Rich Zim remains poor

HARARE - Finance minister Tendai Biti’s decision to slash economic growth forecasts as well as the budget tells the story of how a 123 000-hectare stretch of diamond rich land has failed to put the sparkle to Zimbabwe’s struggling economy.

Mines minister Obert Mpofu says Marange diamond fields have enough reserves and are so rich they can supply a quarter of global supply and generate $2 billion annually.

One of the miners in Marange, Anjin Investments claims to have become the biggest diamond miner in the world.

Yet all these words are unmatched by facts on the ground.

Zimbabwe appears worse off than before the country’s Finance ministry began punching budget numbers basing on diamond revenue projections.

Slashing the 2012 budget from $4 billion to $3,4 billion, Biti complained of an iron curtain on Marange operations.

The 2012 $4 billion national budget was underpinned by uninterrupted sale of diamonds and the transparent accounting of diamond revenues.

Government however, collected a paltry $146 million from the diamond operations in the first half of the year, less than a quarter of the anticipated $600 million at the end of the year.

To improve collecting from the diamond sector, the Zimbabwe Revenue Authority (Zimra) has been building capacity, especially in the grading and valuation of diamonds.

Furthermore, Zimra is engaging other institutions in order to share practical experience in the value chain of mineral resources.

So, where is the diamond money going?

One of the world’s largest diamond fields, Marange covers 123 000 hectares and only 54 000 hectares are currently being commercially mined.

Soldiers and police officers “guard” the remaining hectarage until it is put to commercial use.

Biti has raised the possibility of the existence of a parallel government getting budget financing from illicit Marange diamond deals.

He is not alone.

A report by Global Witness, a United Kingdom-based NGO involved in monitoring natural resources related conflict and corruption has further stoked the fires.

The report, titled “Financing a Parallel Government”, suggests the existence of a tacit business relationship between the Central Intelligence Organisation (CIO) and shadowy Hong Kong-based businessman Sam Pa.

Pa is believed to be the “fabulously-wealthy” head of the 88 Queensway Group and numerous subsidiary companies operating mining and resource concessions across Africa.

He has a very bad reputation, according to the report.

Chinese Foreign minister Li Zhao Zing at one point discouraged Argentinean President Christina Kirchner from dealing with Pa and associated businesses.

Like Pa, nothing much is known about Anjin although Biti says the firm has not contributed a cent to treasury since starting operations in 2010.

Anjin director Munyaradzi Machacha says Biti is lying, insisting the firm has paid $30 million to treasury and could not have paid more because of depressed prices.

But it gets murkier.

In a sign pointing to the opaqueness of Anjin’s operations, Mines deputy minister Gift Chimanikire said the Chinese own 50 percent of Anjin while the Zimbabwe Defence Industries (ZDI), a state-owned ammunitions maker owns 40 percent and ZMDC the remainder.

ZDI chief executive Tshinga Dube, a retired army officer later disputed Chimanikire’s claims.

Dube said his organisation had no ties with Anjin and such an opportunity has not featured on his company’s investment radar.

Mbada Diamonds, fronted by Robert Mhlanga, appears to be the only firm in Marange making a contribution to treasury and is also involved in several social corporate responsibility programmes.

Analysts say Marange operations are steeped in secret political relationships and the only answer to achieve transparency lies in tightening the law, which gives sweeping powers to the Mines minister.

Some members of the legislature are aware of this.

Edward Chindori Chininga, a mining expert and chairperson of the parliamentary portfolio committee on mines says the law is so weak it gives advantage to mining companies.

“Most of the major mining companies do not pay duty because they are on a tax holiday. Taxation law in Zimbabwe allows you to have a perpetual carry over. A company can declare losses and carry over until it closes. If you continue declaring losses how will you pay tax? The taxation law has to be dealt with,” said Chindori Chininga.

Asked why there is a discrepancy between revenue figures from the Mines and Finance ministries, Chininga said: “It is politics. Both Mpofu and Biti are playing politics. Diamonds are not the only mineral that exists in Zimbabwe. In diamonds, the only company making significant contribution to treasury is Mbada.

“Anjin is not, DMC is not, Marange is too small and you need to deal with the other companies, why are they not contributing, why is Murowa not contributing? What is the problem? The companies are there. They are vibrant and are making money.”

