Where to from here?

The rate could be conditioned on any observable features such as the basic geology, world price, and accumulated past volume of extraction. An auction is a way of forcing companies to reveal the true value of a right to extract by placing them in competition.

Thus, once a country has established its geology and mineralization, the auctioning of claims is a way to go. There are two distinct commitment problems; one concerned with extraction companies and the other with future governments. If governments cannot make credible commitments with resource extraction companies, one solution is to establish national extraction companies.

Listing on stock exchanges of un-mined assets is global best practice as done in Australia, Canada, and Norway. However, companies getting assets for free in Africa and listing them for value has been a problem.

Listing of un-mined assets to raise money on stock exchanges without consent of the real owners of the asset has led to the doctrine and crime of undue benefit as recently demonstrated in the Court system in India. Zimbabwe together with other African countries must address this matter head on.

In Zimbabwe’s 51 percent indigenisation program, shares must be ceded for value. In the mining sector, payment for the shares by the State should be from the value of the un-mined asset. There should be no model or agreement where GOZ will pay for its shares from dividends.  Payment should be made from the value of the un-mined asset.

Dividends are neither guaranteed nor contractual. In any case, given the vast nature of the value of the un-mined resource, the dividend model is absolutely unnecessary. Green fields, that is, unexploited and unimproved claims, obtained without payment for value will be given back to GOZ for FREE. We should not pay for what we gave away for free.

The government will not engage consultants to implement simple indigenization GOZ regulations and policies. Internal capacity must be built within government technical teams. Where it is absolutely necessary to hire consultants, there must be total transparency, an open tender process, independence, clear mandate letters, corporate governance, and reasonable fees. In this scenario, the Corporates being indigenised must NEVER pay consultants hired by GOZ as this will result in conflict of interest, leading to sweetheart deals detrimental to the national interest.

On indigenisation and empowerment, we must avoid baseless and unintelligent binaries: Equity vs. Supply side empowerment; we need both, the two complement each other. Dividends vs. royalties/taxes; we need both classes of benefits. Indigenisation vs. FDI; they are not necessarily mutually exclusive as evidenced in India, Norway, Australia, SA, Botswana, and Canada.

The 51percent indigenisation requirement vs. No One size fits all; we can stick to the 51 percent regulation, while creatively applying it in and between different sectors. Empowerment vs. jobs; this is just plain foolish, the two are mutually reinforcing. Policy formulation and implementation requires innovation and creativity. We must reject all these false and unimaginative choices arising from meaningless and misconceived binaries.

The effective harnessing of natural assets for development raises complex economic issues. Societies in resource rich countries can only get these decisions right to the extent that they understand them. Just as there has been a role for the international community to address the problem of weakened governance, so there is scope for international action to improve understanding of difficult but crucial social choices.

There is need to leverage global best practice. Further reforms of the mining sector we should pursue must include the following: All mining companies in Zimbabwe must have their primary listing on the local stock exchange. Banks must keep their deposits from mining companies in the country. Mining companies must bank locally. Banks must lend to agriculture, indigenised mining entities, and in particular small scale miners and MSMEs broadly.

By way of illustrating the magnitude of the opportunity, a 2012 McKinsey report showed that in Africa, banks stand to reap over US350bn from lending to MSMEs, including small miners. The banks just need to know how to service these sectors that are at the bottom of the pyramid. This requires volume-driven strategies rooted in different business models, products, distribution networks, and cost structures; from conventional ones used at the top of the pyramid.

In the new mining policy framework, special attention must also be given to the empowerment of women miners and their institutions, not as charity but as smart economics. Men and women bring different but complementary skills and competences to the mining sector. Furthermore, there is need to embrace and capacitate artisanal miners and de-criminalise the so-called Makorokoza.

Empowerment in the mining sector must be broad based. This means enabling ordinary Zimbabweans to be participants, not just as workers and managers, but as owners of small mining operations.

