Foreign mining firms accused of under-declaring exports

Business Reporter
ZIMBABWE may have lost potential income running into billions of dollars through trade misinvoicing of key minerals such as diamond, gold and nickel.

This is according to a research study conducted by Zimbabwe Policy Analysis and Research Unit, which sought to evaluate the relationship between certain key minerals resources and capital flight.

The study tracked trade misinvoicing with respect to the main minerals exported by Zimbabwe across major trading partners, namely gold, diamond, platinum, ferro-chrome alloys, nickel, and asbestos.

It concluded that Zimbabwe could have lost potential income, at one point, of as much as $3,1 billion through trade under invoicing. The results showed that unrecorded capital outflows occurred through trade with different countries including Italy, United States, Germany, and China, while unrecorded capital inflows into Zimbabwe were mainly from South Africa, Belgium, and Australia.

The study concluded that trade misinvoicing was perpetrated largely by multinationals due to the fact that mining is capital intensive.

“The analysis of capital flight over the past four decades shows that some developments in the macroeconomic policy and institutional environment may have influenced the behaviour of capital flight,” an excerpt from the study which covers four decades.

For unsorted diamonds, Zimbabwean exporters under-reported trade transactions with the UK and South Africa from 2004 to 2013. This scenario was also observed for non-industrial diamonds for Belgium, China, South Africa, and the US. The same occurred for gold in other unwrought forms for Italy, Germany, and United States.

Export misinvoicing dominated import misinvoicing. The study says there is a need to put in place strict measures to monitor marketing activities of local and foreign mining firms to curb capital flight.

From a long-term perspective, the research study established, capital flight fluctuated around a relatively low and stable level up until the end of the 1990s, when it started to fluctuate drastically. The most drastic change in capital flight occurred in 1999 when it declined systematically, reaching a negative value of $65,4 million in 2003.

But capital flight rose again substantially from there on, reaching a peak of $3,1 billion in 2006, after which it declined again. The volatile pattern of capital flight is closely associated with the heightened macro-economic instability during that period.

Zimbabwe has had extended episodes of hyperinflation and massive exchange rate depreciation, leading to collapse of the value of its currency and adoption of a multi-currency system in 2009.

These developments may have influenced capital flight directly or indirectly since the study shows that capital flight, inflation, and the exchange are positively correlated,” study further noted.

High inflation has been associated with higher levels and higher fluctuations in capital flight in the 2000 /12 period. Long periods of depreciation of local currency, against foreign currency signalled high currency risk, leading to high level of capital flight.

The results also show that during the period of macroeconomic stability, the contribution of the mining sector to economic growth increased and capital flight was lower. The findings suggest that macro-economic stability is critical to prevent capital flight.