Search

Mukasiri Sibanda's Blog

articles on mineral resource governance

Author

mukasirisibanda

Fighting for a fair share of community benefit from mining in line with Section 13 (4) of the Constitution. I work for the Zimbabwe Environmental Law Association (ZELA) with ZEAL as an economic governance officer. PWYP Data Extractor. ZIMCODD National Chairperson. Views expressed here are my own.

What it takes to bring public & market confidence in Marange diamond mining operations

Introduction

On Friday, 17 May 2019, seven Executive managers of the Zimbabwe Consolidated Diamond Company (ZCDC) were dismissed by the ZCDC Board. Although granular reasons were not given, the Board highlighted the need to rebuild public and market confidence in the diamond mining operations of ZCDC. There is no doubt that given how it was founded and its record and the history of the Marange diamonds , ZCDC need to build public and market confidence. Without digging deeper to understand what triggered this move, which is of course necessary, the Zimbabwe Environmental Law Association (ZELA) has taken the initiative to share critical steps that can be taken to build public and market confidence in the management of Marange diamonds by the ZCDC. ZELA is a lead public interest law organisation whose thrust is to influence legal, policy and institutional reforms which deliver good governance, transparency and accountability in the natural resources sector at the national, regional and international level. Internationally, ZELA is involved in monitoring diamond mining and trade through its participation in the Kimberley Process Certification Scheme on diamonds.

Diamond Policy

Whilst a raft of policy and legal reforms to ensure good mineral resource governance are long overdue, transparency and public participation must not be undermined. Zimbabwe now has a new Diamond Policy, although sadly this has not yet been publicly shared. Further, communities affected by the diamond mining and citizens in general, were not consulted during the formulation of the Policy and this is unconstitutional – Section 13 (2) of the Constitution on National Development. Therefore, to build public confidence, Parliament Portfolio Committee on Mines and Mining Development must conduct public hearings to harvest the views of communities affected by diamond mining activities in particular and the citizens in general. Ministry of Mines must be open to public dialogue with civil society and industry, to unpack the contents of the Diamond Policy to stimulate robust public debate.

Transparency and Accountability

It is an open secret that ZCDC was created because of the consolidation of former diamond mines in Marange with the objective of promoting transparency and accountability in the management of Marange diamonds. The latest report from the Office of the Auditor General (OAG) revealed that ZCDC failed a transparency test. ZCDC’s audited annual reports are lagging by one year – ZCDC 2017’s books were not part of the OAG’s 2018 narrative report on state enterprises and parastatals.

Unlike the Minerals Marketing Corporation of Zimbabwe (MMCZ), ZCDC’s audited financial statements are not found on the company’s website.  Notably, ZCDC’s predecessor and parent company in Marange, the Zimbabwe Development Corporation (ZMDC) started to release its audited financial statements in 2013 as part of the International Monetary Fund’s (IMF) Staff Monitored Programme (SMP). Therefore, ZCDC must urgently put on its website its annual audited financial statements and make sure that its books are timely audited.

Diamond production and export figures must be disaggregated to show the quality footprint, gem, near gem and industrial diamonds. Such a move will allow the public to have better insights on the performance of gem and near gem quality diamonds which are highly valuable and highly susceptible to theft and undervaluation. Another drainage of public confidence is that diamond statistics from various government institutions, MMCZ and Zimbabwe National Statics Agency for instance on exports by volume and value are different. This information asymmetry is part of the findings of research carried out by ZELA in 2013, Tacking the Trends: An Assessment of Diamond Mining Sector Tax Contribution to Treasury with Particular Reference to Marange Diamond Fields. When data from different government institutions on the same subject matter differs, public confidence is eroded.

Public confidence without transparency is a fruitless exercise. Government must move with speed to implement the Extractive Industries Transparency Initiative (EITI), a policy position taken by the 2019 National Budget Statement. EITI is a global best practice when it comes to transparency in the mining sector which promote the public disclosure of revenues, contracts and recently commodity transparency as part of its new Standard.

ZMDC has signed a number of contracts with a number of investors as part of its Joint Venture Initiatives. One of the ways of building public trust and confience is making these contracts available to the citizens in line with section 62 of the constitution. Contracts are a key component of mineral resource governance. Currently these contracts are not in the public domain and this creates unnecessary suspicion.

Decriminalise artisanal diamond mining to end violence

Last year, ZCDC announced that it is ready to support artisanal diamond mining in Marange to empower communities and reduce conflict between the company’s security guards and artisanal miners. No tangible development has been made to date on decriminalising artisanal diamond mining. Violent conflicts are frequently experienced, and this discolours the Marange diamonds in the world market. Therefore, steps must be taken quickly to decriminalise artisanal diamond mining to enable co-existence of large-scale mining and artisanal mining in the diamond sector. After all, artisanal mining might be crucial to mop up some diamonds that cannot be economically exploited by large scale mining operations because of geological factors. However, in doing this, compliance with KP minimum requirements and best practices on promoting artisanal diamond mining and trade should be adhered to in order to promote public and market confidence in Marange diamonds.

The return of Anjin Investments must be conditional  

Government announced that Anjin Investments along with Alrosa, are the two foreign companies from China and Russia respectively that will mine diamonds in Zimbabwe in addition to ZCDC and Murowa diamonds. It is good for sure to open Zimbabwe for business to attract much needed foreign direct investment, technology and skills to unlock the diamond sector’s potential. However, care must be taken to ensure that any investor must be guided and given mining concessions that are conditional on adopting of responsible sourcing principles including respect for human rights, community investments, disclosure of revenues and payment of royalties and other mining taxes.  A look at Anjin Investments’ previous record in Marange for example shows several red flags. OAG failed to verify payments made to government like depletion fees by Anjin Investments because the entity’s books were never audited. The former Minister of Finance, Tendai Biti once singled out Anjin Investments for failing to pay taxes to government. Parliament reports noted that investments made by Anjin in the diamond sector could not be easily verified. It is therefore necessary to ensure that responsible investments are attracted in the mining sector and close space for investors which have a murky past.

