ANALYSIS OF AUDITOR GENERAL 2014 REPORT ON STATE ENTERPRISES: A FOCUS ON MINING STATE ENTERPRISES

 

Mukasiri Sibanda and Gilbert Makore

The 2014 narrative report on state enterprises and parastatals by the Office of the Auditor-General (OAG) reveals continued rot and mismanagement of public resources. This article takes particular interest in the findings pertaining to the Zimbabwe Mining Development Corporation (ZMDC), a state owned enterprise (SOE) advancing state interests in the mining sector.

ZMDC is involved in the extraction of gold, diamonds, graphite, platinum and asbestos among other minerals. It is its involvement in Marange diamond fields, where it owns no less than 50% stake in all the seven companies operating in Marange, which galvanised its position in mineral exploitation. The diamond entities in which ZMDC has an interest include; Mbada Diamonds (50%), Diamond Mining Corporation (50%), Jinan (50%), Marange Resources (100%) and Kusena Diamonds (100%).The only notable exception is Anjin Investments where ZMDC’s shareholding is 10% although the other 40% is said to be held by Government of Zimbabwe.

Minerals are finite sovereign assets and state equity participation warrants close public scrutiny to determine the extent to which the exploitation of the mineral assets is benefitting the citizenry. Scrutinising the role of direct state participation in mining is particularly important in the context of current international discourse on how corporations are bleeding Africa of critical development finance.

An analysis of the 2014 narrative report on state enterprises and parastatals by the OAG, therefore, becomes opportune and imperative as it provides for reflection on how ZMDC is faring on managing the country’s minerals assets. The findings from the OAG clearly show how poorly ZMDC is executing its mandate as a state agent in the exploitation of minerals.

Some of the findings from the report show that;

  • ZMDC’s latest audited group financial statements are for the year ended 31 December 2013. ZMDC is perpetuating its custom of sharing stale financial information. Timely audited financial statements are one of the key tenets of good corporate governance and their undue delay affects the integrity with which the company is managed. It is, however, important to note that Marange Resources (a ZMDC subsidiary) has its 2014 annual audited reports in place.
  • ZMDC has failed to honour statutory obligations to the Zimbabwe Revenue Authority (ZIMRA), pension funds and medical aid schemes. For instance Marange Resources owes statutory obligations amounting to $16,201,622 as at 31 December 2014 broken down as follows; $11,466,864 (royalties) $2,504,615 (depletion fees), $1,162,674 (depletion fees), $758,270 (Minerals Marketing Corporation of Zimbabwe commission), $167,892 (Pay As You Earn- ZIMRA) and $141,365 (National Social Security Authority).
  • Mineral reserves and ores are not known as no meaningful exploration has been done. This carries the risk of poor economic justification for disposing equity stake to investors as the quantity and quality of concerned mineral assets is unknown. In addition, fiscal plans are most likely to be undermined by poor confidence in revenue. This has been the case since the start of formal exploitation of Marange diamonds in 2010.
  • Joint venture partners have been enjoying dividends without honouring their committed capital investments.
Joint Venture Agreed amount (US$) Amount invested (US$) Variance (US$)
Mbada Diamonds (Pvt) Ltd 100,000,000   47,914,009 52,085,991
Jinan (Pvt) Ltd 200,000,000 134,853,491 65,146,509
Diamond Mining Corporation (Pvt) Ltd 1000,000,000   40,971,654 59,028,346
  • Corporate Social Responsibility (CSR) investment amounting to $3,163,091 lacked proof of receipt from beneficiaries and no breakdown of expenditure was availed. Included under CSR; $195,000 (Kimberly Process Certification Scheme Inter sessional meeting on 4-7 June 2013), $165,000 (Diamond mining conference in Angola & Turkey), $100,000 (Diamond expenses for Israel & China- Dewe L). These travel expenses dwarf the $250,000 given to Marange Zimunya Trust. It is unclear how travel to international conferences by senior executives constitutes CSR. It can be inferred that some of the CSR budgets that the companies tout as representing commitment to community social development are essentially personal and or executive expenses.
  • No proof of ownership of investment in Anjin (private) Limited, Jinan (Private) Limited, Gyme Nyame (Private) Limited, Diamond Mining Corporation and Global Platinum Resources (Private) Limited as share certificates could not be availed.
  • The OAG report noted that there is no Environmental Impact Assessment certificate for Marange resources, a ZMDC’s subsidiary. Notably, the state is both a player and a regulator in the mining sector its partiality in enforcing the rule of law shows double standards and dissipates confidence in mineral resource governance.
  • Mbada diamonds posted an operating loss of $49,651,859 in 2013 after making $56,015,647 profit in 2012. The entity’s current liabilities exceeded current assets by $89,916,504 (2013) and $57,383,887 (2012). The report expressed concern on the business’s ability to operate in the foreseeable future.
  • Marange Resources non-executive board members were given a cumulative total of 2,940 litres of fuel, $27,450 each as holiday allowances and an extra security payment of $758,000 over and above the approved remuneration rates. These payments were not taxed under PAYE contravening the Income Tax Act (Chapter 23:06).
  • The Chairman of the Mining Development Board retired from the Board on June 30, 2013 and was paid US$ 261 000 as gratuity for his three and half years service on the board.This is in contravention of corporate governance  principles which state that non-executive directors shall not receive excessive payments on contract termination.
    The gratuity payment was also not taxed in contravention of the Income Tax Act [Chapter 23:06].

