Zimbabwe is open for business. A mantra that the President seizes every opportunity to tell, to rebrand and prime the country for economic growth that delivers jobs and quality service delivery – an upper middle income by 2030. But, how open is Zimbabwe for business?
To explore this question and to perhaps proffer alternative policy and practice reforms for making a point that charity begins at home on ease of doing business reforms, attention is paid to artisanal and small-scale mining (ASM), especially small-scale gold custom millers. After all, ASM is an indispensable sector to warrant government special attention on policy matters since the sector is helping to dig the country out of its foreign currency woes and unemployment scourge.
Small scale gold millers are important players in the gold production value chain. They offer ore milling services for gold recovery to artisanal and small-scale miners (ASMers) who cannot afford their own milling facilities. An analogy can be drawn with grain small holder farmers who use grain milling services to get mealie-meal in rural areas.
On Friday, 7 December 2018, over 30 small scale gold custom millers from Matebeleland met at the Methodist Centre, Bulawayo, to reflect on recent spate of closures of their businesses, the challenging business environment, and how to robustly engage with relevant government institutions to ensure ease of doing business.
The meeting also provided a platform for Zimbabwe Miners Federation (ZMF) to interface with small gold custom millers and reassure its key constituency that the mother body is up to the task on fronting engagement with relevant government institutions. A necessary move, considering that ZMF interventions were primarily placed on artisanal and small-scale miners (ASMers).
ZMF is a mother board of all associations in artisanal and small-scale mining (ASM) value chain, the miners, custom millers, buyers and suppliers. The Zimbabwe Environmental Law Association was on hand to learn and share insights on ASM and resource nationalism, exploring alternative pathways to optimise development opportunities from mining. ZELA is a public interest law organisation inspired to ensure that all citizens enjoy a fair share of wealth from the extraction of minerals.
Setting the tone for a robust conversation
In her opening remarks, Henrietta Rushwaya, ZMF president highlighted that the meeting is being held at a time when monthly ASM gold deliveries to Fidelity Printers and Refiners (FPR) had plunged by 50% to 602.30 kgs in November from 1,199.13kgs in October. Averagely, ASM contributed monthly gold deliveries amounting to 2,043.95 kgs from January to October 2018. This worrisome development is attributed to supply shocks, mainly diesel, a large source of power for ASM because most players have limited access to electricity power lines. Long fuel queues are the order of the day and this is hurting ASM gold production. The ZMF president raised a red flag on the uncompetitive way FPR was paying for gold deliveries from ASM compared to the black market. FPR pays 70% cash in US$ and 30% as bank transfer whilst the black market is ready to pay 100% cash payment in US$. Of course, the official argument is that the US$ and bank transfer are trading at par. Yet on the ground, US$1 fetches anything $3 at a bank transfer rate. She also emphasised that ease of doing business reforms are critical to enable small scale gold custom millers to play a pivotal role in boosting the country’s gold output. Buttressing her point, she referred to the 2016 Midterm Monetary Policy Statement (MPS) issued by Reserve Bank of Zimbabwe (RBZ). The 2016 Midterm MPS revealed that high compliance costs are an impediment to the development of gold custom millers.
“Reduction in custom milling fees from the current US$8 000 on the basis that when the fee was US$2 000 there were 485 millers which were registered but now at US$8 000 the registered millers are now around 51. The challenge is that there are many millers who cannot afford to pay the required fee of US$8 000 but are still operating and selling their gold on the black market and/or smuggling gold out of the country.” RBZ, 2016 Midterm Monetary Policy Statement (page 65).
The ZMF president also appealed for a frank discussion among gold custom millers and to be focused on coming up with strategies for ensuring that government listens and acts according to address their concerns. She highlighted that the Bulawayo meeting with Custom millers is a kick start to ZMF’s programme of engaging with gold custom millers across the country.
ZELA’s value proposition
Mukasiri Sibanda shared ZELA’s value proposition to small scale gold custom millers which revolved around empowering the players to document and tell their own stories to show case challenges, positives and to demand the change they want to see. This will help to count negative publicity escalating ASM risk profile with policy makers, investors, market and the public. Oftentimes, ASM stories have headlines on violence, environmental, safety and health challenges and gold leakages. Unless, the players in ASM learn to tell their own story, they lose control on influence public dialogue on the sunny side of ASM as an integral component of rural economies. Its impact on employment creation, income generation and stimulation of community enterprise development. The voices of small scale gold custom millers must be heard beyond the meeting walls, to appropriately and continuously inform stakeholders on key developments in the sector. He also challenged small scale gold custom millers to take seriously the threat posed by sharp fall of gold deliveries from ASM. Policy markers willing to use a stick will take this as an excuse to come up with punitive measures to address alleged gold leakages. Past lessons should serve as a wakeup call to ASM players. Operation Chikorokoza Chapera (an end to artisanal mining) in 2007) was designed to stop gold leakages from ASM and to enhance sustainable environmental management practices.