Advertisements

Talking Points on Platinum Symposium

For civil society working to influence policy and practice reforms tailored to strengthen linkages between mining and sustainable development, stakeholder engagement is a critical piece of the jigsaw puzzle. To gain a pulse feel of industry’s thinking concerning current and future of mining, the Zimbabwe Environmental law Association (ZELA) is participating at the Chamber of Mines’s 2019 Annual Mining Conference. Themed “Realizing Vision 2030 Through Resource Led Growth” the Conference is being held at Elephant Hills Resort, Victoria Falls, from 29 May to 01 June 2019.  Reaching upper middle-income status is the goal for Vision 2030.

The Conference’s theme resonates well with the Africa Mining Vision (AMV) which envisages “Transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development.” Realising that resource rich Africa must not continuously squander the opportunity to industrialise and diversify its economy from mining, Africa Heads of States and Government adopted AMV in 2009. This article shares key highlights from the platinum symposium which was held on Thursday, 30 May 2019. Further, the article ventilates some of the main issues discussed to help citizens to understand some pressure points when it comes to mining and sustainable development.

Technology redefining the future of mining

Unlike South Africa, Zimbabwe’s platinum industry is highly mechanised because of favourable geological characteristics. In light of fourth industrial revolution, the industry must explore new technologies out there to “produce more with less.” Automation and modernisation of the industry is fundamental to drive production efficiency. Embracing technology becomes key to lowering the cost of production to gain a competitive advantage in addition to the comparative advantage that Zimbabwe enjoys. Cheap commodities have a future and expensive ones have a short life span said Stanley Segula, Managing Director of Zimplats.

Comparative advantage stems from the fact that in platinum, the country is endowed with a world class mineral asset which ranks second best after South Africa. In terms of platinum production, the Zimbabwe is ranked number three, after South Africa and Russia in that order.

Rightly so, industry is taking leadership to stimulate discussion on the impact of technology on mining. Government and civil society must not be late to get off the blocks on this one. As suggested by Vanessa Ushie in her recent blog titled new mining technologies and the fiscal space: ensuring shared value and sustainable development, government must explore options to give oxygen to mining linkages to development in the context of new technologies. Right now, the employment situation in Zimbabwe is quite unsustainable.

With technology set to drive platinum production growth, employment linkages are going to be further weakened. Even worse, there is strong risk that retrenchments can occur as labour is substituted by machines. Poor mining agreements have always been a major challenge to unleash mining’s development potential, starting with the 1888 Rudd Concession. With secrecy around mining contracts, the public does not have a fair view picture of how mining agreements are primed to manage a technological driven mining sector. Venessa suggest that the fiscal regime must be nimble to compensate for employment losses through equity participation or production sharing among other options. Obviously, our outdated Mines and Minerals Act and the mining fiscal tools are not best primed to anchor a mining led realisation of Vision 2030.

The status of the platinum industry

As part of its contribution towards the realisation of Vision 2030, the platinum sector is supposed to hit 50 tonnes annual production by 2030. Along with gold, platinum is one of the country’s top export earners. Although commonly referred to as platinum mining, it is crucial to note that Platinum Group of Metals (PGMs) are produced – 10 minerals are a product of platinum mining. By volume, nickel tops the production list. The oldest platinum mine in Zimbabwe, Mimosa started as a nickel mine and later shifted focus to embrace platinum mining. In terms of nickel production in Zimbabwe, the platinum industry’s production is favourable compared to primary nickel producers.

In 2018, production stood at 14.6 tonnes, a marginal from 2017 production. Accounting for 60% of the country’s total platinum production, Zimplats is the largest player in the platinum industry. Mimosa is the smallest player in terms of both output and ownership of proven platinum resources. Mimosa owns about 3% of the country’s platinum resources.

“The industry is fluid and confusing” currently, palladium price has surpassed platinum.  Palladium currently fetches around US$1,300 per ounce, a figure that roughly matches the gold price. “Platinum prices are in a long winter” currently fetching around US$800 per ounce. It is important to flag that platinum and palladium production volumes are nearly equally.

Make hay whilst the sun still shines

Platinum is mainly used to produce auto catalyst convertors that are critical in the reduction of carbon emissions from motor vehicles. With technology pointing to electronic vehicles, the platinum industry is under severe threat because auto catalyst converters account for 60% of platinum market.  The Jewellery market accounts for 12%. However, technology also offers hope in that platinum can be used to generate electricity, and research is at advanced stage. Equally so, other minerals like nickel that are part of the PGMs are key in the production of electronic vehicles. The key lesson here is that Zimbabwe “must make hay whilst the sun still shines”, quickly leverage on its platinum assets as future technologies pose risks which can sterilise the resource. Exploration beyond the Great Dyke.

Indigenisation policy an albatross

In 2018, the Finance Act removed indigenisation requirements for all minerals aside from platinum and diamond sectors. As it stands, foreign players in the platinum and diamond sectors are required to cede a minimum of 51% equity to indigenous partners. This is making Zimbabwe one of the least attractive investment jurisdiction. Whereas the President announced that government is fully removing indigenisation requirements for platinum and diamond sectors, the law has not been changed. The industry’s position is that legal reforms to repeal the indigenisation framework must be expedited.

It is understandable that a conducive policy environment is a key enabler to attract much needed investments in the platinum industry. But, the Constitution must not be undermined. As rightly stated by Honourable Mukaratigwa, the Chairperson of Parliament Portfolio Committee on Mines, the State is compelled to come up with measures to ensure communities benefit from resources in their areas. To that effect, the issue of Community Share ownership trusts (CSOTs) must not be affected by any changes to the indigenisation framework. Interestingly, a sterling example of the impact on CSOTs in terms of reducing infrastructure deficits in rural areas comes from the platinum industry. All three platinum producers contributed $10 million each to fund community development programmes in their areas.

