Search

Mining & Sustainable Development

articles on mineral resource governance

The Alternative Mining Indaba Provided A Springboard for the Stop the Bleeding Campaign

This blog was originally published on TJNA

Beyond any reasonable doubt, the Covid-19 pandemic has significantly negatively contributed to illicit financial flows (IFFs) out of Africa. IFFs are broadly defined as any financial resources illegally earned, moved, spent, or stashed across the borders with the intention of hiding income or wealth from taxpayers or anti-corruption agencies. The estimated annual losses from IFFs in Africa has ballooned to $88.6 billion according to the 2020 report entitled ‘Tackling Illicit Financial Flows for Sustainable Development in Africa’ by United Nations Conference on Trade and Development (UNCTAD) in 2020. Worse still, Covid-19 has further stretched the finance gap for basic services like health and education that suffered from pre-existing conditions of being underfunded. Millions in Africa have been pushed further into extreme poverty and the number of expected job losses is equally shocking as fundamental sources of livelihood in Africa are currently paralysed by lockdowns. Further to this, Africa is at the tail end of getting vaccines because it cannot afford to compete with rich countries and there are no meaningful resources to invest in social safety nets.

Citing the biblical adage, ‘give us this day our daily bread,’ it is imperative that Africa stops the syphoning of the continent’s resources to cushion itself against the Covid-19 pandemic. This dire situation calls for stakeholders to reflect on their role in fighting the scourge of IFFs out of Africa.

Appreciating this responsibility’s weight, civil society members in Africa agreed to relaunch the Stop The Bleeding (STB) campaign on the 8th of February 2021  during the weeklong 12th edition of the Alternative Mining Indaba (AMI) themed ‘the AMI revolution will never be muted!’

STB campaign is propelled by “… the strong belief in the voices of mobilized students, trade unions, faith-based organisations and other grassroots social movements to urge decision makers to stop the bleeding of Africa’s resources through illicit outflows.”

There was a diverse and rich panel to assist with the turbocharging of the STB campaign. The panellists comprised of the executive secretary for African Tax Administration Forum (ATAF), Logan Wort, ranked the top 50 most influential figures in Tax, and Extractive Industry  Transparency Initiative’s (EITI) Director, Disclosure and Civil Society Engagement, Lyydia Kilipi.  Youth voices were incorporated via the delivery of a podcast and a poem, delivered by Gathoni Ireri and Samantha Dube.

Kenya’s Black Gold by Gathoni Ireri

Audio Player00:0000:00Use Up/Down Arrow keys to increase or decrease volume.

STB poem by Samantha Dube

Audio Player00:0000:00Use Up/Down Arrow keys to increase or decrease volume.

OXFAM International’s lead on extractives in Southern Africa, Titus Gwemende, and the leadership of the steering committee –  Tax Justice Network Africa (TJNA), African Coalition on Debt and Development (AFRODAD), The African Women’s Development and Communication Network  (FEMNET), TrustAfrica, Pan African Lawyers Union (PALU), and The African Regional Organisation of the International Trade Union Confederation (ICTU-Africa) were also part of the panel.  This diverse group of stakeholders highlighted the following key points during the meeting.

Firstly, the frontier for curbing IFFs has shifted. It is no longer about statistics, analysis and awareness-raising. The emphasis now lies with tracking and recovering lost revenue from IFFs. Indeed, if the STB campaign can contribute to the recovery of resources, then politicians will pay attention and therein would lie the success story. To do so, ATAF is currently working with 8 African countries to recover billions lost through IFFs. Tracking and recovery of lost money, is therefore, no longer a pipe dream.

Secondly, to galvanise the STB campaign, civil society organisations must eliminate the skills deficit within their ranks. The fight against IFFs requires broader skill sets than political scientists, lawyers, economists, and accountants. The STB campaign must also include geologists, metallurgists, and IT specialists.

Another critical success factor in curbing IFFs is the need to influence learning institutions in Africa. The meeting noted that academia must be deliberately targeted and be well-equipped to have a textured understanding of IFFs. The current trend where specialists from the West and East are the ones supporting policymakers in Africa must be reversed.

It is high time that the STB campaign undertake an assessment of international treaties and developments within the global rules on taxation and IFFs to see where Africa is and what is missing. The meeting noted that African governments must be concerned with these issues including the global conversation on review of the current tax rules.

Further, the watchdog role of the STB campaign must come into play to ensure that Africa’s interest, long side-lined, is catered for in the global tax reforms discussions and decisions. As it stands, multinational enterprises (MNEs) shift at least 40% of their profits to tax havens and the bulk of the losses to IFFs are attributed to transfer mispricing. Global taxation rules, currently as they are, are skewed against the interest of capital importing countries and Africa is that bracket.

EITI also added its weight to the relaunch of STB campaign by strongly emphasising that the framework has expanded its initial remit. And expanded scope provided essential levers for the STB campaign. The focus is no longer on reconciling what was paid by extractive companies and what was received by government. Instead, the framework is now asking whether what was paid is the right and fair amount and what amount of revenue is missing that could help finance better health, education, and public infrastructure that people rely on. This too is another area that the STB campaign could tap into. With half of the EITI implementing countries located in Africa, the STB campaign could engage with the EITI framework in both implementing and non-implementing countries.

Specific areas for the STB campaign to leverage under EITI include advocating for a public registry on beneficial ownership (BO), contract disclosure, energy transitioning and multi-stakeholder engagement platforms. Knowing the real persons’ identities benefiting from natural resources would be a game-changer in the fight against corruption and IFFs risks in the extractive sector. Ms Kilip explained that all EITI implementing countries are compelled to publicly disclose contracts as well as a public registry on BO in oil, gas, and mineral sectors and in the era of shrinking civic space, EITI’s multi-stakeholder engagement platforms at country level offer good room for STB campaign to advance its mission.

The urgency of curbing IFFs out of Africa must not be looked at in futuristic terms. Recovery of stolen resources must start now. the STB campaign has an important role to play in achieving the recovery of asset goal must do this differently. Indeed, the STB campaign’s relaunch reiterated the theme of the AMI: the AMI revolution must not be muted.

Civil Society Perspectives on the Implications of Global Digital Tax Reforms for African Mining Countries

This blog was originally featured on IGF website

Why Are Extractives Critical to Africa Today?

Now, more than ever, Africa is under enormous pressure to strengthen its public finances: poverty levels have risen, and the inequality gap has widened due to COVID-19. Statistics from the African Development Bank (AFDB) paint a dismal picture: 28–40 million Africans are expected to fall into extreme poverty, and 30 million people may lose their jobs. Most African countries find themselves with insufficient resources to procure COVID-19 vaccines and to invest in socio-economic shock absorbers for pandemics and climate change disasters.

Tax Justice Network Africa (TJNA), under the ambit of the Stop The Bleeding (STB) Campaign, has been working to end the scourge of illicit financial flows (IFFs) which continue to drain resources from the continent. Tax base erosion and profit shifting (BEPS) similarly undermines African governments’ fiscal capabilities using loopholes within the international financial architecture to shift profits from high-tax to low-tax jurisdictions. New and significant revenue collection risks for resource-dependent countries could be by-products of the ongoing global digital tax proposal led by the Organisation for Economic Co-operation and Development (OECD).

Consequently, TJNA convened the OECD/G20 Inclusive Framework to discuss these tax reforms. Considering the significance of the extractive industries to African countries, TJNA invited experts from the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) to share their analysis of the implications of the global digital tax reforms on the mining sector specifically.

