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ZELA’s Analysis of the 2022 National Budget policy pronouncements: A special focus on the mining sector.

26 November 2021

On Thursday, the 25th of November 2021, Finance and Economic Development Minister Professor Mthuli Ncube announced the 2022 National Budget. The Minister announced a cocktail of measures to improve mining sector legislation, production, beneficiation, investment, transparency in mobilisation of revenue in the mining sector. In this analysis, the Zimbabwe Environmental Law Association (ZELA) delves into the implications of the proposed mining policy and legislative measures and mining sector budget allocations on the development and governance of the mining sector.

ZWL $3 billion allocated towards capacitating the Ministry of Mines and Mining Development

  • The 2022 National Budget has allocated ZWL$3 billion to finance the amendment of the Mines and Minerals Act, operationalisation of the mining cadastre system, decentralisation of operations, opening of closed mines, hiring, and capacitating mining extension officers, mineral value addition and beneficiation, establishment of gold services centres. It is commendable that the government has increased allocation of resources towards supporting key US12 Billion Mining industry enablers in nominal terms. In the 2021 National Budget, the Ministry of Mines and Mining Development was allocated ZWL$1.4 billion. However, the budget allocation might be adequate to fund these critical programmes given the fact that the economy is operating in an inflationary environment.
  • It is important to note that undercapacitation of the Ministry of Mines cannot be wholly attributed to poor resource allocation from the National Budget. Reports of the Auditor General’s Office have been of late implicating State-owned enterprises and in some instances, the Ministry of Mines and Mining Development on mismanagement of public resources.
  • Tangible results on these critical areas can be realised by the Ministry without having to increase allocations if Government addresses the recommendations of the Auditor General’s report. The Audit Report for the year ended 31 December 2018 raised concerns over lack of effective budgetary control in the mines and mining development fund resulting in the Ministry of Mines and Mining Development incurring unplanned expenditure. The Committee on Mines must scrutinise quarterly reports that the Ministry of Mines produces and hold the Ministry to account on the implementation of the Auditor General’s report’s recommendations.

Amendment of the Mines and Minerals Act

  • The amendment of the Mines and Minerals Act remains on the Government’s mining policy and legislative agenda as indicated in the 2022 National Budget. However, lack of finalisation of the amendment to the archaic law remains a major concern. In its 2022 National Budget submissions to parliament, ZELA called for the finalisation of the Mines and Mineral amendment Bill. The lack of inclusion of the Mines Bill on the legislative agenda for the 4th session of the 9th parliament raises suspicions that citizens have that there is no political will within Government and political leaders to finalise the amendment of the Mines Act.

Hiring and capacitating of mining extension officers.

  • This is a good decentralisation initiative. The extension workers may help to monitor, control, and advise miners on mining issues on the ground. It may help to reduce environmental degradation being caused by artisanal and small-scale miners.  The extension officers can offer technical assistance and ensure that miners comply with the environmental, health and safety laws.

Decentralisation of operations of the Ministry of Mines and Mining Development

  • This is commendable. If done properly decentralisation can reap benefits of efficient service delivery in the mining sector, sustainable and good governance of the country’s mineral resources. Decentralisation allows responsibility sharing and can help deconcentrate provincial mining offices since Zimbabwe only has five mining provinces.  It will allow dispersion of higher-level government mining agents throughout the country’s mining communities and enable them to quickly disseminate vital mining information and offer assistance timeously. It can promote participation of the local mining communities in the mineral development projects in their areas as well as promote accountability in line with Section 264 of the Constitution on Devolution.

Operationalisation of the Cadastre system

  • In its submissions to parliament in October, ZELA called for the National Budget to allocate sufficient resources towards finalisation of the mining cadastre system. The 2022 National Budget allocated ZWL$ 146 million to roll out the new cadastre system to the rest of provinces during 2022. The computerised mining cadastre system is a great stride and efforts to finalise it are commendable as the system presents opportunities to address mine ownership disputes, loss of potential revenue from mining claims as awarding, administration, and security of mining titles especially in the ASM sector will be enhanced. Of late, the Ministry of Mines and Mining Development has been attributing the failure to finalise the computerisation of the mining cadastre system to foreign currency challenges. If the lack of foreign currency is a key determinant for the finalisation of the system, then sufficient foreign currency should be availed to the Ministry of Mines and Mining Development. The Parliament Portfolio Committee must make use of quarterly reports that the Ministry submits to parliament to check if adequate resources are being disbursed and spent on the operationalisation of the cadastre system to other provinces as the Ministry is committing to do.   

