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Mukasiri Sibanda's Blog

articles on mineral resource governance

High compliance costs are impeding ease of doing Business for artisanal and small scale miners

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Bubi Small Scale Miners Association (BSSMA) held their general meeting on the 10th of August 2017 at Ndwangwana shopping centre in Bubi district of Matebeleland North province. The meeting was attended by sixty people including the Senator of the area, Honourable M Bhebhe and the Zimbabwe Environmental Law Association (ZELA).  Main issues discussed were the process of transferring 81 claims ceded by John Muir; challenges with $5 million Gold Genius investment agreement; treasurer’s report on subscription fees; dispute between miners and farmers, engaging with Bindura Nickel company for release of mining claims; and the on-going mining ease of doing business reforms.

Artisanal and Small Scale Mining (ASM) is generally perceived as informal which makes it fundamental for players to organise to strengthen their bargain hand. This is one of the cornerstone to the promotion of formalisation of the ASM sector according to best practice like Fairtrade gold standard. At the recently held Mining Entra conference, the deputy minister of mines challenged ASM associations to take lead on documentation process that will help the engagement process with policy makers. If the above concern is taken into consideration, BSSMA’s is a step ahead of several small-scale miners’ associations in Zimbabwe.

BSSMA has about 320 members of which 185 members are fully paid up. A monthly subscription fee amounting to $5 is required.  That 58% of the members are fully paid up is a testimony of the confidence that the members have in the association. Commendable progress like engaging with large scale miners for the release of claims to artisanal and small miners and engaging with Environmental Management Agency (EMA) for group Environmental Impact Assessments (EIAs) has been scored by the association.

The meeting started with the discussion on progress pertaining to the transfer on 81 gold claims acquired from John Muir through a negation process initiated by BSSMA. The 81 gold claims comprise of 41 gold claims from the 2 base metals blocks which have been allocated to beneficiaries. The Ministry of Mines is in the process of regularising the sub divided blocks. The remaining 40 gold were legitimate and half of claims have not been transferred to their owners. 

Beneficiaries of the gold claims are struggling to raise $510 required by the Ministry of Mines to transfer claims. Because of this challenge, BSSMA is urging Ministry of Mines to reduce claim transfer fees to $100 from $510. This recommendation was made in light of the on-going mining ease of doing business reform process initiated by the Office of the President and Cabinet.

Also, the meeting noted that the EMA had agreed that about 24 small scale gold miners from the Zoo can carry out a group EIA and share the associated costs. This move is remarkable in that ASM players have generally complained of high costs associated with EIAs. Group EIAs will certainly lower the costs as the burden is shared amongst the miners unlike a scenario where each miner has a separate EIA.

The meeting was informed of the stunted progress of the $5 million investment agreement between Gold Genius, a South African company and BSSMA. This investment was meant to finance a state of the art service center for artisanal and small scale gold miners in Bubi. A gold mill, equipment like compressors and a gold buying office were part of the infrastructure to be developed under the centre.

 Due to some challenges faced by the investors, the investment has been scrapped and the construction of the service center has been halted. BSSMA resolved that it would get some legal services to go through the agreement to have a fair understanding of its rights and obligations pertaining to the failed investment agreement. So far, about 7 miners had benefited from the agreement through the provision of working capital like explosives, diesel and hiring of compressors.

Farmer miner disputes were discussed as one of the challenges affecting ASM in Bubi. It seems that disputes between miners and farmers are more pronounced in new settlements. According to one established small scale gold miner, Mr Timothy Ndlovu, disputes between miners and farmers dates back to the colonial era. Mr Ndlovhu faced challenges in 1975 when he tried to start mining operations in one of the farms owned by a white farmer.

 Another small-scale miner, Mr Kwanele Nyathi, recommended that artisanal and small scale miners must be capacitated with skills to negotiate with farmers. Furthermore, the meeting resolved that an awareness raising campaign is needed so that farmers are clear that legally, their rights are restricted to tilling the land and the minerals belong to the state.

Lastly, the meeting discussed the various impediments faced by ASM in Bubi to contribute to the ongoing mining ease of doing business reforms. On 26 July 2017, a mining Technical Working Group on ease of doing business reforms was established. ZELA as a stakeholder to the TWG is promoting grassroots participation in policy making process. As such, ZELA helped BSSMA to document the impediments they are facing and to suggest concrete solutions that will enable productivity of the gold miners. 