Key Concerns of African Civil Society

During this discussion, TJNA members and other civil society actors called on governments and civil society organizations to take action and raised specific concerns as described below:

  • African governments must actively participate in the OECD-led Inclusive Framework (IF) discussions on global digital tax reforms to ensure that their interests are protected and promoted.
  • African governments that are not part of the IF process must join it. There is no cost attached to their participation, and potentially a lot to lose by not being at the negotiating table. Ultimately, the decisions made in the IF will impact their countries.
  • African governments should publicly release the results of the OECD’s country economic impact analyses of the global digital tax reforms. This will give a better public view of what is at stake. However, independent research on this subject is still critical.
  • Civil society should continue to advocate for the United Nations (UN) to lead the process of global tax reform rather than the OECD, which is largely controlled by 37 of the world’s richest countries. The global tax reform agenda currently driven by the OECD insufficiently addresses challenges that are unique to the taxation- and IFF-related issues facing resource-dependent countries.
  • Civil society must continue pushing for a unitary tax system focused on taxing multinational enterprises as whole units instead of country-by-country tax assessment on subsidiaries. Indicators for economic activity such as number of employees and asset value can be applied to apportion taxes due. However, there is a need for further research on sectoral basis to determine if such a reform process can achieve the intended results of curbing profit shifting, especially for the extractive sector.
  • The OECD-led proposal would set a minimum effective tax rate on multinational profits. The aim is to reduce the incentive for multinational companies to shift profits away from their countries of operation or residence to low-tax jurisdictions. However, the effectiveness of this proposal depends on where the effective minimum tax rate is set. If set too low, it is unlikely to deter the current race to the bottom.
  • Under the current proposal, the minimum effective tax rate will only apply to companies with a consolidated annual income of EUR 750 million. This does not take into consideration the economic reality of mineral-dependent countries in Africa. Medium- and small-sized mining companies have a material economic impact on mining at the domestic level, and many of these will be left out by the reform process. It is, therefore, critical that the minimum threshold be set according to our local realities.

TJNA members and other civil society actors noted that while the OECD-led process on global digital tax reforms is skewed against developing countries, it remains a critical forum that African countries must work hard to influence. African countries that are passively part of the IF process must, therefore, shift gears and engage meaningfully. In the same vein, it is imperative that those that are not part of the IF join the bandwagon and make their voices heard. In doing so, however, African countries must remain committed to continuously pushing for global tax reforms to be led by the UN, a more inclusive body than the OECD.

Mukasiri Sibanda is a Tax and Natural Resource Governance Advisor with Tax Justice Network Africa (TJNA), a pan-African research and advocacy organization. The TJNA Secretariat is based in Nairobi, Kenya and has 32 member organizations and chapters in 22 countries.

The preceding is a guest blog and does not represent the views or opinions of the IGF Secretariat or its member countries.

AMI Revolution Will Not Be Muted

By Mandla Hadebe, Acting Director, Economic Justice Network Africa and Mukasiri Sibanda, Tax & Natural Resource Governance Advisor, Tax Justice Network Africa

Over the past few weeks, a coalition of institutions including the Tax Justice Network Africa (TJNA) and the Economic Justice Network Africa (EJNA) have been working to organise this year’s Alternative Minig Indaba. Both TJNA and EJNA have invested in contributing into the platform given the role that it plays in bringing together stakeholders from Africa and across the world to discuss an issue that has continuously ravaged the country resulting in continued high levels of poverty and inequality in the continent.  For this reason, TJNA and EJNA remain committed to contributing to platforms such as the AMI that bring together stakeholders from across spectrums of society.

Both this year and last year, one of the impacts of the Covid-19 virus and the attendant challenges and barriers has been the increased need for effective and efficient communication both for institutions such as TJNA and EJNA as well as movements such as the AMI. The impact of the reduction in inter-personal interactions has made communication essential for movements and platforms such as the Alternative Mining Indaba (AMI) to thrive.

It was upon reflection on the role that the AMI could play as one of the first events of 2021 that the organisers landed on the slogan for this year “The (AMI) Revolution Will Not Be Muted!” We saw it as an opportunity to lay a foundation to showcase how nimble and robust communication can allow for a successful event even in the tough conditions imposed by the global pandemic. Against this background, this year’s AMI will run virtually from 8 to 12 February 2021 under the theme “Building Forward Together, Pivoting the Extractive Sector for Adaptation and Resilience Against Covid-19.”

History is littered with examples of extinct species that failed to adapt to the changes in their environment and this is a risk that the AMI has not taken lightly. Lockdowns, social distancing and other regulatory measures brought in by many governments across the globe to contain the spread of the Covid-19 have made it difficult for people to gather physically to share and discuss topical development issues that affect them – precisely what a traditional indaba is meant to achieve. As such, with the disruption brought by Covid-19, digital meeting spaces have become the new normal. But, as we all know, the issue is not just one of survival, but to make sure that the space remains a vibrant learning space and continues to grow in its influence.

In recognition of the need to create such an environment,  one of the key objectives of the AMI speaks to bolstering the AMI as a multi-stakeholder engagement platform for key topical policy and practice issues on governance of the extractive sector and sustainable development in Africa such as the Africa Mining Vision (AMV) and UN Guiding Principles on Business and Human Rights (UNGPs).

The AMI’s arsenal of communication tools consists of a website, a twitter handle (@AltMiningIndaba) as well as a Facebook page that generally come alive during the annual AMI period normally held early in February in Cape Town, South Africa. It is indeed true that while these tools are useful, they only give a limited insight into the content generated by the AMI and the full extent of its full reach. To address this, this year there will be several AMI events at national, provincial, district, village levels in several countries, all of which we expect to generate significant context-specific content during the AMI. This content will be warehoused on one platform for easy accessibility and greater traction of the AMI movement.

The outputs of the AMI will consist of workshop reports, presentations, pictures, research papers and any other materials generated across the whole value chain that will also be warehoused by the AMI portal, which we hope will serve as a learning and capacity building hub for all stakeholders. Of course, this process does not prohibit the content generators at national level from sharing the information on their own organisational platforms.

AMI will also explore other opportunities to curate conversations on topical issues on the extractives sector and sustainable development on various social media platforms. For instance, AMI will have its own podcast and You-Tube channel dedicated to thematic conversations each month. To start with AMI will set aside the month of February to generate a buzz about how the history of the movement, important milestones, challenges, success stories and opportunities to explore going forward. The month of March will be dedicated to domestic resource mobilisation (DRM) – strengthening tax linkages and curing illicit financial flows (IFFs) from extractives. And as we consider the topics for the remaining months, April could be dedicated to sustainable and responsible growth of artisanal and small-scale mining and so on and so forth. The idea is to create a continuous conversation that any AMI stakeholder should feel comfortable joining and continuing the conversation in their specific contexts.

AMI will leverage its strategic members such as the Tax Justice Network Africa (TJNA), Southern Africa Resource Watch (SARW) and the Third World Network Africa (TNA) as curators for specialised conversations on the extractive sector and sustainable development – tailored along the pillars of the Africa Mining Vision (AMV).

Another area the AMI will explore is to increase its work with the youth and other interested activists to generate blogs on key discussions that take place at the AMI and subsequent events at national and local level. What we will look to developing is a capacity building and mentorship programme that will equip interested activists with writing skills, provide coaching and editing on blogging. There should also be a space to curate the voices of the communities and other important players to spread the message of the AMI.

While the AMI finds itself within an unprecedented environment, it provides us with an opportunity to be innovate in content generation in different countries and curate vital conversations on topical issues on the governance of the extractive sector.

Yes, the AMI will not be muted – and now is the time to ensure the message rings loud and clear.

SADC Countries Should Draw Lessons From Each Other’s Experiences to Harness the Extractive Industry for People’s Benefit

By Veronica Zano, Regional Governance, Research and Policy Officer, SARW and Mukasiri Sibanda, Advisor on Tax and Natural Resource Governance, TJNA

The drama of the U.S election, previously lauded as the beacon of democracy, has grabbed the world’s attention as the incumbent, President Trump, has refused to accept defeat. In electoral processes, every vote must be counted to avoid backsliding on democracy. In the same way, to avoid backsliding into poverty and inequality, Africa must account for every dollar earned from her resource wealth. If revenues for Africa’s mineral wealth were well accounted for, Africa would have a fair escape route out of its totemic developmental challenges. To do this, key actors in the natural resources discourse such as multi-national corporations (MNCs) and politicians should allow for a fair playing field by not rigging the financial systems to stash profits away from tax authorities in Africa.

The recent socio-economic crisis due to the global health pandemic of Covid-19 has offered an opportune moment to discuss the role of taxation in Africa’s extractive industry.  This is due to the critical conversations that have been raised between the sector’s contribution towards domestic resource mobilization (DRM) juxtaposed against many countries’ poor provision of social services in the areas of health, education, water and sanitation in emergency situations and beyond.

