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Mukasiri Sibanda's Blog

articles on mineral resource governance

Caledonia’s ESTMA Report: Accountability Opportunities in Zimbabwe

In an environment where a chorus from communities, CSOs and government on improved transparency in the mining sector is strong and persistent, what accountability opportunities and challenges does Caledonia’s Extractive Sector Transparency Measures Act (ESTMA) Report present? This blog explores if there is added value from Caledonia’s ESTMA report to the Publish What You Pay campaign in Zimbabwe. Basically, the ESTMA Report produced by Caledonia largely focuses on Blanket Mine located in Gwanda rural district of Matebeleland South province.

What is in the Report and opportunities to enhance accountability?

Reporting period and timeliness of information

The reporting period is an important aspect of any report. It reveals the timeliness of information and how easier it is to be compared with other independent reports based on their reporting periods. Caledonia’s ESTMA reporting period runs from 01 January to 31 December 2016. This reporting period fits perfectly with the reporting cycle of the public funds as prescribed by the Financial Management Act (Chapter 22:09). Ideally, this makes it easier to compare Caledonia’s ESTMA Report with other public funds like the local government fund and Rural Electrification Levy (REL).

Accuracy of information & social audit opportunities

Quality assurance of information is necessary considering that corporates have been accused a number of times for “creative accounting.” So, the attestation by the reporting entity and the independent auditor that the report is factual, complete in all material respects as required by ESTMA gives a fair measure of comfort to the users of information.

There is an opportunity for PWYP Zimbabwe to carry out a social audit and give its own opinion on accuracy of information shared by Caledonia’ ESTMA report. This process involves triangulating payments made to government by Caledonia with data on what government received from Caledonia’s Blanket mine. Even if PWYP Zimbabwe fails to get the requisite cooperation from government, it can still form its own opinion that it could not attest as to the accuracy and completeness of the Caledonia’s ESTMA report. This will form a good basis for a campaign for greater transparency on what government is getting from mining companies.

Improved transparency on payments made to government

ESTMA Reports

From the report, one can easily track the various payments made by Blanket Mine to different government departments in 2016. This entails taxes and royalties paid to the Zimbabwe Revenue Authority (ZIMRA), fees paid to local government and ministry of mines and payments made Zimbabwe Electricity Supply Authority (ZESA) such as the Rural Electrification Levy (REL) and infrastructure improvements.

Tax revenue a reliable source of development finance

From the Report, tax revenue is a predictable and reliable income stream when compared to dividends. Narrowing down to local public funds for development, tax was paid to Gwanda rural district council whilst no dividends were paid to Gwanda Community Share Ownership Trust. Without a doubt, Community Share Ownership Trusts have heightened community interest in areas where they have been successfully launched. PWYP Zimbabwe should therefore guard against possible diversion of community interest in transparency and accountability of local taxes paid by mining companies.

Since Blanket Mine is on an expansion drive and PWYP Zimbabwe should check if this is translating to improved payments to local government. This data is critical to show if the taxes paid to local government by mining companies are regressive or not. Certainly, the fact that labour, a production factor which has been supplanted by technology is being used as a basis for calculating local tax paid by mining companies. Hence PWYP Zimbabwe can leverage on ESTMA report data to show cause why local tax policy should be reformed.

What the report tells us about government’s intentions to scrap royalties

Payments made to ZIMRA

Clearly, royalties dominate payments made to government by Blanket Mine. It is worrying that early this year, the Minister of Mines intimated early this year that government is mulling scrapping royalties for the gold sector. If this comes to fruition, mineral revenue flows from mining will be hit hardest thereby weakening government’s ability to invest in social protection of poor and vulnerable groups of society.