The financial resources accrued by the State in the dispensation of the new Mining Law must be channeled into setting up a Sovereign Wealth Fund (SWF). A Sovereign wealth fund is a state-owned investment fund of financial assets such as stocks, bonds, property, precious metals or other financial instruments.  It is a means of empowering citizens.

Sovereign wealth funds invest globally.  As we reform our natural resource laws, there is no need to reinvent the wheel.
What we want is that in a resource rich country, there must be evidence of the impact of the resource. Let us learn from countries that have carried out this empirical demonstration, such as Saudi Arabia, Botswana, Angola, and Dubai.

In terms of SWFs the following countries are good case studies: UAE oil based (US$627bn), Norway oil based (US$557bn), Saudi Arabia oil based (US$439bn), China two non-commodity based US$347bn and US$332bn), Algeria oil based (US$57bn) Malaysia non-commodity based (US$38bn), Chile copper based (US$22bn), and Botswana diamonds based (US$7bn).

Surely, we should be able to build a sovereign wealth fund based on just three minerals; gold, diamonds and platinum. How can we have a sovereign poverty fund of US$9,1bn debt?

There are a lot of unallocated claims in Zimbabwe. These present a unique opportunity to apply the new mining philosophy we are developing in the country. Of the 200 000ha of potential diamond area, only 70 000ha are allocated. Hwedza iron ore deposits are still free. In the Great Dyke, of the US$52 billion worth of Platinum, only US$5 billion has been allocated. In the other Great Dyke (550km) there are plenty minerals.

Throughout the country there are many other unencumbered mineral resources (Gold, Copper, Coal, Coal-Bed Methane (largest known reserves in Southern Africa), Lithium, Tantalite, and Uranium. In allocating mining rights to all the minerals let us start applying the ideas propagated in this paper. In particular, the right to mine must be linked to payment for the value of the un-mined mineral asset.

Putting value to the un-mined natural resource asset is global best practice as practiced in Norway Canada and Australia. What’s Good for the Goose is Good for the Gander. Further lessons from Norway include; on how to effectively use SWF revenues, good policy and the absence of corruption, Mining vs. oil differences, handling different risk levels, marriage between private and public sectors , enthusiasm, creativity, aggression, state as guarantor of social welfare, and joint decision making.

In fact, the successful resource management models of Canada, Australia and Norway illustrate that you can get the best of both worlds, that is, fairness and profit can and should co-exist. They also show that it is possible to balance between resource nationalism and economic globalisation.

In terms of ensuring shared and inclusive prosperity, we must establish national mineral driven industrial clusters, such as the Mutare-Marange Diamond cluster, Chegutu-Ngezi Platinum cluster, Kadoma Gold cluster. We must take into account both competitive advantage (what is done best by an entity) and comparative advantage (location of resource, skills and markets).

While the overall national interest must drive our mining policy, it is imperative that communities contiguous with mining operations and other local areas MUST benefit.
While we appreciate the role of FDI in driving the mining sector, the obsession with FDI as the ONLY source of capital is completely without merit. We can have investment models that are independent of foreign Investors.

Why can’t we put together a State Company or Consortium of Zimbabweans, say Entrepreneurs, Financiers, Geologists, Miners, Engineers, Accountants, and Lawyers. We then give them, for example a Platinum claim worth US$2bn. They can list on the local or foreign stock exchange and raise capital, both working and equity types. Alternatively, such a consortium can also go to the banks and borrow on the strength of the value of the claim.

They can also hire contract miners and equipment. We can then repeat the process for the different minerals. Surely this can be done. The extent, quality and breadth of our Zimbabwean Human Capital is amazing.

Who is running all these global and regional mining houses such as Anglo America, Mimosa, Zimplats, Lonmin, ImPlats, and DeBeers? Zimbabwean names such as Ben Magara, July Ndlovu, Winston Chitando, Alex Mhembere, and Godfrey Gomwe crop up. If we can run these giant businesses, why can’t we own them? It is important to acknowledge the potential psychological barriers Africans have when it comes to job creation, and ownership of enterprises.