Last week 18 civil societies hosted a week-long conversation on illicit financial flows under the title ‘The Pan African Conference on IFFs and Taxation (PAC).’ While the platform brought together the public, academics, politicians, tax authorities and civil societies, there is always a niggling question that must be confronted when influencing developmental processes – so, what has changed? Of course, Africa continues to still grapple with the weight of harnessing her natural resource wealth into a broad-based development dividend which can be equitably be shared and be enjoyed by all her people. Under the weight of such expectations, it is quite fundamental, therefore, to publicly share and reflect on some of the emotive but very critical discussions that took place during PAC 2020. The main idea behind this is to leverage the PAC 2020’s rich conversations for sustenance of public discourse on what it takes to stop the perennial bleeding of natural resource revenue from the continent. A quick win is the contribution to the conversation on Global Day of Action for Action for Tax Justice in the Extractive Industry, Thursday, 19 November 2020 #StopTaxDodging #TaxJustice

PAC 2020 ran from Monday, 9 November to Friday, 13 November 2020, under the theme “The Africa We Want Post COVID-19: Optimizing Domestic Resource Mobilization from the Extractive Sector for Africa’s Transformation.” The global pandemic, Covid-19 has greased the pole that Africa must climb to achieve the UN’s Sustainable Development Goals (SDGs) by 2030, hence the inspiration behind the theme. Before Covid-19, Africa’s infrastructure and service delivery deficits were quite huge characterized by crippled health, education, water and sanitation services.

As a way of ensuring broader public participation during PAC 2020, country and sub regional events were organised on the 9 and 10 November 2020. These events were the building blocks of the continental conversations which happened from the 11th to the 13th of November 2020.  With this motivation, Southern Africa Resource Watch (SARW) and Tax Justice Network Africa (TJNA) convened an online discussion on Trends on IFFs and Taxation in SADC’s natural resource sector on 10 of November 2020. Countries that anchored this discussion comprised of Tanzania, South Africa, Zambia and Zimbabwe. Janet Zhou, the Director of the Zimbabwe Coalition on Debt and Development moderated this session.

SADC has a significantly diverse and rich mineral wealth portfolio which gives the region a strategic lever for lifting the region from the development dungeons. Prices for gold and platinum are currently buoyant. Platinum mines in South Africa and Zimbabwe, for instance, declared bumper revenue in defiance of the economic spell cast by Covid-19 which disrupted production, fractured global trade, and depressed market demand. Further to this, as the global demand for clean energy spikes as a result of heightened pressure to move away from carbon fuels, on paper, SADC’s minerals assets remain in the mix. The abundance of large volumes in copper, cobalt, lithium and nickel, for example, are part of the strategic minerals that are required to spur the just transition to clean energy agenda in the production of key components such as batteries for electronic vehicles.

The discussion kicked off with Dr Claude Kabemba, SARW’s Executive Director decrying the fact that not many inroads have been made since independence on transforming mineral wealth into meaningful development for the continent. Despite an array of initiatives, awareness raising, research, multi-stakeholder engagements and campaigns, the problem is growing. In 2015, the report of the High-Level Panel on IFFs out of Africa estimated that Africa was losing US$50 billion annually. Recently, UNCTAD estimated that Africa was losing close to US$89 billion to IFFs annual. All reports concur that the extractive sector is the major driver of IFFs.

Recent gold rushes in Malawi and Zambia portend well for development prospects yet there are no clear and transparent frameworks in place governing the extraction, presenting room for loopholes in IFFs according to Dr Kabemba. Zimbabwe is said to be losing roughly US$1 billion annually to gold smuggling alone, further emphasized Dr Kabemba. The collateral regional damage caused IFFs is seen in intensification conflicts evidenced in Cabo Delgado, Mozambique. Mukupa Nsenduluka, Oxfam Zambia’s lead person on extractives echoed Dr Kabemba’s sentiments that lack of formalisation of artisanal and small scale mining (ASM) in the gold sector is most likely to haunt Zambia.

Outside the gold sector, Dr Kabemba gave another example on ASM cobalt mining in DRC.  At the peak of cobalt prices, in 2016 and 2017, roughly US$1.8 billion was generated annually by artisanal and small-scale miners (ASMers). However, not even a tenth of it has impacted positively on the livelihoods of these ASMers. In Zimbabwe, over the past three years from 2017 to 2019, official gold deliveries from ASMers surpassed large scale producers. Despite this phenomenal achievement, commensurate socio-economic development in areas where these resources are extracted is hardly tangible. Recognising the growing threat of illicit gold trade in SADC, SARW has prioritized the tracking and monitoring of the gold sector as a key project under its natural resource governance work in the region.

Unable to leverage Zambia’s mineral wealth for development, Ms Nsenduluka indicated that the country had amassed a significant debt burden over the past ten years and that due to mismanagement of resources, Zambia was on the way to becoming the first country, post-Covid-19, to default in terms of loan repayments. This highlighted the corrosive impact of IFFs according to Ms Nsenduluka. The report produced by Zambia’s Financial Intelligence Corporation (FIC) revealed that Zambia annually loses US$3 billion to IFFs.  To shine light on the economic significance of copper mining in Zambia, Mukupa highlighted that copper contributes 10% to the country’s GDP, and 78.4% to total export earnings. Despite these challenges, significant progress has been made on legal reforms critical to curb IFFs, but institutional weakness remain a huge challenge according to Mukupa. Zambia is part of the Extractive Industry Transparency Initiative (EITI) which has resulted in tightened of transfer pricing regulations and public beneficial ownership disclosure under the new Companies Act.

Speaking to Zimbabwe’s situation, Josephine Chiname, a legal officer with Zimbabwe Environmental Law Association (ZELA) indicated that in January this year, Zimbabwe included beneficial ownership disclosure in the new Companies and Other Business Entities Act as well but this registry is not publicly accessible. Additionally, Zimbabwe has been going around in circles on the adoption of EITI according.

In Tanzania, Silas Olan’g, Africa’s Co-Director of the Natural Resource Governance Institute (NRGI) spoke of several reforms that have been undertaken in the past 5 years which aimed at repositioning the country to benefit more from its mineral wealth. This has resulted in the enactment of laws to reinforce the country’s sovereignty over its mineral wealth, mining contract renegotiations, the upward review of mining royalties, and an end to perpetual carry over of mining losses and free state equity participation (16%) in mining. Some of the renegotiated contracts included 3 for Acacia with Barwick,  1 with Anglo-Gold Ashanti and a production sharing arrangement in the gas sector. In the re-negotiated contracts with Barwick, the country and Barwick will get 50:50 benefit sharing arrangement. It is not clear though, whether the new arrangement will deliver improved revenue flows because the definition of economic benefits was broadened to include labour, cautioned Olan’g. Political will to renegotiate the contracts is there but technical capacity constraints may prove to be a hinderance on how to amplify benefits from contract renegotiations.

Josephine Chiname opined that Zimbabwe seems to have taken the opposite path to Tanzania: (a) Mining companies can still carry over their losses in perpetuity; (b) government missed the opportunity to renegotiate contracts in the platinum sector after the expiration of the 25-year stabilization agreement; (c) and government is reversed the indigenization drive under the Zimbabwe is open for business mantra. South Africa which started the Black Economic Empowerment (BBE) years before Zimbabwe has not reversed its policy direction. Communities are required to get 5%, likewise with employees and 20% for local businesspeople. The portion for local business, however, has been taken by a few greedy and politically well-connected people said Thembinkosi Dlamini, with Oxfam South Africa.

Past studies led by religious leaders in Tanzania for the period of 2012-1016 depicted how tax incentives had resulted in a loss of US$288 million amounting to 16% of government revenue loss. In Zimbabwe, the true picture of the impact of tax incentives is a blurred one. Despite a commitment to improve transparency and accountability of tax incentives in the 2019 national budget, tangible results have not been realized to date. Whilst data on tax incentives is opaque, the 2015 revenue performance report generated by the country’s tax collector, the Zimbabwe Revenue Authority (ZIMRA) disclosed that US$100 million was lost due to the 25-year stabilization clause on platinum royalties.