Mining contributes significantly to Rural Electrification Levy

Increasing access to electricity is one of the priorities of the Sustainable Development Goals (SDGs). Looking at the ESTMA report, mining companies are significant contributors to the rural electrification levy, $466,322 was paid by Blanket Mine in 2016. Therefore, PWYP Zimbabwe should include transparency and accountability of public funds such as the rural electrification levy

Legal reforms on disclosure, lessons for Zimbabwe

It is important to note that the disclosure on payments made to government by Caledonia’s project on Blanket mine came because of Canadian law, the ESTMA. At the domestic level, mineral revenue transparency deficiency need legal reforms. This is so even though the Constitution clearly provides for public access to information in general under Section 62 and specifically for the mining contract negotiation and contract performance under Section 315 subsection 2 (c) and the Zimbabwe Stock Exchange Listings Requirements for mining companies.

It is interesting to note that the draft Mining and Minerals Amendment Bill has a provision for mandatory primary listing of all large-scale mining companies. If passed, automatically, the Bill will be a game changer to enhance public transparency in the mining sector. However, the Canadian experience shows that legal reforms to promote disclosure of payments made to government by mining companies is a necessity. Government can even take further legal steps of ensuring that even non-listed mining companies disclose per project the various payments made to government.

Without government’s disclosure of payments received from mining companies, public reconciliation of mineral revenue remains a pipe dream. Whilst one can easily pick the various payments made by Blanket Mine to government from the ESTMA Report, data on what government receives from mining companies is barely available and accessible to the public.

Communities empowered to drive the tax justice campaign

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How communities are engaging with government and mining companies to fight for a fair share of mining benefit is at the heart of the Tax Justice agenda. So, as part of its drive to empower mining communities, the Zimbabwe Environmental Law Association (ZELA) conducted a tax justice training of trainers meeting in mineral rich Runde district on 15 June 2017. 15 participants were involved from mineral rich communities such as Mhondongori (platinum), Murowa (diamonds) and Mapirimira (chrome). The tax justice training of trainers meeting employed the critical reflection approach. Below are some interesting highlights of the meeting focusing on five areas that are critical for communities to focus their demand for a fair share of mining benefit. The areas include taxes paid to both local and national government; local employment and skills development; community enterprise development, sharing of mining developmed infrastructure and corporate social investments (CSIs).

What community must monitor on mining taxes and why is it important

Faced by dwindling and unpredictable traditional levers of development finance such as official development assistance (ODA), tax has emerged as a resilient & predictable domestic source for financing development. For most mineral rich countries, the presence of mineral wealth, which often contribute impressively to export earnings, exciting but a challenging opportunity are on offer to reap public revenue to invest in health, education, clean, safe and portable water among other essential services.

Therefore, communities must be able to monitor and track if mining companies are paying a fair share of taxes, how government allocates and utilise the money it garners from mining and the accounting for the expenditure results as well. At local level, local government annual negotiates with mining companies on taxes that should be paid. Without public scrutiny, there is a risk that bad deals that shifts the flow of mineral revenue in favour of mining companies can be agreed.

Also, it is important for community monitors to access if taxes paid are regressive or progressive. Regressive taxes are the ones that lead to a situation where the rich pay a less taxes in proportion to their wealth as compared to the poor. As it stands right now, mining companies that extracts precious mineral like platinum, gold and diamonds are paying taxes to local government using labour as a unit or base. For instance, for the first 100 workers, a unit I charged. Modes of production has shifted in the mining sector from being labour intensive to capital intensive. The mining sector is employing less and less people unlike in the past. Unless the base or unit for charged local taxes is not changed from labour to mineral production volumes or values, mining contribution to local government will always be depressed and regressive.

As elusive, complex and technical as the illicit financial flows (IFFs) phenomenon might be, it is important for mining impacted communities to be the engine of the Stop The Bleeding Campaign #StopTheBleeding. IFF are defined as illegal or immoral but legal activities that promote the shifting of income from producing countries to tax havens or lower tax jurisdictions. Hence the fiscal capabilities of producer government are weakened as the case with several mineral rich African countries.

Building on existing local opportunities to advance tax justice work

Communities must take advantage of public budget consultations conducted by local government to ask key questions on revenue generation, allocation, utilisation and the results thereof. Unfortunately, communities are not attending in their numbers local public budget consultation meetings. “Last year in Mapanzure ward, the public budget consultation meeting was aborted after a few people turned out” Kudakwashe Zireva, a community monitor. It was reported though that the community turn out at food aid meetings was quite high.

