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sharing in governance of extractive industries

Devolution can lift resource rich communities

Introduction

Much as Zimbabwe is endowed with huge mineral wealth portfolio, the disconnect between mining and living standards of communities where resources are extracted is quite glaring. A typical example involves the gold sector. Record breaking gold deliveries to Fidelity Printers (FPR) were realised in 2018 - 33.2 tonnes of gold worth roughly US$1.3 billion against a set target of 30 tonnes. However, sharp shortages of essential drugs, for instance, evinces that record-breaking production in the mining sector has no telling development impact in health and education sectors. The self-inflicted wounds are a result of poor mineral resource management – the gold sector was ranked by Resource Governance Index (RGI) of 2017 number 81 out of 89 countries, with a score of 29 out of 100 against a regional average of 43.

With devolution is gaining traction, there is need to ventilate challenges, opportunities and progress on harnessing mining for sustainable and broad based local economic and social development. Perhaps, such an exercise can spur strong public conversation on how minerals can deliver elusive benefits to communities to reverse the undermining of development opportunities stemming from mining. Devolution is provided for in the Constitution under Section 264.  Decentralisation of governmental powers and responsibilities to provincial and local government is the cornerstone of devolution.  Among its constitutional objectives, devolution seeks “to recognise the right of communities to manage their own affairs, and to ensure equitable sharing of local and national resources.”

Harnessing mining for local mobilisation of finance for development

Under Section 276 (2) (b), local authorities are empowered “to levy rates and taxes and generally to raise sufficient revenue for them to carry out their objectives and responsibilities.” Despite this constitutional power, resource rich local authorities have generally struggled to capitalise on enormous economic activities in their jurisdictions, mining particularly, to boost their purses to finance development. Largely, this challenge emanates from the fact local authorities are “rule takers and revenue takers.” A case in point is the outdated local mining tax collection system under the Rural District Council (RDC) Act.  For the purposes of calculating mining taxes due to any local authority, in the case of precious minerals, manual labour is used as a base. As an example, 100 manual labourers equate to a unit, and the rate for that unit is negotiated yearly between a local authority and mining companies.

Absolutely, such an arrangement is not tenable. Labour has been upstaged by machines as a driver of production in the mining sector. A position that is set to get worse as the wave of the forth industrial revolution is unavoidable. Syama mine in Mali has become the first fully automated underground.... To achieve a progressive local mining taxation structure, it is prudent to consider a value-based approach rather than a manual labour-based approach. For example, 2% of gross income generated per mining project should constitute local mining tax contribution.

Fiscal linkages not enough without the power of foreign currency linkages

Mining is the country’s lead foreign currency generator, contributing not less than 50% of the country total export earnings since 2010. It is unfortunate that in districts where foreign currency is mined, taxes are paid using a weaker currency – RTGS dollars. Agreed local mining tax arrangements were premised on the basis that US dollar and RTGS dollar are equal, 1:1. When the exchange rate was liberalised later through the 2019 monetary policy statement, some mining companies refused to adjust payments to accommodate the official exchange rate.  As a result, the spending power of local authorities was severely eroded. Even payments made to community share ownership trusts (CSOTs) or their savings were not spurred because they are not backed with foreign currency linkages. Examples include Marange-Zimunya Community Share Ownership Trust which received $5 million last year (2018) from Zimbabwe Consolidated Diamond Company (ZCDC). Zvishavane CSOT had roughly $3 million set aside for income generating projects.

Another revenue stream for local authorities which has been hurt because poor foreign currency linkages is $310 million set aside for devolution in the 2019 national budget statement. According to Section 301 (3) of the Constitution, at least 5% of national generated revenue in a given fiscal year must be allocated to provincial and local authorities. It is worthwhile to flag out that this constitutional arrangement was not been complied with since 2013 when the new Constitution came into effect. Therefore, the ground-breaking move by the Ministry of Finance to comply with Section 301 of the Constitution in 2019 has its development lights dimmed because the power foreign currency linkages is missing.

Uncertainty around community share ownership trusts

The State is constitutionally compelled to put in place mechanisms to ensure communities benefit from resources in their localities in line with Section 13 (4) on national development. In the quest to attract investment, government is operating on “Zimbabwe is open for business” mode.  In 2018, the Finance Act removed indigenisation requirements for all minerals apart from diamonds and platinum. As a result, sustainability of CSOTs outside diamond and platinum sectors is now doubt. As if that is not enough, the Ministry of Finance stated in March 2019 that government intends to scrap indigenisation requirements for diamond....

Whilst the pace at which CSOTs were being implemented was frustrating, the principle behind the law must never be discounted. Community Share Ownership Trusts were birthed under the indigenisation and economic empowerment regulations of 2010. Under this arrangement, foreign mining companies were required to cede 10% ownership to local communities. Only 2 out of 61 CSOTs received equity from mining companies, that is Gwanda and Umuguza. In the platinum sector, Zimbabwe Platinum Mines (Zimplats), Unki mine, and Mimosa Mine paid $10 million each to CSOTs in their areas of operation. Amazing progress was recorded on the ground on investment in infrastructure, schools and clinics despite huge infrastructure gaps that are still persistent.

Undoubtedly, removing CSOTs rather than enabling the implementation of CSOTs goes against the spirit of devolution and can further marginalise resource rich communities from benefiting mining. Why ditching a winning formula? Vision 2030, attaining upper middle-income status certainly will prove to be a huge disaster if it does not address inequality. Inspiration must be taken from leave no one behind, the motto for the Sustainable Development Goals (SDGs) targeted at 2030.

Earmarked mineral revenue streams

There are service delivery funds that are linked with mining albeit not exclusively. Such funds include the rural electrification fund, aids levy, and the Zimbabwe Manpower Development Fund (ZMDF). Because mining is a huge consumer of electricity, it follows that the sector is a significant contributor to the rural electrification levy. Blanket Mine, for example, contributed 466,322 to the rural electri.... There is hardly tangible evidence of any meaningful plough back of revenue ringfenced for service delivery in communities were the funds are generated. This is an opportunity for resource rich local communities and RDCs to follow the money, demand transparency and accountability to mobilise efficiently resources for enhancing local economic and social development.

Conclusion

Clearly central government has not fared well in terms of managing mineral resources for the benefit of resource rich communities as required by the Constitution. Devolution comes as an incentive for resource rich local authorities harness the elusive local development dividend from enormous economic activities in their localities – mining obviously takes the centre stage. To achieve this, CSOTs must not be sacrificed to attract investments, transparency and accountability of mineral revenue is important to amplify development opportunities from service delivery funds like rural electrification funds. From areas where foreign currency is extracted, it is atrocious that essential drugs shortages are experience because of scarce foreign currency. Therefore, fiscal powers of provincial and local authorities need to be backed by foreign currency linkages to enhance local economic and social development programmes.

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