- July 29, 2019
- Posted in LOCAL
Mineral sector reform has brought mining back to Africa aided by price rises in the early 2000s impacting on investment, growth and poverty reduction and there are no indications that price trends will decline to previous levels. For the sector to have a sustainable impact on poverty in Africa, governments must convert non-renewable capital into skills, infrastructure and business development.
The success of this will be underpinned by improvements in governance. There have been massive calls to liberalise mining and Zimbabwe has not been spared of that argument.
Miners postulate that the government’s hand in the operation of mines up until the marketing of minerals has caused massive distortions and discontent.
Government influence in Zimbabwe has seen the Central Bank managing the allocation of export proceeds which come in the form of foreign currency.
This has seen gold miners retaining about 55 per cent in foreign currency with chrome getting 50 per cent and
platinum getting a sizeable number. This has generated massive discontent from miners who have abjectly admitted that the government’s hand in mining should be minimized for assured growth of the sector going forward.
At a macro level, the mining sector has never played a crucial role across Africa as it does now. This is due partially to the rise in mineral prices since the early 2000s but more to the success of many mining sector reforms in the late 1980s and 1990s.
Zimbabwe now sees this sector as a possible engine of sustainable development. Zimbabwe needs to engage
in mining developments rather than operating in an enclave fashion. This needs to be done in order to increase linkages to other economic opportunities directly or through better integration of associated infrastructure.
They also desire to have a larger share of the sector’s rents particularly when mineral prices are high as well as having control on how the proceeds are utilised.
Mining expert Masango Mahlahla said that the liberalization of the mining sector is the way since the current regime has done nothing but cause continued clashes between miners and government.
“In my professional opinion, mining operations should be allowed to manage their own foreign currency. This will
enable mining companies to direct their earning towards planned capital investments. The banking sector should
manage the export documentation process as well as transactions as they will be more efficient and have better
processes for managing transactions,” said Mahlahla.
Another mining expert Innocent Nicks gave a nod to the liberalization of the mining sector.
“Yes I give a nod to the liberalization of mining sector on other minerals that can be mined under small and artisanal mining. Minerals like gold, chrome, all gemstones etc can be mined by small scale and artisanal miners to increase our stocks, markets and bringing in foreign currency. ’’The effects of liberalization of mining sector will be very positive since it closes the gap on unemployment, reduction in crimes committed ranging from robberies, drug abuses etc.
“Youths will be having some economic activities that bring food on their tables and as a result will reduce crimes, an idle mind is very dangerous. The effects will be seen through the circulation of money in the system, the introduction of our mineral-based currency or float based currency,” said Nicks.
On the other hand, Nicks alluded that what needs to be done is to make sure that all minerals are marketed through the government system to plug in all illegal marketing of our minerals to incentive miners so that they sell their stuff through government agencies.
“Value addition and beneficiation of our minerals is of paramount importance again because we would be having down and upstream economic activities that will lead to our community development. The government would then be able to reallocate resources to manage regulatory oversight regarding compliance issues. The government should not manage business transactions as this is best managed by the private sector. This will help to facilitate industry growth,” he said.
Most African countries nationalized their mining sectors in the 1960s or 1970s. However, by the end of the 1980s the trend had reversed partially due to market liberalisation but also due to the weak performance of state-owned mining enterprises.
Further, to attract additional Foreign Direct Investment (FDI) into their mining sectors, African countries often called upon the World Bank – which, with the IMF, was often involved in structural adjustment programs that began in the 1980s – to support the design of mining policies and laws that would make countries attractive destinations for FDI. This occurred at a time when mineral prices had been very low for nearly 20 years (and would remain so for another 15 years).
The focus of mining sector reform in the 1990s was revitalization as state control of the sector had scared away both new developments and exploration. State-owned companies typically suffered from underinvestment as profits were mostly brought into the country’s general fiscal revenues.
Hallmarks of these reforms were revisions to mining laws and regulations. These included transparent and nondiscretionary procedures in allocating exploration and production rights; exploration rights allocated on a first-come, first-serve basis and subject to minimum work conditions; according to finders the automatic right to exploit a deposit, subject to certain conditions, or to sell the right; stable fiscal terms although not necessarily fixed as
discussed later – throughout the lifetime of the operation (or for a well-defined period); well-defined property rights and, subject to commitments being made, no expropriation.
“The truth is that the government is the regulatory arm there should be a separation between politics and business. Therefore I am in support of the government liberalizing the sector. However, with the current foreign currency shortages, I don’t see that happening in the short-term. “Businesses need to plan and expand operations by using the retention money portion, moreover they should have adequate to large savings balances to cover their operations in the event of maintenance and reinvestment. Thus the balances sitting in the nostros FCA is a
normal business practice. There can’t be expectations that businesses would be emptying their nostros FCA,’’.
In conclusion, a large mining sector can have a substantial impact on the long-run sustainable development of a country. Firstly by being an engine of growth through the spin-off firms and industries, it creates and opportunities opened up by non-dedicated infrastructures, such as roads; railways; ports and power stations, and secondly, by using fiscal revenues generated by natural capital to produce other forms of capital.