Miners are demanding that the government should reduce diamond royalties to around 7.5% to encourage them to produce more to meet the government’s target of US$12bn mining revenue by 2023.
This is after Finance Minister Mthuli Ncube recently reduced diamond royalties from 15% to 10% effective from January 1 2020. It also comes at a time when the mining sector is reeling with foreign currency and electricity shortages, the lack of top-quality machinery, and low forex retention levels.
RioZim chief executive Bhekinkosi Nkomo told Business Times that Zimbabwe would struggle to reach the US$12bn target by 2023 if it continued with too many taxes and levies in the mining sector as they affected serious investments in the extractive sector.
“Zimbabwe has the highest royalties share in the region with 15% and once you factor in that 15%, your net present value for any project becomes negative,” Nkomo said.
“If we put our royalties at a range of between 5% and 7.5%, the industry becomes more attractive. The second highest country in the region is at 10%, which means we are way ahead of others which is not good for investment,” Nkomo added.
Mining contributes 65% of the country’s export earnings, with gold contributing 38% of overall exports.
According to Nkomo: “The mining industry has over 20 pieces of legislation that regulate it and all of them have a long list of charges, inspection and rentals, leaving most mining companies in the red.
That issue needs to be looked into very seriously. We need to consolidate those charges and we have done a lot of appraisals for the projects, especially in the diamond sector.”
He said there was also a myth that if taxes were reduced, revenues would also go down. This, he said, was wrong because if the authorities “charge 15% of US$100, that’s US$15, but if they reduce the tax to 10%, the government will get more money in the process”.
The mining sector has suffered due to crippling power outages which escalated in June this year. Nkomo said there was a need to spend more time to de-risk the country as far as electricity availability was concerned.
Despite mining companies ringfencing themselves from power outages by paying their bills in forex, Zesa Holdings still fails to provide them with power. This is costing the country millions of dollars in revenue as mining companies have been forced to work four days a week.
“Investors don’t come into a country so easily, they need to look at the risk they will carry and whether they will get a return or not, and when there is no electricity, it means there is a big deterrent,” Nkomo said.
The Chamber of Mines of Zimbabwe said besides royalties, duties should also be competitive and red tape cut to improve the ease of doing business.
Currently, it takes two to three months to apply for a project status document, and by the time the application goes through the miner would have lost a quarter of the year. Industry experts say all miners, big or small, need more incentives to attract investment in the country.