IN this article I strive to look at the contribution of mining to the economy with a focus on how the economy’s reliance on exporting raw ores has cost the country dearly in terms of economic diversification and all its advantages.
Zimbabwe has one of the largest resources of the platinum group metals as well as aluminium, chromium, gold, iron ore, diamonds and large resources of several other minerals. However, all of its mineral wealth is being exported as ores, concentrates, alloys or metals with very little transformed into fabricated products. The wholesale handing out of Zimbabwe’s mineral resources over the last three decades has cost the country millions of jobs, including those that could have been catalysed into other sectors.
Contribution of mining to Zimbabwe’s economy
Mining surged to become the most dynamic sector, the role that had been played by agriculture in the past. Mining’s share of GDP grew from an average 10,2 percent in the 1990s to an average 16,9 percent in 2009-2011. Export recovery is driven by primary commodities: of the US$14,1 billion in export receipts generated between 2009 and September 2013, US$9,2 billion (65,2 percent) emanated from the mining sector; agriculture, horticulture and hunting weighed in with US$4 billion (28,3 percent); and the manufacturing sector contributed the balance of US$0,9 billion (6,4 percent). This implies that primary commodities (mining and agriculture) accounted for 93,5 percent of export earnings during the period 2009-2013.
Of the US$2 billion export earnings during the period January to October 2015, at least 80 percent were primary commodities (agricultural products and minerals).
Reliance on mining and its dangers
The world economy continued to face multiple challenges of both short and medium term nature resulting in restrained global growth for the year 2016. The challenges included uncertainty regarding the medium to long term economic implications of Brexit; economic rebalancing in China and declining terms of trade in commodity exporting economies, following subdued commodity prices. In the August 2017 Monetary Policy Statement the RBZ noted that;
‘‘Gold prices have been rallying up on account of safe haven rising by 5,5 percent from January-June 2017. The price at the end of June was US$1 260,57/oz. Expectations of further US interest rate increases this year and receding political uncertainty is envisaged to weigh down gold prices going forward. Platinum prices also fell during June 2017, declining to US$931,5/oz from US$972,5/oz which was recorded in January 2017, amid weak investment demand. The World Bank projects precious metal prices to decline in the short to medium term, as benchmark interest rates rise and safe-haven buying falls.
Base metal prices were generally subdued during the period from January-June 2017, with nickel and copper registering declines of 10,9 percent and 0,7 percent, respectively. The decline reflected investor expectations of weakening global demand, particularly in China, due to credit tightening in the Asian giant’s economy. The downward trend in nickel prices was driven by increasing supply from major producers, Indonesia and the Philippines, which together accounted for about 30 percent of global mine production. Indonesia has relaxed its ban on the export of unrefined nickel ores. On a year to date basis, copper prices have declined by 0,7 percent to US$5 679,75 per tonne on concerns of a slowing Chinese economy.’’
Increased reliance on primary commodities exposes the economy to the vagaries of the international commodity markets and weather patterns. Apart from the excessive reliance on primary commodities, export earnings are also less diversified. Therefore, the rhetoric that the country is abundantly endowed with mineral resources is somewhat not being supported and misleading because if that was the case then Zimbabwe would be very wealthy.
For Zimbabwe to move from this unenviable position of having to rely on exports of raw and unprocessed ores it has to take bold steps for its re-industrialisation to be a reality. The IMF gave a picture of the economy in its Staff Monitoring Programme Reports when it said Zimbabwe’s economic difficulties have deepened post 2013. Economic activity is severely constrained by tight liquidity conditions resulting from limited external inflows and lower commodity prices. Zimbabwe remains in debt distress and the level of international reserves is low. Unless the country takes bold reforms, the economic difficulties will continue in medium-term. Given the outlook for the global economy, growth is projected to remain below levels needed to ensure sustainable development and poverty reduction (IMF, 2016).
