competitive destination for business, according to mining experts.

In the six months to June 2013, royalties alone gobbled up $81.1m from the industry, The Zimbabwean was told. Taken together with other costs of mining, royalties had a negative impact on the viability of the industry.

The Chamber of Mines, in a recent report, highlighted royalty costs as a major threat to their members’ operations.

“This came at a time when the fiscal burden from other charges had also increased resulting in a significant shift upwards in production costs,” said the report.

The other charges mentioned by the chamber included Rural District Councils, unit tax, Environmental Management Agency discharge fees and levies from the Minerals Marketing Corporation of Zimbabwe and Standards Development.

At a recent mining indaba, the issue of royalties was topical, with participants pointing out that the rates were a huge deterrent to potential investors.

Since January 2012, the government pegged the royalties for gold at seven per cent, platinum at ten per cent and diamonds at 15 per cent.

“African governments must build a strong institutional governance structure and a regulatory framework moving from short-term rent extraction to long-term rent management,” the World Bank’s country economist for Zimbabwe, Nadia Piffaretti, told the meeting.

Economist Innocent Makwiramiti told The Zimbabwean in an interview that the royalties were so high that they made Zimbabwe less attractive destination for the investment market.

“If we are to attract any meaningful investment in mining, the environment must be conducive and favourable compared to other countries in the region. It must not lead to investor flight,” Makwiramiti said.

Economist John Robertson added that high royalties threatened the profit margins of most miners. He warned that lower grade mines could be closed altogether, and added that the measures would not achieve the intended purpose of increasing government revenue.

“There is no point in the new measures, which discourage production,” he said. “Production levels will be lowered thus reducing income levels.”

The Chamber of Mines report says mining has led Zimbabwe’s economic recovery effort since 2009 with an annualised growth of more than 30 per cent.

Mineral exports rose by about 230 per cent between 2009 and 2011 to make mining the country’s leading export. By the end of 2012, minerals accounted for more than 50 per cent of exports with platinum, gold and diamonds contributing more than 90 per cent of the sector’s value.