Establishment of Gold Services centres

  • As part of the measures to improve gold production in the Artisanal Small-scale sector, Government has set aside US$10 million of the Special Drawing Requirement resources for the opening of the Bubi gold centre. This is commendable as allocation of adequate resources towards procurement of essential equipment for both the Mill and the miners is critical to the success of the gold service centre concept. The Bubi Gold service centre was established to promote mechanisation and other technical service delivery programmes for ASGM. However, Government must address other critical challenges affecting the realisation of Government’s objective of setting up the Bubi Gold centre. Zimbabwe Mining Development Corporation (ZMDC) which is a partner in the Bubi Gold service centre has strong legacy issues in terms of mismanagement, corruption, failure to attract investments and running down productive mines. Other challenges which need to be addressed include electricity shortages, loss of tributes by miners affiliated to Bubi Milling Centre (BMC), lack of mining claims by the miners, disputes between ZMDC and miners over lack ZMDC’s lack of transparency on dividends sharing ratios, loss of mining claims due to forfeiture by the Ministry of Mines and farmer – miner disputes 

Mineral Beneficiation and Value Addition  

  • As part of measures to promote mineral beneficiation and value addition in chrome, gold and diamond value chains, the Government proposes to implement measures to facilitate establishment of more diamond cutting and polishing factories, processing of coal to coke, setting up of gold milling centres and banning exportation of unprocessed chrome and chrome concentrates. This is commendable as the measures are in line with the African Mining Vision (AMV). The government’s move to scale up value addition and beneficiation presents an opportunity for the country to fight Illicit Financial Flows (IFFs) and generate a fair share of revenue from the sale of its chrome products. The Government must attract sufficient investments to improve the capacity of the country to implement mineral beneficiation and value addition programmes especially in the chrome sector.

Opening of closed Mines

  • Efforts to resuscitate closed mines through attracting investments are commendable. The Government must improve transparency and accountability in the mining sector to reduce the risks associated with attracting investments in the mining sector in Zimbabwe.  

Transparency and Accountability in the utilisation of Rebate Facilities

  • Commendably, the 2022 National Budget disclosed updated information on the tax revenue forgone through awarding of tax rebate or concessions. This very important disclosure was missed in the 2021 National Budget. In its submissions to parliament, ZELA called for the 2022 National Budget to disclose the revenue that is forgone through tax expenditures for public and parliamentary scrutiny. For the period between 2016 and 2021, the Government lost ZWL$ 6551 million worth of revenue out of ZWL$ 33 112 million which was the value for the imports subjected to tax rebates in the mining sector. To move a step further on transparency and accountability of tax expenditure on duty concessions, the Government must publicly disclose the cost benefit analysis that is being done to ascertain whether the tax expenditures are achieving their intended objectives. There are high chances of  redundancy  of tax incentives if no cost benefit analysis is done on tax expenditure on duty concessions and rebates.

Observations on the operations of Mining Corporates which are beneficiaries of Tax rebates or duty concessions

  • The Minister of Finance and Economic Development noted that a number of non-compliance issues and deficiencies exhibited by mining companies that are benefiting from tax rebates. These include false declarations of minerals produced, export of unpolished granite, no submission of monthly returns to the Ministry of Mines and Mining Development and false declaration of physical addresses. These non-compliance issues expose the country to risks of Illicit Financial Flows (IFFs) in the mining sector.  There are high chances that the country has been losing a lot of   revenue through tax evasion and tax avoidance.  Mining corporates enjoy tax rebates when they spend on Corporate Social Responsibility programmes. According to the Minister, beneficiaries of tax rebates are failing to demonstrate execution of corporate social responsibility programmes on the ground.

Enhancing transparency and accountability in the administration of rebate facilities

  • To improve transparency and accountability in the administration of tax rebates being given to mining corporates, an applicant of tax rebate will need to file a transparency report. Some of the compliance issues that will be included in the transparency report going forward include; submission of a ZIMRA tax clearance report for the period prior to application, for exporting companies, CD1 Form discharged for the period prior to application, evidence of execution of Corporate Social Responsibility programmes, submission of monthly returns to the Ministry  responsible for Mines and  Mining development. This is a positive move and if these measures are implemented, this will likely lead to plugging of loopholes in government’s revenue mobilization in the mining sector as these measures are clearly targeting to weed out cases of tax evasion and avoidance and strengthen mining companies’ compliance with mining tax laws. Parliament must exercise its oversight role on the implementation of the proposed measures.

ENDS//

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Zimbabwe Environmental Law Association, 26B Seke Road, Hatfield, Harare, Zimbabwe

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