Ownership is alien and unthinkable to a slave or enslaved person or a colonised person. In fact, such oppressed people are supposed to be owned. The most powerful weapon of the oppressor is the mind of the oppressed and decolonising the mind is the hardest of tasks. Our people must graduate from being workers and managers of other people’s money and assets. They must become owners of companies, entrepreneurs and innovators, builders of businesses, and job creaters.

In fact, the most important part of our indigenisation and empowerment program should be the creation of new businesses and companies, not just acquiring 51percent of existing entities. We must grow the Zimbabwean economy from a GDP of US$ 10 billion to a GDP of US$ 100 billion by 2040; where we completely indigenise the growth of US$ 90 billion. That will be sustainable economic empowerment and indigenisation.

To ensure that the country maximises the benefits from its mineral resources in terms of value, employment creation, skills and technology transfer and sustainable economic development, the mining industry needs to promote local beneficiation and value addition. Currently, there is very limited local beneficiation and value addition of minerals in Zimbabwe, resulting in about 90 percent of the minerals being exported raw or semi-processed, and this is cause for concern. As a measure to promote the growth of the local diamond industry, the Government introduced a quota system where 10 percent of all locally produced rough diamonds are reserved for the local cutting and polishing industry.

This quota will be reviewed from time to time as the industry grows. In the Platinum Group Metals (PGMs) sub-sector, the Government is pursuing measures and policies that encourage investment in a refinery plant in the country. Our target is that in the next two years, tangible deliverables in local PGM refining should be achieved.
Beneficiation in mining cannot be achieved by a business as usual industrial mindset.

It requires the development of backward and forward industrial linkages to the commodity sector, which linkages, in turn, allow movement up the regional and global value chains (GVC). Provided their resource-processing industries are internationally competitive and well integrated in GVCs, exporting countries can move into higher-rent value-chain links and extract the benefits of moving up value chains.

Forward integration confers other benefits. It can reduce the exposure of countries producing primary commodities to price fluctuations and thus yield dynamic skills-migration and cluster benefits of linkage development. By developing backward linkage supply firms to the commodity sectors and resource-processing industries, Zimbabwe can help to diversify its technological capabilities and skills base, deepening their industrial structure.

Moreover, the natural resource sector’s need for infrastructure, to extract and transport the commodities, enhances the potential for linkages. Linkage development creates an opportunity to maximise positive externalities derived from clusters. Supplier and resource-processing industries’ closeness to the extraction location generates agglomeration effects.

Efficiency gains for firms in clusters include gaining access to a pool of specialist labour and networks of suppliers.
The Government should continue to formulate and implement policies that direct local and foreign investment into the mining sector. The Government will also continue to promote joint venture projects in mining between ZMDC and foreign investors.

The objective of Government participation is to ensure that the nation realises meaningful benefits from mining operations as evidenced by a number of benefits including dividends that are accruing to the State from the joint ventures in Marange. The Government of Zimbabwe, in consultation with its valued stakeholders, will continue to come up

with policy initiatives and reforms that provide win-win solutions for both the investor and the people of Zimbabwe. The Zimbabwe Government has a duty and obligation to create a conducive and enabling economic environment and business climate. In particular, there is need for certainty, predictability, respect for the rule of law, and provision of an enabling policy framework that encourages and facilitates sustainable mining activities including beneficiation.

In addition to the specific recommendations above, Zimbabwe must embrace the global initiative around the concept of a Natural Resource Charter, a brain child of independent academics and practitioners championed by Professor Paul Collier of Oxford University. Their analysis and proposition involves precepts to inform and improve natural resource management.

This will help to ensure that the opportunities provided by new discoveries and commodity booms benefit the generality of the people. Among other principles, the Natural Resource Charter framework advances the following ideas: The development of a country’s natural resources should be designed to secure the greatest social and economic benefit for its people.

This requires a comprehensive approach in which every stage of the decision chain is understood and addressed. 
Successful natural resource management requires government accountability to an informed public. Fiscal policies and contractual terms should ensure that the country gets full benefit from the resource, subject to attracting the investment necessary to realize that benefit.

