HomeNewsMore reforms key to mining sector turnaround

More reforms key to mining sector turnaround

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ZIMBABWE’S mining sector, now the mainstay of the economy, is this year expected to register a decline in output from last year due to several constraints that include lack of exploration and policy inconsistency, experts and analysts have said.

Victoria Mtomba,Business Reporter

The mining sector has been the major contributor to the economy since 2009 through payment of taxes and royalties to Treasury having overtaken agriculture,once the mainstay of the economy. In 2012, total export earnings were $524 million with the mining sector having contributed 69,9% followed by tobacco exports at 13,2% and other key industries contributing (6%).Zimbabwe has more than 30 minerals which are extracted by an array of companies.

Although mining still tops the bill, projections are that it will register a decline in growth in 2014.

The sector will grow below potential in 2014 at 3,4% due to the increase in platinum production and international prices.

Zimbabwe currently has the second known largest platinum reserves after South Africa.

Experts say underfunding and limited exploration has over the years stifled growth of the mining sector.

Mining contribution to gross domestic product has grown from an average of 10,2% in the 1990s to an average of 16,9% from 2009–2011.

According to the Chamber of Mines of Zimbabwe (CMZ), the country requires $2,8 billion investment for base and precious metal smelters and refineries, $2 billion in processing plants and between $200 and $500 million to ensure adequate power supply.

This, the chamber says, is enough to increase production of the white metal to the targeted 500 000 ounces per annum .

Already, the country’s major platinum miners — Zimplats, Unki and Mimosa who are currently processing the metal in neighbouring South Africa — have undertaken to construct the refinery.

But experts say limited investment and the need to overhaul policy is critical in growing the capital-intensive sector.

Mines and Mining Development secretary Francis Kudyanga said the sector was not performing at optimum level due to perceived poor country risk.

“Generally we are still not performing at optimum levels due to the issue of perception of investors. There are many challenges. Obviously, there is misplaced perception about Zimbabwe. I think that’s critical we are still reeling through sanctions. The recent lifting of sanctions on our diamonds by KPCS (Kimberley Process Certification Scheme) is critical and we are slowly recovering,” he said.

Kudyanga, however, could not provide latest figures on the performance of the mining sector as they were still being compiled.

In August, Zimbabwe was ranked among the 10 lowest countries in the world that lack investor-friendly laws despite huge endowment in mineral and natural resources.

According to the Canada-based Fraser Institute, the country dropped to position 91 from 74 in the annual survey of mining companies for 2012-13. The Fraser Institute compiles a yearly report ranking the attractiveness of jurisdictions for mining investments.

According to the CMZ, the output of the sector in the first nine months of the year declined by 3% due to the fall in commodity prices and the decline in revenues generated.

In the nine-month period to September, revenue stood at $1,4 billion compared to $1,45 billion recorded in the same period last year.

For the full year, the sector is expected to generate $1,806 billion in revenue compared to $1,873 billion same period last year representing 4% decline. The commodities that contribute significantly to the revenue are gold and platinum, but and according to the World Bank, the prices of the minerals are expected to decline in 2015.

Official figures show that Zimbabwe’s foreign direct investments (FDI) inflows are still below its regional peers averaging over $1 billion. The country in 2012 recorded an FDI of $400 million.

The sector’s problems include the increase in the total cost of production, lack of funding, an uncompetitive fiscal and investment environment underpinned by high royalty and tax rules.

CMZ, in its submission to the new government, urged clarification of the indigenisation policy to ensure that the country attracts FDI.

Zimbabwe’s indigenisation policy compels foreign-owned companies to sell controlling stakes to locals. The projected growth rate for the mining sector has been revised to 5,3% from 17,1%. The sector requires a total of $5 billion over a five-year period to recover. Mining output and revenue would rise by over 274% and 307% over a five-year period respectively. Capacity utilisation levels for the sector are below 50% due to old equipment.

Ending the mining enclave

l The potential of capital-intensive sectors such as mining can be maximised through building resource linkages with the rest of the economy comprising revenue linkages, backward linkages (supply chains), forward linkages (value addition/beneficiation), knowledge and spatial linkages to create new industries associated with mining.

l Linkages are either defined quantitatively as inputs and outputs into the mining operation, or qualitatively in terms of relationships between enterprises in the supply chain or as the exchange of ideas.

l In a general business environment, linkages define any commercial interaction between different profit-orientated enterprises and take forms such as supply contracts, partnerships and joint ventures or more informally, sharing of market information or technologies.

l Thinking in terms of linkages reflects how each participant in an industry is connected to others.

l Zimbabwe should take advantage of the high level of prices for natural resources to unlock resource-based structural transformation.

Labour and Economic Development Research Institute of Zimbabwe

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