Putting the mining sector economic stimulus package to effective use
In lieu of the burden that has been set upon the Mining Sector, and the Zimbabwean economy at large, by the Covid-19 pandemic, His Excellency, President Emmerson Mnangagwa, on 1 May 2020, announced a Zwl$18 billion Economic Stimulus Package which is hoped to cushion domestic businesses and keep the economy invigorated through the slump.
By Daniel Nhepera
According to a document generated by the Chamber of Mines of Zimbabwe in March 2020, the mining sector is likely to take revenue losses in excess of US$400 million in the second quarter of 2020 alone. This would be a substantial loss, equating to 14.8% of the total mineral earnings achieved in 2019 (US$2.7 billion) and 10% of the forecasted mineral earnings for 2020 (US$4 billion).
Notwithstanding the fact that the mining sector has consistently been Zimbabwe’s biggest foreign currency earner (averaging above 60% in the past three years), the sector was only apportioned 5.6% of the Stimulus Package, Zwl$1 billion. According to details given by Government, the mining sector package will go towards financing the completion of development works on the Mining Cadastre system – a computerized system for the management of all mining-related administrative tasks. The fund will also buttress efforts towards the resuscitation defunct gold mines, the reduction of application fees and annual rentals, and the ring-fencing fuel and power for the mining sector.
It is of note that the announcement of the Stimulus Package by Government does not infer a specially designated Zwl$1 billion kitty in wait at the Reserve Bank of Zimbabwe to be drawn down by mining companies. As it happens, the Government may have to make the funds available, in tranches, through domestic or foreign borrowing, or the printing of money. Although likely to encumber Zimbabwe’s already strained debt overhang, foreign borrowing is rather the blueprint in times of such strife, with Nigeria and South Africa already in talks with the various International Financial Institutions over rescue packages of US$6.9 billion and US$4 billion, respectively. Avenues to foreign loans are not as straight forward for Zimbabwe, however, and so Government will be at straits to come forth with the Economic Stimulus Package. It is therefore within all mining sector stakeholders’ interests for the mining portion of the Stimulus Package to be put to effective and strategic use to achieve the intended objectives of giving respite to mining companies while also permeating welfare relief to the Zimbabwean citizenry.
This resolve raises a need to interrogate whether the use of the Stimulus Package in funding the completion of works on the Mining Cadastre system bares the promise of immediate and necessary monetary or welfare gains. Although the system will go far in improving the ease of doing business in the mining sector, while also crucially providing security of mining title, which will cultivate more appetite for mining investments in Zimbabwe, the gains from these advancements may not be immediately tangible, nor quantifiable. It is also curious as to why the Cadastre system, whose developer was since identified and reportedly funded in 2016, has taken so long to complete. In 2019, there was a further commitment made by Treasury to avail US$2 million for completion of the project, which was then promised to be ready by 2021. It, therefore, comes as a surprise that the Ministry of Mines and Mining Development is again seeking to finance the Cadastre system with funds from the Stimulus Package.
In comparison, the South Africa Department of Mineral Resources’ online platform, the South African Mineral Resources Administration System (Samrad), was announced, designed, built, and rolled out all in the same year, 2011. The building process came with the benefit of an audit of all prospecting and mining rights in the country as part of the data clean-up process, something which would be most welcome in Zimbabwe given the numerous double-pegging disputes that provincial mining offices are perpetually flustered with. Mining stakeholders and prospective miners in South Africa enjoy the convenience of remotely viewing the locality of all mining applications, rights, and permits made and held in South Africa, thereby allowing for applications to be submitted and administrative processes to be handled electronically.
Creditably, Government has identified the need to ring-fence fuel and power for the mining sector, which is up the alley of necessities fundamental to keeping the mining sector ticking in the midst of depressed markets. Along with the ring-fencing of fuel and power, the availing of funds to sustain the importation of mining consumables, equipment, machinery, and spares, for both running operations as well as capital projects is equally imperative. This would assist in maintaining mining operations at current levels, guaranteeing mineral exports for Government, albeit at the mercy of depressed global prices.
In this light, recollections can be made to the Mining Continuation Reserve (MCR) and the Mining Projects Fund (MPF) which were administered by the Reserve Bank of Zimbabwe on behalf of the Government between 1980 and 1990. The purpose of the funds was to ring-fence foreign currency allocations to the mining sector for the purchase of mining inputs, mining consumables and spares (MCF), as well as financing the establishment of capital projects (MPF). Although perpetually underfunded, the funds are still credited for sustaining the mining sector in Zimbabwe in a period where mining was in recovery following the 1970s dip on account of the War of Liberation. The funds also assisted in sustained gold exports through the spectacular peak and trough of gold prices between 1980 and 1986.
Offering such support to the mining sector would however require the Stimulus Package to be availed in foreign currency for the most part. This is where pitfalls may appear. This fate is dependent on Government’s source for the Stimulus Package funds, and with the likelihood being that the funds will either be from domestic borrowing or quantitative easing, there is not much promise of the mining sector rescue fund being presented in foreign currency.
Nonetheless, there is still an opportunity for the Government to make impactful use of the Stimulus Package, in domestic currency, as a means to improving the welfare of communities directly within the catchment of operational mines. This may be achieved by placing policy for the mines, large scale or small, to engage more with local upstream and downstream business, while Government simultaneously finances and provides support to the businesses for them to meet the supply requirements of the mines in quantity and quality. Indeed it is peculiar that this approach would look to intensify the welfare benefits of mines on local communities without actually providing financial support to the mines themselves, but empirical studies have provided backing to the proposition.
“One such study was a 2013 paper on Yanacocha, a large scale gold mine in Peru considered to be the fourth biggest gold mine in the world. The authors of the study identified that following passing of a national local content policy by the Peruvian Government in the year 2000, there was a massive improvement in household-level welfare for residents within a 100-kilometre radius of the gold mine. This was following an upsurge in demand for products and services provided by locally owned businesses, such as high and low skilled workers, cleaning materials, catering, protective gear, chemicals and construction products, among others. By measurement, a 10% increase in the mine’s demand for local inputs was found to correlate with a 1.7% increase in real income per capita within the mine’s catchment area. Such findings are the basis of the push for a mining sector local content policy in Zimbabwe which has been valiantly pursued by the Confederation of Zimbabwe Industries.
Abstract as the approach may be, effective deployment of the local content policy may be one means by which the Government may make the most of the relief funds it garners, towards the objective of improving and sustaining the welfare of Zimbabwean citizens, particularly in mining areas. The mining areas are largely in the hinterlands all the same, where welfare relief is most needed. Combined with the adoption of appropriate variations of the Mining Continuation Reserve and Mining Projects Fund, there is scope for Government to see to the effective use of the Economic Stimulus Package in the mining sector.”