adminKudzanai Gerede
The ongoing consolidation of diamond mining companies in Marange into one entity with Government having a 51 percent stake and efforts to formalise artisanal mining comes at a critical time when transparency and accountability of the country’s resource is indispensable in curbing financial leakages that are retrogressive to the economic revival strategies.
This week Reserve Bank of Zimbabwe Governor Dr John Mangudya lamented the prevalence of Illicit Financial Flows (IFFs) in the economy which has cost the country $US 500 million this year alone, a figure more than half of what is needed to buy the season’s supply of grain for the entire country. There are fears the volume of leakages may be even higher than projected as large amounts of money in the form of unpaid royalties in the informal mining activities may not have been considered as they are too sophisticated trace.
IFFs occur when money is illegally earned, transferred or spent with the intention that this money disappears from any record in the country of origin.
The African Development Bank and Global Financial Integrity 2013 report says Zimbabwe has lost a cumulative $US 12 billion in the last three decades through IFFs ranging from secret financial deals, tax avoidance and illegal commercial activities.
Analysts have said the $US 4 billion which make up the 2016 National Budget presented by the Finance and Economic Planning Minister , Patrick Chinamasa was symptomatic of under-explored and porous revenue mechanisms for a mineral rich country such as Zimbabwe.
One major area that has not been explored is the artisanal miners sector which has deprived Government of the much needed revenue through payments of royalties and other fees as miners in this sector have shunned the proper channels of payment to Treasury rendering proceeds from this sector to be smuggled outside the country.
Artisanal mining has been criminalised in the country with several initiatives such as “Operation Chikorokoza Chapera” in 2006 being executed against artisanal miners.
As commodity prices for most minerals continue to fall to record levels, the country’s mining sector widely perceived to overtake agriculture as the mainstay of the economy in recent years due to the discovery of diamond fields in Marange now faces a stiff test.
According to the Kimberley Process Certification Scheme 2014 Report, Zimbabwe’ s diamonds value tumbled on the international market by 56 percent between 2013 and 2014 while volumes took a drastic fall of 55 percent to 4,8 million carats.
The fall in volumes means inclusion of artisanal miners into the formal mining operations would boost the overall mineral production output which the country was being robbed of through IFFs as most informal artisanal miners out of fear of being criminalized would sell the minerals to mineral barons and middlemen offering better incentives.
“It (IFFs) contributes to the outflow of capital as a result of the Dutch Disease and that means that less and less resources remain in the country which ultimately means the cake gets smaller in all sectors of the economy,” CENFRI technical director, Mr Hennie Bester recently said on the impact of IFFs on the economy.
“Dutch Disease is simply an economic term for an economic condition and what happens is in rich resource countries where they mine these resources most of their markets are external so when they sell the mineral, people have to buy their local currency to pay them and so their currency suddenly becomes very expensive so the more expensive your currency, the more expensive your exports, so the minerals can be exported for that price but not manufactured products.
“So with Dutch Disease your currency appreciates and your manufacturing sector collapses and this is what happened to Zimbabwe, you basically adopted Dutch Disease when you adopted the US dollar which has been appreciating,” he added.
When the Dutch discovered large gas reserves in 1959, gas exports massively increased which led to an influx of foreign currency which increased demand for the guilder, the then Dutch currency, thus making it stronger hence making other sectors of the economy to become less competitive in international markets, and since then this economic anomaly became known as the Dutch Disease.
It later emerged that even large reserves of FDI into a country can also lead to contamination of Dutch Disease as that money become attractive to external players.
Bester says the appreciating of the US dollar was now straining the country leading to the prevalence of IFFs as smuggling of goods into the country by our neighbouring nationals in pursuit of the stronger currency without incurring duty costs was becoming more lucrative.
For this reason more artisanal miners will sell their minerals through these underground channels which middlemen from our neighboring countries are thriving on not forgetting these artisanal mining activities are outlawed and global commodity prices have been taking a nosedive.
The effects of the Dutch Disease were also emphasized by RBZ governor this past week when he said corrupt business executives are taking advantage of the opening up of the exchange controls to drain money out of the country where that money has more value outside the country’s borders.
He further proposed that crafting of legislation to coerce mining firms to release production data was very critical for accountability and transparency purposes as it was difficult to determine whether the production output was in synchronization with the revenue generated.
With the International Labor Organization (ILO) stating that about 13 million work as artisanal miners and 80- 100 million are affected by this sector globally compared to seven million dependant on industrial mining, the country should seriously speed up its formalization process of artisanal miners as huge amounts were being lost and livelihoods were being compromised if artisanal miners remained informal.
Minerals Marketing Cooperation of Zimbabwe (MMCZ) states that the country was losing over 50 million worth of gold every month due to smuggling activities.
Government has put in place the syndication programme meant to lure artisanal miners into formalization.
Under the programme, miners are expected to form groups of sixes and register with the Ministry of Mines and Mining Development to obtain a prospecting license.
This however has seen a few miners forthcoming as the majority remain skeptical of the Government and also cite that being formal will lead to high taxation by Government through royalty fees and there are also fears that payments by Government may not be as lucrative and efficient as compared to the illegal channels they are used to.
This is despite that the Finance Minister reduced gold royalty fees from seven percent by three percent as a buffer for local producers from the declining global gold prices but other minerals remained subdued from declining commodities prices which will not lure artisanal miners of other minerals.
Economic analysts say the formalization of artisanal miners will be successful once government recapitalizes the RBZ and Fidelity Printers which buys all the country’ s gold output.
The recapitalization of these two strategic institutions will capacitate them to offer competitive prices for gold and other minerals such that the royalty fees are realized from artisanal miners.
The deindustrialization across all sectors of the economy has not spared the mining sector as many mines have since stopped operations leaving most people once employed in these mines with nowhere to go but to resort to artisanal mining on closed mines as a source of livelihood.
Lately government through its development partners have been engaging small scale miners and providing them with better equipment to boost their production output and more still needs to be done in that area as only a minor proportion of miners have benefited from this initiative.
If these miners are incorporated into the mainstream mining sector with adequate support from Government, the country can thrive on increased mineral output going through proper channels contributing positively to treasury.
Online Reporter