Online Reporter
THE need for countries owning minerals to benefit from their exploitation should not be a subject for debate, but rather something given, with only the precise form of the benefits open to negotiation.
But as President Mnangagwa noted at the just-ended 7th African Union-European Union Summit in Angola, there is still need for African countries to stress this since many African countries, including Zimbabwe, rely on the finite resource of mineral wealth to push their economic growth and obviously need maximum returns from digging the minerals out of the ground.
Zimbabwe uses two prime methods to extract more value from its minerals. First there are the royalties, reintroduced in more recent times as part of the measures to ensure that miners paid some taxes.
These are small percentages of the gross value of the minerals extracted and so are easy to calculate without argument, simply being the mass of the active mineral in the ore, semi-processed product or the final metal bar multiplies by the prevailing world price on the day of assessment.
While the percentages are very modest, when you add up all that is paid the sum is not trivial, and Zimbabwe in fact assigns half the royalties to the national currency and metal reserves that are administered by the Reserve Bank of Zimbabwe and used to back the local currency. Already the reserves have reached around US$1 billion within a fairly short time.
The other maximisation of value for the people of Zimbabwe is the policy that all miners must push hard within a reasonable period to process the minerals to the final stage inside Zimbabwe. Time is given, so long as adequate progress is being made, to continually upgrade the product that is exported, the Government agreeing that a miner needs to find the mineral, prove the reserves and show that mining is profitable, but the miner does not have forever to move towards full local processing.
This policy not only ensures that Zimbabwe earns the maximum possible from exports, the price of fully processed minerals being several-fold the price of ore, but the processing itself adds new jobs, provides a market for other Zimbabwean companies and generally maximises returns in all sorts of ways. It usually benefits the miner as well, since shipping low-value bulky ore from a landlocked country at the bottom end of a continent emerges as a high transport cost in the final export value.
Royalties are not something just imposed. In those countries where mineral rights are owned by landowners or other private concerns, they have always been standard.
For the first few decades of colonial rule, the mineral rights were owned by the British South Africa Company in both Zimbabwe and Zambia. These were acquired though grossly unequal treaties and sometimes even by fraud, or were seized in wars of conquest. The BSA company valued these rights highly and at the beginning of settlement insisted that all miners set up a company with half the shares assigned to the BSA company. Later a percentage system was introduced.
The Zimbabwean settler regime once given self-government bought the mineral rights for Zimbabwe during the Great Depression of the 1930s, when by historical valuations they were relatively cheap, while Zambians saw vast sums paid every year to the BSA company right up to independence in the 1960s when the British negotiated a deal.
The Zimbabwean settlers cancelled royalties, figuring that they could get more money from corporate taxes of miners. This was always a bit problematical and by the 1980s it was obvious that global mining companies, using transfer pricing and other dubious techniques, were in effect paying zero tax by making sure the profits did not appear in the countries with the minerals. Led by Australia, the holders of the minerals brought back the royalties.
At first miners complained, since taxpayers rarely want to pay taxes, but the levels are sufficiently modest that they do discourage mining but do ensure that the miners pay their rent for permission to mine in Zimbabwe and they are now part of the norm.
The need to process the ores has also been largely accepted and most mining companies either do this, or are making real progress each year. If the worst comes to the worst Zimbabwe will impose extra taxes on non-performers, but so far the progress has been good enough for all miners to avoid that drastic step and necessary exemptions are issued, but we do want to see the investment and progress.
Other steps taken are to encourage industrial development so that the processed minerals are turned into manufactured products before they leave the country, adding significantly more value, creating far more jobs and generally development. For some minerals, such as iron, this is the only way to make money, exporting steel and steel products. Even for minerals such as limestone there is no real value until they have been turned into cement.
Minerals are always a diminishing resource.
Once they are dug up, they are gone.
So, it is very important to get every dollar possible from that resource before mines dry up and there is nothing left. We own the minerals, and so we can do this.
