(HERALD) Resource nationalism takes root

Resource nationalism takes root
Saturday, 03 December 2011 15:25
Darlington Musarurwa

Zimbabwe has become the vanguard of African countries that are increasingly angling for a greater share of proceeds from the exploitation and sale of its non-renewable resources, particularly those in the mining sector, after increasing royalties for gold and platinum.

However, Government noted that there are additional measures in the offing that are meant to secure a stranglehold on resources that could help to define the growth of the national economy in the next three decades.

The country intends to grow its Gross Domestic Product (GDP) to US$100 billion by 2040.

In the 2012 National Budget, the finance ministry announced that royalties on gold were adjusted from 4,5 percent to 7 percent, while royalties on platinum were increased from 5 percent to 10 percent in order to try and reclaim a chunk of revenues that are haemorrhaging from the local financial system.

This new phenomenon whereby people and governments are now asserting control over natural resources located in their territory is now being globally termed resource nationalism.

Additionally, the Minister of Mines and Mining Development, Dr Obert Mpofu, further announced on Thursday that Government would come up with steeper application and registration fees for claims and Special Grants (SGs).

He hinted that, for example, application fees for diamond mining might be pegged at US$1 million, with licence fees for new diamond miners increasing to US$5 million.

It is expected that current operators will have to pay the fees — retrospectively — as well.

Concern is mainly being raised about the mismatch between revenues that are being generated by mining companies and amounts that are accruing to the fiscus.

“Currently, whilst mining exports for 2011 are in excess of US$2 billion, the contribution of the fiscus of the mining sector, excluding diamonds, will only be US$150 million. The dividends that will be paid to the State by two alluvial diamonds miners by December 31, 2011 will be US$130 million.

“Quite clearly, the disproportionate contribution of the rest of the mining sector is unacceptable, moreso given that the effective mining tax rate in Zimbabwe is a mere 8 percent,” said Finance Minister Mr Tendai Biti during the recent Budget presentation.

Of late, Government has become bold and aggressive in bringing control of local resources under local control because of the rich pickings that are currently being realised from joint venture diamond projects in Marange.

Presently, Government, through the Zimbabwe Mining Development Corporation (ZMDC), has a 50 percent stake in two diamond mining companies — Anjin and Mbada Diamonds — operating in Marange, and a 100 percent shareholding in Marange Mineral Resources, which was born out of the collapse of joint venture firm Canadile Mineral Resources.
According to Dr Mpofu, Government is now receiving a US$23 million monthly dividend from its diamond mining operations.

However, there has been stiff resistance from the intelligentsia — the economists, the academics and management — who are ironically expected to be leading the process.

Many an economist has argued that the upward review of royalties, including measures to restrict foreign investment to 49 percent, will discourage foreign direct investment, especially at a time the country needs it the most.

Chamber of Mines president Mr Winston Chitando said during a mining stakeholders’ forum on Thursday that the adjustment in royalties in particular would discourage production, particularly on mining blocks that had low grades, as it would become uneconomic.

He proposed that it was better for the Government to instead focus only on corporate tax.

“When you go to any mining set- up — be it for chrome, platinum or gold — you would find out that there is a range of grades that are found. So, the profits vary depending on the grade that is being worked on and increasing royalties as a source of income would make portions where there are low grades unprofitable.

“It makes sense for Government to focus on measures that increase productivity so that they collect more corporate tax rather than increasing royalties,” said Mr Chitando.

Economist Mr Brains Muchemwa, however, noted that it was impossible for the country to derive maximum benefits from its mineral resources through measures that were being proposed by the chamber.

He indicated that it is problematic to levy and get maximum value from platinum group metals that contain various other metals through corporate tax only, and, therefore, there was a need to explore other mechanisms for the economy to begin benefiting, including increasing royalties.

Deputy Prime Minister Professor Arthur Mutambara last week also indicated that Government would come up with a raft of policy measures designed to ensure that communities and Government get direct benefits from the country’s rich mineral endowments.

“As a Government, we are now saying that an investor can no longer come in and invest working capital for them to assume control of our resources. We have made it clear that when an investor comes in, he or she is attracted by the minerals underground. Although we don’t know the value of the mineral, it certainly can’t be zero.

“The value of that mineral is our share of the equity; so, the investor must also put in his share of the equity before the project begins to mobilise working capital. This is critical,” said Prof Mutambara.

Most importantly, he intimated that Government was currently getting a raw deal from mining houses who bank proceeds from local mining activities abroad, denying locals a chance to access the money from local financial institutions.

“We now want mining companies to have a primary listing in Zimbabwe. Yes, they can list in Australia and Canada, but the primary listing must be here. We want our own people to participate in the economic activities of these companies and improve liquidity on the local market,” explained Prof Mutambara.

What has been more frustrating for policymakers is that mining companies continue to stash millions in offshore accounts, while the productive sectors are starved of critical working capital.
But the appetite to bring resources under increased control is not confined to Zimbabwe.

South America, Asia and other African countries have also been affected by the contagion.

For example, Ghana’s Finance Minister, Mr Kwabena Duffuor, announced in his 2012 budget that the West African country will raise corporate tax on mining companies from 25 percent to 35 percent and introduce a windfall tax of 10 percent.

Last month, Zambia doubled some royalties on minerals.

In most of the cases, resource nationalism has been prompted by the obscene profits that are being recorded by big mining conglomerates, whilst host governments, where mining activity is taking place, scrounge around for financial resources to prop their economies.

For example, BHP Billiton and Rio Tinto International realised cumulative net incomes that topped US$40 billion as commodity prices soared.