Brief solutions for increasing ASM revenue to the fiscus
Focusing on what worked before
Spiegel in his 2015 paper entitled Shifting Formalisation Policies and Recentralising Power: The Case of Zimbabwe’s Artisanal Gold Mining Sector notes that in 2005 the United Nations Industrial Development Organisation (Unido) worked with the Ministry of Mines and Mining Development and the University of Zimbabwe to begin developing a ‘‘Train-the-Trainer’’ programme in gold-mining communities in the Kadoma–Chakari area.
The programme encouraged educational services on issues ranging from pollution-reduction technologies to business and organisational training and proceeded with the hope that it could provide ‘‘pilot project’’ success stories that other districts could replicate. Notably, the Government’s ASM-sector microfinance programme became profiled at a Unido conference in 2005 as one of the most proactive examples of how acquisition of a small-scale miners’ licence could lead to benefits such as credit access. Since the Mining Industry Loan Fund (MILF) was housed within the Ministry of Mines and Mining Development, it stood out as a rare example internationally, of a loans facility that could integrate sector-specific training and credit delivery to mining communities. Microfinance was also presented as a way of incentivising miners to become formalised, with the thinking that obtaining a licence will lead to obtaining finance.
Supportive pricing models for ASM
The Government kept gold prices for small-scale miners at favourable rates to minimise smuggling, which created incentives for miner registration; in fact, the Government even had a special ‘‘support price’’ for gold that small-scale miners sold to the Reserve Bank in the 1990s, which was at certain times higher than international market prices — to encourage ASM and increase Government gold collection.
Mining sector linkages
In relation to extractives, Zimbabwe has exceptional reserves of gold, platinum and diamonds. However, the benefits to the economy to date have been limited primarily to fiscal revenues (although these are very significant). This is because the sector in Zimbabwe is either formal, with capital-intensive production and with high-skill but modest volume employment, or informal, with low-skill artisan mining with limited opportunities to move up the value chain to more productive production. In addition, backward and forward linkages such as providing goods and services for mining and domestic processing and value-added production are underdeveloped.
Elsewhere in sub-Saharan Africa, tackling these limitations in the extractive sector in relation to transformation have focused on developing linkages.
This has created significant jobs and economic diversification, estimated at an average of three additional indirect jobs for every one direct job. These successes have been particularly notable in Zimbabwe’s neighbours in relation to backward linkages.
For example, in Zambia, mining has created 100 000 jobs, of which half are indirect. These jobs are in transport, construction, security and supplying mining company inputs, including skilled manufacturing and refurbishment of specialist engineering products. These businesses have also expanded to supply not only the Zambian sector but also as exports to DRC. Similar indirect job creation has been experienced in DRC, although these jobs have typically been lower-paid because of the greater dominance of artisan mining.
There has been less progress in the region on developing forward linkages in relation to processing of metals and other extractives. This is because this requires a high level of capital investment, cheap and reliable power and skilled staff. In both Zambia and DRC, unreliable and expensive power and a lack of skilled staff have been constraints. In DRC, the weak business environment and political instability have also been deterrents. Instead, as for Zimbabwe currently raw material or partially refined materials are exported to South Africa for processing.
This suggests that similar strategies for backward linkages could be replicated in Zimbabwe. Policy requires extractive companies to source supplies from domestic firms. However, this has stimulated imports, rather than manufacturing, of such supplies. This is likely to create significantly less employment and add to the poor cost competitiveness of domestic production.
In relation to forward linkages, the Government is seeking to require that raw material, which is exported to South Africa for processing, be processed domestically, including through milling and smelting. However, this would require significant capital investments as well as skilled personnel. This is unlikely to be economic because the necessary plants require scale economies that are likely to be achieved only through regional plants. In the next article one will look at how the metals value chain can be utilised to generate more revenue for the Government and create employment and a diversified economic base in Zimbabwe.
-Butler Tambo is a policy analyst who works for the Centre for Public Engagement and can be contacted on firstname.lastname@example.org