Overall, BSSMA felt that the various fees paid by ASM were too high and many hands are involved in the administration of fees paid by ASM. Currently, ASM are paying fees to the local government, Ministry of Mines and Environmental Management Agency among other government departments. Payments to the Ministry of Mines include prospecting license $200, mine registration  $200, mine annual inspection $100 and ore removal permit $20. 

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CSOs have a seat at the table: Mining Technical Working Group on Ease of Doing Business reforms launched

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Generally, mining sector reforms have proved to be elusive in Zimbabwe. This has been the case despite the pivotal role of mining to the country’s socio-economic development outcomes. The archaic Mines and Minerals legislation and outdated mining title management system, for instance, point to a stagnant policy and practice reform process.

Under this context, the Zimbabwe Environmental Law Association (ZELA) welcomes the new initiative to bring about policy and practice reforms in the mining sector. Under the leadership of the Office of the President and Cabinet, on 26 July 2017, the inaugural mining sector Technical Working Group (TWG) on ease of doing business was convened at Crowne Plaza hotel.

Stakeholders to the TWG include relevant government Ministries, Departments and Agencies, Business, small scale miners associations and Civil Society Organisations (CSOs). ZELA as the lead organisation on mineral resource governance in Zimbabwe is part of representatives from civil society including the Publish What You Pay (PWYP) campaign.

Professor Ashok Chakravarti coaching the TWG on mining ease of doing business. There are two team leaders, Isaac Kwesu, Chamber of Mines of Zimbabwe CEO  and Minerals Marketing Corporation of Zimbabwe’ general Manager, Masimba Chandavengerwa.

The mandate of the TWG is to identify priority areas for policy and practice reforms that enables the business environment to enhance mining sector contribution to economic growth and sustainable development. This entails recommendations to remove impediments to production, export earnings, beneficiation and value addition.

Evidently, Zimbabwe performs poorly in terms of World Bank’s Ease of Doing Business Index, ranking number 161 out of 190 countries in 2017.  Government started the ease of doing business reforms 2 years ago, so far, several legal and practice reforms have been successfully implemented.

Realising that mining is pivotal to drive export earnings, infrastructure development, job creation and industrialisation through linkages, government intends to put in place measures to promote domestic and foreign investment into the sector.

Although World Bank has a hand in ease of doing business reforms, strong domestic ownership is quite important. A point that was stressed by Solomon Mhlanga, senior principal director for public sector modernisation and performance management from the Office of the President and Cabinet. That is the reason why all stakeholders must take advantage of the policy platform to turn around policy and practice changes with 100 days. Stakeholders will be meeting weekly, on Wednesdays at the Ministry of Mines boardroom.

World Bank’s Rapid Results Approach (RRA) that has successfully been used in other countries has been customised to guide the ease of doing business reforms in Zimbabwe. To hit the ground running, the TWG agreed to make recommendations on several policy and practice reforms such as the draft Mines and Minerals Amendment Bill, Gold Trade Act, Precious Stones and Trade Act, mining title management system and royalties, levies and fees.

The involvement of CSOs in the TWG is certainly a game change and there is an opportunity to government and mining companies’ processes.

What does the 2016 annual budget review and 2017 outlook tell us about mining and development finance

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  • Mining’s impressive contribution to economic indicators like export earnings has little bearing on the welfare of poor and marginalised communities residing in areas in which mineral wealth is extracted from.
  • Mining contributed $2.2 billion in 2016, constituting more than half of total export earnings. Yet mining paid $75,74 million to government, a figure that accounts for only 2.2% of total revenue generated by mining.
  • Although the budget disclosed total revenue received by government from mining, without a breakdown of mineral revenue contribution per revenue head and project, it is difficult for the publicly to ask pointed questions on how government is generating revenue from mining.
  • Likewise, government must make it mandatory for mining companies to disclose the various payments made to government. We own the resources and yet we are relying on countries like Canada to know the various payments that Blanket Mine made to government through Caledonia’s ESTMA report.
  • Tax incentives given to the mining sector are a cost must be accounted for in the budget and eliminated if they are harmful.
  • Disclosure of projects per province undertaken by the likes of Rural Electrification Fund offers opportunities for CSOs and CBOs to carry out social audits through verification of budget outcomes with the results on the ground.