Beneficiation and value addition

Industry expressed displeasure with the current stick approach, use of export taxes to compel local value beneficiation and value addition of platinum. Certainly, beneficiation and value addition are fundamental to generate more foreign currency earnings, create more jobs, widen the tax base and to promote industrialisation. The platinum industry, it must be noted, has lower ripple effects to the domestic economic compared to steel making which can spur construction sector and other downstream industries. Given that platinum is a “sexy mineral” – high valued mineral, government must not lose sight of low valued minerals – development minerals which have strong linkages to other economic sectors, agriculture and construction, for instance. Despite its perceived challenges, the results of export taxes are encouraging in that Unki mine recently commissioned a smelter. Gone are the days where Unki mine used to export platinum concentrate. “Keep walking” there is room to achieve more – base metal refinery and finally precious metal refinery facilities.

Conclusion

To ensure that platinum industry growth plays a critical role towards the attainment of Vision 2030, industry is clear on critical success factors that must be addressed. It must be clear though, that any growth anchored on mining must not leave communities behind as required by the Constitution. Of course, the indigenisation framework as it stands is not attractive to investors, it must be tweaked but not entirely scrapped to give legal teeth to CSOTs. Afterall, the sterling example of community led development comes from the platinum industry in Zimbabwe. The impact of technology is another fundamental which government and communities must be alive to, policies and laws must be “nimble” to leverage better mining for the realisation of Vision 2030.

Steps To Curb Short Circuiting of Mining Fiscal Linkages

Zimbabwe’s socio-economic development plan, the Transitional Stabilization Plan (TSP) is hinged on mining. This is not surprising because the country is endowed with world class mineral deposits in form of gold, platinum, lithium and chrome among others. Therefore, it is important for Parliament to increasingly hold more to account government and industry, on how mining fiscal linkages are leveraged to promote progressive realization socio-economic rights of citizens – health and education, for instance.

To help achieve this important milestone, the Zimbabwe Environmental Law Association (ZELA) facilitated a one-day workshop to upskill knowledge of Parliament Portfolio Committee on Budget, Finance and Economic Development on mining fiscal transparency challenges, opportunities and progress recorded. The workshop was held on Friday, 24 May at Cresta Lodge, Harare.

Community members from resource rich areas of Gwanda, Zvishavane and Mutare took part in the workshop. The Zimbabwe Revenue Authority (ZIMRA), the country’s tax administrators delivered a presentation on mining taxation, ZELA ventilated mineral revenue transparency and accountability issues, and PACT clarified linkages between mining and development.

Under listed are critical action points to enhance mining sector fiscal linkages, mainly for Parliament Portfolio Committee on Budget Finance and Economic Development

  • Since 2011, government repeatedly made empty promises to implement the Extractive Industries Transparency Initiative (EITI) or its home-grown version, the Zimbabwe Mining Revenue Transparency Initiative (ZMRTI). EITI is a global best practice on mineral revenue transparency, which enables public scrutiny on mining sector and its contribution to development, tax revenue mainly. This time around, the Parliament must exercise its oversight role to ensure that the Ministry of Finance and Ministry of Mines come up with a clear EITI implementation which they will regularly monitor.
  • Even though Section 34A (3a) of the Revenue Authority Act estops the Zimbabwe Revenue Authority (ZIMRA) from sharing client information on taxes, there is room for improvement to enhance mineral revenue transparency. For example, ZIMRA can disclose mining sector performance per each revenue head corporate income tax (CIT), withholding taxes, customs duty, value added tax (VAT), and Pay As You Earn (PAYE) among others. Further, disclosures can be disaggregated to show how major minerals like platinum, gold, diamonds and chrome performing per revenue head.
  • Tax incentives are a discount on tax revenue and they must be publicly accounted for. ZIMRA’ tax revenue performance reports, therefore, must be refined to account for the cost of tax incentives. Creditably, the 2019 National Budget Statement recommended the development of “a tax incentive monitoring and evaluation framework to facilitate the management of timed tax expenditures as well as to inform Cost Benefit Analysis of tax expenditures by Treasury, on an annual basis, with effect from 1 January 2019.” Parliament must hold to account the Ministry of Finance and ZIMRA on how tax incentives are accounted for in line with policy position of the 2019 National Budget Statement.
  • Parliament should follow up on Platinum royalties which were reduced by the 2018 FinanceAct from 10% to 2.5% to ensure that there is equal treatment for all players. The 2018 National Budget Statement which triggered this development promised that by August 2019, the platinum royalties will be reviewed. This is getting close and it is important for Parliament to ensure that platinum royalties are reviewed accordingly to maximise revenue flows to the treasury.

“Government entered into Special Mining Lease Agreements with some platinum group mining companies which provide for a specific royalty rate of 2.5%.  1107. However, platinum produced by mining companies that do not have a Special Mining Lease Agreement remained liable to a royalty rate of 10%, as provided for in the Finance Act. In line with the principles of equity and fairness in the taxation system, Government committed, in April 2017, to align the royalty rates to 2.5% as part of the 2018 Budget measures. The 2018 Budget, therefore, proposes to regularise royalty rates for platinum on all platinum group mining companies with effect from 1 April 2017, until August 2019.” 2019 National Budget Statement, Page 243 – 244.