Charged conversations on challenges faced by small scale gold custom millers.
“We have meeting always to discuss the challenges that we are facing but nothing changes on the ground. The same problems are persisting. We are wasting time. Government is not hearing our concerns” Small scale gold custom miller
“It is the duty of the ZMF to take your concerns to relevant government institutions. The president has ready access to the Minister of Mines, FPR management, RBZ governor and other key offices. So be assured that this is not a talk show” Wellington Takavarasha, ZMF CEO
“Small scale gold custom millers should think outside the box when coming up with strategies to engage with government to improve the ease of doing business environment. Consider that if recommendations from Monetary Policy Statements by RBZ, a key government, on ease of doing business in ASM sector are not being implemented, who is frustrating the process? What does it take to achieve institutional harmony in government?” Mukasiri Sibanda, ZELA’s Economic Governance Officer.
Foreign currency retention ratio, what is at stake
Theoretically, FPR is paying 100% value for gold deliveries from ASM. 100% payment from FPR. However, ASM gets 80% of the value for delivering gold to the formal market (FPR). The main cause is that FPR pays 70% cash in USD and the reminder 30% through a bank transfer for gold deliveries from ASM. Although the official position is that the USD is at par with the bank transfer money, the market forces tell a different story. USD traded with RTGs or bond notes at a premium. Suppliers of equipment and consumables are demanding payment in USD. Therefore, in USD terms, the 30% payment through bank transfer equates to US$0.10 at most. This is the basis for the argument that practically, FPR has unfairly discounted the gold price by 20%. Since many players in ASM sector live from hand to mouth, the working capital is eroded as well as the ability to capitalise profits to increase production.
“Breakdowns are frequently experienced at our gold custom milling plants coupled with unreliable transport system too. Miners wait for 3 to 5 weeks to have their gold ore processed. This is hurting production. We cannot buy spares with 30% payment we receive through bank transfers.” Small scale gold custom miller from Bubi
The other disastrous effect is that the 20% discount s fuelling the black market.
“Let us be honest, government is the one responsible for gold leakages. Who is going to sell gold to FPR and get 80% of value whereas the black market is read to pay 100% value in US$” Remarks by one small scale gold custom miller from Esigodini
Upon being asked how much gold is being channelled to the black-market because of government’s unfavourable payment methods, different figures were thrown around. Some estimated that 70% of gold is being diverted to the black market, others said roughly 50% and others said third. Given that for the first 11 months of the year (January to November), ASM delivered 21 tonnes of gold to FPR, 70% = 14.7 tonnes; 50% = 10.5 tonnes; and 33.33% = 7 tonnes. Although different figures pertaining to gold leakages were given, the common denominator is that the leakages are huge challenge to government, not just to regulate the sector – stick approach but to create and enabling the environment – carrot approach.
Erratic diesel and electricity supplies choking gold production
Majority of the small-scale gold miners and custom millers do not have access to electricity power lines. Mainly, they use diesel to power their compressors, water pumps and gold mills. Acute fuel shortages being experienced across the country are having adverse effects on ASM gold production.
“Government must not look very far to find answers on the plunge of gold deliveries from ASM” gold custom miller commenting on the fuel crisis
There were different views on what government must do to ensure reliable fuel supplies to ASM sector. Some felt that government should allow some fuel stations to sell fuel in foreign currency, for instance US1 per litre. Others sharply disagreed arguing that the 30% foreign currency retained by RBZ is supposed to carter for fuel supplies using bond notes or bank transfers. In the end, it was agreed that government should set aside dedicated service station for uninterrupted fuel supplies for ASM and that fuel payments should not be in forex.
Unreliable fuel supplies are not the only challenge, erratic electricity suppliers are a major problem too.