Mineral wealth blessings often boost expectations of improved funding for social protection programmes that cushions poor and vulnerable groups of society. However, the signature performance of many countries endowed with mineral wealth is abject failure to share mining benefits with citizens. A scenario known as the “Resource Curse.”

Against this background, the 2016 annual budget review and 2017 outlook presented by Hon Patrick Chinamasa, the Minister of Finance and Economic Development on 20 July 207 deserves public scrutiny on how the country’s significant mineral wealth is being managed to promote the progressive realisation of socio-economic rights (SERs). Rightly so, the Minister indicated in his introductory message that budget accountability and fiscal transparency are critical elements to enable policy engagement and accessibility for a wider range of public and targeted audiences.

A budget is fundamental a tool that governments use to promote development. Critically, a budget reveals government’s priorities on how it intends to generate, allocate and spend public resources. All this has a telling effect on progressive realisation of SERs guaranteed by the Constitution. The Constitution stipulates that realisation of SERs is subject to the limits of the resources available.

Poor revenue generation, inefficient allocations and expenditure can therefore hurt the provision of social protection programmes that are integral to the fight against inequality. Hence budget analysis and following the money is a signature programme of the tax justice campaign in Zimbabwe. Certainly, how government generates, allocates and spend money from finite mineral resources has gained some pre-eminence in the tax justice campaign.

Mineral resources form a critical component of public wealth. Their exploitation loses legitimacy if citizens are not getting their fair share. This is the reason why the African Mining Vision, a key policy document agreed to by the African head of states in 2009, that seeks to enhance socio-economic transformation hinged on minerals strongly envisage domestic mobilisation of development finance from mining. Rightly so, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim-Asset) (2013-2018) acknowledges the potential of mineral wealth to anchor finance for its development programmes.

Mining, undoubtedly is fundamental to Zimbabwe’s socio-economic development agenda. The country is blessed with over 40 known mineral deposits. Minerals exports contribute not less than 50% to the total export earnings. This makes our economy mineral dependent according to IMF’s standards. Countries that rely on at least 20% of their export revenue from minerals are classified as mineral dependent economies. However, such impressive economic indicators like export earnings have little bearing on the welfare of poor communities living in areas where mineral wealth is extracted.

Through paying a fair share of taxes, mining can have a positive impact on the welfare of resource rich communities. Unfortunately, the Minister of Finance decried the fact that despite the impressive contribution by mining to export earnings, its contribution to national revenue is only a pittance as reflected by the table below.

Mining Sector Revenue

  2009 2010 2011 2012 2013 2014 2015 2016
Total Government Revenue (US$ Millions) 934 2,339 2,921 3,496 3,741 3,727 3,737 3,502
Mining Revenue (US$ Millions) 50.6 154 161.3 245.8 185.2 335.9 139.9 75.74
Mining Revenue Share (%) 5.4 6.6 5.5 7 4.8 9 3.7 2.2

Source: Ministry of Finance and Economic Development

Budget transparency is critical to enable public accountability in the handling of public resources. Transparency carries more weight considering that opacity in the management of mineral wealth is one of the major reasons for poor mineral tax revenue. The budget must be commended for revealing mining’s total contribution to national revenue on annual basis from 2009 to 2016. Despite raking in $2.2 billion in 2016, mining contributed $75.74 million constituting a 2.2% share of mining revenue. Taking into account that mineral royalties contributed $61.9 million in 2016, it implies that other revenue heads contributed $13.84 million to the national purse.

Whilst the disclosure of total revenue paid by mining to government is an important step, huge transparency gaps inhibit public accountability concerning mineral revenue generation.  The budget must disclose disaggregated data such as mining revenue contribution per revenue head and per mining project. Revenue heads include royalties, corporate income tax, customs duty, withholding tax, rural electrification levy among others. On disclosure per mining project, government should be guided by materiality. For instance, a minimum revenue threshold can be set on what qualifies a mining project for disclosure of what government receives from a particular project e.g. $1 million and above annual revenue per project is subjected to disclosure.