  • To ensure that mining mega deals do not yield meagre tax revenue, as recommended by Africa Mining Vision (AMV), government must adopt competitive bidding in the disposal of mineral rights with proven geological potential. An extract from the Anglo Platinum mines’ (Angloplats) 2012 integrated report shows that “…. the company will receive a payment of the amount of US$142 million due to it for the cession, in March 2008, of Kironde and Bougai mineral right claims….”  This is clear evidence that if government pursues lose it or use it principle, there is potential to have bumper revenue from disposal of attractive mineral claims if competitive bidding is adopted.  Right now, it is not clear how much government received from disposal of various claims released by mining companies like Unki mine and Zimplats. In 2018, Zimplats released to government nearly 24,000 hectares of platinum claims and it is not clear how much government benefited from such claims as well as concessions made to Zimplats as part of the new lease agreement.
  • Corruption is a cancer to the country’s development plans. Having a public register of beneficial ownership is important to peep beyond the corporate veil to expose the natural persons that are benefiting from mining deals. This way, it is easy to publicly identify policy makers and implementers that that have interest in business deals that they must negotiate and regulate for the benefit of the public. As it stands, most government suppliers are highly over charging goods and services, some of which are poor quality and it is not possible to fish out the “tenderepreneurs” that are siphoning public funds.
  • A country that hinges its economic development plans on mining must be guided by the Constitution, Section 315 (2) (c) – “An Act of Parliament must provide for negotiation and performance of concessions of mineral and other rights” In March 2019, the Minister of Finance announced that government has so far sealed mining deals worth US$8 Billion. These deals must be immediately be brought to Parliament for scrutiny to ensure that the terms and conditions harness optimal national development linkages from mining.
  • ZELA to request for partnership with ZIMRA to produce position paper to guide Parliament on alignment of relevant pieces of legislation on mining taxation, the Income Tax Act, Mines and Minerals Act, and the Environment Act which are not currently speaking to each other. For example, the Income Tax Act does not qualify black granite mining as mining operations. As a result, exemptions like capital redemption allowances which are enjoyed by mining operations are not applicable to black granite mining.

 

Marange Diamonds: The Drama Never Ends

“… when it comes to diamond, there are syndicates that are very sophisticated in the country and outside the country and many people get involved. Many beneficiaries get involved to ensure that the truth never comes out” remarks given by Prof Gudyanga, former permanent secretary of the Ministry of Mines during a Parliament hearing on Missing $15 billion from Marange.

Introduction

Seven executive managers of the Zimbabwe Consolidated Diamond Company (ZCDC), including the Chief Executive Officer (CEO) were fired by the board on Friday 17 May 2019.  ZCDC is a State-Owned Enterprise (SOE). The entity was created in 2015 and started operations in 2016 after seven diamond mining companies were booted out in the name of bringing transparency and accountability to murky Marange diamond mining activities.

The dismissal according the board, was necessitated by the desire to restore market and public confidence following several allegations of corruption and abuse of office. Since no granular details were shared, it is important not to take things at face value. But to try to dig deeper for possible clues and to help with suggestions on what it takes to bring public confidence in the management of Marange diamonds. I shudder to say rebuilding public confidence as opined by the ZCDC’s board because from the onset, Marange diamond mining operations dismally failed to inspire public confidence.

Jobs robbed by diamond robberies

ZCDC experienced a spate of armed robberies of diamonds. We have not heard of any public report on diamonds robberies at Murowa diamonds. Consequently, one can argue that a spate of diamond robberies might have robbed the senior management of their jobs. Speaking of armed diamond robberies, could it be that ZCDC management closed loopholes for powerful and well-connected individuals who are used to looting diamonds from Marange. Perhaps out of frustration and desperation, the clique became so daring to make a statement to ZCDC by organising several armed robberies. This sounds like stretching facts a bit far, but, the former Permanent Secretary, Prof Gudyanga warned “… when it comes to diamond, there are syndicates that are very sophisticated in the country and outside the country and many people get involved. Many beneficiaries get involved to ensure that the truth never comes out”

Allegations of corruption and abuse of power

Before the board announcement on dismissal of the ZCDC senior management, the CEO was arrested for recommending diamond sales to a black listed person under Kimberly Process (KP). Allegations surfaced on abuse of power by the chief financial officer who allegedly bought 1,200 bags on cement from Lafarge on ZCDC’s account for his own personal use. Looking at the rear-view mirror, Office of the Auditor General (OAG)’s report on ZCDC’s 2016 raised several damning issues on poor corporate governance. The board must openly address steps it took to implement the OAG’s recommendations.

People feel good when hunting with their own dogs

There were strong allegations that ZCDC was created to close revenue stream for one ZANU PF faction, Lacoste, which allegedly had the military backing. ZCDC was created when Chidhakwa, allegedly aligned to Generation 40 (G40) faction in ZANU PF, oversaw the Ministry of Mines and Mining Development. The Military had a stake in one of the biggest diamond mines in Marange, Anjin Investments, which was booted out along with other entities – Mbada, Jinan, Diamond Mining Corporation (DMC), Kusena, Gye Nyame and Marange Resources. Companies like Anjin investments failed to have their books audited year in year out. The Auditor General had trouble to verify taxes paid by Anjin because of failure to produce audited financial statements. Whilst speculation was strong that factional fights created ZCDC, transparency was one of the main reasons given for creating ZCDC. Considering that Anjin’s books were never subjected to an audit, the transparency card was genuine although other motives could not be ruled out. So, when the Lacoste function emerged supreme after the November 2017 events which reshaped Zimbabwe’s political landscape, arguably, it was only a matter of time before changes were made. People feel good when hunting with their own dogs. Always, the ZCDC management which was dismissed was skating on thin political ice.

Failure to manage expectations

ZCDC mostly painted a robust outlook in terms of diamond production and earnings. Now that the country is facing severe foreign currency shortages, could it be that authorities in government were disappointed that diamonds were not bringing in the anticipated cash.  In its 5-year strategic plan, ZCDC has a target of producing 10 million carats generating annually, generating $1 billion in foreign currency, contributing $250 million in taxes to government and $20 million to Marange-Zimunya Community Share Ownership Trust.  In 2018, ZCDC surpassed its targeted diamond production, producing 2.8 million carats against 2.4 million carats. Between 2016 and 2018, ZCDC generated $22.9 million according to MMCZ. Diamonds, including gold, and platinum used to be a top performer on foreign currency earnings at one-point generation US$740 million in 2012.

