Downstream linkages between the mining sector and the rest of the Zimbabwean economic sectors, are weak and this deprives the country of a much needed catalyst for development and diversification of the economy, a study by the Institute of Mining Research chairman Lyman Mlambo and Chamber of Mines of Zimbabwe chief executive officer Isaac Kwesu, reveals.
The study was conducted to examine the extent of the production (upstream and downstream) linkages that the mining sector has created with the rest of the Zimbabwean economic sectors, their effects on the wider economy and how these linkages may be optimised. According to a United Nations Economic Commission for Africa (UNECA 2011) definition, downstream linkages refer to mining linkages that trace the interconnectedness of the mining sector to other sectors in the economy that consume its output in the production process.
Downstream linkages, also known as forward linkages involve resource-processing (value addition) into intermediate products, semi-manufactures, components, sub-assemblies and finished resource-intensive products.
Downstream linkages also go beyond mineral processing to include pre-treatment processes (plants), smelting, refinery, fabrication and manufacturing of end-user products.
As part of its findings, the study, which was recently published under the International Journal of Business & Management, revealed that for the period between 1980 and 2014, there was insignificant beneficiation of minerals or other value-adding activities in the country.
The study describes Zimbabwe as a typical tragedy in terms of development of production linkages, in that of the 10 top minerals mined in the country, there is only one development mineral, asbestos.
Failure to maximise production of “development minerals” was a contributory factor to low downstream linkages, reads part of the Journal.
The case study, which was released in August this year, attributed the lack of downstream linkages to several constraints, among them, lack of support infrastructure and technical expertise, and huge financial requirements.
“Local beneficiation of minerals was affected by various infrastructural constraints, lack of the appropriate technical expertise and huge financial requirements related to the large minimum technical and economic scales of operations required.”
Between 2010 and 2017, the Government tried to force beneficiation on minerals but according to the Study, the policies were not successful because the impediments, which were not the responsibility of the miners, were not addressed.
“Several impediments to downstream linkages existed. Large financial outlays, which were the reason for the establishment of centralised beneficiation facilities in certain countries, for example South Africa, in the first place are still an important factor. We have noted power supply level and affordability, water problems, transport (and logistics), lack of enough primary feed, lack of necessary expertise and competition with existing plants in neighbouring SA.”
Addressing the infrastructural constraints to mineral production (rail networks, roads, power, water, et cetera) would enable the actual realisation of comparative advantage, since, without that, resource advantage would simply be latent, reads part of the study.
While the study was for the 1980 to 2014 period, it suggests that downstream linkages could still be weak “if the general macroeconomic trends are anything to go by.”
“The Zimbabwean economy has not exhibited any significant structural changes between 1980, 2014 and 2020, and therefore, these results can be applied to the current period with appropriate qualification.”
The case study, however, revealed that significant direct and total upstream linkages existed with manufacturing, electricity and water, and transport and distribution sectors “resulting in a gross output multiplier below but moderately comparable to those of other mining developing countries such as Chile”.
Upstream (backward) linkages are linkages the mining sector has with its input sources, which inputs include machinery, equipment, protective clothing, security, technical services, financial services, etc.
“Critical constraints to upstream linkages include lack of technical expertise and finance.”
Using lessons from other countries, the researchers suggested development of an effective, realistic and institutionally monitored local content policy that emphasises local value addition ahead of local ownership.
They suggested development of local procurement plans for all projects by the mining companies, which are agreed to and whose implementation is enabled (facilitated) by Government through necessary interventions to bridge structural gaps, with support of international development agencies.
Four overriding recommendations for optimisation of production linkages also emanated from this paper.
These include infrastructural development (especially power, water and transport), increased primary production (for feed and market), larger expenditure on HRD and R&D, and provision of incentives rather than legislation.
“The critical role of Government in catalysing production linkage development demands greater fiscal space, fiscal prudence and good governance,” reads part of the recommendations.
Government could seek to promote downstream linkages by effectively addressing the impediments above, which would represent the best use of mining fiscal revenue and dividends paid against government mining equity.
According to Kwesu and Mlambo, downstream linkages could better be developed by enablers and incentives than by legislation and the inclusion of value-addition requirements into mining contracts.
“The model of phase development of linkages is based on business sense, not on coercion.
“Incentives were supposed to be put in place to ramp up mining production by re-opening closed mines and promoting exploration and new mine development.
“This, which would be akin to activating stage two of the development phase of linkages, would create economies of scale (lower unit costs) and savings that could spill over to resuscitation of old smelters and refineries while creating a sufficient base of primary feed.”