Recovery of mining sector key to long-term growth
Post dollarisation in 2009, the mining sector experienced strong growth, but this has since waned with the sector expected to grow by less than 5% in 2014.
Between 2009 and 2012, the mining sector grew by an average of 35% and since then, growth has been anaemic. The mining sector accounts for 22% of GDP, contributes over US$1,9 billion in export receipts or 52% of total exports, employs over 45 000 people and generates over US$450 million in fiscal revenues.
The mining sector’s contribution to GDP has increased from less than 4% in 1999 to over 15% in 2013. Government can no longer ignore its potential to the long-term success of Zimbabwe and need to adopt investor-friendly policies to attract much-needed foreign investment to fully develop this sector.
Gold and platinum group of minerals exports account for over 88% of mineral exports generating over US$1,7bn in export revenue for Zimbabwe.
According to the World Bank, the mining sector has the ability to generate over US$11bn in revenues, US$10bn in export receipts and contribute US$1,7bn to the fiscus by 2018 given a favourable investment environment and investment in infrastructure. This will require over US$12bn in investment over the next three years.
The sector has the potential to employ over 75 000 people. With no major upgrades to infrastructure or major policy changes, revenues could double to US$4,6bn, provide exports of US$4,1bn and contribute US$700m to the fiscus. This still requires an investment of over US$5bn over the next three years. Under this scenario employment will grow to 50 000 people.
It’s clearly evident that the mining sector plays a significant role to the long-term development of the country. Government needs to consider very carefully the right policy mix to attract much-needed investment. Without this the mining sector will never reach its full potential.
Zimbabwe ranks poorly when it comes to global rankings for the mining sector. The key global report is known as the Fraser Institute’s Annual Survey. The Fraser report, as it’s commonly known, is a survey of mining and exploration companies to assess how mineral endowments and public policy factors such as taxation and regulation affect exploration investment. Established in 1974, it’s an independent research and educational organisation with locations throughout North America and international partners in over 80 countries.
Zimbabwe ranks 92 out of 96 in terms of mineral potential using current regulations/land use restrictions. Its rankings can improve significantly to 62 out of 96 assuming no regulations are in place and assuming it observes industry best practices.
Zimbabwe should strongly consider the establishment of a Sovereign Wealth Fund (SWF) to hold up to 30% of the shares of mining companies as a key part of the indigenisation policy.
A SWF will provide greater transparency and accountability for existing and prospective investors. The SWF will also benefit the broader indigenous population and provide a platform for sustainable growth and development. I believe that this policy has greater potential for success while meeting the expectations of local Zimbabweans. A clear, consistent and transparent policy will go a long way in encouraging foreign investment.
Government, with the support of the International Monetary Fund, should also strengthen its engagement with creditors and seek to reschedule its debt in order to access further lines of credit for the development of the mining sector.
Greater transparency and accountability in the diamond sector is imperative to the development of the country. The lack of transparency has led to serious questions over how much revenue Zimbabwe is losing and who is benefitting from its diamond resources.
The mining sector has the potential to make a significant contribution to Zimbabwe’s growth over the medium to long-term. Mining development is an extremely technical, long-term, capital-intensive industry that relies heavily on political, regulatory and macro-economic stability.
Zimbabwe needs to create a conducive investor-friendly environment before we see any significant investment in the sector.
With the potential to generate over US$11bn in revenues by 2018, the country needs to raise US$12bn in investment. Such investment can only be attracted by creating a conducive and investor-friendly environment.