Conclusion

It is too early to celebrate whether ZCDC’s board made a good move to restore market and public confidence by firing the entire ZCDC executing management aside from the chief operating officer. Parliament Portfolio Committee on Mines and Mining Development must dig to deeper to unmask real challenges at ZCDC. The board must understand that given past chronicles of corruption concerning Marange diamonds, openness is the pillar of building public confidence. Anything short will always attract speculations whether the move by the board is well intentioned or not.

Zvishavane Community Share Ownership Trust Uncertainty: What You Need To Know

Communities have a constitutional right to benefit from resources in their areas in line with Section 13 (4) on National Development. Given government’s inclination to open Zimbabwe for business, there is an ominous risk that investors get prioritised over community rights is ominous. In March 2019, the Minister of Finance, Prof Mthuli Ncube boasted that government has so far sealed US$8 billion deals in the mining sector. But the exact connection between mining mega deals and benefits accruable to communities are not clear.  The mining deals are not open for public scrutiny despite the constitutional requirement that Parliament must play and oversight role during negotiation of mining agreements together with performance monitoring of existing mining contracts – Section 315 (2) (c).

What is clear is that the Finance Act of 2018 destroyed the legal backing of Community Share Ownership Trusts (CSOTs) for all mineral sectors apart from diamond and platinum. Under the indigenisation framework of 2010, foreign companies in the mining sector were required to cede 10% equities to communities. Government has expressed intentions to remove platinum and diamond sectors from complying with indigenisation requirements.

Below are the facts and figures on Zvishavane Community Share Ownership Trust (ZCSOT) which communities affected by mining operations and interested parties must know. The below facts and figures were compiled during a workshop organised by the Zimbabwe Environmental Law Association (ZELA) in Zvishavane on 10 and 11 May 2019. The purpose of the workshop was to help communities with skills to follow mineral revenue to strengthen linkages between mining and local economic and social development.

  • ZCSOT was launched in 2012
  • ZCSOT has no share ownership in any of the mining companies that are operating in Zvishavane.
  • Initially, Mimosa platinum mine pledged to give ZCSOT US$10 million
  • Because Mimosa mine also has claims in Mberengwa district, $3 million was given to Mberengwa CSOT and ZCSOT received $7 million.
  • The size of Mimosa’s platinum claims in Zvishavane and Mberengwa was used to allocate the $10 million pledged by Mimosa.
  • Murowa diamonds initially pledged US$1 million to ZCSOT
  • Later, the US$1 million pledge by Murowa was split equally between Zvishavane and Chivi district and the formula used to split the pledge was not clear.
  • Murowa diamonds paid $300,000 to ZCSOT and $200,000 is outstanding.
  • Unki platinum mine operating in Tongogara has platinum claims in Tongogara and Zvishavane districts. However, the $10 million pledged and paid to Tongogara CSOT by Unki mine was not shared with Zvishavane CSOT. Yet ZCSOT shared amounts pledged with other districts because of contiguous mineral deposits.
  • The current balance in ZCSOT coffers is RTGS$3.5 million. Sadly, mining is the lead foreign currency earner in Zimbabwe but fiscal linkages are backed by a weaker local currency – RTGS$.
  • ZCSOT’s footprint concerning infrastructure development, schools and clinics is visible in all 19 wards in  Runde rural district.
  • Resettlement areas which have huge infrastructure deficits are the main beneficiaries of investments undertaken by ZCSOT. This is in line with constitutional principles of public financial management which requires that resources must be allocated for the benefit of marginalised areas and marginalised groups
  • $5,000 was allocated to each ward to cater for their development priorities. Some wards have failed to spend the money that was allocated to them.
  • ZCSOT was not affected by the softening of the indigenisation framework in 2018 by the Finance Act. All mineral sectors are no longer required to comply with indigenisation requirements apart from diamond and platinum sectors. Zvishavane has diamond and platinum mines.
  • The future of ZCSOT is uncertain. The Finance Minister, Prof Mthuli Ncube opined that government will soon introduce measures to remove platinum and diamond sectors from complying with indigenisation framework.
  • To ensure sustainability, ZCSOT is now focusing on community enterprise development for income generation.

Gwanda Community Share Ownership Trust: Interesting Facts and Figures

Opening Zimbabwe for business, in principle is a noble initiative because sectors like mining have huge appetite for investment. However, the constitutional right for communities to benefit from the exploitation of resources in their localities must never be compromised. Regrettably, Community Share Ownership Trusts (CSOTs), established to ensure equity participation of communities affected by mining operations no longer have legal backing outside diamond and platinum sectors. A position that was created by the Finance Act of 2018.

Lately, the Minister of Finance, Prof Mthuli Ncube opined that government will remove indigenisation requirements for platinum and diamond sectors. To enable the public and other interested parties to appreciate what is at stake, this write up is a compilation of interesting facts and figures on Gwanda Community Share Ownership Trust (GCSOT). The facts and figures were sifted from the community data extractors held by the Zimbabwe Environmental Law Association (ZELA) to improve mining fiscal transparency in Zimbabwe.

