Can the mining sector carry the torch of economic transformation in Zimbabwe?

By Laurence I. Sithole

Agriculture and mining have historically been economic bell weathers for Zimbabwe however their present condition needs to be transformed if economic transformation is to be achieved.

The mining industry was and remains one of the biggest income earners for several countries on the planet, South Africa, Brazil Russia, Canada, Botswana, Ghana, the Democratic Republic of Congo and Australia among others.

If there is to be an economic saviour for the nation of Zimbabwe it would have to be mining right? Not quite.

The country missed the great commodities boom of 2000 to 2008 fuelled by the mass urbanisation of countries like China which demanded vast quantities of basic materials.

This was a boon that the country wonderfully missed.

Not for want of mineral resources did the country miss the super cycle of unprecedented growth in commodity prices. Zimbabwe is endowed with just about any and every mineral one can think of.

The country should be awash with cash from having monetised its mineral resources and activities in that area, but it hasn’t because its environment isn’t conducive to its growth and development.

It may come as a shock to many that in global terms Zimbabwe is not considered a resource-rich economy but possessing these minerals, in a perfect world should generate export earnings in the region of US$ 2 billion over the medium term and US$ 5 billion over the next 15 years.

This has serious implications for the country in terms of economic recovery.

 

Why has Mining Failed to Take Off?

The mining industry in Zimbabwe is marred by various challenges: the resource curse discourse; economic stagnation, political uncertainty and the politicisation of minerals, operational challenges, lack of transparency and accountability in the collection of mining revenue and investor policies.

 

 

The Resource Curse Discourse

It is commonplace in Zimbabwe to visit so called resource endowed areas of the country whose poverty on the surface of the ground is a stark contrast to the rich resource below the surface.

Whereas many countries have grown and diversified on the strength of rich natural resource endowments history shows that many mineral-rich developing countries have consistently underperformed their mineral-poor peers in respect of growth performance, income equality and governance.

Export-driven natural resource sectors – oil, gas, minerals, precious metals and gemstones – generate substantial revenues both for the state and foreign-owned multinational businesses, yet these do not translate into broad-based economic development benefiting all sectors of the population and especially the poor.

Zimbabwe experienced this with the discovery of alluvial diamond deposits in Chiadzwa in the eastern highlands of the country.

 

Despite the extent of the resource and the quality of the gems Government notoriously stated on many occasions that it had collected far less in revenues than what was due to it from the mining activities carried out there.

The explanation of this paradox is the failure and or inability of governments to mobilize non-renewable natural resource revenues and reinvest them efficiently in physical and human capital, diversification of the economy and poverty reduction.

Lack of investment and exploration activities

The Zimbabwe Geology Survey of 1990 identified no less than 500 individual deposits of base metals and industrial minerals in Zimbabwe.

The survey also cites Zimbabwe as an important producer of gold, chrome, lithium, asbestos as well as high-quality emeralds.

The Survey also gives an extensive review of the mining industry in the country and its development however, Hawkins (2009) notes that all mines operate under constraints namely unfavourable exchange rates which decimated at that time the production of gold, shortage of power, skills and ore.

The net effect of these constraints is that there is subdued production in minerals which is concentrated in a few commodities.

 

Geological assessments suggest that underinvestment in exploration and production, and not mineral potential, have been the main factors limiting mining development in Zimbabwe.

As long ago as 1992, the World Bank identified Zimbabwe, along with the DRC and Namibia, as ‘Category A’ countries requiring the highest level of exploration investment amongst African states.

In all three countries mining exploration had been constrained by political and economic uncertainty with mining houses reluctant to invest in a country with a track record of policy unpredictability, especially in terms of property rights and exchange-rate management.

This highlights some very critical fundamentals chief among them being that there cannot be a thriving mining sector in any country without exploration activities and meaningful investment. It just will not happen.

If the political environment remains caustic to foreign capital and uncertainty prevails the mining sector will therefore not develop and realise its potential as a possible economic mainstay for the country of Zimbabwe.

 

This the second part in a series that Sithole is writing in The Sunday Express. Watch this space for the next installments.

 

Laurence I. Sithole, B.Com (Hons) Banking & Investment Management, National University of Science & Technology Zimbabwe. Sithole is an independent economist who writes in his personal capacity. The views expressed are his own and do not represent the views of any other organisation.

 

 

 

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