If implemented, the above move must be complemented by company disclosure of various payments made to government per project. This is not too much to ask. Already such information has already available for major mining projects in the country such as Blanket Mine and Unki mine, respectively owned by Caledonia and Anglo American. Such information has been made possible by mandatory disclosure rules for listed companies in Canada and EU that are operating in the extractives sector. Mimosa mine has also voluntarily disclosed the various payments made to government.

Disclosure of payments made to government by mining companies and what government receives from mining companies will lay the stage for public reconciliation of mineral tax revenue data. Such levels of transparency can deter corruption as rogue projects that are not paying taxes are exposed and whilst corporates that are paying a fair share of taxes earn their social license to operate.

Currently the poor performance of the mining sector in terms of tax revenue contribution is tarnishing the whole sector although we know that there are different players in the sector. Multinational corporations, state owned entities and other private players among others. Through the ESTIMA reports, we can tell what Blanket mine paid to government. The same cannot be said in terms of payments made to government by other large gold mining projects like How mine and Fredda Rebecca for example. Lastly, without contract transparency, it is difficult for the public to know how good are the deals between government and mining sector.

Another important issue regarding budget transparency and good mineral resource governance is the disclosure of the cost of tax incentives in line with best practice. For instance, government is giving 5% export incentives. Since mining is the largest export earner, it follows that mining is the largest recipient of the 5% export incentives. In the first half of 2017, mineral export earnings surpassed the $1 billion revenue mark. It can be deduced that government paid over $50 million as export incentives to the mining sector, constituting 66% of what the government received from mining in 2016.

Earmarking of mineral revenue to enable investments in human and infrastructure projects is an important aspect of sustainable budget practice. The budget is silent on earmarking of mineral revenue. However, it is known that mining companies are heavy consumers of electricity which makes mining contribution to the Rural Electrification Fund significant. Blanket mine alone paid $466,322 in 2016 according to the Caledonia’s 2016 ESTMA report.

Taking into consideration $18.9 million was disbursed to the Rural Electrification Fund in 2016, Blanket Mine’s payment accounted for 2.6% of the total funds disbursed to Rural Electrification Fund. So, there are opportunities for communities residing close Blanket mine to track how they are benefiting from this fund. Such opportunities gain traction from the budget disclosure of projects that were funded by the fund in 2016.

For instance, we can tell that 45 rural electrification projects were implemented in Matabeleland South, where Blanket mine is located. The electrification projects included 16 primary schools and 9 secondary schools among others. CSOs and CBOs can therefore carry out social audits to fact check the results of the rural electrification fund as reported by the 2016 annual budget review statement against what is obtaining on the ground.

Government must embrace best practice on mineral revenue transparency and accountability if minerals are to benefit all citizens. For many years, the treasury has been on record that mining sector is not paying a fair share of mining taxes. Yet government is giving mining companies incentives that are hurting the flow of development finance from mining.

Contract transparency critical to enable public accountability in the extractive sector

 

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Corporates are less resistant to the idea of disclosing payments made to governments and corporate beneficial ownership compared to the reasons why they make payments to government” Rob Pitman

Recent developments concerning mandatory disclosure of payments made to governments by mining companies listed in EU, Canada and USA in addition to Extractive Industry Transparency Initiative (EITI) reports have changed the transparency landscape. After revenue transparency, public registry of beneficial ownership is within reach. But just how significant is this dynamic to transparency and accountability in the mining sector.

Rob Pitman of Natural Resource Governance precisely explains this critical development, we may know now what mining companies are paying to government as well as who is benefiting from mining activities. But without the knowledge of the reasons why mining companies make payments to government, how can citizens better monitor if they are getting a fair share of taxes from mining companies?

To gain a fair understanding of nuances around contract transparency, Publish What You Pay mini data extractors workshop, touch based with expert in this field, Rob Pitman. The mini data extractors workshop is being held in Ghana as an aside to Africa Open Data Conference running from 17 to 21 July under the theme “Open Data for Sustainable Development in Africa.”

A mining contract is mainly a written document with setting terms and conditions that creates rights and obligations between government and a mining company on the exploration or mining of mineral wealth. Given that contract transparency is a very topical issue in the agenda of curbing corruption in the extractive sector, PWYP had several questions for Rob Pitman who keenly shared fascinating perspectives on the issue.

Mukasiri Sibanda who works with the Zimbabwe Environmental Law Association (ZELA) was keen to learn more on contract transparency under licensing regimes like Zimbabwe. South Africa’s PWYP coordinator’s interest was on contract transparency and open contract basics.