The signature intention of the programme is to equip community members with skills to mine data, process the data to formulate data driven advocacy messages for transparent and accountable management of mineral revenue.

facts and figures

  • 2012, is the year GCSOT was launched.
  • 2, Gwanda and Umuguza are the only CSOTs that received share certificates out of 61 established CSOTs.
  • 10% equity was donated to GCSOT by Caledonia’s Blanket gold mine.
  • 5% equity was given to GCSOT by Pretoria Portland Cement (PPC) through a vendor finance arrangement. The other 5% equity was given to Umguza CSOT because PPC has a cement plant in Umuguza.
  • 80:20 ratio, dividend paid to GCSOT by PPC, 80% is for repayment of the vendor loan for the purchase of shares and 20% constitute income for Gwanda CSOT.
  • US$1 million was donated to GCSOT by Blanket mine.
  • US$4 million, an advance dividend that was paid to GCSOT by Blanket mine.
  • 15 years, the time GCSOT is likely to take to payback advance dividend of US$4 million.
  • US$1.5 million, the money that was donated to Gwanda CSOT by PPC
  • $500,000, the amount of money that was pledged by Jesse gold mine
  • $250,000 is the amount that was paid by Jesse mine to GCSOT
  • 0 is the amount paid by Vumbachikwe gold mine to GCSOT
  • $5.5 million is the amount of money currently available in GCSOT coffers in 2019
  • GCSOT’s fiscal muscle weakened by monetary policy measures which led to its balance being denominated in RTGS dollars instead of US dollars. Ironically, mining is the lead foreign currency generator in Zimbabwe. Yet mining fiscal linkages lack the firepower of foreign currency linkages to spur local economic and social development.
  • To ensure sustainability, GCSOT is shifting to income generating projects for community enterprise development.
  • Legal backing for Gwanda CSOT was removed by the 2018 Finance Act
  • The current Minister of Industry and Commerce, Hon. Nqobizitha Mangaliso Ndhlovu, is the former Matebeleland South provincial director of the now defunct National Indigenisation and Economic Empowerment Board (NIEEB).
  • Apart from gold production records shared by Blanket Mine courtesy of its listing under Caledonia in Toronto Stock Exchange, Canada, people in Gwanda do not know the volume and value of gold extracted annually in Gwanda.

Government must open Zimbabwe for business, but it must avoid opening avenues for exploiting resource rich communities, a right that is enshrined in the Constitution, Section 13 (4). Existing and prospective investors in the mining sector must not negotiate aggressively with government to undermine the right of communities to benefit fairly from the exploitation of their  natural wealth.

The economy desperate needs investors. However, counting a spike in foreign direct investment is a cosmetic indicator. Investment in the mining sector are only sustainable when people, planet and profits are put in that order. Taking into consideration that the Minister of Industry has first hand experience on the impact of CSOTs, we hope that communities affected by mining have a champion in government.

Devolution can lift resource rich communities

Introduction

Much as Zimbabwe is endowed with huge mineral wealth portfolio, the disconnect between mining and living standards of communities where resources are extracted is quite glaring. A typical example involves the gold sector. Record breaking gold deliveries to Fidelity Printers (FPR) were realised in 2018 – 33.2 tonnes of gold worth roughly US$1.3 billion against a set target of 30 tonnes. However, sharp shortages of essential drugs, for instance, evinces that record-breaking production in the mining sector has no telling development impact in health and education sectors. The self-inflicted wounds are a result of poor mineral resource management – the gold sector was ranked by Resource Governance Index (RGI) of 2017 number 81 out of 89 countries, with a score of 29 out of 100 against a regional average of 43.

With devolution is gaining traction, there is need to ventilate challenges, opportunities and progress on harnessing mining for sustainable and broad based local economic and social development. Perhaps, such an exercise can spur strong public conversation on how minerals can deliver elusive benefits to communities to reverse the undermining of development opportunities stemming from mining. Devolution is provided for in the Constitution under Section 264.  Decentralisation of governmental powers and responsibilities to provincial and local government is the cornerstone of devolution.  Among its constitutional objectives, devolution seeks “to recognise the right of communities to manage their own affairs, and to ensure equitable sharing of local and national resources.”

Harnessing mining for local mobilisation of finance for development

Under Section 276 (2) (b), local authorities are empowered “to levy rates and taxes and generally to raise sufficient revenue for them to carry out their objectives and responsibilities.” Despite this constitutional power, resource rich local authorities have generally struggled to capitalise on enormous economic activities in their jurisdictions, mining particularly, to boost their purses to finance development. Largely, this challenge emanates from the fact local authorities are “rule takers and revenue takers.” A case in point is the outdated local mining tax collection system under the Rural District Council (RDC) Act.  For the purposes of calculating mining taxes due to any local authority, in the case of precious minerals, manual labour is used as a base. As an example, 100 manual labourers equate to a unit, and the rate for that unit is negotiated yearly between a local authority and mining companies.

Absolutely, such an arrangement is not tenable. Labour has been upstaged by machines as a driver of production in the mining sector. A position that is set to get worse as the wave of the forth industrial revolution is unavoidable. Syama mine in Mali has become the first fully automated underground mine in the world. To achieve a progressive local mining taxation structure, it is prudent to consider a value-based approach rather than a manual labour-based approach. For example, 2% of gross income generated per mining project should constitute local mining tax contribution.

Fiscal linkages not enough without the power of foreign currency linkages

Mining is the country’s lead foreign currency generator, contributing not less than 50% of the country total export earnings since 2010. It is unfortunate that in districts where foreign currency is mined, taxes are paid using a weaker currency – RTGS dollars. Agreed local mining tax arrangements were premised on the basis that US dollar and RTGS dollar are equal, 1:1. When the exchange rate was liberalised later through the 2019 monetary policy statement, some mining companies refused to adjust payments to accommodate the official exchange rate.  As a result, the spending power of local authorities was severely eroded. Even payments made to community share ownership trusts (CSOTs) or their savings were not spurred because they are not backed with foreign currency linkages. Examples include Marange-Zimunya Community Share Ownership Trust which received $5 million last year (2018) from Zimbabwe Consolidated Diamond Company (ZCDC). Zvishavane CSOT had roughly $3 million set aside for income generating projects.

