Fuel Levy, Power Cuts, and Soaring Costs Push Zimbabwe’s Mining Sector to the Brink
Zimbabwe’s mining sector is facing a severe crisis as a new fuel levy of US$0.005 per litre worsens existing challenges, including crippling power cuts and skyrocketing operational costs. Already burdened by an effective tax rate of 69%, miners are struggling to remain viable, with sectors like lithium and platinum group metals (PGMs) particularly hard-hit, Mining Zimbabwe can report.
By Rudairo Mapuranga
The lithium sector has seen companies threatening to shut down operations, while the PGM industry has resorted to cutting jobs and reducing spending. Adding to the woes, the predicted softening of commodity prices threatens to make these industries increasingly unviable.
The fuel levy, introduced to raise additional revenue for government projects, is expected to push mining companies to the edge of collapse, with industry leaders warning of potential shutdowns that could further stifle economic growth.
The Chamber of Mines of Zimbabwe (CoMZ), in a report, emphasized that the levy comes at a time when the sector is already grappling with a complex array of costs, regulatory burdens, and frequent power outages, all of which are severely undermining operations.
Zimbabwe’s miners are already dealing with an effective tax rate of 69% in 2024, a level far exceeding regional competitors such as Zambia (60%), the Democratic Republic of Congo (61%), Ghana (56%), and South Africa (44%). This tax burden is eroding the competitiveness of local mining companies, with the fuel levy threatening to push some operations past the breaking point.
Additionally, the mining sector faces a labyrinth of taxes, fees, and levies, including a 20% special capital gains tax, environmental impact assessment levies of 0.8% to 1.2%, a 2% environmental rehabilitation levy, and royalties of up to 10% depending on the mineral.
Miners must also contend with rising electricity and labour costs while surrendering 25% of their export proceeds to the government, effectively adding a 12% tax on gross revenue.
On top of this, miners are subjected to 157 separate fees and charges imposed by government ministries, agencies, and Rural District Councils, ranging from US$4,000 to US$15,000. These high and often unaffordable fees severely impact the viability of mining projects.
The CoMZ report notes that procurement, contractors, government taxes, employment costs, and power expenses consumed a staggering 91% of total mining revenues in 2024, leaving little room for reinvestment in capital projects.
The situation is dire for key sectors like lithium and PGMs. Lithium companies have already signaled potential shutdowns due to untenable costs, while the PGM industry has been forced to cut jobs and reduce operational spending. Compounding these challenges is the forecast of continued softening in commodity prices, which could make mining in these sectors increasingly unsustainable.
CoMZ Chief Executive Isaac Kwesu highlighted that smaller mining operations, consuming around 18,000 litres of fuel per month, are already paying US$27,000 monthly before the new tax. These costs are set to rise with the introduction of the fuel levy, pushing small and large mining operations further into financial strain. Larger mining companies have reported losses of up to US$500 million in potential revenue this year alone due to frequent operational downtime caused by power cuts and rising costs.
“The mining industry is heavily reliant on diesel and petrol, particularly for electricity generation during power outages. While the fuel levy may not seem like a significant increase for smaller operations when applied across the industry, it will add substantial costs, further straining the sector,” Kwesu said.
This is not the first time Zimbabwe’s mining sector has faced the threat of widespread closures. In the early 2000s, gold mines were shuttered due to hyperinflation, price distortions, and foreign currency shortages. Now, history seems to be repeating itself, with the added pressure of softening commodity prices.
The new fuel levy is also expected to increase inflationary pressures across the economy. The Direct Fuel Importers (DFI) industry body, representing petroleum importers, has confirmed that the additional costs will be passed on to consumers. Prior to the levy, a litre of petrol and diesel was already priced at US$1.49 and US$1.50, respectively.
DFI Secretary-General Bart Mukucha noted that while the levy may support government projects, it is the mining sector and the broader economy that will bear the brunt of rising fuel prices.
As miners contend with ever-increasing costs, there is growing concern that the industry’s future hangs in the balance. Industry leaders are urging the government to reconsider its tax and regulatory framework before the country’s key economic driver becomes unsustainable.