Jessie Cato, National Coordinator for Publish What You pay Australia wanted to understand how contract transparency applied in different country contexts, how it fit within the larger conversation about extractives transparency, particularly for countries like Australia where they are campaigning for a mandatory disclosure reporting regime.

Quentin Parrinello, National Coordinator for Publish What You Pay France wanted to hear more about concrete best practices around Open Contracting; which country are doing it? How much human resources are they using? How are local communities already using it?

As a key starting point, Rob explained that contract transparency is a component of open contracting. Full disclosure of data on the tendering process, the contract agreement and its implementation and performance is what constitute open contracting. Initially, open contracting was developed to make public procurement more open for citizen accountability. Standards have been developed in this field.  The trend on open contracting can also be used in the extractive sector to promote disclosure across the whole contracting process like public procurement processes.

Licensing regimes such as Zimbabwe, on paper, follow best practice on contract disclosure as there are no contracts negotiated per each project. Various pieces of legislation governing the extractive sector constitute the basic compliance requirements for corporates. That said, information like Environmental Impact Assessments (EIAs) and fiscal arrangements and payments made to government should be disclosed.

Disputes in some case have shown that licensing regimes may have some special agreements like stabilisation clauses which undermine the country tax code. It vital to point out that the section 315, subsection 2c of the Constitution in Zimbabwe provides for disclosure of negotiation and performance of mineral concession and other rights. It can be argued that open contracting in Zimbabwe is mainly a matter of the gap between the practice and the law.

Mexico is an interesting example of open contracting best practice in the extractive sector. Its online platform provides information concerning the tendering, contract and performance of the contract like revenue generated by a company and payments made to government.

Standards such as EITI have been influential to bring on board mandatory disclosure of payments made to governments by corporates listed in Canada and EU. It is now possible for citizens in resources rich countries that have not embraced best practice on company payments to government to access such information through the ESTIMA reports, Zimbabwe is a case in point. It is important to take note though that such information can be only accessed provided the company in question is listed directly or indirectly in Canada and EU.

Right now, EITI is targeting for public disclosure of beneficial ownership by 2020. EITI should also move with speed on open contracting to influence a broader scope on mandatory disclosure. If partial disclosure of contracts is done, Rob warned, it might give an unfair commercial advantage to companies that are not disclosing contracts.

The corruption risks in the award of extractive sector have been compiled by NRGI here. Such studies help CSOs and the citizens to have a better understanding on why open contracting is important. That said, laws on transparency are not enough. Corporates must shift their aggressive behaviour, promote ethical conduct by paying a fair share of taxes in countries where they are extracting resources. It must never be forgotten that the history of companies and exploitation of Africa’s natural resources is quite dirty.  Countries such as Zimbabwe were colonised by a company, the British South Africa Company.

Why governments must share data?

Community Data Extractors

Picture taken by Mukasiri Sibanda under the PWYP data extractors programme

Without information, it is like suffering a power blackout. Confidence is eroded. We are dependent on power for light, cooking, heating and entertainment among other needs. This blog focuses on why governments must avoid information black outs, a major talking point that helped to kick start the second day of the Africa Open Data Conference #AODC17, currently being held in Accra, Ghana from 17 to 21 July 2017.

The AODC’s theme is “Open data for sustainable development.” Befittingly, the health, education, agriculture and extractive sectors are on hand to discuss how data can contribute to the achieving of Sustainable Development Goals (SDGs) in Africa by 2030. According to the open data hand bookopen data is data that can be freely used, re-used and redistributed by anyone – subject only, at most, to the requirement to attribute and sharealike”.

Governments have an obligation to publicly share data. The right to information is a fundamental human right embraced by many progressive Constitutions. Basically, citizens must be able to participate in the formulation and implementation of development plans that affect them. Information, without a doubt, is a catalyst to citizen participation in governance. Citizens have a right to know information such as how government generates, allocates and utilises public resources to deliver public services like health and education.

Corruption is a major challenge in Africa. The costs of corruption are disproportionately felt by the poor.  One of the major reasons why corruption thrives is secrecy, lack of information. Through open data, African governments can show their commitment to fight corruption and help to plug the leakage of public resources mainly through corrupt procurement practices. Open contracting is one pathways which governments can use to fight rampant corruption in public procurement of goods and services. In the extractive sector, the Resource Governance Index reveals that countries that have not embraced the Extractive Industry Transparency Initiative (EITI) tend to perform poorly on managing resource wealth for the benefit of their citizens.

