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Mining for development, it’s not just about tax revenue

By Mukasiri Sibanda

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10 May 2017


Introduction


Unsurprisingly, interest on mineral revenue transparency and accountability has grown from strength to strength over the years. Tax revenue from mining is pivotal to mobilisation of domestic resources to fight poverty and inequality. But, in the discourse of mining for development advanced by the African Mining Vision (AMV), efficient mineral revenue generation and utilisation is not the only tool in the box. Deepening business linkages, promoting investment and diversification is viewed as critical to hinge mining on other sectors of the economy. This enables sustainable economic growth and broad based socio-economic development. Mainly, this blog seeks to grow interest among civil society organisations (CSOs), community based organisation and the public to look beyond tax revenue in the quest to promote transparency and accountability in mineral resource governance. The focus is on Zimbabwe.

Value proposition of linkages, investment and diversification

Minerals are finite resources. Thus, to achieve sustainable development, mineral rich countries must leverage their abundant mineral wealth to grow productive sectors of the economy like agriculture, manufacturing and tourism. It is vital to manage the danger of having a mining sector that is unhinged from other sectors of the economy. An enclave economy that sources its capital, equipment, goods and services outside the country.

This undermines the potential growth of the domestic industry. An enclave sector that builds infrastructure like power, water and transport exclusively to facilitate its extractive operations and to ship raw material out of the country to boost industrialisation of other countries. Consequently, much needed jobs, foreign exchange and tax revenue base will be forgone. This is one of the major reasons why countries replete with mineral resources have tended to perform poorly on socio-economic growth when compared to other countries that lack abundant mineral resources. The resource curse.

Cognisant of the above danger posed by an unhinged mining sector to the overall economy, the AMV envisages an “investment-friendly mining sector that is a key component of a diversified, vibrant and globally-competitive industrial African economy.” To achieve this goal, focus should be placed on Improving research and development; enhance mineral value addition; promote private sector investment; and explore spatial development corridors.

Therefore, the mining sector should play a predominant role in fostering innovation, growth and the development of Africa’s small to medium enterprises (SMEs). If well positioned, SMEs can anchor mining supply chains through provision of goods and services thereby deepening much needed business linkages. However, focus on SMEs development must expand beyond mining supply chains for sustained growth after mine closures. Precisely why diversification is important.

Government’s role


Certainly, government through its policy formulation and implementation function is instrumental to hinge mining to others sectors of the economy. As a starting point, the AMV urges countries to develop tailor made country mining visions that include the pillar on linkages, investments and diversification to harness minerals for development. The AMV cautions that the development mining laws and regulations should not be isolated with other economic development imperatives such as industrialisation.

Although the government of Zimbabwe shelved the development of the mining policy in 2012, other interesting policy and legal developments are worthy stock taking. Mineral value addition and beneficiation is one of the four growth clusters under the country’s five-year economic development strategy, the Zimbabwe Agenda for Sustainable Socio Economic Transformation (ZIM ASSET) (2013-2018). The country is also part of the Southern Africa Development Community (SADC)’s industrialisation strategy and road map that eyes mining sector among other three clusters. Currently, the Ministry of Industry has hinted that the country is working on an action plan to implement the SADC industrialisation strategy along with local content development policies.

Other measures put in place by government include Statutory 164 of 2016 that attracted a lot of attention for trying to shield the domestic manufacturing sector against competition from regional and international trade. The new indigenisation and economic empowerment framework which targets local retention of at least 75% of gross mineral revenue per mining houses are being formulated into law. The overdue draft Mines and Minerals Act is now in the pipe line although some stakeholders are quite sceptical on whether the reform process will materialise. The fears stem from the fact that over the past decade, several mining policy reform projects have been initiated but aborted every time the Minister of Mines was reshuffled.

Further, fiscal tools like export have also been used to enhance mineral value addition and beneficiation. Government introduced export tax on minerals such as platinum, chrome and diamonds. But, the taxes have been suspended temporarily to give breathing space to the mining sector. Custom duties have also been waived in some cases to allow mining companies to import equipment and machinery.

The role of mining companies


Beyond legalistic issues highlighted above, there are other factors that influence the position of mining houses on deepening of business linkages and diversification beyond legalistic issues. Such factors include corporate social responsibility activities to acquire a “social license to operate”, political pressure and market forces. The Chamber of Mines of Zimbabwe is quite supportive of the idea that mining houses should source their goods and services from the domestic industry.

That said, the 2015 State of the Mining Industry Survey revealed a number of constraints that hamper local procurement of goods and services by mining companies. These include poor quality of goods and services, exorbitant prices, inflexible payment terms, erratic supplies and long delivery lead times. Off course, the flipside of these constraints also presents opportunities for mining companies to customise their procurement to support the growth and development of domestic supply chain capabilities.

Zimplats is a case in point. According to Zimplats’ 2016 Integrated Annual Report page 60, a “resource person has been appointed to spearhead small scale enterprises in the local communities under the local enterprise development scheme (LEDs); and local supply targets set and monitored regularly to gauge performance against those targets.”

The role of Civil Society Organisations and Community Based Organisations


CSOs and CBOs must demand transparency and accountability in the management of mineral resources to promote sustainable and broad based socio-economic development. Public participation in national development process is a constitutional right under section 13 and this includes the formulation and implementation of development plans. As such, CSOs must position themselves to facilitate grassroots action in policy and practice reform process focused on deepening business linkages, investments and diversification hinged on mineral development.

Public participation can be enhanced if public demands are clear and specific, if an appropriate strategy is in place, if the community pulse is quite strong, if the media is quite active and if the allies are identified and be targeted to carry the message. Procurement, be it public or private sector led, is generally known to fester corruption if it is not done openly. Therefore, CSOs and CBOs must have space to monitor and demand accountability in procurement activities by mining houses to ensure fairness and equity among beneficiaries to guard against corruption and local capture. This is where issues to do with beneficial ownership disclosure are quite critical. In addition, issues such as country of origin also need to be monitored to avoid the risk of classification of repackaged goods as part of local domestic supplies. Special focus should be paid on how marginalised groups of society are benefiting like women and you are benefitting.

For Zimbabwe, the rear-view mirror offers a reminder


It must be noted that Zimbabwe inherited a diversified economy in 1980 based on agriculture, mining, manufacturing and industry, transport and tourism. Prior to the decade economic malaise that ensued between 1998-2008, Zimbabwe, agriculture and manufacturing were the main economic sectors.

Slide background

Now with the decline of other sectors like agriculture and manufacturing, mining is now regarded as the anchor for Zimbabwe’s economic recovery, stability and eventual growth.

Conclusion


Mineral wealth offers exciting opportunities for catalysing sustainable economic growth and broad based development as envisaged by the AMV. Although the mobilisation of mining taxes is quite important to finance development, it is important always to pay attention other development opportunities that brings the sustainability leverage to mineral led development initiatives. Thus, the deepening of business linkages, promotion of investments and diversification are a critical component of good mineral resource governance. CSOs and CBOs, therefore, have a critical role to play beyond mining tax revenue transparency and accountability.


Mukasiri Sibanda (@mukasiri) is an economic governance officer. He is interested in mineral resource governance. He blogs at Mukasiri's Blog. Mukasiri works with the Zimbabwe Environmental law Association