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ZIMBABWE: Warm Words for Investors at Mines Summit

Stanley Kwenda and Terna Gyuse

HARARE, Sep 19 2009 (IPS) - Desperate for investment to lift its moribund economy, the Zimbabwe government welcomed hundreds of prospective mining investors to a conference in Harare this week.

Asbestos mine at Mashava: royalties and taxes will be set to 'rational' levels and bureaucracy simplified to attract mining investment in Zimbabwe. Credit:  Kevin Walsh/Wikimedia

Asbestos mine at Mashava: royalties and taxes will be set to 'rational' levels and bureaucracy simplified to attract mining investment in Zimbabwe. Credit: Kevin Walsh/Wikimedia

Zimbabwe has the world’s second-biggest platinum reserves after South Africa and large unexplored deposits of diamonds, coal and nickel; the conference attracted strong representation from major multinational mining concerns.

Uppermost in the minds of investors was the need for guarantees that their assets would be protected.

In 2007, a law was passed allowing Zimbabwe’s government to seize a majority share in all mines, in some instances without paying a cent. Niels Kristensen, a senior executive with Australia-based mining multinational Rio Tinto wanted to know that government will guarantee that such asset seizures would not be repeated.

“Until we see some certainty, there won’t be significant investment in mining,” said Kristensen.

The country’s Mines and Mineral Act, presently under review, states that locals must hold at least 51 percent of any mining venture. Government’s message to investors was that royalties and taxes on mining will be simplified and lowered, but that companies would be expected to invest in local communities.

Elton Mangoma, minister of economic planning and investment promotion, told IPS that “it is important to balance these competing interests in a manner that benefits both the investor and the country. Mining royalties should be viewed as compensation for exploitation of finite resources and not as tax.”

Which way forward?

The Affirmative Action Group (AAG), an organisation with interests in advancing the participation of Zimbabwean blacks in business, told IPS that whatever mining deal the government enters into, it must make sure that it significantly benefits local people.

Profit sharing

In Zimbabwe, royalties on precious stones such as gold and diamond are calculated at 10 percent, platinum 3 percent, coal 2 percent, lithium 2 percent and ethanol 2 percent.

Companies pay no duty on equipment imported for mining exploration. They can also sell all minerals direct to buyers although gold and silver was subjected to special approval until recently when it was also liberalised.

Investors are now free to extract to outside the country. Exchange controls - previously complicated by the enormous gap between the official and black market value of the Zimbabwe dollar - are now based on international exchange rates. A moot point, given the suspension of use of Zimbabwe's own currency.

When investors sell their stake in a Zimbabwean mine, they are now free to take the full value of their investment out of the country and the profits accruing.

“Minerals are not a renewable resource. It is important to make sure that a significant portion of mined resources go to local people. Government must insist on a quota that benefits local people because the majority of mining investors have generally behaved like wheelbarrows,” AAG President Supa Mandiwanzira told IPS.

“If they are not pushed, they will not move. So we believe government must stipulate up to 50 percent ownership in mining by locals so that 50 percent of benefits go to Zimbabweans.”

But the wind is blowing in a different direction. Prime minister Morgan Tsvangirai assured mining industry players that “rational” royalties and taxes would be implemented.

Tsvangirai said he sees mining as the best opportunity to attract substantial investment in the immediate term, and added that any laws concerning ownership of mines by Zimbabweans would be in line with what he called “international norms”.

Elsewhere in Africa…

Emmanuel Jengo, president of Tanzania’s Chamber of Minerals and Energy, told IPS that his country’s mining sector picked up after the introduction of a raft of mining policies beginning in 1992.

Among these were measures aimed at stimulating small-scale mining operations as part of raising mining’s contribution to the economy to 25 percent of the country’s GDP.

The 1998 Mining Act sought to eliminate bureaucracy in licensing procedures, something Zimbabwean mines minister Obert Mpofu also pledged to do at the conference. Tanzania also introduced reforms providing improved fiscal terms for the mining sector and guarantees to allow companies to trade minerals freely.

A report published earlier this year by Tax Justice Network Africa and ActionAid questioned the terms on which mining multinationals operate in Tanzania and elsewhere in Africa. It found that favourable legislation has set low royalty rates, which combines with mining contracts – often negotiated behind closed doors – to routinely grant companies further tax concessions and holidays of up to 25 years.

Sharply critical of the “international norms” that have shaped mining laws on the continent, the report suggested that Tanzania lost 30 million dollars of revenue in 2008 as a result. South Africa lost 359 million.

“African governments have enacted laws giving tax subsidies to the industry and mining companies have been pushing for tax breaks in secret mining contracts, amounting to an aggressive tax avoidance strategy,” says the publication. Among many recommendations, the report called for legislation that ensures mining contracts are scrutinised by parliaments, to guard against corruption.

Investor friendly

The permanent secretary in Zimbabwe’s ministry of mines and mining development, Thankful Musukutwa, who is spearheading reforms of Zimbabwe’s Mines and Minerals Act, told IPS that he is looking at coming up with a proper balancing act.

“Foreign investors will pay royalties to government treasury and it is the government which will spearhead development in areas that the mining companies are operating in,” said Musukutwa.

In the past the government of Zimbabwe has received these royalties but channelled the money for use in other areas, but Musukutwa said “we had to do that because of the economic problems that the country was facing.”

He said the government is looking at improving infrastructure in areas that the foreign investors are looking to invest in by building dams and increasing electricity generation to boost production.

He added that the government has liberalised the marketing of gold and now guarantees foreign mining investors the option to repatriate profits and investment and profits when they decide to disinvest.

The years to come will reveal in whose favour – citizens’ or mining multinationals’ – the balance being struck by the government of national unity will tip.

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