Despite national political rhetoric on state resource ownership the OAG report clearly exposes the need to improve management of SOE that are participating in mining.  Where state participation in mining is not fully accounted for, socio-economic transformation leveraged on minerals resources will remain a pipe dream. It is important to note that the OAG 2014 Report is not the first to expose this decay in SOE. There is, therefore, a need for various actors to ensure that the findings from this report are urgently taken forward and considered.

RECOMMENDATIONS

  • The Ministry of Mines and Mining Development must swiftly act to address the rot as minerals are a finite resource. The Ministry must publicly state how it will address the findings from the OAG Report. ZMDC should be compelled to timeously release its financial information to stakeholders particularly given that this is a SOE.
  • The government must disclose Marange diamond joint venture agreements and all mining contracts to enable public oversight on how sovereign assets are being managed. Contract disclosure can act as a deterrent to cases where joint venture partners with government enjoy dividend income without making good of their committed capital injection.
  • The government must explore possibilities of recovering dividend income that was enjoyed by joint venture partners who failed to honour their capital contributions in full. The process of consolidating diamond entities should not reward truant joint venture partners who have failed to contribute required capital to justify their equity position in Marange diamond exploitation
  • The Parliamentary Portfolio Committee on Mines and Energy and the Committee on Public Accounts must ensure that the report findings are urgently considered. Parliament should investigate how the 40% government equity in Anjin Investments is being accounted for.
  • Civil Society through the Publish What You Pay (PWYP) campaign must make use of already existing and credible information reports of the OAG to raise public awareness and aggregate public demand for government accountability to stop the bleeding of public resources. Demand driven accountability can be coalesced through public awareness and understanding centred on abuse and leakages of public resources. An analysis of implications of poor management of public resources vis-á-vis provision of constitutional socio-economic rights would be vital.

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For more information on the OAG Report Findings please get in touch;

Mukasiri Sibanda- (Economic Governance Officer, Zimbabwe Environmental Law Association)- mukasiri@zela.org

Gilbert Makore (Coordinator, Publish What You Pay- Zimbabwe)- gtmakore@gmail.com

Zimbabwe Environmental Law Association

26B Seke Road, Hatfield, Harare

Tel: +263 57360-3

Website: www.zela.org

Mining and the IMF Staff Monitored Program for Zimbabwe

The IMF published the Government of Zimbabwe’s Letter of Intent and the IMF Staff Report for monitoring that began in March and ended 17 April 2015. This is all part of the IMF Staff Monitored Program (SMP) that Zimbabwe voluntarily subjected herself to in 2013. The program is aimed at normalizing the country’s relationship with creditors and mobilize meaningful development finance. Should Zimbabwe meet all the quantitative and structural benchmarks under the IMF SMP this would demonstrate the country’s capacity to repay its debts and could unlock funding from not just the Fund but other agencies.

The government’s commitment to implementing various reforms under the SMP is, therefore, high particularly given the continued challenges in mobilizing development finance and a general choke-hold on the economy. In that regard the SMP becomes an important arena for tracking and monitoring progress with respect to various structural reform commitments.

Of particular interest in the recently published LOI and Staff Report are the points below;

Point 13 in the Staff Report: Authorities expect submitting the amended Mines and Minerals Act, including the fiscal regime for mining, to the Attorney General by end-March, to be submitted to Parliament in the third quarter of 2015. They have already started developing regulations to support the implementation of the amended Act, which would help strengthening the tax regime for the mining sector and improving mining revenue transparency. The authorities have committed to continue publishing the audited financial statements of the Zimbabwe Mining Development Corporation (ZMDC).

Point 23 in the Staff Report: In January 2015, the Indigenisation and Economic Empowerment (IEE) Act was amended to include new roles for the line ministries to approve indigenization plans, issue compliance certificates, and monitor implementation. Line ministries are required to define and publish the parameters for their respective sectors. To further clarify the policy, the authorities plan to publish a simplified summary of the law on the Zimbabwe Investment Authority’s website.