From the various country experiences on curbing IFFs and strengthening tax linkages in the extractive sector, SADC countries must surely learn and profit from each other’s experiences. Tanzania has renegotiated major mining agreements whilst Zimbabwe passed on the opportunity to do the same in the platinum sector. A careful learning on what worked well, what must be improved and what did not work in the case of Tanzania’s thrust to renegotiate mining contracts is needed. If not careful, SADC might squander the opportunity to obtain a commensurate share of government revenue from a boom for gold and platinum group of metals. Zambia has laws that provide for public disclosure of the beneficial ownership registry whereas the reforms in Zimbabwe fall short on making beneficial ownership disclosure public. As for gold rushes in Malawi and Zambia if the governance process fails to draw lessons from developments in Zimbabwe, a similar fate of rampant smuggling will be encountered. The ASM sector, a key component of mining in SADC must be supported to ensure that ASMers and communities were the resources are extracted are not short- changed on benefits. Tax incentives must be monitored and evaluated to ensure they achieve a fair balance between attracting investment and filling of government coffers. More importantly, the risk of regional harmonization of taxes is vital to avoid harmful tax competition, the race to the bottom among SADC member states in the quest to attract investment.

2021 national budget must use mining as a lever for domestic resource mobilisation

A case for public participation during budget formulation

As a concerned citizen, and a socio-economic justice activist, I am severely disturbed by how the pandemic, COVID-19, is piling more pressure on progressive realisation of socio-economic rights. Prior to COVID-19, developing countries like Zimbabwe were struggling to provide access to quality, reliable and affordable  essential services like education, health, water, food and shelter are part of the basic rights guaranteed by the Constitution. Openly, the Constitution acknowledges that the provision of essential services to the public is subject to the limitation of resources available.

Obviously, how government intends to mobilise and utilise revenue has a huge bearing on the realisation of the socio-economic rights. Citizens must therefore hold government accountable by actively participating in the design and implementation of fiscal policies that has a direct bearing on the fragility or strength of the State to provide them with essential services. And public pre-budget consultations are an important space for stakeholders, particularly citizens, to influence how government plans to raise and spend revenue.

Taxation critical to address the widening inequality gap

Government’s primary source of revenue is taxation, citizens and corporates are the contributors. Before we jump to the expenditure side of the budget, taxation is the first port of call when it comes to the agenda of fighting inequality in line with the Sustainable Development Goal (SDG) number 10. For those who love soccer, the jersey number 10 is imperatively reserved for the most creative and influential player in the team like Lionel Messi for Barcelona. This is just to illustrate how important the fight against inequality is, hence the symbolic number 10 of the team of UN’s Sustainable Development Goals (SDGs).

Understanding the roles of taxation a critical ingredient for public participation

The 4 roles of taxation are quite crucial for Citizens to understand its massive influence to their standard of living. Taxation is a tool of revenue raising for government to fund the delivery of essential services to its citizens; it can be used to redistribute wealth; it can be used to discourage the consumption of toxic goods like alcohol and tobacco; and it gives citizens a voice in the generation and utilization of public funds. If the wealthy individuals and corporates are not paying their fair share of taxes, the poor citizens are incidentally saddled with the burden of contributing a higher proportion of their income as taxes compared to the rich. In this case, tax is deemed to be regressive and the opposite scenario is deemed as a progressive tax regime. Taking into consideration that Zimbabwe is a mineral rich country, and increasingly the economy is dependent on mining and minerals, a finite resource, domestic resource mobilisation from this sector deserves greater public attention in the formulation of the national budget.

ZAMI influencing budget input

Rightly so and as used the information gathered from the 9th edition of Zimbabwe Alternative Mining Indaba (ZAMI) held at Holiday Inn, Bulawayo from 30 September to 02 October 2020.  ZAMI has emerged of the past decade as an important platform for communities and citizens to engage with stakeholders- government, industry and Parliament on how mining can deliver a sustainable national dividend.  Befittingly, the 9th edition of ZAMI was themes “Towards an inclusive and equitable US$12 billion mining industry anchored on sustainable mineral resource management.” Resource dependent growth, as highlighted by the report of the high level panel on illicit financial flows (IFFs) out of Africa faces is prone to huge revenue leakages. Challenges highlighted in the report are “… transfer mispricing, secret and poorly negotiated contracts, overly generous tax incentives and under invoicing.” The fact that for the past decade, mining contributed over 50 cents to every dollar earned from total export earnings makes the country taxation regime highly regressive – greater likelihood of mineral wealth not contributing a proportionate share of taxes from mineral revenue because of huge IFFs risk. 

Platinum royalties must be reviewed to be a progressive tool for domestic resource mobilisation

In 2015, the country’s purse suffered a hemorrhage of US$101 million after the Zimbabwe Revenue Authority (ZIMRA) lost a court battle against one the country’s biggest mines, the Zimbabwe Platinum Mines (Zimplats). The battle was on the legality of the 25 year (1994-2019) stabilization clause, pegging the royalty rate at 2.5%. ZIMRA had proceeded to garnish funds from Zimplats using the 10% royalty rate prescribed by the Finance Act. The court ruled that royalties are principally administered under the Mines and Minerals Act and the agreement between the Minister of Mines and Zimplats takes precedence over the Finance Act.

 A commitment was made in the 2019 national budget that platinum royalty rates were going to be reviewed in August 2019, the period marking the lapse of the 25 year royalty stabilization agreement. This opportunity was missed by the 2019 midterm budget review and subsequent fiscal policies have been mum on the issues. Given the multiplied pressure on government to raise revenue under the strain of COVID-19, accordingly, government must review platinum royalty rates upwards using a sliding scale. The royalty sliding scale is self-adjusting, the higher the mineral prices, the higher the royalty income and vice versa is true. In the gold sector, a royalty sliding scale was introduced in October 2018.

Although generally referred to as platinum, the mineral is a group of metals, in addition to platinum, comprising of palladium, rhodium, ruthenium, iridium and osmium. Other by products include gold, silver, copper, nickel and cobalt. Despite COOVID-19 related challenges, platinum mines in Zimbabwe recorded bumper revenues. This was attributed to favourable market prices for palladium, rhodium, nickel and gold. The sliding royalty regime for the platinum sector must target specific minerals that are part of the Platinum Group of Metals (PGMs) as other related minerals are high performers compared to platinum.

Weed out harmful tax incentives

Another commitment that the Treasury has not fully complied with is transparency and accountability of tax incentives – tax revenue forgone in the quest to attract Foreign Direct Investment (FDI). Tax incentives, if not well administered, can deflate government’s domestic resource mobilisation drive. The 2021 budget must disclose tax revenue forgone and carry out a cost benefit analysis of tax incentives to weed out toxic tax incentives.

No backsliding on mining sector transparency reforms

Another commitment that government must not backslide on is to improve transparency and accountability in the mining sector by joining the Extractive Industry Transparency Initiative (EITI). Focus on EITI must not overlook low hanging fruits to improve transparency in the mining sector. ZIMRA’s revenue performance reports that are produced quarterly and annually can be improved to show mining sector performance per each tax revenue head – Corporate Income Tax (CIT), customs duty, withholding taxes, Value Added Tax (VAT) and Pay as You Earn (PAYE). Currently, royalties are the only mineral revenue stream that is separately accounted for. Further disaggregation is required to show mining sector performance per each major mineral sector like platinum, gold, nickel, diamonds, chrome and lithium. These reforms are aligned to the principles of public financial management included under Section 298 of the Constitution requiring revenue and expenditure transparency and accountability.

Embrace contract disclosure and competitive bidding

Existing contracts and those that are in the pipeline must be subjected to Parliament and made public as required by the Constitution under Section 315 (2) (c). Such a move is crucial to ensure that bad deals are avoided as both government and corporate negotiators will be aware that there is a third eye to the contract negotiations. Competitive bidding, when disposing mineral rights in areas with high geological potential, like the Great Dyke, must be harnessed to ensure investors that offer a higher development dividend are selected. Areas for assessment include tax linkages, technological transfer, local procurement, employment and skills development and infrastructure linkages.

