eBusiness Weekly
Kumbirai Tarusarira
The idea that Zimbabwe is teeming with mineral extracts is undisputed. The question that demands an answer, however, is do we have the right governance that should protect Zimbabwe’s minerals.
According to a report from Zimbabwe Coalition on Debt and Development (Zimcodd), leakages continually undermine Zimbabwe and Africa’s efforts to tap into the economic potential presented in the vast mineral resources.
Mining plays an important role in the country’s development as it attracts foreign investment and contributes significantly to government revenue.
Since taking office in 2017, gold has been key to President Emerson Mnangagwa’s economic recovery strategy.
In October 2019, President Emmerson Mnangagwa and Minister of Mines and Mining Development, Winston Chitando, offered plans by 2023 to increase government income to $4 billion annually.
Speaking at the launch, President Mnangagwa made clear how central the sector is to his aspirations for the country: “There is no doubt that, leveraging on the gains from our economic reforms, our engagement and re-engagement with the international community, the mining sector presents huge growth prospects towards the speedy attainment of our national vision to become an upper middle economy by 2030.”
According to the international crisis group, following the economic disruption associated with the Covid-19 pandemic: “gold, already Zimbabwe’s largest foreign exchange earner, has only grown in importance”.
While prices dipped in the pandemic, the world gold price quickly recovered as investors sought safety during the slowdown.
The IMF Primary Commodity Prices database shows that gold increased in price by 16 percent between December 2019 and May 2020, whereas platinum and nickel prices fell by 14 percent and 12 percent, respectively.
The Government of Zimbabwe is now envisioning a US$12 billion mining industry by year end 2023.
However, this vision could remain a mirage if efforts are not directed towards reducing illicit financial flows (IFFs) in the mining sector.
What exactly are illicit financial flows?
The World Bank defines Illicit Financial Flows (IFFs) as the cross-border movement of capital associated with illegal activity or more explicitly, money that is illegally earned, transferred, or used that crosses borders.
These flows are increasingly becoming a cause for concern at the national and global levels especially in relation to the realisation of Sustainable Development Goals (SDGs).
Corruption is tackled in Goal 16 of the SDGs. Target 16.4 specifically addresses IFFs: “By 2030, significantly reduce illicit financial flows and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime,” it states.
According to research by the Zimbabwe Environmental Lawyers Association (ZELA), Global Financial Integrity’s (GFI) 2008 “breakthrough report” drew attention to Illicit Financial Flows (IFF).
The study estimates that developing countries stand to lose between $859 and $1.06 trillion each year due to illicit financial flows.
“IFFs affect the poor proportionately more than the rich and yet the concept of IFFs is still generally elusive and a bit too technical to understand to the general population,” the report said.
What is the scale of the problem in Zimbabwe?
An Economic Governance Watch report from December 2022 found that while it is impossible to give a precise estimate of how much money flows illicitly from Zimbabwe, the amounts involved are “certainly enormous”.
Home Affairs and Culture Minister, Kazembe Kazembe, has previously stated that the country loses about US$100 million every month from gold being lost through international smuggling rings and the country’s porous borders.
Minister of Finance and Economic Development, Professor Mthuli Ncube has lamented the loss of significant revenue due to smuggling of gold to mostly the United Arab Emirates and South Africa.
According to GFI, Zimbabwe is estimated to have lost a cumulative US$2.8 billion (that is an annual average loss of US$276 million) during 2004 to 2013.
AFRODAD calculated that Zimbabwe could have lost annual average of US$570.75 million between 2009 and 2013.
A report published by the Zimbabwe Environmental Lawyers Association (ZELA), entitled ‘Illicit Gold Trade and Smuggling-Vulnerabilities exposed by the Rushwaya case’, outlines how the government is using illegal artisanal miners to promote revenue leakages.
Impact of IFFS on Zimbabwe’s business community and citizens
Evidence suggests that illicit financial flows are slowing Zimbabwe’s economy, fuelling corruption, and enriching the elite at the expense of the general public.
It is possible to curb the influx, but this requires courage and political will. Efforts made so far have not always met with success.
Zimbabwe Miners Federation (ZMF) President Henrietta Rushwaya was arrested at the Robert Gabriel Mugabe International Airport on allegations that she attempted to smuggle about 6kg of refined gold into Dubai in violation of Section 182 of the Customs and Excise Act, which provides for penalties for those caught importing or exporting contraband goods in the country. The case was later dropped after Harare magistrate Learnmore Mapiye ruled the state’s case was too weak.
Research by Transparency International-Zimbabwe, (TI-Z), states that IFFs generally have a negative impact on the health sector, manifested in a number of ways, including wasted public funds, underserved citizens, and demoralized public sector employees and donors. Private enterprise is becoming unsustainable without a healthy, stable workforce and the capacity of public institutions is being depleted.
The most direct impact of illicit financial flows (IFFs) is to reduce domestic expenditures and state and private investment. This means that there are few hospitals and schools, and there are few roads and bridges. It also means fewer jobs.
Recommendations
There have been contestations as to how the mining industry has loopholes that allow leakages of mineral extracts.
Experts in mining, campaigners and some politicians argue that it might be time to tighten and update legislation that governs Zimbabwe’s mineral resources, or at least reconsider how regulations are working in practice.
To achieve this will involve embracing technology, engaging political will and more open monitoring of standards.
The latest research suggests that in order to challenge the current patterns of leakages and revenue losses, Government should invest in information technology to determine the quantity and quality of geological mineral deposits and reduce illicit outflows through greater transparency on what returns can be predicted from this data.
By immediately joining the Extractive Industry Transparency Initiative, the country would go a long way in ensuring transparency and accountability in the sector.
Transparency International Zimbabwe argues that: “the government of Zimbabwe should strengthen mutual legal assistance with other involved jurisdictions to facilitate the exchange of information. They must also ensure that such institutions have the capacity to manage mutual legal assistance requests”.
They urge the country to address the lack of political will and political interference in the distribution of mining land and sites. Government must demonstrate the political will to apprehend and prosecute criminals and ensure the independence of responsible authorities. The law must protect and control the export of minerals from Zimbabwe to designated areas.
One development to watch is that the country recently joined, alongside Angola and Sierra Leone, the 37-member strong Africa Initiative on tax transparency and exchange of information. The partnership’s stated aim is to: “…unlock the potential of tax transparency and exchange of information for Africa by ensuring that African countries are equipped to exploit the improvements in global transparency to better tackle tax evasion”.
◆ This article was produced by Kumbirai Tarusarira. It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation. More information at www.wealth-of-nations.org. The content is the sole responsibility of the author and the publisher.”