Apart from local public budget consultation meetings, community monitors must take leadership roles in service delivery social accountability platform such as the school development committees (SDCs) and health center committees (HCCs). Such platforms give community monitors the chance to gather first hand data on service delivery challenges that communities are facing. For instance, if a new classroom block is needed to stop overcrowding or to curb under the tree learning, community monitors can document and share publicly such stories to pressure government and mining companies into action. Participation at SDCs and HCCs also strategically places communities monitors to curb leakages from corrupt procurement practices that weakens quality of service delivery.

Why local employment and skills development and what monitors must do?  

Mining investment bring employment and skills development opportunities. Local must not miss out from job opportunities generated from mining activities in their localities. It is not only about getting jobs, but skills development to enable local to have a fair chance of earning salaries that helps them escape the poverty bracket. Besides, skills such as boiler making, fabrication and building can be used in other sectors of the economy like agriculture and manufacturing.

So, communities must be able to access data on the employment quota reserved for locals, the nature of the jobs, number of men and women employed to hold to account mining companies and traditional chiefs. Armed with such data, communities can be able to know if or not they are fairly benefiting from employment opportunities. If there is need to verify if locals are getting employment opportunities as agreed, the availability of data can help community monitors to do a social audit. That is door to door verification of employment beneficiaries deemed as locals. This will deter corrupt tendencies that side line locals from employment opportunities. Off course, special focus should be on women equal access to employment opportunities in the mining sector as the sector is notorious for marginalising women on employment opportunities. In addition, community monitors can be key players through data gathering on influencing choices such as rotational employment opportunities for locals that is practiced by the likes of Murowa diamonds.

Community enterprise development & what are the issues

By nature, mining companies need goods and services to extract mineral wealth. Communities must be able to tap into business opportunities generated by mining activities. To do that, communities must have information on the nature of goods and services consumed by mining companies, procurement procedures and guidelines, the procurement quota reserved for locals and the real beneficiaries. The new indigenisation and economic empowerment framework that aims qualifies a company as compliant with indigenisation requirements if it retains locally at least 75% of its gross revenue offers exciting opportunities to community monitors. Without grassroots participation in such policy making processes, there is an inherent risk that mining impacted communities can lose out albeit with such well-intended policy frameworks. So, clear advocacy messages are needed on the nature and types of business that should be earmarked for the local community especially non-technical and low complex goods and services.

“the management and politicians are behind most of the community businesses that are supplying goods and services to mining companies. Communities members are simply fronting; they do not own the business” A community monitor’s voice. As such beneficial ownership disclosure is quite important to root out such corrupt practices.

Other opportunities stem from promoting transparency and accountability in the disposal of crap metal by mining companies.  Scrap metal is important feedstock needed by local entrepreneurs to fabricate tools and equipment needed in sectors such as artisanal and small gold scale mining in Zvishavane.

Corporate social investments and opportunities for community monitors

Although it is voluntary, corporate social investment (CSI) activities particularly from multi-national enterprises have potential to contribute to community development. However, without transparency and accountability, it is hard for community to hold to account mining companies on CSI. Community monitors must play an activity role to ask for CSI policies, procedures and guidelines from mining companies. It is important for community monitors to check if there is a clear revenue allocation for CSI for example 2% profit before tax earmarked for corporate social investments; radius considered under CSI, integration of the CSI plans with local development plans from local government, prioritisation of expenditure for instance where a mining company invest more on a VIP section of a football stadium that renovation of a hospital.

Artisanal and Small Scale Gold Mining in Bubi District: 8 Things You Must Know

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Asithandaneni syndicate of women gold miners in Bubi

Last week (6-11 June 2017), the Zimbabwe Environmental Law Association (ZEL) was in Bubi to sensitise stakeholders of its project on artisanal and small scale gold mining. Mainly, the project’s thrust is to promote the participation of Artisanal and Small Scale Miners (ASM) in policy making process. The proceedings were fairly shared on twitter using #ASMinBubi hashtag. Below are 8 things that i learnt about ASM gold mining in Bubi district of Matebeleland North province.

