The government of Zimbabwe through its ministry of mines and mineral development expressed its intent to create and develop a US$12 billion mining industry by 2023. This is not a far-fetched goal. It is feasible especially since this number is approximately the same amount that one large global mining company, Rio Tinto, earned as profits in the six months to June this year. The mining industry in Zimbabwe is estimated to be worth in the region US$4 billion.
The southern African country can achieve this in two years provided it meets certain conditions precedent for the growth of the mining sector. Natural resources are available in vast commercial quantities, and they are diverse. The US Department of Commerce through its International Trade Administration (ITA) division described the sector as “the best prospect industry” for the nation.
There is great potential in the mining sector that can be harnessed for economic transformation.
The ITA went as far as to say: “The mining sector is highly diversified, with close to 40 different minerals. The sector accounts for about 12 percent of the country’s gross domestic product (GDP) and the minister of mines claims the sector has the potential to generate US$12 billion annually by 2023 if the government addresses challenges such as persistent power shortages, foreign currency shortages, and policy uncertainties. Foreign currency retention requirements have challenged mineral exporters, particularly at times when the black-market exchange rate diverged greatly from the official rate and has incentivized smuggling. The government expected the sector to drive economic growth in 2020, but the onset of the COVID-19 pandemic dampened such optimism. The predominant minerals include gold, platinum, chrome, coal, and diamonds. The government has stated that it intends to amend the Mines and Minerals Act to make it more progressive and investor-friendly to attract more investment.
Companies are required to export all minerals through the state-owned Minerals Marketing Corporation of Zimbabwe (MMCZ), except for gold which must be sold to the Reserve Bank of Zimbabwe (RBZ). However, individual companies may receive permission from the government of Zimbabwe to sell minerals directly and avoid the MMCZ and -targeted sanctions on the MMCZ.
Mining sector overview
A mine has been defined humorously as a hole in the ground with a fool at the bottom and a crook at the top. Why such a venerable industry is described in this manner will remain a wonder; however, the mining industry is and remains one of the biggest income earners for several countries on the planet, like South Africa, Brazil, Russia, Canada, Botswana, Ghana, DRC and Australia among others. If there is to be an economic savior for the nation of Zimbabwe it would have to be mining, right? Not quite. A closer glance at how Zimbabwe fares in comparison with other major mining countries in the world reveal why. A historical perspective is in order here as the country missed the great commodities boom of 2000 to 2008 fuelled by the mass urbanization of countries like China which demanded vast quantities of basic materials. This was a boon that the country wonderfully missed. Not for want of mineral resources did the country miss the super cycle of unprecedented growth in commodity prices.
Zimbabwe is endowed with just about any and every mineral one can think of. You are only limited by your mind in imagining the extent of the resources: gold, diamonds (for a long time the only country in the world with alluvial diamond deposits), coal, platinum (the second-largest platinum deposits in the world after SA are in Zimbabwe). The country should be awash with cash from having monetized its mineral resources and activities in that area, but it hasn’t because its environment isn’t conducive to its growth and development.
Notwithstanding the foregoing, it may come as a shock to many that in global terms Zimbabwe is not considered a resource-rich economy but possessing these minerals, in a perfect world should generate export earnings in the region of US$2 billion over the medium term and US$5 billion over the next 15 years according to research conducted by University of Zimbabwe professor Tony Hawkins in 2009.
Further research conducted by the Zimbabwe Chamber of Mines in 2016 characterized certain minerals according to their importance and contribution to the economy. Gold came in at 45 percent and had the highest contribution, meaning it is the most valued mineral in the country. It was followed by platinum at 26 percent, palladium at 12 percent, nickel at 7 percent, coal at 5 percent, and others at 5 percent. The great potential that the sector has in terms of economic revival is palpable when other mineral resources like diamonds and gas are considered.
Despite this great and untapped potential, statistics and research show that the sector has continued to decline in terms of significance and contribution to GDP; several losses have been exhibited in the mining sector which has culminated in stagnant economic growth in the country. During its peak in 1986, the mining sector contributed 6 percent to Zimbabwe’s GDP. However, from the period 1998 to 2009, mining did not play a significant role in the development of the country’s economy due to the financial and operational costs and constraints because of the hyper-inflationary environment experienced during this decade.
The importance of the mining sector to Zimbabwe
The importance of the mining sector is far-reaching. It goes beyond simply paying taxes to the development of infrastructure. Cities, towns, and other major settlements have been built around mines. Mining companies have been able to build dams, bridges, roads, and there has been the provision of clean water, power, and communication. Mines have been able to establish schools and hospitals. Furthermore, it is important to note that major mining companies like Zimbabwe Platinum Mines (Zimplats) have built more than 10,000 housing units for their staff together with other additional infrastructures like roads, electricity, and water. It is not farfetched to theorize with these facts in mind that when the mining sector declines infrastructure also follows suit.
