Government likes to tout mining as the sector that will lift Zimbabwe’s economy from crisis, but miners say its policies are, in fact, hurting them.
Currency regulations, lack of clarity on policy, high taxes and underinvestment in power are hurting investment, the Chamber of Mines says.
Mines have presented a paper to Finance Minister Mthuli Ncube, ahead of his mid-term economic review statement expected soon. The Chamber of Mines wants to see changes in currency laws that force its members to sell a portion of their export earnings at the distorted official exchange rate. Mines say they must be allowed to keep at least 80% of their export earnings, up from the current 60%.
Their paper also reveals the distress in key sectors such as coal and diamonds.
Here, we publish the mining industry’s position statement in full.
Appeal for the reduction in royalty for diamond
Royalty for diamonds at 10% is among the highest in the region. The high royalty is undermining viability in the diamond sector, which continues to be weighed down by a high-cost structure (on the back of high input costs, high fiscal charges, and unsustainable cost of capital). The situation is worse for kimberlitic diamond producers such as Murowa Diamonds which requires huge costs to extract.
To restore viability in the diamond industry, diamond producers are appealing for a downward review in royalty to around 7% in line with regional averages as well as the overall cost structure in the diamond sector.
Review the foreign exchange retention framework
Following the gazetting of the Statutory Instrument 118A of 2022 which embedded the multi-currency system into law, we have witnessed a disproportionate increase in pressure on the 60% foreign currency retained by mining companies.
The emerging demands are coming from suppliers and service providers including government departments that are now demanding payments in the more stable USD. With most mining companies undertaking expansion projects, the available foreign currency is inadequate to fund operational requirements and the implementation of capital projects.
Compounding the situation, most mining companies are facing difficulties in accessing foreign currency from their commercial banks to augment their forex requirements.
Given that the multicurrency system was embedded into law, we are of the view that there is need to review the foreign exchange retention framework in line with the new policy changes. We are proposing an upward review of the minimum retentions from 60% to 80%.
Information gathered from mining houses shows that mining companies now require at least 80% of their foreign currency earnings to meet the increased demand for forex and fund their operational requirements and expansion projects.
For the remaining surrender portion, we propose an increase in the proportion of taxes paid in local currency at the willing buyer willing seller rate as well as providing a price incentive to compensate the loss of value of the remaining portion of foreign currency earnings liquated at the interbank rate.
Appeal for regularisation of exemption from equity threshold of the Indigenisation Act
Current Government policy provides for exemption of the mining sector from complying with the equity thresholds of the Indigenisation Act. Despite the new Government policy position, regularisation of the policy into Law remains outstanding, affecting foreign investor decision-making processes into Zimbabwe.
In line with undertakings made by the Minister of Finance, we are appealing to the Ministry of Finance to finalise the matter in the 2022 Midterm Budget Review Statement to promote foreign direct investment in the country’s mining sector.
Appeal for reliable power supply
The power supply situation for the mining industry remains fragile, with reports of power outages resulting in production stoppages and output losses. Our engagements with ZESA reveal the power utility is not able to provide the required power to the mining industry and that the industry will face shortages in the short-term.
ZESA further indicated that it is currently unable to import the shortfall and urged mining companies to import power directly. To this end mining have organised themselves to import power through groups such as the Energy Intensive User Group (EIUG).
While the initiatives are expected to improve the power situation in the mining industry, mining houses have inadequate foreign currency to meet the import requirement.
To mobilise the requisite foreign currency resource to import the power mining companies are requiring, we are proposing that the portion of forex paid for to import power be deducted before the prevailing 60:40 export retention rule is applied. The 60% retention on export receipts must be applied to the remaining forex net of the amount paid to import electricity.
Appeal for measures to revive the coal sector
Coal producers are operating in a challenging environment largely on the backdrop of foreign currency constraints (as the bulk of the coal is sent to thermal power stations) and low coal price (which is paid in ZWL at the prevailing interbank market rate). Coal producers supply about 90% of their output to local thermal power stations and thus are only generating about 10% in foreign currency.
After deducting the surrender requirement, producers are effectively left with under 5% forex revenues which is inadequate to meet their obligations for expansion projects and operational requirements. Compounding the situation, coal producers are failing to access additional foreign currency through the auction system.
Some of the coal producers have already been placed under judicial management, with some expected to fold if the situation is not resolved. This has resulted in coal supply challenges which may compromise the power supply situation in the country.
To address the above and minimise coal supply challenges, we are proposing the following:
• Allow coal producers to retain 100% of their foreign currency export revenues by exempting them from the mandatory surrender requirement of export proceeds
• Prioritise coal producers for foreign currency allocations for importation of critical spares for equipment and other input requirements.