Land reform opened opportunities for ASM gold mining

In as much as the land reform process was meant to create better farming opportunities for the indigenous people, ASM gold mining appears to have received an unintentional boost. Prior to the land reform process, Bubi district had 23 wards, 9 of which were old settlements and communal and the rest were commercial farms. Now ASM gold mining activities are found in all the 23 wards of Bubi district.

“I ventured into gold mining after discovering old gold mining shafts at my new plot” Mr Ncube chairperson of Bubi Small Scale Miners Association (BSSMA)

Interestingly, several farmers are using the proceeds of gold to buy cattle. According to Bubi district administrator, Mr T Zivovoi “cattle are traditionally valued as a source of wealth by the Ndebele people. This accounts for the reason why proceeds from gold are invested into cattle rearing business”

ASM association potential anchor for formalisation and growth

ASM gold miners in Bubi came together and formed an association called Bubi Small Scale Miners Association (BSSMA) that became active in 2012. The association has diverse skills and experience. For instance, the Chairman (male) worked with World Vision, an international NGO for 12 years as a bookkeeper, the youth (male) representative is a mechanic by profession, the treasurer (female) is a well-established entrepreneur and the organising secretary (female) is a former teacher. BSSMA has about 288 registered ASM gold miners of which 70 are women. Some of the association’s notable achievements include brokering the release of gold claims by large scale miners such as Duration group of companies. The claims were subsequently allocated to women and youth that had interest to venture into gold mining.

“I started gold mining after I was allocated a gold claim by Bubi small scale miners association” Bongani Ndlovu, a youth miner.

Also, BSSMA successfully negotiated with local government to lower development levies paid by ASM miners per year from $300 to $100. The association managed successfully negotiated for a sponsorship in form of explosives, diesel, hiring of compressors among other working capital requirements. So far 6 miners have benefited from the support.

Scarce US dollars are circulating

The US dollars might have disappeared from circulation in large towns such as Harare. But, in Bubi, a gold producing district, the story is different. Government through Fidelity Printers and Refineries (FPR) continues to honour its pledge to pay ASM gold miners in cash using US dollars. Thus, government is minimising the risk of gold leakages because ASM gold miners will easily sell their gold to neighbouring countries like South Africa if they face any cash shortages. This accounts for the reason why tobacco farmers are struggling to be paid in cash despite raking in much needed foreign currency. Unlike gold, it is hard to sell tobacco on the black market.

From rags to riches & then to rags

There are numerous stories of poor people whose lives were transformed overnight after hitting a jackpot, that is kilograms of gold. However, there are also stories of a number of artisanal miners that emerged from rags to riches and then to rags due to poor investment choices. It appears that luxury cars are the main primary source of investments. BSSMA appealed for help to educate artisanal miners on viable investment options.

Gold rushes fuel violence, smuggling & environmental damage

Gold rushes are frequent throughout the year in Bubi. People from outside the district normally flock to Bubi during gold rushes and they are known as ma Shurugwi. The name ma Shurugwi stems from the fact that the artisanal miners are so daring and violent when searching for gold. Gold rushes have been given as one of the main reasons why Bubi district has the second highest prevalence of HIV and AIDS in Zimbabwe. A lot of environmental damages are caused by gold rushes in Bubi. The gold that is produced through gold rushes is barely sold to government. Police are also accused of corrupt practices that abets gold rushes as they seek to be given kickbacks instead of controlling the illegal activities.

Local custom gold millers have been squeezed hard by Chinese investors

Chinese investments into gold milling has brought new technologies which are considered to be more efficient by artisanal and small scale miners. Consequently, local established custom millers are feeling the pinch from stiff competition offered by Chinese investors.