Investments from tax havens are a poisoned chalice

Competitive bidding is also an opportunity to quarantine investors that are linked with tax havens who carry a high risk of shifting profits from producer countries to lower tax or no tax jurisdictions that are secretive. As Leonard Wanyama, Coordinator of East Africa Tax and Governance Network (EATGN) aptly sums up his article,   secretive, aggressive and extensive jurisdictions help multinationals escape paying taxes, eroding revenue collection measures in other countries. To root out endemic corruption, the budget must push for beneficial ownership disclosure. Knowing the real beneficiaries behind the mega deals sealed in the mining sector and recipients of public procurement contracts who use the mask of corporate bodies and trustees to hide their shameless acts is quite critical. It is a positive step the in January 2019, the Companies and Other Entities Act accommodate beneficial ownership as part of the new legal require. However, it fell short as the beneficial ownership registry not publicly accessible. Countries like Nigeria have made beneficial ownership disclosure as part of the reforms to step corruption and illicit financial flows.

Open for business but don’t shut the door on community benefits

Under the Zimbabwe is open for business drive, the indigenization and economic empowerment framework was dismantled, with it, legal backing for Community Share Ownership Trusts was affected.  To redress this situation which conflict with Section 13 of the Constitution on national development, impelling the State to put mechanisms for communities to benefit from resources in their localities, the budget must plough back a portion of resources to areas where the resources are extracted. To respond to this threat, the budget must promote transparency in the mining sector – tax revenues, contracts and beneficial ownership disclosures including monitoring and evaluation of tax incentives must be part of the measures adopted to curb corruption and IFFs. The royalties for all minerals, particularly the PGMs must have a sliding scale to capture a proportionate share of revenue during the commodity price boom. Investors are needed to unlock the growth potential of the mining sector. However, investments channeled through tax havens like Mauritius are a poisoned chalice and must be quarantined.

Placing a finger on the pulse of public participation during a pre-budget public consultation

By Learnmore Nyamudzanga & Mukasiri Sibanda

Elevated significance of the budget consultations

COVID-19 pandemic is putting enormous pressure on human rights, and the huge strain is being felt on both socio-economic rights and civil and political rights. The widespread impact on socio-economic rights is not debatable, more so for developing countries. As economic opportunities shrink, government revenue streams are thinning against heightened COVID-19 induced pressure to modernize essential services – health and education. UNICEF, has launched the What If campaign #ForEveryChild, using COVID-19 as an opportunity to finally bridge the digital divide in the education sector. More than ever, citizen and human rights activists must therefore be fully alert on how government is trying to preposition itself to address the spiraling inequality and poverty levels. Against this background, 2021 pre-budget consultations were undertaken in Zimbabwe.

The national budget is one of the most prominent public documents produced by any government. Basically, a budget shows the revenue target, how government intends to raise revenue and government’s plans to utilize funds against competing priorities. As part of our civic duty, my colleague and I participated at a public hearing for the 2021 national budget, held at St Mary’s hall in Chitungwiza, Thursday, 15 October 2020. Our intentions were broader than contributing to the public hearing on the budget, we sought to put our finger on the pulse of public participation. To achieve this task, we carried out a short survey before and after the public hearings. My colleague sat though out the public hearings to observe the proceedings.

In conducting the mini-survey, we were strongly guided by the 10 Principles of Public Participation in Fiscal Policies as approved by the Global Initiative for Fiscal Transparency (GIFT), 13 March 2016. GIFT is a global network that facilitates dialogue between governments, civil society organizations, international financial institutions and other stakeholders to find and share solutions to challenges in fiscal transparency and participation.  Its 10 principles comprise accessibility, openness, inclusiveness, respect, timeliness, depth, proportionality, sustainability, complimentary and reciprocity. Although these principles apply to the design and implementation of fiscal policies, we distilled their relevance insofar as the pre-budget public consultations are concerned.

Public participation refers to the variety of ways in which citizens and the general public, including civil society organizations and other non-­‐state actors, interact directly with public authorities with respect to the design, implementation and review of public policies by any form of communication. Participation ranges from one-­‐off consultations to on-­‐going and institutionalized relationships that leave records subject to access to information (Principles of Public Participation in Fiscal Policies). Pre budget public hearing is good example that can help us to understand the term public participation. Below is an assessment of the pulse of public participation during the formulation of the 2021 budget.

1. Accessibility: facilitate public participation in general by disseminating complete fiscal information and other relevant data, in formats and using mechanisms that are easy for all to access, understand, and to use, re-use, and transform, namely in open data formats.

The only document shared as a hardy copy shortly prior to the commencement of the public consultation was the 2020 Citizen’s Budget. An official with Parliament’s Budget Office explained that a Citizens Budget “… tries to define what a budget is, the budget process, summary of revenue sources and expenditure lines, main policy proposals, contribution made by citizens versus what was included in the budget.” He went on to explain that the idea behind the sharing of the Citizens Budget was to motivate citizens to participate in the public hearing. Much as the sharing of the Citizen’s Budget was a huge plus, the major gap was that the pre-Budget Strategy Paper (BSP) was launched a day after the public consultation at St Mary’s Hall. Reading the 2021 BSP, one gets a clearer picture why this document is an important stimulant for public participation during the formulation of the budget. According to the 2021 BSP it is “… a valuable tool, meant to guide consultative discussions and sharing of ideas on national priority policies, programmes and projects for the forthcoming 2021 National Budget.” Both the 2020 Citizen’s Budget and the 2021 BSP are accessible online.

2. Openness: provide full information on and be responsive with respect to the purpose of each engagement, its scope, constraints, intended outcomes, process and timelines, as well as the expected and actual results of public participation.

The chairperson explained the purpose of the pre-budget public consultation by referencing Section 141 of the Constitution which impels Parliament to involve the public in formulation and implementation of policies that affect them. Indeed, reference was made to the 2020 Citizen’s Budget to give feedback on public views that we accommodated in the 2020 national budget just to encourage people to participate. What lacked depth was the scope of the budget consultations, Parliament should have explained that contribution must cover revenue raising – taxation issues and expenditure priorities. Civil society organisation probably also missed the opportunity to educate citizens about the scope of pre-budget consultations as most contributions were slanted towards expenditure.

3. Inclusiveness: pro-actively use multiple mechanisms to reach out to engage citizens and non-state actors, including traditionally excluded and vulnerable groups and individuals, and voices that are seldom heard, without discrimination on any basis including nationality, race, ethnicity, religion, gender, sexual orientation, disability, age or caste; and consider public inputs on an objective basis irrespective of their source.

Public pre-budget consultations were done using blended strategies and various media tools. For instance, in addition to newspapers, radio and television, the advertisement for the consultations was also shared via posters, on social media – WhatsApp, Facebook and Twitter. Actual consultations were carried out through physical meeting and on radio. The meeting was apolitical, marginalized groups like women, youth and people living with disabilities were represented.

4. Respect for self-expression: allow and support individuals and communities, including those directly affected, to articulate their interests in their own ways, and to choose means of engagement that they prefer, while recognizing that there may be groups that have standing to speak on behalf of others.

Basically, challenges confronting Chitungwiza residents include poor water and sanitation, and poor roads. Participants were given the opportunity to articulate their concerns and interests in their own ways. Participants were encouraged to use the languages that they felt comfortable to express themselves – English and local languages. We realised that more than half of the youths and women present were from CSOs who represented other in addition to sharing their own opinions.

5. Timeliness: allow sufficient time in the budget and policy cycles for the public to provide inputs in each phase; engage early while a range of options is still open; and, where desirable, allow for more than one round of engagement.

From the surveys we conducted, it appeared time allocated was not adequate and they were fears that the process was going to be hurried. However, time was fairly enough for participants to contribute their views judging by the repetition of challenges like water and sewage. Participants were encouraged to air their views using email provided and other virtual platforms lined up to took place in the remaining days.

6. Depth: support each public engagement by providing all relevant information, highlighting and informing key policy objectives, options, choices and trade-offs, identifying potential social, economic, and environmental impacts, and incorporating a diversity of perspectives; provide timely and specific feedback on public inputs and how they have been incorporated or not in official policy or advice.

There were glaring gaps on depth considering that the BSP was not shared in advance. Lack of tax transparency was another challenge as the citizens lacked information to hold government to account for instance cost benefit analysis of tax incentives. Taking into account that Zimbabwe is not part of the Extractive Industry Transparency Initiative (EITI), citizens are not adequately informed on how mining, the driver of economic growth, is contributing in terms of resources to finance the progressive realization of their socio-economic rights. The only plus on depth was the sharing of the 2020 Citizen’s Budget that constituted a feedback mechanism although it could have been more helpful had the document to been shared well in advance.

