Knitting Sustainable Development from Mineral Revenue
Knitting Sustainable Development from Mineral Revenue
The harsh socio-economic environment prevailing in the country underscores the importance fighting the resource curse. A mineral rich country, endowed with world class mineral assets, platinum and chrome deposits which rank second best in the world after South Africa, is ravished by cholera. A medieval disease. Revenue generated by government is consumed by recurrent expenditure. leaving little resources to invest in health, education, clean and portable water. These struggles elevate the role of the 2019 national budget in mobilisation of domestic resources to finance social service delivery which is in a deplorable state – hurting the poor and marginalised people the most. The Zimbabwe Environmental Law Association (ZELA) welcomes the invitation extended by Parliament portfolio committee on mines and mining development to share our views and proposals for inclusion in the 2019 Budget on 22 October 2018. Notably, the views and proposals are drawn from the alternative mining indaba (AMI), a platform which seeks to amplify community voices on strengthening linkages between mining and sustainable development. The AMI is organised at district, provincial, national and regional level.
Citizens must not be in the dark on mining sector contribution to the national purse
Transparency is one of the fundamental ingredients for amplifying community benefits from mining. This thinking gave birth to the Zimbabwe Mineral Revenue Transparency Initiative (ZMRTI) in 2011. An adapted version of the Extractive Industry Transparency Initiative (EITI), ZMRTI, unfortunately suffered still birth. From 2012 to 2014, national budget statement embraced either EITI or ZMRTI without any meaningful change on the ground. Even worse, mineral revenue transparency has now disappeared on government agenda. It is hard for citizens to track mining performance in various revenue heads for government like corporate income tax, pay as you earn, withholding taxes and customs duty among others. The only exception is mineral royalties publicly disclosed through the revenue performance reports generated quarterly by the Zimbabwe Revenue Authority (ZIMRA), the country’s tax administrator. Silver linings are seen courtesy of Caledonia’s Blanket mine in Gwanda and Anglo-America’s Unki mine in Shurugwi. Through Canada’s Extractive Sector Transparency Measures Act (ESTMA) and UK mandatory disclosures, listed companies in these jurisdictions are compelled to disclose publicly on annual basis various payments made to government institutions per project.
The table above shows various payments made by Caledonia’s Blanket mine to government in 2016. The 2013 national budget disclosed Zimplats’ disaggregated tax performance report from 2009 to 2012. Since minerals are public assets, citizens must have a clear picture on mining contribution to domestic resources for financing service delivery. Mining fiscal linkages are critical considering that minerals are a finite resource.
Competitive bidding in the disposal of mining claims with great geological potential
On the 6th of June 2018, Zimplats publicly announced that it had mutually agreed with government to cede nearly 24,000 hectares of land to pave way for new players in the platinum mining sector. The released mineral rights by Zimplats were secretly disposed to Karoo resources by government. Parliament’s Constitutional oversight role in negotiation and performance monitoring of mining agreement was undermined, Section 315 (2) (c). An opportunity was missed to promote competitive bidding in the disposal of the released platinum claims, a process that allows government to choose a bidder offering a better development dividend – fiscal linkages and local content linkages. This is what the Africa Mining Vision aspires for. Therefore, the 2019 national budget must set the country on a clear path to take the competitive bidding route when disposing mining claims with high geological potential as a tool for propelling domestic resource mobilisation.
Weed out harmful fiscal incentives
Comparative analysis of export incentives and mining royalties 2016 to first half of 2018
The above table reveals a huge hole in government’s purse triggered by the that mineral royalties paid to government by mining companies are more than export incentives received by mining companies from government. Over the past two and half years, mineral royalties, the only reliable revenue stream from mining was excessively discounted by -124%, equivalent to $221,618.491.19. Mining royalties are less susceptible to aggressive tax planning schemes by corporates compared to corporate income tax. In addition, export incentives given to the mining sector, for the exportation of mainly raw minerals is neutralising export taxes meant to encourage local value addition and beneficiation of minerals. The 2019 budget should therefore scrap export incentives for the mining sector. The budget should go a step further and publicly account for all costs of fiscal incentives given to mining companies to weed out harmful tax incentives which erodes government capability to mobilise locally resource to finance broad socio-economic services.
Intergenerational equity: a case for sustainable utilisation of mineral revenue
Because minerals are a depleting resource, a non-renewable resource, income generated from mining activities is therefore unstainable unless invested in human and physical capital – health, education and infrastructure. According to the Constitution, Section 298 (1) (c) on public financial management principles “the burdens and benefits of the use of resources must be share equitably between present and future generations.” Considering that most of the revenue generated by government is taken by recurrent expenditures, clearly, government has not been complying with the Constitution. The 2018 national budget statement should therefore earmark at least 25% of total revenue generated in the mining sector towards human and infrastructure development programmes to share mining benefits with future generations. Already, there is a law compelling government to allocate at least 25% of mineral royalty revenue to the Sovereign Wealth Fund (SWF) that the 2019 National Budget must follow.
Clarity on the status of Community Share Ownership Trusts
The 2018 National Budget statement restricted indigenisation – the requirement to cede at least 51% share to indigenous partners by mining companies to platinum and diamond sectors. Resource rich communities which do not have platinum and diamonds are worried because they are not sure of the fate of CSOTs in their area. For example, in Gwanda, a gold rich district, residents are unease because Caledonia is buying back shares from indigenous partners. Although Caledonia promised not to take shares from Community and Employee Share Ownership Trusts, outside legal protection, the sustainability of Gwanda CSOT cannot be guaranteed. The 2019 National Budget statement should guarantee the existence of CSOTs in all mining areas to enhance community benefit in line with Section (13) (4) on National Development.
Exploit water linkages between mining and farming
The 2019 National Budget should not view mining and farming in silos when allocating resources for the command agriculture programme. For instance, artisanal and small-scale miners can be supported with water pumps for dewatering their mines. At the same time, farmers will make use of dewatering of mines for irrigation services, thereby enhancing value co-creation and economic diversification.
Fund exploration costs for artisanal and small-scale gold miners
The sustainability of ASM sector is threatened by lack of proper geological information. The 2019 National Budget statement must provide fiscal support to subsidise exploration costs for ASM sector.
Provide equate resources to the Ministry of Mines
Mining sector’s economic contribution is massive, and the Ministry of Mines must be allocated adequate resources to provide services that support responsible growth of the mining sector. For instance, allocate adequate resources to finance the setting up and operationalisation of the mining cadastre and vehicles for delivering technical services to small scale miners. In 2017, the Matebeleland North alternative mining indaba noted that the Ministry of Mines has one vehicle for the province that is used by surveyors, geologists, mining engineers and metallurgists. This is hurting service delivery and responsible growth of the ASM sector. Computerisation of the mining title administration system will bring transparency and help to deal with corruption and double allocation of mining claims, major challenges confronting the ASM sector.