Open data can also have a positive effect on efficiency of service delivery. A speaker from Uganda highlighted the benefits that data has brought to the fight against diseases. Data enables the health sector to map some hot spots and to have a fair idea of the resources needed to control disease outbreaks. CSOs can also pressure government to ensure that expenditure is pro-poor if data is public accessible on how governments manages public funds.

Innovation and economic growth can also be spurred by open data. In the mining sector, the Cadastre system, an online platform that has potential to promote efficient management of mining claims by avoiding allocation of one claim to multiple owners. Investors in the mining sector are attracted when they have confidence in the management system of mining claims that is open and transparent. Knowing the quantities and qualities of Africa’s vast mineral wealth fundamental to the negotiation of good contracts that creates better opportunities for domestic resource mobilisation as envisaged by the African Mining Vision (AMV).

Open data alone is not a magic bullet. Data access is the first step to promote accountability. Citizens must demonstrate the ability to use data to hold to account government and business on how their socio-economic rights can be fulfilled. That being the case, civil society campaigns such as Publish What You Pay (PWYP) must be applauded for equipping communities with data literacy skills to demand the change that they want to see on how their resources are managed by government and mining companies.

Great Dyke Alternative Mining Indaba: A Focus on Tax Justice Campaign

“Certainly, local government’s fiscal capabilities to deliver quality services like schools, clinics and roads will be enhanced if national government share revenue with local government as desired by the constitution.” Mr G Moyo, Runde RDC CEO.

CSOs and communities should take advantage of the upcoming national budget public consultations to attend in numbers and to make their voice count on how national resource revenues are generated, allocated and utilised to meet their needs” Hon John Holder

This will enable us to follow our money so that we can promote accountability in the management of mineral revenue to get schools, clinics, roads, water and sanitation from our government” Eunica Pabwakavungana, a PWYP community data extractor on disclosure of payments made to government by mining companies and disclosure of minerals revenue raised and spent by government.

“Tax is an important tool to redistribute wealth. Some areas that are not so blessed with mineral wealth should also get a fair share of revenue from mineral wealth extraction” Tinashe Gumbo with ZIMCODD

This article shares some key discussions and recommendations that emerged during the tax justice break away session of the 5th edition of the Great Dyke Alternative Mining Indaba held in Gweru on 4 and 5 July 2017. The discussants included a Publish What You Pay (PWYP) community data extractor, a legislator, local government CEO and an activist from the Zimbabwe Coalition on Debt and Development (ZIMCODD). Critical issues that were discussed during the Tax justice break away session were the regressive local mining tax system, revenue sharing between national and local government, experiences of a community data extractor and opportunities presented by the upcoming national and local budget consultations.

The indaba’s theme was “Responsible and accountable governance of minerals”. Over one hundred people participated at the indaba. Participants came from various stakeholder groupings like mining impacted communities from Zvishavane, Shurugwi, Mhondoro Ngezi and Gwanda; traditional chiefs, legislators, artisanal and small scale miners, media and government. This indaba was organised by the Zimbabwe Environmental Law Association (ZELA) in partnership with ZIMCODD and the Zimbabwe Council of Churches (ZCC). Some of the topical issues that were discussed are; Enhancing business linkages, investments and diversification; Promoting responsible and sustainable growth of artisanal and small scale gold mining; Tax justice, Business and human rights and Community engagement and local development.

Regressive local mining tax system.
Local government is empowered by the Third Schedule of the Rural District Council Act and the Constitution to use tax as a tool to finance local economic and social service delivery. If mining companies pay their fair share of taxes to rural districts councils, mineral revenues ideally should largely finance local service delivery. However, the regressive local mining tax system inhibit the flow of development finance from mining activities.

The local tax system for the mining sector is regressive in that where precious minerals liked diamond, gold and platinum are exploited, labour is used a unit to calculated taxes to be paid according to the Third Schedule of the RDC Act. As an example, the first unit ranges from 1 to 99 workers and the second unit ranges from 100 to 149 workers. In the case of base metals like chrome, unit taxes are based on production volumes. Room is left in the Act for RDCs to negotiate with mining companies the price to be paid per each unit. This negotiation process is annual since it is tied to the annual local government budgeting process. Depending on the bargaining power of the local government, a good deal or poor deal can be struck.

