With world class platinum resources, second best only to South Africa, is Zimbabwe primed to achieve sustainable socio-economic development impact from exploitation of its mineral resources as pictured by the African Mining Vison (AMV). This blog argues that without transparency, it is difficult for public to hold government and corporates to account on negotiating fair mining deals that optimises mining benefits for citizens.
Last week, the state media hailed the ground breaking $4.2 billion investment deal in the platinum sector between government and Karo Resources from Cyprus. With gusto, the Minister of Mines Honourable Winston Chitando announced that Zimbabwe’s mining landscape will never be the same, if implemented fully, the project will directly employ 90,000 people- 15,000 and indirectly 75,000.
A massive investment considering that Zimplats, the country largest platinum mine employed a total of 5,941 people during its 2017 financial year, 3,063 on full time basis and the remainder 2,878 on contract basis. Karo Resources compounded the excitement by declaring that the project will grow Zimbabwe’s Gross Domestic Product (GDP) by 20%.
Rightly so, the Constitution through Section 315 (2) (c) provides for an Act of Parliament to enable “transparency, honesty, cost-effectiveness and competitiveness” during negotiation and performance monitoring of mining agreements. Unfortunately, the $4,2 billion deal came as a surprise to the public. The Minister of Mines promised that disclosure of some clauses of the agreements “……a number of which be made public over the next few weeks.”
Public disclosure of mining agreements is a critical enabler for fair mining deals that targets optimisation of mining benefits to citizens since the public has an opportunity to scrutinise the terms and conditions of the contract. As envisioned by the African Mining Vision (AMV) agreed to by African head of states in 2009, scrutinising fairness of mining agreements angles for optimal mining linkages in the following sectors; fiscal linkages; human resource development, upstream/ backward linkages; infrastructure linkages; downstream/ forward linkages and research and development linkages.
Pertaining to fiscal linkages, it is necessary to leverages on mineral resource exploitation to mobilise a fair share of tax revenue from mining activities, to fund programmes that enhance progressive realisation of Socio-Economic Rights (SERs) like health and education, enshrined in the Constitution. Because the US$4.2 billion agreement is not public, it is difficult to check whether Karo resources will pay a fair share of tax revenue from exploiting the country’s rich platinum deposits.
Ominously, government has not fared well in the past on mining fiscal linkages. A drawback is that the Mines and Minerals Act does not provide for competitive bidding on known lucrative mineral deposits as encouraged by the African Mining Vision. Competitive bidding creates opportunities huge signing on fees and better fiscal terms. As much as we celebrate the $4.2 billion platinum deal, it is sad to note that the economic value of platinum resources given to the investors is not known. Therefore, government must prioritise geological knowledge to ascertain the quantity and quality of mineral resources in order to negotiate better deals.
Another glaring example involves toxic tax incentives, for instance, platinum houses holding special mining lease agreements have been paying 2.5% mineral royalty fees against 10% prescribed by the Finance Act. It is noteworthy that the 2018 national budget statement provided for all platinum houses to pay 2.5% royalty rate, this has been affected through the Finance Act. Overall, the treasury through national budget statements (2010-2017), consistently lamented poor mining contribution to the fiscus.
Mining is associated with heavy infrastructure investments, water, power, transport and communication infrastructure. To maximises infrastructure linkages, other economic activities like agriculture, with no capacity to develop mega infrastructure, must have access to infrastructure developed by mining operations.
Although the disclosure was an outlier, encouraging to note, a 600-megawatt thermal power station will be built, 250 megawatts to service the mining, processing and refining. The access 350 will be released to the national grid to help to ease power shortages which augurs well for the development of other economic sectors. It is also vital to point that this will ease foreign currency shortages because Zimbabwe is relying on power imports from Mozambique and South Africa to plug power deficits.
Another critical area that could have been open for scrutiny if the $4.2 billion deal was public include the promotion of small to medium enterprises to supply goods and services required in the mining. Basically, the development of upstream or backward industries which is quite important to avoid an unhinged mining sector to the country’s economy. Procurement, notably constitute the largest share of revenue consumed in mining operations.
Commendably, it was disclosed that Karo Resources will process it platinum right up to the last final stage of recovering precious metals like platinum, palladium, rhodium and gold locally. Contract disclosure will then allow public performance monitoring on this deal to hold to account the investors and government.
Another issue that needs to be ventilated is beneficial ownership of Karo Resources and indigenous partners which will have 51% equity stake in this mining agreement. Beneficial ownership is important to curb corruption by unmasking the natural persons who are benefiting from this deal.
Lastly, conversation concerning sustainable development impact of mining would not be complete without discussing environmental rehabilitation and mine closure plans and costs. More importantly, Free Prior Informed Consent (FPIC) of communities to be affected by mining operations must not be overlooked.
Elections are drawing near, focus on electoral reforms seems to be the only game in town. The announcement of the 4.2 billion platinum deal and related deals in the lithium sector is a reminder that mineral resources governance reforms should not be dislodged on country development agenda. An Act of Parliament that enable public transparency in negotiation and performance monitoring must be urgently put in place as required by the Constitution, Section 315 (2) (c).
If government is serious about anchoring socio-economic development on mining, ascertaining the quality and quantities of our mineral resources is a must. This would enable competitive bidding necessary to optimise mining linkages across the whole value chain. Parliament and civil society must hold the Minister of Mines to account on his promise to disclose some clauses of the $4.2 billion mining agreement in the coming weeks.