Zimbabwe’s USD12 Billion Mining Industry by 2023: Important Sustainability Considerations
By Lyman Mlambo, Mineral Economics & Policy Consultant
Government has set itself on an ambitious roadmap to achieve a USD12 billion mining industry by 2023. Given the diverse and rich mineral resource base the country has, and efforts being made by the government to promote the mining industry, achievement of the target is possible. However, the growth anticipated has implications on fundamental questions of sustainable development. There are two issues that we should consider as we grow the industry. The first issue is that growth is not the same as development. Growth is quantitative; change in the size of production, and development is the impact of that growth on human welfare, which is a distributional concept. From the perspective of the country as a whole, growth per se is meaningless if it does not lead to development, particularly broad-based or inclusive development. The second issue that needs to be considered is the environment. We need to appreciate that the whole natural environment (including the natural resources) is a form of capital base (natural capital base) because it represents opportunities for the country to generate income (goods and services). The other capital, that is composed of buildings, equipment, various forms of infrastructure, et cetera, is physical (man-made) capital. Therefore, total capital (TC) is a sum of natural capital (NC) and physical capital (PC). Mineral resources are non-renewable, but more pertinent is that, their natural occurrence implies that they belong to all citizens of this country, in this generation and in all generations to come.
Defining Sustainable Development
Sustainable development (SD) is defined in Our Common Future as the ability of the current generation to meet its owns needs (in an equitable manner) without prejudicing future generations of the ability to meet their own needs. SD requires achievement of both intra-generational equity and intergenerational equity in the distribution of the benefits from exploitation of minerals in this country. Intra-generational equity demands that the benefits of mineral exploitation in the current generation be distributed fairly geographically, through effective regional development strategies, and within classes, by inclusive strategies that do not leave anyone (interest group) behind. Intergenerational equity demands that a part of the current proceeds from mineral exploitation (what is called user cost) should be converted into an alternative non-exhaustible or renewable form of capital capable of generating income streams that can be replicated into the future. That way, while mining will definitely deplete natural capital (NC), the depletion will be compensated by creation of physical capital (PC), so that total national stock of capital (TC) is maintained, as the minimal condition for sustainability. It is the responsibility of a prudent government to set aside part of mining revenue to create alternative capital forms. Besides the user costs, those who exploit mineral resources have the responsibility to ensure that minimum damage is done to environmental integrity so as to maintain the ecological balance (ecosystem functions) and other services, such as recreational opportunities. The point is that the current generation is a temporary custodian of an environment that belonged and will belong to many other generations.
Balancing the USD12 Billion Mining Industry and Sustainable Development
What are the critical concerns we should consider as we gun for the USD12 billion mining industry by 2023? In summary these include: (a) an optimal fiscal regime that ensures a fair take by the country vis-a-vis private investment capital in the sector, to enhance domestic resource mobilization – a taxation regime which balances between industry competitiveness and the need for government revenue to implement development programmes; (b) a national budget that deliberately uses mineral revenues for poverty alleviation and eradication of regional development disparities; (c) reinvestment of mineral depletion costs; (d) government policies that foster mineral-based linkages, so that the growth in the mining sector can catalyse growth in other sectors through upstream, downstream, and side-stream linkages which ultimately lead to diversification and industrialization of the economy (economic transformation, in line with the Africa Mining Vision), including effective implementation of local content policies; (e) the need to plug leakages in the mining industry through transparency and accountability measures; and (f) implementation of effective environmental accountability measures.
In terms of the fiscal regime, we need a regime that encourages exploration (long-term view) and therefore, needs to have lower royalty rates if gross-revenue based (in-rem), or higher rates if profit-based (in-personam), and is stable. Mining is a long-term and high capital-intensive venture which needs long-term safeguards in the form of stable and competitive fiscal regimes that do not sterilize the resource base and make it to shrink. The royalty rate for each mineral needs to be indexed to changes in international prices so that it does not disadvantage the government in times of price booms for the mineral, when mining companies will be pocketing huge super profits, and yet also protects marginal and loss-making mining companies when prices are depressed. The royalty rates for most minerals are too high compared to other mining jurisdictions. More government take can also be maintained at healthy levels by maintaining corporate income tax levels that are competitive regionally and globally. An optimal fiscal regime, which balances industry competitiveness with the need for domestic resource mobilization, remains a critical outstanding agenda item for government.
There should be a deliberate thrust by Government to use mineral revenues to catalyse development of areas lagging behind by directly implementing development programmes or giving mining-revenue-funded incentives, including economic zone status. These areas need to be identified. The budgeting system should seek to achieve equitable regional development. There is also need to set aside part of the mining revenue (both by government and mining companies) for reinvestment into renewable ventures, for example renewable (including green) energy, renewable resource sectors like agriculture, forestry, and others or for investment into long-term offshore (investments) funds that would yield huge interests and capitalize into huge national funds over time for future development of the country (some prudent oil producing countries have used the latter strategy). The government through the national budget, and industry through corporate social responsibility (CSR) and environmental Impact assessments (EIAs), should also be sensitive to mining communities’ plight – there is no sustainable development that leaves communities displaced without adequate compensation, and mining communities underdeveloped despite their resources being exploited by ‘foreign’ capital.
There is need to also espouse a transformative agenda in the use of mining revenue. Achievement of the USD12 billion target is likely to be accompanied by huge consumer appetites, given the nature of priorities we have observed from the budget system so far. We need to support development of mining (goods and services) supply enterprises so that we can import-substitute, and support downstream industries (beneficiation and value addition) that would increase the value of our exports. That can be effectively achieved by establishment or development of enablers – transport (road, rail and air), power, water, communication, logistics, ICT, et cetera, and direct incentives (not penalties – these have tended to produce the opposite results). We need to implement the local content policy effectively, especially the issue of including local procurement plan in the contract for each mining project as well as making financial facilities available to support the upstream sector. This, together with development of enablers, should be possible given the expansion of fiscal space occasioned by the growth in the mining sector. There is also need for the government to emphasize the mining of the so-called ‘development minerals’ (industrial minerals) which have clear and easy productive linkages with other local economic sectors like agriculture and construction. The tragedy is that these minerals are not even directly recognized in the USD12 billion mining industry roadmap as anchor minerals; it will be double tragedy to further relegate them beyond 2023.
The widely reported corruption, illicit flows and smuggling are serious ills in the sector that threaten to prevent achievement of the USD12billion. In actual production, it can be achieved and yet not in revenues accounted for because of leakages. For example, the gold sector is reported to be losing an estimated USD100 million every month to illicit flows, which comes to USD1.2 billion a year. These figures are obviously underestimates, and what this means is that, in reality the incremental production target would be small if there were no leakages. There is need for the country to improve its mineral production and export accounting capacities by improving inspections, establish state-of-the-art mineral assay laboratories that can verify the grades of mineral products being produced and exported, as well as quantity-verification facilities like weighbridges, et cetera.
Acceleration of mining activities brings concerns of negative environmental impacts. We need to take the issue of environmental impact assessments, their management and monitoring seriously if we are not going to achieve our USD12 billion at the expense of the environment. The legal and institutional framework to ensure environmental accountability is there, it is enforcement that we need to emphasize. We also need to make Mine Closure Plans compulsory, given the unpleasant experiences we have had with ghost towns, unsafe physical landscapes, chemical hazards, stoppage of certain economic livelihoods connected to mine operations, and redundant workforces linked to mine closures. It is encouraging that there are moves to review the EMA Act to make it more effective.