Exploring new mining linkages for growth

In early November 2012, World Bank senior country economist Nadia Piffaretti called on government to anchor its medium-term economic growth plans largely on mining, and also on another extractive sector, agriculture. She said horizontal linkages between the mining and agriculture sectors could then be used to revive other distressed sectors that require significant amounts of growth capital. The World Bank sees mining as the only sector capable of autonomous growth driven by external demand and projects investment  in the  sector to reach $15 billion  by 2018 conditional upon  strong policy support, potentially creating about 30 000 new jobs.

Opinion by Omen Muza

This installment explores the notion of mining linkages in the context of contemporary economic developments.

A notable manifestation of linkages between mining and agriculture is Mbada Diamonds’ partnership with the Zimbabwe Farmers Union (ZFU) under which families resettled at Arda Transau to make way for diamond mining will be equipped with farming skills and inputs in an effort to ultimately make them self-sufficient. As part of the deal, Mbada will secure inputs worth $100 000 per year for the 100 resettled families while ZFU trains them on sustainable farming methods. The financing needs of a mere 100 families are obviously a drop in the ocean of agricultural financing requirements, hence ZFU’s intention to engage other leading mining companies such as Zimplats, Unki and Mimosa in pursuit of similar arrangements. If successfully replicated at a larger scale countrywide, the impact of this model would be a major contribution to the growth of agriculture, a sector that boasts both backward and forward linkages with agro-inputs suppliers and agro-processing manufacturing, through which the latter draws 60% of its raw materials requirements.

Indications that government intends to amend the Mines and Minerals Act in order to grant mining rights to farmers on whose land mineral deposits are discovered is another manifestation of the link between mining and agriculture, which could be harnessed for growth. Although this move is expected to prevent disputes between farmers and mineral prospectors while empowering the former group  by enabling them  to use proceeds of mining operations to fund agriculture, this is an area which needs careful thought before implementation as mining title has a huge bearing on the flow of investment into the sector. The Mines and Minerals Act currently empowers any prospecting licence holder to venture onto any premises he or she suspects of holding minerals without necessarily seeking permission from the property owner.

Another sector which could benefit significantly from linkages with mining is energy. Zimbabwe’s energy deficit is a matter of public record and the attendant financing deficit for development purposes is also well-documented. Energy and Power Development permanent secretary Partson Mbiriri recently decried the paucity of the budgetary allocation to his ministry to support the power sector. Crucially, he identified that the future of the energy sector in Zimbabwe hinges on the exploitation of diamonds and other minerals whose proceeds he reckons should be channeled towards power development needs.

Scope also exists for horizontal linkages between the big mining companies and the banking sector through contribution by the former towards a revolving loan fund managed by the latter, which could be used for, among other things, the development of small scale mining. Admittedly, crafting financing initiatives should not be the core business of mining companies unlike the likes of NSSA and Old Mutual; so this should be seen more as a moral duty of mining to contribute towards the development agenda, something critical for securing a social licence.

The World Bank contends that growth in Zimbabwe’s manufacturing sector exists in the medium to long-term, but should for now be anchored on horizontal linkages with mining and agriculture. The key for such horizontal linkages to thrive is to ensure that the mining industry discards the “enclave mentality”, usually fingered for failure of the link between mineral extraction and local beneficiation, according to African National Congress (ANC) Member of Parliament (MP), Professor Ben Turok.  Accordingly, he points to the need to dispense with the notion that mining is a generous benefactor to industry deserving to be treated with kid gloves. On the contrary, he argues, mining exploits a country’s finite mineral endowment so its potential multiplier effect has to be realised while it is still thriving and not when it is in decline.

Full acceptance that minerals are a depleting resource means that downstream considerations must be taken seriously and industrial capabilities built in order to ensure a sustainable economic future.

  • Feedback: omen.muza@gmail.com.
  • Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory, research and training company with interests in banking, technology and agriculture as well as the convergence area among them.
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