Mining sector: Analysis of the 2021 National Budget
THE recently announced 2021 National Budget statement calls for enhanced revenue collection through taxes, including customs duty and the 2% intermediary money transfer tax (IMTT).
This will be achieved through improved production and performance of key macroeconomic sectors.
This budget comes after the presentation of the National Development Strategy 1 (NDS1) covering the period 2021-2025, which is part of the blueprints expected to lead Zimbabwe into a middle-income country by 2020.
Zimbabwe is an agro-based economy but it also seems to be banking on the mining sector for improved economic growth. Zimbabwe is endowed with immense natural resources in the form of minerals which are contributing to the national output through mining activities.
However, as noted in the 2021 Budget Strategy Paper, the country has not been deriving the optimal returns from mining activities to significantly change the lives of Zimbabweans.
It is worth noting that, this sector contributes about 60% of the country’s export earnings, about 8% of the gross domestic product (GDP) and also acts as a source of employment for an estimated half a million artisanal gold small-scale miners (ASGM) spread across the country.
Recognising the potential of the mining sector to transform the economy, the government unveiled an ambitious policy document outlining how the country plans to turn the mining sector into a US$12 billion industry by 2023.
Just like any other sector of the economy, the mining sector was greatly affected by negative economic shocks mainly caused by the Covid-19 pandemic through reduced investment flows, lost production hours as well as broken supply chains among others.
Regardless of these setbacks, there were certain positives accrued to the sector. The US$4,2 billion Great Dyke Investments Platinum Mine is now under construction.
It is also encouraging to note that new coal mines have been opened and the US$25 million Invictus Energy Oil and Gas Project in Muzarabani is expected to start drilling in October 2021.
These positives if maintained have the potential of greatly turning around the mining industry, as well as hugely impacting other related sectors such as the energy sector. It is prudent to note that despite the unfavourable economic challenges experienced in the Zimbabwean economy, the mining sector is making strides in achieving some of its set targets.
Despite the challenges that have been faced in the economy, the mining industry is expected to perform better in 2020 and also in the coming years as compared to the 2019 performance.
The base minerals (chrome ore and ferrochrome) were the most affected in terms of both output and price compression. As a result, the sector ameliorated contraction to only -4,7% in 2020.
The table in table in this article shows the trend in the overall mining growth rate.
These projected growths are expected to greatly contribute to the anticipated economic growth and drive the nation’s agenda of creating at least 150 000 jobs in 2021.
This will also be supported by the resuscitation of Ziscosteel and some closed mines such as the Shabanie mine, which the government is expecting to resuscitate in 2021. From the statement, the government highlights ways in which the mining industry is set to be improved and if these are followed to the dot in a timely manner then improvements in the sector can start to be noticed.
The restoration of synergies among certain sectors via the strengthening of value chains that uses local raw materials is one way the government seeks to develop and support the productive value chains.
The issue of strengthening the value chain in the mining sector has been talked about in almost every budget statement in the past, but it is still puzzling as to why the industry has not yet achieved the desired value chain status.
Though most commodity prices except that of gold have fallen amid weaker global demand caused by the Covid-19 pandemic, exports in the country increased by 11% from ZW$3,2 billion (US$39,1 million) in 2019 to ZW$3,5 billion (US$42,7 million) in 2020 in the first nine months of 2020 and these exports were largely driven by gains in platinum group metal exports.
Further, expected improvement in the availability of power supply and foreign currency is expected to propel production and capacity utilisation from the current 61% to about 80% in 2021. This then means that the government needs to put in place measures that promote exports and value addition in the mineral sector in line with the National Reindustrialisation Policy, Sadc Protocol on Mining and the Africa Mining Vision.
Measures such as the reduction of payment time for gold deliveries will go a long way in promoting exports and also in promoting proper declaration of the quantities of gold as miners will now have incentives to declare their gold the proper way.
The closing of the loopholes that enable the illegal externalisation of gold can also act as a strong way of improving exports as gold leakages still remain very high and this can be achieved by strengthening the Gold Mobilisation and Surveillance Committee, as well as the Minerals and Border Control Unit so as to enable them to execute their mandate.
The following are some of the steps that are going to be taken by the government to increase and achieve desired growth:
Capacitation of the Ministry of Mines and Mineral Development for planning, promotion of exploration, data capturing, and automation etc;
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Capitalisation of the Mining Industry Loan Fund through supporting small-scale miners;
Mining Cadastre System: its creation brings about the much-needed transparency in the mining sector, as well as ridding the sector of corruption;
Undertaking exploration activities to discover new mineral resources as well as ascertaining the quantum of mineral reserves in the country;
Mines Legislative Agenda: Government is prioritising the completion of amending the Mines and Minerals Act to align it with international best practice; l Resuscitation of old mines; l Promotion of mine health and safety to reduce the number of mining accidents;
Improvement of the higher education infrastructure development supported by the construction of the Pan-African Mining University of Science and TechnologyTeaching Centre; and
Retrospectively reviewing of the tax rate on income accruing from mining operations from the current 25% to 24% with effect from January 1, 2021.
In recent years in a bid to try and attract both local and international investors, the government rolled out a number of rebate concessions that sought to cushion investors in the industry.
The existing rebate concessions that apply to the mining sector are:
Rebate of duty on goods for the mining industry;
Rebate of duty on goods for the prospecting and search for mineral deposits;
Rebate of duty on goods imported in terms of an agreement entered into pursuant to a special mining lease; and
Suspension of duty on goods imported for specific mine development operations.
In addition to these, the approved project status was also extended to the mining
llllllllllsector. The benefit of this is that those in the mining industry can now benefit from the rebate of duty on goods for incorporation in the construction of approved projects which will greatly reduce the capital costs of setting up mineral production sites.
All in all, these rebate concessions are pivotal in ensuring the attractiveness of investors into the sector.
However, there is still a need for massive education regarding these concessions. Small players in the industry do not have the necessary knowledge about how these concessions can benefit them and also how they can benefit from them. There is need, however, to commend the government for ensuring that capital and operational costs are contained for investors.
Granting rebate concessions means that the state will be forgoing customs duties for certain goods that will be imported into the country. There is a need then to assess whether the sectors afforded these concessions end up contributing significantly to national development and the attainment of the much-needed foreign currency.
Most of the steps outlined above have been on the to-do list of the government for quite a number of years now. If these circumstances make the ordinary citizen question whether or not such goals can be achieved, what then of an investor who is expected to inject his money.
As the government also alluded to, the mining projections contained in the national budget statement are prone to several economic risks and challenges which may make the attainment of such projections quite difficult and as such there should be proper structures in place which will enable the absorption of these risk shocks in order to facilitate the attainment of the set goals.
Chivige is a Harare-based economist.