7. Proportionality: use of engagement mechanisms proportionate to the scale and impact of the issue or policy concerned.

This area was performed fairy well. Public consultations were mainly carried out as physical meetings and radio dialogues. Further, the public was urged to contribute virtually through email. Rural District Councils (RDCs) were used for the first time instead of District Development Coordinators to mobilise the people having noted participation gaps during previous consultations. The meetings were also advertised on social media – WhatsApp, Facebook and Twitter.

 8. Sustainability: all state and non-state entities conduct on-going and regular engagement to increase knowledge sharing and mutual trust over time; institutionalize public participation where appropriate and effective, ensuring that feedback provided leads to review of fiscal policies decisions; and regularly review and evaluate experience to improve future engagement.

There were both state and non-state entities, some interviewees confirmed that was not their first time to attend, meaning they are ongoing engagements. There is room for improvement concerning feedback mechanisms. Apart from the Citizen’s Budget, there is need for continuous engagement on quarterly public income and expenditure reports, the mid-term budget review and on the reports generated by the Office of the Auditor General (OAG).

9. Complementarity: ensure mechanisms for public participation and citizen engagement complement and increase the effectiveness of existing governance and accountability systems.

Linkages between public participation for both local and national budget formulation process are not being utilized. Lack of trust in other democratic process like elections is eroding public confidence in the pre-budget public consultations. Government’s failure to respond to the growing threat posed by corruption has damaged public participation as citizens feel they are being taken for granted. Shrinking civic space was also given as another drawback because journalists are persecuted for speaking out against corruption.

10. Reciprocity: all state and non-state entities taking part in public engagement activities should be open about their mission, the interests they seek to advance, and who they represent; should commit to and observe all agreed rules for engagement; and should cooperate to achieve the objectives of the engagement.

Participants were free to identify themselves, the organisations represented and the meeting was apolitical. Women, youth, men, PWDs, and technical experts were all present and freely gave their views. However, outside the venue, there were informal traders and it was business as usual. There were not aware of the event or not concerned that they were missing out from this important process to formulate the national budget. Even after informing them they chose not participate. Some said they were not prepared, or it was no value to them, year in year out they had expressed water and sewer problem but they feel the issues are not being addressed.

Injecting an adrenalin shot for boosting public participation

Given the scale of pressure induced on progressive realization socio-economic rights by COVID-19, public participation during the formulation of the budget has gained, certainly, some elevated significance. Therefore, it is critical to assess the effectiveness of the public consultations, and pick lessons to inform continuous improvement. Some of the positive lessons to pick include the use of social media to mobilise citizens, public sharing of the Citizen’s Budget, participation of marginalized groups – youth, women and people living with disabilities and emphasis on use of local languages that people are comfortable with.  Areas that require huge attention include: timeous sharing of information like the BSP; the need to improve tax education to avoid one sided contributions focused on expenditure; depth on explanation of the scope and limitations of the budget consultation process; and mobilizing the informal sector to participate. The GIFT principles offer a clear guiding template for making sure that public participation during formulation and implementation of fiscal policies is robust, effective and sustainable. Enablers of effective public participation such as transparency are not negotiable. For example, Zimbabwe’s economy is increasingly dependent on mining.  As such, the country must adopt and implement global acceptable standards on promoting open and accountable management of the finite mineral resources such as EITI. Citizens must connect the dots between mining and mobilisation of tax revenue to finance essential services like health and education for budget consultations to make sense.

Zimbabwe plans to grow annual earnings to US$12 billion by 2023, what is at stake for communities?

Mukasiri Sibanda delivering welccome remarks, Holiday Inn, Bulawayo, 02 October 2020. Picture by Clarity Sibanda

Roughly a year ago, government announced a plan to grow mining sector annual earnings to US$12 billion by 2023, a 344% spike from US$2.7 billion earned in 2017.  Gold, platinum and diamonds are earmarked to fuel this growth, contributing respectively US$4 billion, US$3 billion and US$1 billion to the US$12 billion target. If well harnessed, the US$12 billion target for mining earnings can be a propeller for socio-economic development post COVID-19. Evidently, COVID-19 overstretched poor public service delivery, increasing poverty levels and inequalities. For instance, the rich could afford e-learning while the poor where quarantined from access to education. With this background, the 9th edition of the Zimbabwe Alternative Mining Indaba (ZAMI) was befittingly themed “Towards an inclusive and equitable US$12 billion mining industry anchored on sustainable mineral revenue management.” The ZAMI was held at Holiday Inn, Bulawayo, running from 30 September to 02 October 2020

Over the years, ZAMI has grown into a formidable multi-stakeholder engagement platform that places communities right at the heart of the agenda of how mining can be tilted to fight poverty and inequality. Rightly so, the Constitution on national development issues, under section 13 subsection 4, compels the State to put mechanisms to ensure communities benefit from resources in their localities. ZAMI brings together mining affected communities, civil society organisations, faith based organisations, relevant government institutions and industry.

As the board chairperson of one of the convening organisations, the Zimbabwe Coalition on Debt and Development (ZIMCODD), i was given the opportunity to give welcome remarks during the main event of ZAMI. Other convening organisations are the Zimbabwe Council of Churches (ZCC) and the Zimbabwe Environmental Law Association (ZELA). In my welcome remarks, i challenged stakeholders to give a laser focus on what is at stake for communities in light of government’s plans to grow annual earnings from mining to US$12 billion by 2023, and here are the snippets of that speech;

  • The target of US$12 billion is about foreign currency generation, a macro-economic indicator whose impact is minimal on uplifting the standards of living of majority  people living in poverty that reside in areas where the minerals are extracted.
  • Therefore, in line with the Africa Mining Vision (AMV), government must clearly harness mining for mobilisation of domestic resources to finance the delivery of essential services – health, education, water and sanitation. As such, a clear target for tax revenue generation is fundamental to ensure the anticipated mining sector growth relates to the development aspirations of communities and citizens.
  • If government is not transparent on national debt, some of which has been securitized against gold and platinum future earnings, the US$12 billion target might be a pie in the sky. Citizens are in the dark on how much has already been gobbled in advance through debt. Probably, the real earnings with be three quarters (US$9 billion) of half (US$6 billion) with the reminder ring fenced for debt payment.
  • Lessons from agriculture must apply to the mining sector. With a good season, a bumper harvest is experienced by communities. Whereas when the mineral prices spike, as currently is the case with gold, palladium, rhodium and nickel, there are no bumper tax revenues recorded from mining sector. “Give us this day our daily bread” that’s what the Lord’s Prayer says. Citizens cannot wait for 2023, they must benefit from the bumper revenue recorded by platinum and gold miners in Zimbabwe.
  • This is why government must improve transparency and accountability in the mining sector, for existing contracts and those that are in the pipe line as required by the Constitution, Section 315 (2) (c). Citizens must be able to scrutinize the fiscal terms and conditions, to understand how well the mining sector is used to scaffold domestic resource mobilisation agenda.
  •  Government must publicly disclose the tax revenue gone through tax incentives, undertake a cost benefit analysis to weed out harmful tax incentives. Such a commitment was made in the 2019 national budget statement, implementation through, remains a big challenge. The challenge posed by tax incentives is real, the export incentives given to the mining sector at one point virtually obliterated revenue from mining royalties, the only predictable revenue stream from mining.
  • The insidious virus, corruption and illicit financial flows that weaken government’s fiscal capabilities must be dealt with. Government must practice social distancing on investments that are associated with tax havens that encourage multi-national corporates to shift profits to lower or no tax jurisdictions. Significant investments in the mining sector are increasingly channeled through tax havens, and this is quite problematic.
  • When it comes to mining, there is a danger of counting the benefits and forget about environmental, social and cultural costs. Pollution, land degradation, and involuntary displacements can leave communities worse off that before if they are not well attended to. Hence US$12 billion can be a mirage if these challenges are no addressed.
  • Artisanal and small scale mining must be decriminalized and supported with access to productive mining claims, financial inclusion, and genuine fight against corruption and pervasive violence is needed.  With more than 1 million direct beneficiaries, artisanal mining has grown to be an important source of job creation, income generation and a stimulant for community enterprise development.