Since production in the mining sector is now capital intensive, employment opportunities in the mining sector are now limited. This renders labour a regressive unit for calculating local taxes. Whilst technology has boosted mineral production, the number of employees is still being used to calculate local mining taxes. As a result, when those that are earning more are paying a lesser share of their income, the tax system is deemed to be regressive. The tax burden will be shouldered disproportionately by those that earn less in society. A situation that perpetuates inequality. In the end, women and other vulnerable groups are hit hardest. Regressive tax systems are a violation of the constitutional principle on public financial management which states that the tax burden must be shared fairly.

Constitutional revenue sharing formula between national and local government not being followed
Section 301 of the Constitution provides for allocation of revenue between national, provincial and local government tiers. Subsection 3 prescribes that “not less 5% of national generated revenue in that financial year must be allocated to provincial and local governments as their share in that year.” However, since the new Constitution was passed in 2013, the national budgeted has failed to share with local governments national revenues as provided for by the Constitution.

Given that the 2017 national budget projected national revenue at $3,7 billion, at least $185 million was supposed to trickle down to local governments. “Certainly, local government’s fiscal capabilities to deliver quality services like schools, clinics and roads will be enhanced if national government share revenue with local government as desired by the constitution”  Runde RDC CEO. It is disheartening to note that Parliament has been passing budgets which clearly violates the Constitution on revenue allocation concerning the three tiers of government. Civil society have also not coalesced to pressure Parliament and the executive to uphold the Constitution.

Innovation is key to mitigate mired mineral revenue transparency reforms
For the past 6 years, Government through the national budget statements has been consistent in its calls for the adoption of the Extractive Industry Transparency Initiative (EITI) or its domestic version the Zimbabwe Mineral Revenue Transparency Initiative (ZMRTI). Still, mineral revenue transparency reforms have not come to fruition. Therefore, CSOs, community data extractors, legislators and the media must make use of data coming from mandatory disclosure of payments made to government by Multi National Enterprises (MNEs) listed in Canada, UK and EU.

In addition, innovation is key. CSOs and communities can work with local governments and mining companies to push for voluntary disclosure of payments made by mining companies to local government and payments received by government. In Zvishavane, Mimosa Mines has shown commitment to disclose various payments it makes to government. Likewise, Runde Rural District Council has indicated willingness to disclose payments received from mining companies and mining agreements under its jurisdiction.

“We are open to work with stakeholders to follow best practice on mineral revenue transparency at local government level” Runde RDC CEO

Whilst Zimbabwe is lagging on embracing international best practice on mineral revenue transparency, the is room for CSOs and Communities to exploit low hanging fruits through engaging with progressive local governments and mining companies. Off course, payments made by mining companies to local government are meagre when compared to national government which limits the impact of transparency at local government level. However, should these improvised local versions of EITI materialise, small as the victory might appear to some, it is an important step towards citizens driven mineral revenue transparency policy and practice reforms.

Community data extractors and demand driven transparency and accountability
Eunica Pabwakavungana (female) a community data extractors shared her experience on community data extraction. “We want to know how much taxes are being paid to local and national government by mining companies and why they are paying. That is why we are saying to mining companies publish what you pay and the reasons why you are paying, that is, the disclosure of tax agreements. Local and central government should publish what they earn from mining companies and how they spend. This will enable us to follow our money so that we can promote accountability in the management of mineral revenue to get schools, clinics, roads, water and sanitation from our government. Lastly, we want mining companies to publish how they extract. This means that information like Environmental Impact Assessments (EIAs) should be made public.

Spurred by the knowledge of opportunities presented by mandatory disclosure of payments made to governments by UK listed companies, Shurugwi data extractors successfully approached Anglo-American owned Unki mine for disclosure of payments made to their local government, Tongogara Rural District Council (TRDC). The data extractors are now waiting to engage with their local government during the upcoming 2018 budget public consultations on disclosure of payments received from mining companies per project. Also, data extractors will engage their local government on contract negotiations of tax rates to be paid by mining companies. This data will help communities to publicly reconcile payments made to local government by mining companies with payments received by local government from mining companies.