Grassroots participation in policy making weak

There is lack of documentation of data or evidence that can possible help Bubi small scale miners’ association to participate in policy making and implementation processes. For instance, data on beneficiaries of $40 million gold mobilisation support scheme from the Reserve Bank of Zimbabwe is not available. The availability of such data can help the association to better engage with government to ensure that their members are not left out from government opportunities to promote the growth of the artisanal and small scale mining sector. The key asks for the association concerning the reform of the mining legislation are not documented and there appears to be no clear-cut strategy on engagement with national actors.

Social media twitter handles for artisanal and small scale mining districts

The voice of artisanal and small scale miners is barely heard. So, some suggestions have been proffered to share information on ASM in consolidate through social media in a more structured way. To start with, each district will have its own unique twitter hashtag eg #ASMinBubi, #ASMinBindura, #ASMinGwanda and #ASMinZim.

How Helpful or Harmful is RBZ Export Incentive Scheme?

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Mapirimira Primary School along the Great Dyke in Zvishavane

Introduction

Globally, the mining sector has gained notoriety for not paying its fair share of taxes to mineral rich and mineral dependant countries. African countries being the most affected. Consequently, curbing Illicit Financial Flows (IFFs), illegal and immoral but legal activities, is high on the agenda for development finance. Sustainable Development Goals (SDGs) will forever remain a mirage to be pursued and never attained without stopping the bleeding of Africa’s finance for development. Curbing IFFs can be quite complex and challenging for many institutional weak African governments. It is worrisome though that several mineral rich governments resort to toxic sweetheart fiscal incentives to promote investments in the sector. The result is a diminished flow of mineral tax revenue. Ultimately, this affects much needed funding for social protection programmes that reduce poverty and inequality. This blog seeks to stimulate the fiscal justice or tax justice public discourse in Zimbabwe. Mainly focusing on the 5% export incentive scheme administered by the Reserve Bank of Zimbabwe (RBZ). Already, Gilbert Makore, a close colleague and mentor, started the ball rolling on 7 March 2017, through his blog: Does the RBZ Export Incentives for Mining Need a Rethink?

Has RBZ scrapped mining royalties indirectly through export incentives?

Mineral exports contribute about half of Zimbabwe’s total export earnings. Automatically, this makes the mining sector the largest beneficiary of RBZ’s 5% export scheme. According to Zimstat data, mining contributed $362 million to overall exporting earnings amounting to $724 million in the first quarter. As such, $18,1 million accrued to mining houses and artisanal and small scale miners through 5% export incentive derived from $362 million export earnings. At the same time, mineral royalties amounted to $16,4 million according to the Zimbabwe Revenue Authority (ZIMRA)’s first quarter revenue performance report as at 31 March 2017. Given that export incentives to the mining sector outstrips royalties by $1.7 million, it can be argued that mining royalties have effectively been scrapped.

Royalties, it must be noted, are the only income stream from mining that is easy to administer and less susceptible from tax evasion and tax avoidance unlike income tax. Because of lack of disaggregated mineral tax revenue data from ZIMRA’s revenue performance reports, it is not possible to weigh the export incentive benefit to mining houses against overall tax contribution. Suffice to say, corporate income tax contribution from all economic activities including mining, agriculture, tourism and manufacturing among others is always dwarfed by Value Added Tax (VAT) and Pay As You Earn (PAYE). This points to the regressive nature of our tax regime. Corporates are not paying their fair share of taxes. The poor unfairly shoulder the tax burden. Regrettably, government is on the drive to raise more indirect taxes as manifested by the aborted Statutory Instrument 20 of 2017 that sought to expand VAT to some selected basic commodities like meat.

