ZIMBABWE is richly endowed with bountiful mineral resources; the country’s social as well as economic operations can be fully supported and sustained by the mining sector alone.
But value is yet to be fully unlocked in the mining sector.
The country has huge deposits of diamonds, gold, platinum, copper, lithium, chrome ore, iron ore, nickel, tantalite, asbestos, coal, granite, zinc and silver among 50 other minerals.
Zimbabwe holds 30 percent of the world’s diamond deposits and currently has the second largest known platinum reserves after South Africa.
However, despite the abundance of such minerals, the benefits from these mineral resources remain, at most, minimum.
People have often asked why Zimbabwe struggles to fund its budget despite having huge gold, diamonds, platinum, coal, iron and chrome resources.
For years, Zimbabwe has been exporting the majority of its minerals in raw form at very low prices, save for chrome in recent years.
But the country has the potential of becoming the ‘mining basket’ of southern Africa, only if it can leverage its mineral wealth through beneficiation.
Beneficiation entails the transformation of a mineral to a higher value product which can either be consumed locally or exported.
The term is used interchangeably with value-addition.
There are two types of beneficiation; down-stream and side-stream beneficiation.
Down-stream value-addition involves a range of direct activities including large scale capital intensive activities such as smelting and refining to metal fabrication and production of finished goods such as jewellery, tools, equipment and other goods.
Side-stream value-addition refers to inputs, namely capital goods, consumables and services (specialist services, supply of goods, repair work and consulting) into the value chain.
Beneficiation is one area that has been talked about by Government, but not much has been done on the ground.
There has not been any tangible results.
Zimbabwe’s beneficiation policy
Zimbabwe has no beneficiation strategy despite hinging its socio-economic development prospects on mining, particularly value-addition and beneficiation.
In December 2013, the beneficiation policy was launched but its fruits are yet to be seen.
According to the State of the Mining Industry Survey for 2015, Government has been formulating and implementing mineral beneficiation programmes on an ad hoc basis.
Eunomix Research, an advisory company working on Zimbabwe’s beneficiation policy, notes that to date, Zimbabwe’s beneficiation policy has preferred the interventionist (‘stick’) approach, as opposed to the incentivisation (‘carrot’) approach to implementing this policy.
By banning the export of raw minerals such as chrome and introducing an export tax on platinum group metals, the Government had hoped to improve local beneficiation.
It has, at present, suspended these measures because it is not making any headway.
In 2011, Zimbabwe banned the export of raw chrome with the intention of forcing mining companies to set up chrome smelters as part of its broader beneficiation policy.
In 2012, the Government made public its intention to ban the export of raw platinum if platinum producers did not construct a refinery by the end of 2014.
What the media labelled ‘an ultimatum’ expired in December 2014.
Plans for such levy have been placed on hold due to reduction in production.
In addition, the Government has implemented a 15 percent export tax on raw platinum.
The industry responded by pointing to economies of scale in order to justify the construction of a dedicated platinum refinery in Zimbabwe.
Currently the ban on chrome exports and the export tax on raw platinum have been lifted.
Further, Government imposed a 15 percent levy on raw diamonds exports as of January 2014 and removed Value Added Tax (VAT) on the local cutters and polishers.
The 15 percent royalty on rough diamonds sold to firms licensed to cut and polish diamonds was removed with effect from January 2015.
However, an export ban on rough diamonds is currently pending.
In January 2014, Government implemented a ban on the export of unrefined gold and consequently mandated Fidelity Printers and Refinery as the sole buyer and exporter of gold from Zimbabwe.
Counting our losses
Export of un-beneficiated raw mineral ores, at low cost, has been described as tantamount to de-industrialisation of the country and exporting jobs abroad.
For example, India which has been one of the biggest consumers of diamonds from Marange in the past few years has realised massive benefits by adding value to rough diamonds from Zimbabwe.
At one time, India imported diamonds worth US$14 billion, but through value-addition, it sold them to other markets for US$40 billion.
In 2012, the Indian city of Surat reportedly created 100 000 jobs which were a direct result of raw diamonds that were imported from Zimbabwe.
In the region, Zimbabwe is the only diamond-producing country that is yet to fully establish a diamond industry to process the precious stones through cutting and polishing.
Botswana has been able to develop its diamond sector through the Diamond Technology Park (DTP), which is a hub for the cutting and polishing of diamonds.
This is despite the fact that rough diamonds from Botswana fetch a higher price than those from Marange because they have higher gem quality.
The DTP rakes in up to US$1 billion annually through the beneficiation of diamonds.
It employs more than 3 000 people and attracts international dealers from all over the globe.
The global diamond cutting and polishing trade is valued at US$47 billion while jewellery is at US$71 billion.
However, this billion-dollar diamond industry has been dominated by non-producing countries such as the US, Belgium, India, Dubai and Israel.
The same applies to platinum, gold and iron ore.
According to Buy Zimbabwe, from 2010 to 2014, Zimbabwe lost about US$16 billion in unbalanced trade and this was mainly because the country trades in raw materials.
According to World Bank reports, the mining sector in Zimbabwe has the potential to generate over US$11 billion in revenues and US$10 billion in export receipts and contribute US$1,7 billion to the fiscus by 2018 if beneficiation is fully implemented.
Yet last year the country only generated a mere US$1,38 billion in revenue.
What needs to be done?
A beneficiation strategy must be formulated urgently.
For six years, the interventionist (stick) approach has not been bearing any fruits, maybe it is high time the country moved to the incentivisation (carrot) approach.
Australia is often cited as a successful example of the carrot approach.
According to experts from the European Centre for Development Policy Management (ECDPM), successive attempts to mandate beneficiation through intervention policy mechanisms for the most part failed in Australia.
Rather market-driven non-mandated beneficiation has successfully occurred, for example, bauxite to aluminium production, synthetic rutile production and gold bullion production.
Further analysis suggests the main drivers behind these investment decisions include access to competitively priced energy, water, research and a skilled work force.
Furthermore, the Government supports mining firms in securing land tenure, building cross linkages between the extractive and other areas of the economy by allowing for research and development tax concessions and commercialisation incentives backed by sophisticated capital support structures.
And today, Australia has a thriving mining industry exporting US$13 billion in processed minerals and is today the world’s leading producer of processed alumina and rutile.
Such a strategy can help transform Zimbabwe’s mineral wealth endowment into a competitive advantage.
Issues such as cost competitive production, appropriate technologies, skills and craftsmanship are some of the factors that foster competitive advantages.
Zimbabwe is too rich to be poor.