Managing mining: Lessons from beyond

There is an outcry that Africa is losing huge sums of money in mineral resources to mining investors. I take a look at how countries in the region are managing mining in relation to Malawi.

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Zimbabwe’s President Robert Mugabe is known to be intolerant to nonsense. At a public rally in Mutare in 2012, he told-off mining investors: “If you want to invest in Zimbabwe, let the indigenous own better shares in your mines because it is their resources. If you do not want, go back.”

It was a rude awakening for the investors who, for so long, had been holding majority shares in the mining investments. There was negligence and threats to withdraw from the business, but with the enactment of the Indigenisation and Economic Empowerment Act which emphasises that the indigenous Zimbabweans should own at least 50 percent of mining shares, they obeyed.

The Act empowers Zimbabweans and says in any investment, 51 percent of the shares should be owned by the locals.

According to The Standard newspaper of Zimbabwe, the country’s largest miner Anglo-American Platinum, which is the world’s largest miner of Platinum, was among the first to succumb to the order. It transferred 51 percent of its Unki Mine shares in Zimbabwe to locals. Zimplats followed suit with the same percentage going to the locals and several others did likewise.

Although Mugabe’s stiff laws on mining are viewed as unfriendly to investors, some experts argue that a huge chunk of mining products is now benefiting the locals more than before.

Similarly Zambia, a country that has huge copper mineral deposits calls have been made for equal shares between the indigenous people and the investors. Although the dream seems far-fetched, government has so far influenced mining investors to give at least 20 to 30 percent shares to indigenous investors.

These steps have brought some positive results. In Zimbabwe, mining contributes about 25 percent to the country’s gross domestic product (GDP) annually. This excludes royalties and direct contributions to communities for development. Zambia too, on average, gets a minimum of 10 percent of its GDP from mining.

Not only that, robust mining policies in Zimbabwe and Zambia as well as Botswana have helped the countries to raise huge sums of money from mining. For instance, in 2011, according to World Bank figures, Botswana achieved a per capita GDP of $16 300 moving itself to middle income country while Zambia achieved $985. These are far above Malawi’s GDP per capita of $224.

Mining earnings have also been rising. In 2010, Zambia earned $590 million and projections for 2015 show that the country will realise $1.35 billion. In royalties, Zambia realises about $50 million per annum.

Government websites for Zambia, Botswana and Zimbabwe attribute this to robust mining policies and projections are high for next year.

But how is this possible?

During a recent Journalism Summer School organised by Open Society Initiative for Southern Africa (Osisa) on the extractive industries held in Lusaka, Zambia, it was revealed that harmonisation of mining policies is what has led the few countries to benefit more from mining. In all the countries, government is at the centre of making ideas on mining. Just like in Malawi, all natural resources such as land and minerals belong to government which has the power to strike deals with mining investors and relocate locals to pave the way for mining activities.

Malawi has several mineral resources, but large-scale mining activities only started in 2007 when government signed a deal with Paladin Energy Limited to extract uranium. For the first time, mining contribution to GDP shot from three to 10 percent and projections were that it would reach 20 percent.

Nonetheless, unlike other country’s mining policies, Malawi’s mines and mineral policy does not directly promote indigenisation, but rather locals’ engagement in mining. There are plans in the policy to create a special strategy on local participation in mining. The country also struggles to harmonise policies and laws that can improve mining revenue.

The policies do not work in harmony and the mining deals are treated as private.

The 2012 Malawi National Export Strategy details that Malawi produced minerals worth K21.9 billion in 2010 and K23.7 billion in 2011. It adds that Malawi exported minerals worth K17.8 billion and K18.6 billion respectively.

Nonetheless, a 2013 study by Norwegian Church Aid titled ‘Malawi’s Mining Opportunity: Increasing Revenue, Improving Legislation’, describes these figures as not worth an achievement. It details that Malawi gave Paladin “significant tax concessions and fears that Malawi are gaining little from the agreement.”

It adds: “Government reduced Paladin’s corporate income tax rate, abolished its obligation to pay Resource Rent Tax, reduced its royalty rate to 1.5 percent and gave it other tax concessions and set these in stone for at least 10 years. In return, government acquired a 15 percent stake in the project,”

Rafiq Hajat, executive director of Institute for Policy Interaction, says government got it wrong by making such sacrifices. He argues that Malawi does not need the indigenisation law on mining like Zimbabwe because it benefits the few and scares investors. He says Malawi wants a level playing field between investors and the locals since the latter have not benefited enough from the mines.

“Imagine from an initial five percent royalty agreement, government reduced to 1.5 percent. Can we benefit more from mines with such decisions? Our lobby is that investors should pay 5 percent and a percent should go directly to the community in proximity,” says Hajat, adding that this is working positively in Australia.

He also proposes a monitoring mechanisation that regulates mining, harmonise empowerment, taxation and investment mining policies saying “what we have is like a football match without a referee,”

Nevertheless, the training exposed that most Sadc countries have no capacity to invest in mining and this gives the investors an advantage to abuse the services. There is also lack of strong monitoring tools on the minerals extracted and the safety of the communities around. Corruption and greed by senior government officials who sign deals in private was also observed as a contributing factor to abuse of minerals in Africa.

Humphrey Mulemba, a Zambian mining expert, says despite Africa’s vast mineral resource,rampant poverty is a result of poor mining polices that do not favour the locals. He said what has been achieved by other countries so far is not enough and it is time the resource is guarded for the common good of the citizens.

Dumisani Moyo, programme manager for Osisa, said it high time the media and the civil society guard the minerals and stopped governments from abusing the resources. He call for a serious media that digs deep for truth and transparency.