Some interesting points to consider

  • Mineral annual export earnings are expected to reach $3 billion this year. Therefore, export incentives accruable to the mining sector for 2017 are likely to be $150 million. It is not clear though how much taxes will be paid by mining companies this year due to limited disclosure of taxes paid by mining houses and mining taxes received by government. That is why mandatory disclosure of payments made to government by listed mining companies from EU, UK and Canada are a welcome transparency lift. Unfortunately, Trump administration has chosen to play a spoiler.
  • $150 million export incentive benefit to mining houses is 254% more than the entire operational and capital budget for the national health care programme as per the 2017 national budget statement. Out of $281.9 million allocated to the health sector, salaries will gobble $223 million leaving a balance of $58.9 million.
  • Government is failing to honour constitutional obligations to share at least 5% of national revenue with local authorities. In turn, this is hurting the mandate of local authorities to deliver social services critical to the progressive realisation of socio-economic rights. Puzzlingly, government can afford to pay 5% export incentives mainly to corporates and artisanal and small scale miners.
  • Where is our broke government getting the funds to finance the RBZ export incentives scheme? It has been said that the export incentives will be financed from a $200 million loan from Afrexim bank and government is willing to borrow more to finance the export incentive scheme.
  • Export incentives are given to stimulate export earnings needed to solve severe foreign currency shortages. Currently, RBZ is facing a conundrum when it comes to payments of imports such as capital goods and raw materials needed to boost economic growth. However, it is bothersome that prioritisation of foreign exchange earnings is quite problematic. For instance, the president’s incessant foreign trips, import of luxury cars and miscellaneous items like pampers.
  • To boost production in the mining sector, as Gilbert Makore argued in his blog, government must consider other enablers like policy consistency, political risk and adequate geo-scientific information rather than export incentives.
  • On one hand government is struggling to encourage mineral beneficiation and value addition through export tax on unrefined platinum, chrome and rough diamonds. On the other hand, government is giving 5% export incentives to mineral exports that are largely raw.

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

Introduction

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

Value proposition of linkages, investment and diversification

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

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

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

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

Government’s role

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

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

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

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

The role of mining companies

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

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

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

The role of Civil Society Organisations and Community Based Organisations

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

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

For Zimbabwe, the rear-view mirror offers a reminder

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

STR

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

Conclusion

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

 

KP public statistics not valueless but of less value: A call for dis-aggregated data

Continue reading “KP public statistics not valueless but of less value: A call for dis-aggregated data”

Transparency needed to curb illicit financial flows

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Where can the government of Zimbabwe get much needed resources to invest in social service delivery in form of health, education, clean and safe water among others? What has this to do with transparency in the mining sector? In 2017, $110 million was required to fund the Basic Education Assistance Module that enables poor children to go school. However, only $10 million was availed by the national budget.
Curbing Illicit Financial Flows (IFFs) has been identified as critical to mobilise development finance in Africa by the 2015 Addis Ababa Action Agenda of the Third International Conference on Financing for Development. Failure to curb IFFs can result in government resorting to regressive taxation frameworks that burden taxes on the poor. No wonder why government had broadened Value Added Tax to include basic foodstuff such as meat.

Despite Zimbabwe’s abundant mineral wealth, the treasury along with civil society organisations like Publish What You Pay (PWYP) Zimbabwe are on the record of decrying trickling mining tax revenue flows. Commendably, the Reserve Bank of Zimbabwe (RBZ) came up with a raft of measures to curb IFFs in its 2016 monetary policy statement. This included stopping the of shifting income through inflated management fees or service fees paid to offshore related companies. “To guard against externalisation by related companies through service payments, management fees, technical fees, service fees or by whatever name they come under, shall not exceed an aggregate of 3% of revenue and shall require Bank approval” RBZ.

However, without contract transparency, it is difficult for citizens to see if they are getting a fair share of tax revenue from the exploitation of their finite mineral resources. Therefore, the story that featured in The Herald on 20 April 2017 titled “ASA loses $4.3 million, fires executives” is a timely reminder on why transparency is critical for citizens to hold to account government and mining companies on curbing IFFs. In this story, it was reported that ASA holdings, largely owned by Chinese investors, China International Mining Group is receiving management fees from Freda Rebecca gold mine and Bindura Nickel Corporation (BNC). Questions automatically arise on how much management fees are being paid to ASA and what is government doing to curb abuse of management or consultancy fees.