Other contributions made by the mining sector beyond government revenue through the collection of taxes and royalties include foreign currency generation through exports. Historically in 2012, the sector contributed 57% of exports which declined to 50% by 2015 because of the fall in commodity prices generally. This contribution to exports is especially critical because the country has been in the throes of a biting foreign currency shortage from about the same time, 2015 to date. To further enhance our perspective in terms of appreciating the importance of this sector one needs to consider the fiscal collections made by the government from this sector as well as the potential for growth observed by multilateral financial institutions like the World Bank. The Zimbabwe Independent, a leading business weekly reported in 2014 that the mining sector had the potential to generate as much as US$450 million in taxes for the government. The World Bank cited in the same business weekly contended that the mining sector operating optimally had the potential to generate as much as US$11 billion. This quantum of money can easily expunge the amount the country has in terms of external debt.
Why then has the mining sector failed to take off?
The mining industry in Zimbabwe is marred by various challenges and they include the resource curse discourse, economic stagnation, political uncertainty and the politicization of minerals, operational challenges, lack of transparency, and accountability in the collection of mining revenue and investor policies.
It is the considered view of the author that the mining sector cannot re-emerge and go on to thrive in a manner resulting in an economic turnaround for the nation if the challenges mentioned going unresolved.
The Resource Curse Discourse
It is commonplace in Zimbabwe to visit so-called resource endowed areas of the country whose poverty on the surface of the ground is in stark contrast to the rich resource below the surface. This phenomenon is not exclusive to Zimbabwe alone. It is a common trend in many African countries. This is typical of what is known as the resource curse. Resource Curse theorists maintain that whereas many countries have grown and diversified on the strength of rich natural resource endowments (Finland, Indonesia, Malaysia, and Norway), recent (post-1970) history shows that many mineral-rich developing countries have consistently underperformed their mineral-poor peers in respect of growth performance, income equality and governance. Resource Curse theory maintains that export-driven natural resource sectors – oil, gas, minerals, precious metals, and gemstones – generate substantial revenues both for the state and foreign-owned multinational businesses, yet these do not translate into broad-based economic development benefiting all sectors of the population and especially the poor.
Zimbabwean people have experienced this with the discovery of alluvial diamond deposits in Chiadzwa in the eastern highlands of the country. Despite the extent of the resource and the quality of the gems government stated on many occasions that it had collected far less in revenues than what was due to it from the mining activities carried out there. Corruption, greed, lack of transparency, and accountability have taken precedence. Mineral wealth benefits the hands of a few, especially the elite and people who have powerful connections both locally and internationally. The wider society has not benefitted from the minerals found in the country as they continue to languish in poverty and unemployment.
The main explanation of this paradox is the failure and/or inability of governments to mobilize non-renewable natural resource revenues and reinvest them efficiently in physical and human capital, diversification of the economy, and poverty reduction.
Lack of investment and exploration activities
The Zimbabwe Geology Survey of 1990 identified no less than 500 individual deposits of base metals and industrial minerals in Zimbabwe. The survey also cites Zimbabwe as an important producer of gold, chrome, lithium, asbestos as well as high-quality emeralds. The Survey also gives an extensive review of the mining industry in the country and its development; however, it notes that all mines operate under constraints namely unfavorable exchange rates which decimated at that time the production of gold, shortage of power, skills, and ore. The net effect of these constraints is that there is subdued production in minerals which is concentrated in a few commodities.
In addition to this, geological assessments suggest that underinvestment in exploration and production, and not mineral potential, have been the main factors limiting mining development in Zimbabwe. This is not a new phenomenon and pre-dates the onset of the political and economic crisis at the end of the 1990s. As long ago as 1992, the World Bank identified Zimbabwe, along with the DRC and Namibia, as ‘Category A’ countries requiring the highest level of exploration investment amongst African states of US$100 million over a five-year period ($20 million annually). In all three countries mining exploration had been constrained by political and economic uncertainty with mining houses reluctant to invest in a country with a track record of policy unpredictability, especially in terms of property rights and exchange-rate management.”
This observation highlights some very critical fundamentals chief among them being that there cannot be a thriving mining sector in any country without exploration activities and meaningful investment. It just will not happen. If the political environment remains caustic to foreign capital and economic uncertainty prevails and policy unpredictability remains, the mining sector will therefore not develop and realize its potential as a possible economic mainstay for the country of Zimbabwe.