Mining industry revenue target: Realistic or over-ambitious?
There is no doubt that the mining industry is a key pillar of the Zimbabwean economy and if Zimbabwe really plans to become an upper middle-income country by 2030, it has to leverage on its mineral deposits and reserves.
IN 2021 the mining industry contributed 12.77 percent towards the GDP and it was the biggest foreign currency earner in 2022 raking in US$5.6 billion. There is also no doubt that Zimbabwe can increase the contribution from mining by investing in mining operations and value - adding rather than exporting minerals in their raw form.
The challenge starts when you realise that Zimbabwe has a target to transform that US$5,6 billion to US$12 billion in 2023, which prompts one to wonder whether this is a realistic goal or just an overambitious aim. Even the annual budget projected that the mining industry will grow by 10,4 percent in 2023, which is not enough to reach the US$12 billion target.
Perhaps, the target was inspired by the American author Norman Vincent Pearl, who is well known for his famous quote, “Shoot for the Moon. Even if you miss, you'll land among the stars”. Well, surely amongst the stars we landed.
To put things into perspective let me take you back to 2019 when the goal was set. The Zimbabwean mining industry was raking in revenues of US$2,9 billion, with gold 28 tonnes of gold being produced against a national target of 35 tonnes. Although in 2023 we are still far from a US$12 billion industry, the revenues have over doubled
during that time and the gold production target was met. A new 50-tonne gold production target is now in place.
Explaining the growth
The growth that we have witnessed in the industry is a culmination of a number of factors including the resuscitation of old and dilapidated mines that had long been closed. Mines like the Eureka Gold Mine amongst others had closed for over 20 years came back to life in 2021.
Enhanced capacity and capital expenditure increase in the mining sector, even from private players is another key growth driver. Zimplats, a subsidiary of Impala Platinum in its fiscal year 2021 reported that it will invest over US$150 million in capital expenditure in mines Mupani Mine.
The commodities boom also spearheaded the growth as minerals like nickel reached all-time high prices.
The positive side of the Covid-19 pandemic was the global supply side shortages, which together with the conflict in Europe triggered prices up. Some of the incentives put in place by the authorities also buoyed the growth, specifically looking at gold production where small - scale miners were incentivised by the 100 percent retention on foreign currency receipts.
Missed opportunities.
The sense one gets when talking to participants in the mining industry or going through financial reports by listed counters in that sector is that foreign currency retention was a major blow in the face of miners. Essentially this is a tax that eats into the margins of the exporters and in other instances even threatens the viability of the business.
The move by companies like Bindura Nickel Corporation and Padenga from the Zimbabwe Stock Exchange (ZSE) to the Victoria-Falls-based exchange is a testimony that these miners were willing to do whatever it takes to retain 100 percent of their exports in the greenback.
The increase in retention to 85 percent and the closing of the gap between official and alternative exchange rates, might ameliorate the situation for other exporters not just in the mining industry but the whole economy.
The target would be easier to achieve if more value addition is done on minerals rather than exporting them in their raw form.
In 2021 the Government banned the exportation of unwrought chromium, which should encourage value addition and beneficiation locally. If such a mechanism is extended to other minerals, it will be easier to reach the target.
The introduction of SI 189 of 2022 divided the market. The instrument which came into effect in October 2022 instructed miners to pay taxes called royalties on their output, is aimed at building reserves for the country which are sustainable. Although the idea sounds noble, it comes at a time when the mining industry is trying to recover and together with other abrupt policy changes might have negatively affected the sector
ooking forward!
Although it seems so apparent that our mining revenues will not be US$12 billion by year-end, it doesn't mean that the goal is completely out of reach. 2023 had a rough start, characterised by erratic rains which impacted gold production.
However, a US$10 million fund was recently availed aimed at capacitating small-scale miners to improve their contribution.
As the country continues to aim for a bigger mining industry, not only in terms of revenue but multiple effects that come through value addition, the biggest task lies with the authorities to put forward a conducive enabling environment to achieve that.