Speaking in Parliament last year, Chininga said: “Government’s carelessness on the mining and marketing of diamonds from Chiadzwa was prejudicing the state of valuable revenue.”

Biti agrees with Chininga.

He has since called for a review of the Zimbabwe’s tax law if the country is to benefit from its huge natural resources. The current laws have multiple tax rebates and concessions available but most of the country’s revenue from mining is realised through royalties.

Then Mines and Minerals Act’s section 243 to 254 details how mining companies pay royalties to the state.

According to the law the Mines minister is exclusively responsible for fixing royalties.

He is supposed to consider national interests, prices of minerals on the international market and consult a representative of industry.  But he has the final word.

Companies may be exempted from paying royalties when ore is extracted for experimental purposes.

Mining companies are required to lodge their mining returns before the mining commissioner by the 10th of every month.
These returns should show details of the output, affidavits, certificates, and documents relating to any matter the mining commissioner may require.

The law also gives the mining commissioner the right to inspect financial books of the mining companies but whether that is happening is debatable.

Furthermore, the President may remit in whole or in part the royalty payable on any mineral.

Most interestingly the law only involves the minister of Finance when the mining companies are paying royalties to local authorities.

Therein lies the issue of discrepancies between the Finance and Mines ministries because of little consultation.

The Income Tax Act Chapter 23:06 obligates mining companies to pay tax in the form of royalties and they may also be charged on profits from mining operations but the Mines minister can exempt companies with special mining leases.

The Finance ministry meanwhile is working on a new Income Tax Act to address the anomalies in revenue collection.

Countries such as Ghana are dealing with low mining revenue problems by hiking mining taxes.

In South Africa, the ruling African National Congress (ANC) has formulated a “State Intervention in the Minerals Sector” policy to force mining firms to pay more taxes and increase welfare spending.

Last month’s ANC policy conference suggested a “resource rent tax” — effectively a windfall levy — of 50 percent that will kick in after investors have made a “reasonable return” and the granting of preferential mining rights to a state mining company.

In Zimbabwe, Chimanikire said he was satisfied his ministry is doing a good job despite the glaring misnomers. Chimanikire would not answer questions on mining contracts saying his ministry restricts itself to licensing. He would also not entertain any questions to do with Marange diamond fields referring all questions to ZMDC chairperson Goodwills Masimirembwa.

Masimirembwa failed to respond to numerous phone calls by the time of going to print. The buck however stops at the highest office in the land.

According to the Mines and Minerals Act Chapter 21:05, rights to minerals in Zimbabwe are vested in the President. All minerals in the country are owned by the state and the power to dispose them is the sole responsibility of the President.

“The dominium in and right of searching and mining for and disposing of all minerals, mineral oils and natural gases, notwithstanding the dominium or right which any person may possess in and to the soil on or under which such minerals, mineral oils and natural gases are found or such minerals, mineral oils and natural gases are found or situated, is vested in the President, subject to this Act,” reads the law.

Economic analysts say Zimbabwe will never get the true value of diamonds as long the stones are tied to the survival of President Robert Mugabe and his Zanu PF party.

They point to the militarisation of Marange as an example of how high the stakes are.

Eric Bloch, an economic consultant says the problem with diamond transparency lies with the secretive nature of the industry.

“There was so much opaqueness regarding the Marange diamonds because the state thought it had pounced upon the largest diamond reserve in the world and naturally they decided to be secretive about the issue,” Bloch said in an interview.

Takunda Mugaga, head of research at Econometer Global Capital, said the problem is deeply steeped in politics.

“It is all about political survival and nothing more. If you look at the Essar deal and the demands by some figures and compare it with Chinese companies mining in Chiadzwa then you know that it is all about politics and survival.

“What is happening concerning the Essar deal has more to do with political fighting rather than genuine concerns for the people’s welfare,” he said.

“When politicians fight for survival, accountability and transparency are compromised. In the end when mining is politicised it is the ordinary people who suffer.”

Post a comment

Readers are kindly requested to refrain from using abusive, vulgar, racist, tribalistic, sexist, discriminatory and hurtful language when posting their comments on the Daily News website.
Those who transgress this civilised etiquette will be barred from contributing to our online discussions.
- Editor

Your email address will not be shared.