Another revenue stream for local authorities which has been hurt because poor foreign currency linkages is $310 million set aside for devolution in the 2019 national budget statement. According to Section 301 (3) of the Constitution, at least 5% of national generated revenue in a given fiscal year must be allocated to provincial and local authorities. It is worthwhile to flag out that this constitutional arrangement was not been complied with since 2013 when the new Constitution came into effect. Therefore, the ground-breaking move by the Ministry of Finance to comply with Section 301 of the Constitution in 2019 has its development lights dimmed because the power foreign currency linkages is missing.

Uncertainty around community share ownership trusts

The State is constitutionally compelled to put in place mechanisms to ensure communities benefit from resources in their localities in line with Section 13 (4) on national development. In the quest to attract investment, government is operating on “Zimbabwe is open for business” mode.  In 2018, the Finance Act removed indigenisation requirements for all minerals apart from diamonds and platinum. As a result, sustainability of CSOTs outside diamond and platinum sectors is now doubt. As if that is not enough, the Ministry of Finance stated in March 2019 that government intends to scrap indigenisation requirements for diamond and platinum sectors.

Whilst the pace at which CSOTs were being implemented was frustrating, the principle behind the law must never be discounted. Community Share Ownership Trusts were birthed under the indigenisation and economic empowerment regulations of 2010. Under this arrangement, foreign mining companies were required to cede 10% ownership to local communities. Only 2 out of 61 CSOTs received equity from mining companies, that is Gwanda and Umuguza. In the platinum sector, Zimbabwe Platinum Mines (Zimplats), Unki mine, and Mimosa Mine paid $10 million each to CSOTs in their areas of operation. Amazing progress was recorded on the ground on investment in infrastructure, schools and clinics despite huge infrastructure gaps that are still persistent.

Undoubtedly, removing CSOTs rather than enabling the implementation of CSOTs goes against the spirit of devolution and can further marginalise resource rich communities from benefiting mining. Why ditching a winning formula? Vision 2030, attaining upper middle-income status certainly will prove to be a huge disaster if it does not address inequality. Inspiration must be taken from leave no one behind, the motto for the Sustainable Development Goals (SDGs) targeted at 2030.

Earmarked mineral revenue streams

There are service delivery funds that are linked with mining albeit not exclusively. Such funds include the rural electrification fund, aids levy, and the Zimbabwe Manpower Development Fund (ZMDF). Because mining is a huge consumer of electricity, it follows that the sector is a significant contributor to the rural electrification levy. Blanket Mine, for example, contributed 466,322 to the rural electrification fund in 2016 alone. There is hardly tangible evidence of any meaningful plough back of revenue ringfenced for service delivery in communities were the funds are generated. This is an opportunity for resource rich local communities and RDCs to follow the money, demand transparency and accountability to mobilise efficiently resources for enhancing local economic and social development.

Conclusion

Clearly central government has not fared well in terms of managing mineral resources for the benefit of resource rich communities as required by the Constitution. Devolution comes as an incentive for resource rich local authorities harness the elusive local development dividend from enormous economic activities in their localities – mining obviously takes the centre stage. To achieve this, CSOTs must not be sacrificed to attract investments, transparency and accountability of mineral revenue is important to amplify development opportunities from service delivery funds like rural electrification funds. From areas where foreign currency is extracted, it is atrocious that essential drugs shortages are experience because of scarce foreign currency. Therefore, fiscal powers of provincial and local authorities need to be backed by foreign currency linkages to enhance local economic and social development programmes.

Champions needed to jumpstart mineral revenue transparency reforms

Many times, it has been stated, Zimbabwe is open for business. But, can Zimbabwe be open about business, especially mining deals. Limited transparency in the mining sector disempowers citizens on  holding government and corporates accountable. It is impossible for citizens to scrutinise decisions and to ask pointed questions on how mineral wealth is managed to uplift their living standards, better schools, modern hospitals and access to clean and safe water.

Possible, a glimmer of hope comes from the 2019 National Budget Statement which made a firm commitment to implement the Extractive Industry Transparency Initiative (EITI), a global best practice. This is not a new development, however. In 2011, the Zimbabwe Mining Revenue Transparency Initiative (ZMRTI), an adapted version of EITI was fruitless.

Thereafter, respective National Budget Statements from 2012 to 2015 included commitment to either resuscitate ZMRTI or implement EITI, which also proved to be fruitless. Whilst the 2019 National Budget Statement managed to relight policy conversation on EITI, past lessons are telling. Unless something different is done, mining sector transparency reforms will remain elusive.

Given Zimbabwe’s struggles to open the mining sector for public scrutiny, perhaps, champions in government and business are critical to enable openness about mining business, particularly its linkages to sustainable development. The role of champions gains elevation considering key developments around devolution. Local government and mining companies have an opportunity to take leadership role on promoting transparency, citizen participation and accountability in the management of mineral resources.

With this objective in mind, the Zimbabwe Environmental Law Association (ZELA), facilitated a one and half day workshop on strengthening mining local fiscal linkages for Mutoko rural district. A district that is well known for producing high quality black granite, mainly, for the international market. 

The workshop was held at Mazowe hotel, running from 29 to 30 March 2019. Participants included council committee on finance, community-based organisations (CBOs), Faith Based Organisations (FBOs), school development committees (SDCs), Health Centre Committees (HCC), Ministry of Local Government, and a mining company.

During a discussion on strengthen transparency, participation of residents in generation, allocation and utilisation of mineral revenue, a significant milestone was achieved. Mutoko RDC and Natural Stone, a black granite mining company agreed to public disclosure of mineral revenue. Natural Stone was represented by Dr Muvhuro, the human resource manager who have many hats as the spokesperson of Dimensional Stones Producers Association (DSPA) and the current Vice President of the Chamber of Mines.

