Mining royalties hike set to boost Govt coffers

but is the right tonic to improve national revenues for broader economic redistribution.
Finance Minister Tendai Biti said in his 2012 National Budget presentation last week that the mining sector (excluding diamonds) will contribute around US$150 million to the fiscus, out of mining exports worth over US$2 billion for the period.

Zimbabwe National Chamber of Commerce immediate past president Trust Chikohora said since Zimbabwe’s mining sector was one of the country’s top performing sectors, increasing royalties would help balance the economy by allowing the Government to redistribute a portion of wealth gained in mining and resource extraction.
“Over-reliance on the export of natural resources can make the economy unstable and unbalanced, especially if one sector is better performing than the rest,” said Mr Chikohora.

“The move to increase royalties can help to offset these imbalances by allowing the Government to redistribute revenues from mining into other sectors of the economy.”
Since mineral resources tend to depreciate over time, high taxes and royalties for the mining sector could also help to discourage wholesale liquidation of the resources.
“The move to increase royalties for platinum and gold will certainly not be welcomed by mining companies in terms of its effect on impelling their operating costs and generally affecting the country’s competitiveness in that respect, but it will improve revenues to Government,” he said.

Minister Biti made the proposals to hike royalties for gold and platinum in view of the “paltry” revenues Government was generating from the minerals sector.
The new royalties are 7 percent from 4,5 percent for gold, while that for platinum would double to 10 percent from next year.
Zimbabwe has the second-largest platinum reserves in the world.

“We do not feel that we are getting what belongs to Caesar is going to Caesar with regards to gold and platinum,” he said.
“I propose to increase the royalty on gold and platinum from 4,5 percent and 5 percent to 7 percent and 10 percent respectively, in order to maximise the contribution of mineral resources to the fiscus.”

Other countries have taken similar initiatives to benefit from their depleting natural resources.
Ghana, Africa’s second-biggest gold-producing nation, earlier last week announced it would raise corporate taxes on mining companies to 35 percent from 25 percent, and introduce a “windfall tax” of 10 percent, in steps announced by Finance Minister Kwabena Duffuor in the 2012 budget.

Although the proposal for higher royalties will help boost state coffers, in another perspective, it is considered a factor that could impel the levels of risk in terms of doing business.

Notwithstanding the concerns, the local mining sector is expected to continue on a growth path next year, moving up 15,9 percent.

“In 2012, mining is anticipated to remain the major driving force behind overall economic growth, benefiting from further private capital injections, firm international commodity prices and anticipated initiatives to minimise electricity supply interruptions,” said Minister Biti.
This year, growth for mining is estimated at 25,8 percent, down on the initial forecast of 33 percent.

This growth is largely underpinned by approved lines of credit in support of investment in equipment into the sector to the tune of US$502 million, but less than initially anticipated on account of revisions in production levels for platinum, nickel and palladium due to challenges in the macro-operating environment.
Minister Biti said the mining sector was recovering gradually, with gold production expected to more than double to 28 tonnes next year, while diamond sales are expected to yield around US$600 million.

Diamond revenues are a key element in the US$4 billion 2012 budget after the Minister said he had initially drafted a US$3,4 billion budget but adjusted it following a recent Kimberley Process agreement on the unconditional sale of the Marange diamonds.

Treasury this year received total diamonds dividend receipts amounting to US$122,2 million.
He said in order to ensure transparency in diamond revenue flows it was necessary that work on the Diamond Bill be finalised with urgency.