Interestingly, in 2016, the government of Zimbabwe and China concluded a Double Taxation Agreement (DTA). The research carried out by PWYP Zimbabwe with the support of Oxfam Zimbabwe titled Government Revenue from Mining, A case Study of Caledonia’s Blanket mine warned against the risks posed by DTA. In this study, Caledonia a Canadian company went on to set up a management company in UK immediately after agreeing to ceding 51% shareholding to indigenous partners in Zimbabwe. This is what is known as treaty shopping. The motive was to exploit the DTA between Zimbabwe and UK and avoid paying a fair share of taxes on management fees. According Association of Certified Chartered Accountants, a DTA “is an agreement or a contract regarding double taxation or, more correctly, the avoidance of double taxation.” DTAs are not necessarily bad, if well negotiated, they can promote foreign direct investments and exchange of tax information.

If Zimbabwe is to reap a fair share of taxes from the exploitation of her abundant mineral wealth, embracing transparency initiatives such as the Extractive Industry Transparency Initiative (EITI) is a necessity. Interestingly, Section 315 (2) (c ) of the constitution provides for contract disclosure of mineral concessions of mineral and other rights. Government can borrow a leaf from Uganda which suspended DTAs until there it is clear how the country is benefiting from such arrangements. In the meantime, CSOs must work with Parliament to review DTAs to close loopholes that can lead to revenue leakages.

Community Data Extractors & Rights Based Approach to Budget Monitoring

 

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Community data extractors from Marange & Arda Transau

“We last received the Basic Education Assistance Module (BEAM) funds in 2014 at Mavhiza primary school in Marange.” This comment was made by Mr Mavhiza, a Publish What You Pay Zimbabwe community data extractor, from Marange Development Trust, during a half day workshop facilitated by the Zimbabwe Environmental Law Association (ZELA) in Mutare on 01 April 2017. BEAM is a government social protection programme meant to support poor children to get educated. Participants included 20 community data extractors from Marange Development Trust (MDT) and Arda Transau Relocation Development Trust (ATRDT) and 3 local journalists. Certainly, 1 April is renowned world over for being a fool’s day. Given that resource rich communities were being skilled to dig data, analyse data and use data to demand the change that they want to see, communities can no longer be fooled easily by government and mining companies. Marange, incidentally, is notoriously known for alluvial diamond mining activities that resulted into the “missing $15 billion.”

The new Constitution, commendably, expanded the bill of rights to include Environmental Economic, Social and Cultural Rights (EESCRs). With the right to education, health and clean, safe and portable water enshrined in the Constitution along with other Socio-Economic Rights (SERs), essentially, service delivery is no longer a question of fulfilling community needs or a charity matter. Rather, service delivery is now viewed through the lens of promoting the progressive realisation of SERs of communities. Exactly, the reason why community monitors must be well versed with their constitutional rights. As impressive as this development might appear, the fulfilment of SERs is subjected to the limit of available resources as per the Constitution. Hence it is imperative for communities to participate in the management of public resources as this has a telling effect on the fulfilment of their SERs. Further, communities must participate in the management and utilisation of their natural resource wealth. Section 13 subsection 4 of the Constitution directs the state to ensure that communities derive benefits from resources in their localities.

The management of public funds entails efficient generation of revenue, allocation of revenue in a manner that responds to national development priorities, using value for money to utilise the resources and monitoring and evaluation of the results through audit reports, for instance. Sadly, for Marange community, the potential for a windfall revenue from diamond extraction did not commensurately reflect in the coffers of both national and local government. Budget statements from 2010 to 2016 consistently flagged that the nation is not getting its fair share of diamond revenue from Marange. Annual financial statements (2014 & 2015) for Mutare rural district council revealed that diamond mining companies barely contributed to the local fiscus.