“As Natural Stone, we have no problem with Mutoko RDC publicly disclosing our tax payments. Intsead, we fear that Mutoko RDC will be in trouble as communities are eager to follow the money and see how it is being utilised. As far as we are concerned, we are up to date in terms of our tax payments” said Dr Muvhuro.  Peter Sigauke, Mutoko RDC’s CEO responded that “through our full council meetings which are held quarterly, information on payments made by mining companies is publicly accessible as the minutes are public records. Therefore, we are happy to go a step further to make mineral revenue more accessible to the public.”

Publish What You Pay (PWYP) coordinator, Joyce Nyamukunda remarked that transparency commitments made by Mutoko RDC and Natural Stone were quite significant. This should inspire other resource rich local governments and mining companies in those jurisdictions to publicly disclose taxes paid and received from mining activities.

In conclusion, civil society organisations, government and mining companies must make sure that EITI implementation should not fail. In this process, it is important to mobilise a pool of champions to eliminate any fears that Zimbabwe is open about business in the mining sector. As such, the steps taken by Mutoko RDC and Natural Stone are quite encouraging. “In fact, the disclosure should include environment management information, mining agreements and all payments made to all government institutions” said Joyce Nyamukunda

Civil Society Perspectives on The Future of Artisanal Mining After Battlefields Mine Disaster

To borrow rare inspiration from Jordin Sparks’ song (Battlefield), what is a major source of livelihood, Artisanal and small scale mining (ASM) in Zimbabwe, a feels like a battlefield. Quite symbolic. A tip of an ice berg comes is visible from the recent Battlefields ASM disaster, 24 people lost their lives, 8 were rescued, and 4 are still trapped as dewatering is ongoing. Determined to collectively reflect and pick key lessons from the Battlefields mine disaster, the Zimbabwe Miners Federation (ZMF), civil society organisations (CSOs), development partners, media and a government institution had a breakfast meeting at the Bronte Hotel, on Friday, 22 February 2019. The Zimbabwe Environmental Law Association (ZELA) and ZMF worked together to organise the meeting. ZMF is a national mother body of all ASM associations.

CSOs which participated include the Zimbabwe Coalition on Debt and Development (ZIMCODD), PACT International Zimbabwe, Institute for Sustainability Africa (INSAF), Women and Law in Southern Africa (WILSA), Zimbabwe Council of Churches, and CIVIO institute. Development partners comprised of Oxfam International Zimbabwe and United Nations Development Programme (UNDP). The Environmental Management Agency (EMA) was the only government representative on board. The Ministry of Mines, Reserve Bank of Zimbabwe (RBZ) and National Social Security Agency (NSSA) failed to turn up even though there were invited. Over 50 people attended the Breakfast meeting.

Under listed are key taking points that emerged from the discussion;

A fund to prevent and respond to disasters in the ASM sector the missing link

Safety concerns are a hallmark feature of any mining business, large or small. The ASM is quite vulnerable to safety risks. The growth in ASM gold output from 3.9 tonnes in 2014 to nearly 21.7 tonnes in 2018 has catapulted the sector to a billion-dollar status.  ASM is not just about digging gold.  The miners are by no means playing a minor role in the economy. They are helping to dig the country out of its foreign currency woes. No wonder why the RBZ governor labelled them as heroes. But, the gold that is a necessary dosage to cure the severe foreign currency shortages comes at a huge human cost – injuries and deaths because of poor safety standards.  To prevent or mitigate the impact of safety, health and environmental disasters, government must take a leaf from the Aids levy. A fund created to contain the disastrous impact of HIV and AIDS. As such, government must ringfence part of gold royalty income from ASM for investment into safe, responsible and sustainable growth of the ASM sector. The ill prepared response to the Battlefields mine fields disaster shows why it is important always to plan. Notably, the Battlefields disaster was not the first. Certainly, it will not be the last.

Civil Society Organisations (CSOs) have a role to play

After the realisation that basic first aid services were not immediately available when the 8 miners were rescued. It is important that CSOs equip Artisanal and Small-Scale Miners (ASMers) with basic medical aid skills to help each other in the event of injuries at work. In addition, prior arrangements need to be made with doctors in all the key gold producing districts to enable quick mobilisation of their services when disasters happen. Also, psycho social support and counselling services should be given to a team of artisanal and small-scale miners (ASMers) who retrieved the bodies of their colleagues – traumatic experience for people that are hardly trained and equipped to carry out such an exercise. One ASMer who was part of the rescue team vowed that it would be difficult for him to eat meat again after picking and packing body parts of his colleagues into a sack.

Docuseries and photo gallery on Battlefields mine disaster

Comprehensive documentation of the Battlefields disaster is a necessary to ensure artisanal miners in corners of the country can learn and reflect on what transpired. Docuseries should be rooted various experiences of women and children, on artisanal and small-scale miners – focusing on rescuers, policy, legal and regulatory environment, role of media and CSOs among others. Through documentation, it is possible to always remind stakeholders on why urgent action is required to ensure that ASM safety concerns are addressed. Taking a cue from the commemoration of the 1972 Hwange coal mine disaster which claimed 427 lives, the need to commemorate the Battlefields disaster cannot be overemphasised.

Formalise artisanal miners

Who is an artisanal miner? That was the major question of the day. How do we manage the conundrum of making sure that artisanal miners, the affected, are included in conversations of issues that are affecting them? Notably, several parameters can be used to define artisanal mining, but definitions vary country to country. In Zimbabwe, the Mines and Minerals Act, the principal mining legislation does not recognise artisanal mining. Artisanal mining should be defined through surface area and depth of the mining pit, number of employees, approved basic tools and equipment, a capital threshold and operating in designated area. These parameters were also agreed to by the 2017 Technical Working Group (TWG) on ease of doing business reforms in the mining sector. Possibly, by licensing artisanal miners, there is an opportunity to monitor and give support to the miners in a manner from that helps to manage the safety risks.

Create a free website or blog at WordPress.com.

Up ↑