Disputes expose poor mining agreements

This blog initially featured in Resource Future Zimbabwe #Throwback from 2015

In Zimbabwe, Mining Agreements (MAs) or contracts are not publicly available and accessible. This is so despite that constitutionally speaking; minerals are public assets and must be publicly accounted for. Secretive MAs may have harmful tax incentives which may prejudice mineral revenue flows to the public purse and consequently inhibit broad based socio-economic development.

In 2014, Zimbabwe was ranked 156 out of 175 countries on Global Corruption Perception Index released by Transparency International. Given such high levels of corruption in the country, the secrecy surrounding MAs presents opportunities for corrupt public official and corporates to benefit at the expense of the nation. Secretive MAs have been identified as one of the causes for the failure of resource rich countries to leverage on natural resources to attain socio-economic transformation that lifts the poor out of poverty.

The news surrounding the tax dispute between Zimbabwe Platinum Mines (ZIMPLATS) and the Zimbabwe Revenue Authority (ZIMRA) clearly demonstrates the imperative for full disclosure of mining contracts or mining agreements. Zimplats is one of the largest platinum mining companies in Zimbabwe and operates out of Mhondoro-Ngezi. The company is listed on the Johannesburg and Australian Stock Exchanges and is largely owned by Implats. A local weekly newspaper, the Financial Gazette, carried a story on 26 February titled “ZIMPLATS Wins Tax Dispute”.

According to the story, ZIMPLATS entered into a Mining Agreement (MA) with government in 1994 which stipulated that royalty rates will be paid at 2.5% of fair market values. Further, the MA exempted ZIMPLATS on payment of Additional Profit Tax. These fiscal incentives are known as stabilisation clauses which are used as a tool to attract investments in a sector through the insulation of tax incentives from potential future changes in legislation.

ZIMRA argued that the MA agreement clause on stable 2.5% royalty rates was not binding since  requisite Statutory Instrument (SI) was not issued as stipulated by the Income Tax Act (Chapter 23:06) whereas Zimplats argued otherwise (case number 12292/11). Justice Lavender Makoni in favour of Zimplats citing that “the definition of taxes under Income Tax Act (Chapter 21:05) does not include royalties under the Mines and Minerals Act (read with Chapter VII of the Finance Act (Chapter 23:04).

The period under consideration in this dispute is 1 January 2004 to 30 September 2010. ZIMPLATS argued that it had paid royalty rates at 3% and 3.5% which were above the stipulated 2.5% in its MA with government. The overpayment amounted to US$6,057,146.00. It must be noted that royalty fees for platinum have since been further repeatedly revised upwards to 5% on1 January 2011 and 10% on 1 January 2012. Experts estimate that ZIMPLATS may claim up to US$120 million from ZIMRA. It is, however, noteworthy that ZIMRA has been complying with the reviewed royalty rates and has not demanded restitution as Justice Lavender Makoni noted in her judgement.

On another separate note the dispute between ZIMRA and ZIMPLATS on Additional Profit Tax (APT) payment amounted to $50.4 million from 2002 to 2011.

Royalties

These stabilisation clauses pertaining to flat royalty rates of 2.5% and the waiver of APT when added up shows that the public purse is at risk of losing over $176million. This becomes glaring when one considers the 2011 national budget statement which lamented poor royalty revenues despite booming mineral prices.

It is interesting to note that the MA that ZIMPLATS had with government was concluded in 1994. During this period, agriculture and manufacturing were the mainstay sectors of Zimbabwe’s economic growth. This has since changed as mining is now the lead economic sector after surpassing agriculture and manufacturing based on its contribution to both the Gross Domestic Product (GDP) and export earnings.

The country’s 5 year (2013-2018) economic blueprint, the Zimbabwe Agenda for Sustainable Socio Economic Transformation (ZimAsset) is anchored on judicious exploitation of mineral assets. Yet MAs that were entered into over 2 decades ago are likely to encumber whatever plans are in place of fully capturing mineral resource rents and fully beneficiating the country’s mineral assets. These unbeneficial tax incentives should be put in the context of the fact that mineral resources are wasting assets that cannot be recovered once exploited. In addition, the failure to judiciously exploit the country’s mineral resources means that treasury is starved of much needed revenue and this has the knock-on effect of stifling much needed investments in creating social safety nets to ameliorate the plight of many poor Zimbabweans.

Reviewing of MAs to unlock the mining sector’s potential in line with the new economic status of mining is critical to the realisation of ZimAsset’s transformation agenda. MAs should be publicly accessible and it is disheartening to note that the details of the much touted recent $3 billion platinum MA between Russian investors and government are not public. Do we have to wait for disputes to start exposing the malcontents of this MA as is the case with Zimplats? Zimbabwe should follow the lead of countries such as the DRC and Guinea in publishing mining contracts or mining agreements. This helps plug opportunities for corruption and ensures that public officials negotiate in good faith knowing full well that the mining agreements will be subjected to public scrutiny.

* Mukasiri Sibanda is an Economic Governance Officer at the Zimbabwe Environmental Law Association ( a member of Publish What You Pay Zimbabwe)

Transparency, illicit financial flows and accountability issues in the diamond sector, what we can learn from ZCDC’s annual reports

Roughly two weeks ago, i received a WhatsApp message from the Zimbabwe Consolidated Diamond Company (ZCDC)’s Head of Public Relations and Community Development, “….true to your advice, we have put annual reports and other documents on website for transparency. You can check.” Firmly, this conversation is rooted in my previous work with the Zimbabwe Environmental Law Association (ZELA), where we sought to strengthen transparency and accountability in governance of the mines and minerals sector in Zimbabwe. Given that opacity is almost synonymous with Marange diamond mining operations, relentlessly, ZELA engaged with ZCDC, Minerals Marketing Corporation of Zimbabwe (MMCZ), government and Parliament to improve transparency in the diamond sector.

ZCDC is State Owned Enterprise (SOE), is wholly owned by government of Zimbabwe through the Zimbabwe Mining and Development Corporation (ZMDC). Formed in March 2015, government’s main drive for establishing ZCDC “…was to ensure that there would be transparency, accountability and optimal commercial exploitation and marketing of Zimbabwe’s diamonds that would benefit ordinary Zimbabweans.” An objective that jibes with the African Mining Vision (AMV) which envisages “Transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development”

Weighing the significance of disclosure

According to Natural Resource Governance Institute (NRGI)’s Guide to Extractive Sector State Owned Enterprises Disclosures, “Transparency, driven by enhanced disclosures, constitutes a major component of an SOE’s accountability to shareholders, potential investors and business partners, and an increasingly engaged civil society.”

At the behest of International Monitoring Fund (IMF)’s Staff Monitored Programme, the only audited annual reports which extensively covered the diamond sector were publicly released in 2013, comprising of 2011 and 2012 annual reports. So considering the seven year information drought on audited annual reports, the disclosure by ZCDC in 2020 comes as a huge relief. Also important to note is that, this time around, it was civil society organisations (CSOs) that influenced ZCDC to disclose, and not IMF. Perhaps this is indicative of the fact that local CSOs are quite relevant to the agenda of strengthening transparency and accountability of Zimbabwe’s extractive sector. The term extractive sector is used generally to refer to oil, gas and mineral sector. Using narrative reports generated by OAG, CSOs like ZELA, in previous years, had lambasted ZCDC for failing a transparency test.

As government stumbles on adoption and implementation of the Extractive Industries Transparency Initiative (EITI), a globally recognized standard on promoting openness and accountability in the extractive sector, it is crucial, therefore, for CSOs to unbundle the push for transparency.  Small victories such as this one on disclosure of annual reports by ZCDC are needed energizes the struggle for transparency. It must be noted though, the Office of the Auditor General (OAG) had been consistently sharing only narrative reports on governance challenges besetting State participation in the diamond sector.