CSOs like the Zimbabwe Environmental Law Association (ZELA) could have provided communities with this information from the website. However, the motivation was to empower communities to confidently drive demand for transparency targeted at duty bearers, mining and government in this case.

Often, communities and CSOs have been accused largely by mining companies that their demands were not specific and clear. This is what motivated Publish What You Pay campaign to pilot a community data extractors programme in Shurugwi and Marange. Overall communities were equipped with skills on how to extract data, analyse data and use data to demand the change that communities want to see. Community data extractors were urged not to use an adversarial approach when engaging with mining companies and government. Key areas of interest for community data extractors include taxes paid to both local and national government, employment and skills development, community enterprise development, community share ownership trusts, corporate social investments and environmental management.

Oversight role of parliament in the management of mineral revenues
Parliament, through the Portfolio Committee of Mines and Energy conducts public hearings and field visits to investigate loopholes in the management of mineral resources and then make some recommendations to the executive. The challenge is that Parliament has no power to enforce its recommendations to the executive.

“CSOs and communities should take advantage of the upcoming national budget public consultations to attend in numbers and to make their voice count on how national resources are generated, allocated and utilised to meet their needs” Hon John Holder

Communities however complained that poor public participation during national budget consultation meetings is caused by poor communication of the meeting dates and venues.

“This year Parliament is going to change the advertising of public budget consultation meetings and work with civil society organisations such as ZELA to mobilise the grassroots” Mr E Nyamuramba, Public Relations, Parliament of Zimbabwe.

Upon being asked if it is feasible for Parliament to block the national budget if it fails to allocate at least 5% of national revenue to local governments, Hon Holder explained that the whipping system presents challenges.

Tax justice issues for communities and civil society
This topic was shared by Tinashe Gumbo of the Zimbabwe Coalition on Debt and Development (ZIMCODD)
Roles of taxation are quite important to understand the nexus of tax and development. The roles include revenue raising, redistribution of wealth, representation and repricing. Zimbabwe’s abundant mineral wealth offers exciting opportunities for reliable domestic resource mobilisation (DRM) to finance development. DRM is important considering that official development assistance and foreign direct investment are unpredictable and dwindling. Therefore, government and mining companies must curb corruption, illicit financial flows and harmful tax incentives which inhibit optimal tax revenue flows. Redistribution of wealth is achieved through pro poor expenditure of tax revenue mainly generated from the rich.

Without efficient and transparent public financial systems, it is difficult for government to effectively redistribute wealth. That is why the Auditor General’s reports that have gory details of fruitless and wasteful expenditure, corruption and abuse of public resources should be fodder for CSOs and communities to hold government to account on fighting inequality. This point leads to another role of taxation which is representation. Since almost all citizens pay taxes to government one way or another, public scrutiny to hold government accountable on how revenue is generated, allocated and utilised is quite important. Follow the money. The last role deals with repricing. Government can deter consumption of certain goods like alcohol and tobacco by increasing taxes.

Recommendations
The regressive local mining tax system must be reformed to make it progressive by changing from labour to production volumes as a basis for computing taxes to be paid to local government.

The national budget must be expressive or reflective of the constitutional requirement to allocate at least 5% of national revenue generated in any given financial year to provincial and local governments.

If the national budget fails to comply with the constitutional requirement to allocate at 5% of national revenue to provincial and local governments, CSOs and communities must petition to Parliament or appeal to the constitutional court to enforce compliance.

The PWYP community data extractors programme must be broadened and be supported with tools and resources to drive community driven agenda for change on how their mineral resources should be managed and utilised to meet their needs.

CSOs and communities should take advantage of the upcoming local and national budget public consultations to attend in numbers and to make their voice count on how national resources are generated, allocated and utilised to meet their needs

CSOs and communities must innovate in the face of stalled mineral revenue transparency reforms and work with progressive government agencies and mining companies on mineral revenue disclosure.

Government must implement the office of the Auditor General’s recommendations to stop fruitless and wasteful expenditures, corruption and abuse of public resources that hurts the poor and vulnerable groups of society.

CSOs and CBOs must make use of mandatory disclosures of payments made to government by mining companies listed in UK, EU and Canada such Unki Mine owned by Anglo American.

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.

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