“literally we know we have loss of electricity for 2 days each week in Umguza. Miners can take 3 to 5 weeks for their ore to be processed. We end up losing customers.” Small scale gold custom miller from Umguza
Ease of doing business concerns: administration bottlenecks
The narrative that Zimbabwe is always peddled by government, it is important for relevant government institutions regulating ASM to pay urgent attention to major impediments for ease of doing business. ASM is critical to ensure inclusive economic development hinged on mining because of its capacity to ameliorate unemployment challenges, capacity to tap mineral deposits that are not suitable for large scale mining, and capacity to stimulate community enterprise development. Below are several comments from gold custom millers which offers key insights on various impediments to ease of doing business in the ASM sector;
“We are willing to meet the minimum compliance requirements. However, we are being frustrated by various government institutions.”
“FPR put their keys on our boilers and if we want to add our carbons we end up waiting for 3 hours for them to come and unlock our boilers. Then when I want to elute, FPR officials again do not come on time to unlock our boilers citing shortage of vehicles or fuel.”
“Paper work in the Ministry of Mines, is taking ages. I have an elution permit and I requested for an upgrade so that I can offer services to others who are requesting the service. I have paid top up fees required. But 1 year has passed, I haven’t received the permit.” Small scale gold custom miller
“The Environment Impact Assessment (EIA) stakeholder consultation process is being abused for private gain by village heads, councillors and other powerful community member. It is more than a year now, but approval is still pending.”
“We are over taxed. FPR collects royalties and Rural District Councils (RDCs) are also demanding royalties which are exorbitant. For example, Umguza RDC demands $10,000 annually from small scale miners. There is no need to pay royalties to RDCs because we are paying to FPR”
“The gold mobilisation technical committee is harassing us. There is confusion. One team comes and gives you certain instructions and the other team comes and says a completely different thing. We need a simple consolidated compliance book with all the laws that small scale gold miners are supposed to comply with”
“Chinese are here to loot big time and are protected by powerful individuals. They are not submitting gold to government at all. Gold custom milling should be reserved for indigenous people. Chinese should get the gold underground not the easy process on mining gold on the surface.” Small scale custom gold millers feeling the heat from competition with Chinese investments.
Reflection points for small scale gold custom millers
Foreign currency linkages from mining crucial
It is important to look at mining from a developmental lens as advocated by the Africa Mining Vision (AMV). A blueprint that was adopted by African Head of States and Government in 2009, with basic tenets of transforming Africa’s vast mineral resources into sustainable economic growth and broad based socio-economic development. In addition to taxes, artisanal and small-scale miners must understand that foreign currency linkages from mining are crucial. The country requires foreign currency to import essential drugs, inputs for manufacturing business, electricity and fuel among others. Farmers are getting 100% through bank transfers, teachers and nurses too. Large scale gold miners are getting 55% payment in forex. Mining, just like any other economic sector must also shoulder the burden of the country’s economic challenges. It is important though, for ZMF to play an oversight role to ensure transparency and accountability in the management of foreign currency to mitigate serious corruption risks.
Participation in local development planning a must
Small scale gold custom millers were encouraged to be familiar with the Constitution and compliance issues affecting their business. For example, Section 276 (2) (b) of the Constitution gives local authorities – RDCs included, “a power to levy rates and generally to raise sufficient revenue for them to carry out their objects and responsibilities.” Therefore, the issue of paying taxes to local authorities is a constitutional obligation. However, it is important for small scale gold custom millers to participate during local budget consultations to present their views on what is the fair amount that they should contribute.
More importantly, as key stakeholders in the local economic development, small scale gold custom millers must play an active role in the formulation and implementation of local development plans that affect them. If their voices are missing in the strategic plans for RDCs, then is becomes a bit tricky to influence budget processes. Custom millers can take advantage and object to the approval of the budget through the Minister of local government.
Tell your own stories and be the heroes
Out there, ASM is perceived negatively. Stories must be told on how ASM is contributing to local employment, gold production and foreign currency linkages and how income is used to provide education and health services. The socio-economic impact of closure of small scale gold custom millers is not known. Therefore, policy makers can easily get away without counting the costs.
There is power in mobilising
Small scale gold custom millers through their local association should approach RDCs to negotiate affordable levies. A leaf can be taken from Mberengwa and Bubi small scale miners association who successfully managed to negotiate annual fees payable by artisanal and small-scale miners in their districts. Mberengwa small scale miners association has a blasting license that can be used by its members. This way, the burden of paying $1000 to purchase and store explosive is spread amongst several players.
Paralegals critical in ASM
Compliance risks can threaten sustainability of any business activity. Large companies can afford legal secretaries. Entities like ZELA should work closely with ZMF and partner with a college to run a paralegal course specifically for the ASM sector. This will help to reduce incidence of harassment by compliance officers as the miners will have greater knowledge of their rights and compliance issues in general.