Whilst the disclosure by ZCDC is laudable, it must be highlighted, ZCDC’s peer, MMCZ publicly releases its audited annual reports on regular basis. Equally so, OAG had been consistently sharing information of state participation in the diamond sector. This evinces, therefore, that ZCDC had been lagging compared to its peers on transparency. Considering that ZCDC is owned by ZMDC, a SOE which lacks a culture of disclosure, will the entity breakaway from opaqueness and consistently disclose publicly its annual reports. After complying with IMF’s SMP in 2013, ZCDC ceased to disclosure publicly its annual reports in the preceding years. Now that ZCDC has heeded that call by CSOs to disclose, will this be part of the new culture by ZCDC. Only time will tell however. But what is clear is that CSOs must no rest in their laurels, constant pressure is needed to ensure that mining SOEs like ZCDC embrace a culture of disclosure.

Another huge minus on ZCDC’s disclosure is that the information is stale. Only audited annual reports for 2016, 2017 and 2018 were released. Up to date information on ZCDC’s 2019 audited annual reports is still not publicly available. Unarguably, ZCDC is flouting the constitutional basic values and principles governing public administration, particularly, Section 194 (1) (h) “transparency must be fostered by providing the public with timely, accessible and accurate information.”

Sources of revenue leakages and illicit financial flows revealed

With allegedly US$15 billion missing from Marange diamond mining operations, as opined by the former and late President Robert Mugabe, the diamond sector is a harbinger for corruption and illicit financial flows (IFFs) prejudicing resources for investment in essential services and infrastructure. IFFs are defined as money that is illegally earned, transferred and spent by the Global Financial Integrity. The Report of the High Level Panel on IFFs from Africa cautioned that African countries that heavily depend on extraction of natural resources for their exports and tax revenue, as the case with Zimbabwe, are prone to IFFs. Such IFFs occur through “transfer mispricing, secret and poorly negotiated contracts, overly generous tax incentives and under-invoicing.”

The report’s findings jibes with highlights from ZCDC’s annual reports on sources and enablers for diamond revenue leakages such as “Lack of adequate skills and capacity in sorting and valuation also contributed to loss of value through undervaluation. An inadequate marketing framework further exacerbated the value loss as it failed to attract a diversified pool of international buyers to participate at local diamond auctions. Resultantly the country was losing significant value due to inefficiencies in cleaning, sorting, valuation and marketing of diamonds.”

To help curbing diamond revenue leakages and IFFs, “ZCDC acquired a Diamond Processing and Deep boiling facility with modern technology and appropriate intellectual property to facilitate the cleaning of Zimbabwean diamonds which had been undervalued due to poor cleaning.” Explain the impact of inefficiently cleaning and sorting rough diamonds, “…in some instances resulting in diamonds which could otherwise have been classified as Gem or Near Gem diamonds, being classified and sold as Industrial diamonds due to failure to properly clean the diamonds with the appropriate technology and systems. To back this assertion, a comparative analysis of the average rough diamond price per carat for annual diamond sales conducted by ZCDC  shot to US$62.27 in 2018 from US$49.69 earned in 2017, a 25.33% increase in value. It is important though to note that, according to Kimberly Process (KP)’s public statistics, average price of rough diamonds per carat rose from US$110.13 in 2017 to US$116.78 in 2018, a 6.04% increase in value. At minimum, this helps to show that ZCDC’s interventions have improved the average price of rough diamonds sales.

To what extent is ZCDC fulfilling its mandate?

There are 5 anchors of ZCDC’s mandate that consists of; (i) to enhance adequate investment in diamond mining beyond alluvial, (ii) to explore for kimberlitic resources and build bankable mining reserves, (iii) to enhance contribution to the fiscus and community development (iv) to enable Government to manage more efficiently operations and exploitation of the country’s diamond resources; (v) to achieve better accountability and transparency. A quick evaluation of how ZCDC has fulfilled its own mandate a fundamental exercise of stimulating citizen participation and accountability in the diamond sector.  Notably, CSOs working with Community Based Organisations, mining companies and relevant government institutions organized multi-stakeholder engagement platforms branded as alternative mining indabas (AMIs) at district, provincial and national level. For Mutare district AMI, community evaluation of ZCDC’s mandate, fundamentally, must be one of the topical issues for engagement.

To enhance adequate investment in diamond mining beyond alluvial

In its annual reports, ZCDC reveals that the company has managed to successfully transition from alluvial diamond mining to conglomerate diamond mining. Diamonds expected to contribute at least US$1 billion annually by 2023 according to government’s target of annual earnings of US$12 billion by 2023. Although not included in the annual reports, Anjin Investments and Alrosa have come in “to work with ZCDC to boost diamond exploration and production.” In 2018, ZCDC produced 2,766,576 carats, a far cry from 12,060,162.7 produced in 2012 earning $740,998,085.16 according to KP’s rough diamond pubic statics. This was peak period of Zimbabwe’s rough diamond production. ZCDC’s 2018 rough diamond production figures show that the entity has a mountain to climb if it to help with the attainment of US$1 billion annual earnings from diamonds by 2023.

The return of Anjin Investments, partly owned by the Chinese and the military points to a failure by ZCDC to attract responsible investment in the diamond sector.  Along with other 7 companies that were mining diamonds in Marange, Anjin Investment was given a boot in 2016 for being part of the opaque management of diamonds and huge revenue leakages. Considering that ZELA was on the ground in March 2018, where it witnessed that Anjin Investment was active, it is amiss that ZCDC in its 2018 annual report failed to report on Anjin Investment’s activities. To gain more insights on Anjin Investment’s rogue past in Marange, read Mukasiri Sibanda’s opinion piece, The return of Anjin to Marange, the blindside of “Zimbabwe is open for business” agenda, NewZWire, 10 February, 2019. It is pertinent for ZCDC to disclose contracts the company entered into with Anjin as well as Alrosa for publicly scrutiny if ZCDC is to fulfill its mandate on delivering better transparency and accountability in the diamond sector.

To enhance contribution to the fiscus and community development

There was no disclosure of various payments made to government by ZCDC.  It is important for ZCDC publicly disclose payments of taxes, charges and levies paid like royalties, local taxes to Mutare RDC and levies paid to Ministry of Mines and Mining Development (MMMD), for example. Such levels of transparency are quite critical given the legacy issues around failure by the previous miners to pay a fair share of taxes to government.

ZCDC’s 2017 annual reported noted that “The known rich alluvial deposits had been mined out and the remaining alluvial deposits were largely uneconomic for mechanised mining” according to its former CEO M Mpofu. There is an opportunity for ZCDC to allow artisanal diamond mining in Marange as encouraged by AMV and the Kimberly Process through the Washington Declaration on Integrating Development of Artisanal and Small Scale Diamond Mining with Kimberly Process Implementation. Artisanal mining is hymned by the AMV because of its ability to create employment since it is lowly mechanised and highly labour intensive. If well managed artisanal diamond mining can balloon the community spend, enhance community enterprise development, and mitigate violent conflicts which tarnish Zimbabwe’s diamonds on the international market. If ZCDC seriously seeks to enhance community development, artisanal diamond mining must be a top agenda item.

Whilst it commendable that unlike its predecessors, ZCDC paid “US$5 million” to Marange-Zimunya Community Share Ownership Trust (CSOT), the net effect is that ZCDC acted no differently from its duplicitous predecessors who failed to honor their commitments on community development. Due to the country’s currency woes, the payment was accounted for as local currency and this heavily eroded the value of the fund.

Disclosures are welcome but there is room for improvement

ZCDC must be commended for releasing its annual reports for publicly scrutiny which augurs well with its mandate to deliver better transparency and accountability in the diamond sector. Similarly, efforts by ZCDC to curb diamond revenue leakages through improved sorting and valuation of diamonds are quite commendable. Average rough diamond price per carat rose by 25.33% in 2018 compared to 2017, all thanks to efforts made by ZCDC. However, there are areas for improvement. ZCDC must ensure share timely, accessible and accurate information as required by the Constitution. From its peers like MMCZ, ZCDC must take a leaf and consistently share publicly its annual reports.

Government might be stumbling on joining EITI, however, CSOs must take heart that there are important small victories that are needed to improve the mining transparency landscape. To move the needle on delivering transparency in the diamond sector, ZCDC must disclose joint venture contracts with Anjin Investment and Alrosa. On community development, it is vital for ZCDC to support artisanal diamond mining. This will also go a long way to remove the bad publicity around Marange diamonds because of recurring violent conflicts between the company’s security and artisanal miners.

Create a free website or blog at WordPress.com.

Up ↑