Opaqueness has been the main challenge. It is impossible for communities to know the overall mineral revenue contribution to the national purse. Let alone the contribution from Marange diamonds as well as contributions of individual entities operating in Marange. As such, communities struggle to hold to account government and mining companies on curbing illicit financial flows that resulted in the leakage of $15 billion as per the President’s assertion. Obviously, it would muddy the waters to debate the actual amount lost, but what is clear is the consensus from different quarters that the state never received its fair share and substantial diamond revenue was lost.

So, the argument that resource limitation is affecting delivery of public services which anchor human and economic development falls flat in the face of failure to curb illicit financial flows from the country’s abundant mineral wealth. The community data extractors also noted with concern that national and local government budget statements do not reveal the contribution from mineral wealth. This is against the principle of good governance which is one of the cornerstone to the Constitution.

After scrutinising mobilisation of public funds, the community data extractors looked at the national budget statement for 2017 with focus on ear marked revenue streams such as BEAM and Aids levy. BEAM fund is essential to promote the realisation of educational rights of many poor and marginalised communities, particularly the girl child. Whilst the AIDS levy is there to promote the health rights of those living with HIV and AIDS.

In analysing the budget allocation, community data extractors were eager to see if resources were being allocated equitably to ensure that marginalised people and areas get a fair share. Equitable distribution of resources is critical to fight inequality in our society as directed by the constitution. Although it was noted that $10 million was ear marked for BEAM funds (2017 national budget), transparency deficits meant that it was not clear how much each province, district and school was allocated from the BEAM fund. Marange community’s interest to monitor and track social safety funds such as BEAM stemmed from the fact their district, Mutare rural, was ranked as one of the poorest district by the National Poverty and Income Survey conducted in 2012 by the Zimbabwe National Statistics Agency (ZIMSTAT). Therefore, allocation of national funds for development should be pro poor in line with the requirements of the Constitution.

After dealing with allocation of funds community monitors were encouraged to look at the monthly expenditure accounts for the ministry of education to check if the BEAM funds were disbursed including the utilisation of funds. This is important given that government is struggling to pay civil servants. Yet without community pressure, disbursement of funds meant for social safety nets like BEAM can easily be sacrificed. Also, community data extractors were encouraged to look at the reports from the Auditor General to pressure both central and local government to implement the recommendations.

To wrap up, community monitoring, obviously, gains strength if it uses rights based approaches particularly linked with budget tracking and service delivery issues. Knowledge of the Constitution, essentially, is the bedrock for community monitoring. Without data, it is difficult for community demands to be credible and to influence evidence driven policy and practice reforms. Precisely, this is the reason why ZELA works with resource rich communities to build their capacities to demand transparency and accountability in the management and utilisation of public resources. This is quite important given that Zimbabwe is a mineral rich country. The country’s socio- economic development plan (ZIMASSET), without doubt, is hinged on judicious exploitation of the country’s abundant mineral wealth. However, without mineral revenue transparency initiatives like the Extractive Industry Transparency Initiative (EITI) or its home-grown version, the Zimbabwe Mineral Revenue Transparency Initiative (ZMRTI), resource rich communities will always struggle to hold to account government and mining companies. Hence, transparency is critical to ensure that resource rich communities derive benefits inform of better education and health services in line with the requirements of Section 13 of the Constitution.

 

Public Finance Management Act (Chapter 22:19)

Finance Department

Public sector accountability in Zimbabwe was reinforced by the introduction of the Public Finance Management Act (Chapter 22:19). Discuss the statement.

The decade leading to 2009 was a difficult period in the history of Zimbabwe. Inflation reached astronomical levels and the country almost came to its knees. There was alleged abuse of public funds and corruption by public officials.  In this essay I am going to discuss the background leading to the drafting of the Public Finance Management Act (Chapter 22:19). The predecessor of this Act are the Audit and Exchequer Act [Chapter 22:03] and The State Loans and Guarantees Act [Chapter 22:13]. These two pieces of legislation had become almost useless in curbing rampant corruption. Hence the inclusive government that presided over the economy of Zimbabwe after 2009 found it necessary to repeal these acts and replace them with the Public Finance Management Act.

There were delays in making…

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