The long-term nature of resource extraction requires policies and contracts that are robust to changing and uncertain circumstances. Competition in the award of contracts and development rights can be an effective mechanism to secure value and integrity.

Resource projects can have significant positive or negative local economic, environmental and social effects which should be identified, explored, accounted for, mitigated or compensated for at all stages of the project cycle. The decision to extract should be considered carefully.

Nationally owned resource companies should operate transparently with the objective of being commercially viable in a competitive environment. Resource revenues should be used primarily to promote sustained, inclusive economic development through enabling and maintaining high levels of investment in the country. Effective utilisation of resource revenues requires that domestic expenditure and investment be built up gradually and be smoothed to take account of revenue volatility.

Government should use resource wealth as an opportunity to increase the efficiency and equity of public spending and enable the private sector to respond to structural changes in the economy. Government should facilitate private sector investments at the national and local level for the purposes of diversification, as well as for exploiting the opportunities for domestic value addition.

The home governments of extractive companies and international capital centers should require and enforce best practice.  All extraction companies should follow best practice in contracting, operations and payments.  These Natural Resource Charter ideas are global best practice, and must form the foundation of our new mining policy and Mines and Minerals Act.

Beyond Zimbabwe, the ideas presented in this treatise must be extrapolated to the rest of the Continent. This will dramatically advance the development of the continent. Currently the African narrative has not been all gloom. Seven out of ten of the fastest growing economies in the World for the period 2011-15 are African. These are Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia, and Nigeria.

In the period 2001-10 there were six African countries in the top ten; Angola, Nigeria, Ethiopia, Chad, Mozambique, and Rwanda.
These countries are experiencing what has been called China or Asia type growth rates of around 10 percent. Africa is the second fastest growth region after Asia, and it is projected to overtake Asia within a year’s time.

Africa’s middle class is poised to be greater than that of China in ten years’ time. All these new statistics about the continent point to new economic growth and improved country competitiveness leading to new business opportunities. It also presents scope to uplift African communities out of poverty.

What Africa has an opportunity to do is not just keep the GDP numbers going between four and ten percent. It’s about the quality of that GDP growth. African countries are growing at good rates, but growth alone would not lead to prosperity.  While foreign direct investment (FDI) numbers looked good, diversification was needed to increase trade numbers.

If we want to increase intra-African trade each of us has to produce something that is trade-able, which other countries want. Where are our comparative advantages? Are we able to produce the right type of quality and quantity at the right price? One of the major problems was producing a new growth model that was more inclusive, especially of the jobless and poor.

While Europe remained a big trading partner, countries in Africa needed to create export opportunities between themselves. The economic growth Africa was experiencing needed to reach more people on the continent. How do we make sure people are not left out, that we are not left with growing inequality? Effectively leveraging Africa’s vast natural resource base will play a significant role in the sustainable development of Africa where there is strong, shared and inclusive economic growth. As Zimbabweans, we must be part of this great narrative.

Developing and managing the mineral wealth of Zimbabwe for tomorrow requires leadership. Now that brings us to the age old leadership debate. Are leaders born or are they made? Leadership philosophers, academics and practitioners have grappled with this subject. Those trying to be clever and half have posited that “It is all of the above!”  Well, the answer is simply “NONE OF THE ABOVE!” Leadership is a decision.

It is a choice. Anyone can lead. I therefore urge both individual and institutional members of the Chamber of Mines, together with the rest of the mining sector ecosystem, to decide to lead, and champion the issues I have raised. It will take leadership. We had animated debates throughout the country when we were crafting the new National Constitution.

Why are we not having the same excitement and vigorous discussions as we develop a new Mines & Minerals Act? In fact, given the immensity and critical nature of mineral resources in our economic development, it is imperative for the entire citizenry, government, private sector, and civic society to be actively engaged in the development of a new mining dispensation in the country which will guarantee shared national prosperity.

l Professor Arthur G.O. Mutambara is Deputy Prime Minister, Republic of Zimbabwe.