General Comments

It is highly likely that the amendments to the Mines and Minerals Act will be tabled before Parliament before end of 2015 and it is important to monitor and influence this reform process as much as is possible.

There is a commitment to publish the audited financial statements of ZMDC. This is a welcome commitment although its tempered by the fact that the government had (in a letter to the IMF on 3 November 2014) earlier committed to ensuring that the 2013 audited financial statements of ZMDC would be published by the end of 2014. This target was not met.

It is not clear if the new roles for the line Ministries address investor or investor confidence concerns. The IMF Staff report also concedes as much. There remains a lot of confusion in government, the general public and investors with respect to the interpretation and implementation of the Indigenisation and Economic Empowerment Act.

DISPUTES EXPOSE POOR MINING AGREEMENTS

By: Mukasiri Sibanda* (Guest Blogger)

In Zimbabwe, Mining Agreements (MAs) or contracts are not publicly available and accessible. This is so despite that constitutionally speaking; minerals are public assets and must be publicly accounted for. Secretive MAs may have harmful tax incentives which may prejudice mineral revenue flows to the public purse and consequently inhibit broad based socio-economic development.

In 2014, Zimbabwe was ranked 156 out of 175 countries on Global Corruption Perception Index released by Transparency International. Given such high levels of corruption in the country, the secrecy surrounding MAs presents opportunities for corrupt public official and corporates to benefit at the expense of the nation. Secretive MAs have been identified as one of the causes for the failure of resource rich countries to leverage on natural resources to attain socio-economic transformation that lifts the poor out of poverty.

The news surrounding the tax dispute between Zimbabwe Platinum Mines (ZIMPLATS) and the Zimbabwe Revenue Authority (ZIMRA) clearly demonstrates the imperative for full disclosure of mining contracts or mining agreements. Zimplats is one of the largest platinum mining companies in Zimbabwe and operates out of Mhondoro-Ngezi. The company is listed on the Johannesburg and Australian Stock Exchanges and is largely owned by Implats. A local weekly newspaper, the Financial Gazette, carried a story on 26 February titled “ZIMPLATS Wins Tax Dispute”.

According to the story, ZIMPLATS entered into a Mining Agreement (MA) with government in 1994 which stipulated that royalty rates will be paid at 2.5% of fair market values. Further, the MA exempted ZIMPLATS on payment of Additional Profit Tax. These fiscal incentives are known as stabilisation clauses which are used as a tool to attract investments in a sector through the insulation of tax incentives from potential future changes in legislation.

ZIMRA argued that the MA agreement clause on stable 2.5% royalty rates was not binding since  requisite Statutory Instrument (SI) was not issued as stipulated by the Income Tax Act (Chapter 23:06) whereas Zimplats argued otherwise (case number 12292/11). Justice Lavender Makoni in favour of Zimplats citing that “the definition of taxes under Income Tax Act (Chapter 21:05) does not include royalties under the Mines and Minerals Act (read with Chapter VII of the Finance Act (Chapter 23:04).

The period under consideration in this dispute is 1 January 2004 to 30 September 2010. ZIMPLATS argued that it had paid royalty rates at 3% and 3.5% which were above the stipulated 2.5% in its MA with government. The overpayment amounted to US$6,057,146.00. It must be noted that royalty fees for platinum have since been further repeatedly revised upwards to 5% on1 January 2011 and 10% on 1 January 2012. Experts estimate that ZIMPLATS may claim up to US$120 million from ZIMRA. It is, however, noteworthy that ZIMRA has been complying with the reviewed royalty rates and has not demanded restitution as Justice Lavender Makoni noted in her judgement.

On another separate note the dispute between ZIMRA and ZIMPLATS on Additional Profit Tax (APT) payment amounted to $50.4 million from 2002 to 2011.

Royalties

These stabilisation clauses pertaining to flat royalty rates of 2.5% and the waiver of APT when added up shows that the public purse is at risk of losing over $176million. This becomes glaring when one considers the 2011 national budget statement which lamented poor royalty revenues despite booming mineral prices.

It is interesting to note that the MA that ZIMPLATS had with government was concluded in 1994. During this period, agriculture and manufacturing were the mainstay sectors of Zimbabwe’s economic growth. This has since changed as mining is now the lead economic sector after surpassing agriculture and manufacturing based on its contribution to both the Gross Domestic Product (GDP) and export earnings.

The country’s 5 year (2013-2018) economic blueprint, the Zimbabwe Agenda for Sustainable Socio Economic Transformation (ZimAsset) is anchored on judicious exploitation of mineral assets. Yet MAs that were entered into over 2 decades ago are likely to encumber whatever plans are in place of fully capturing mineral resource rents and fully beneficiating the country’s mineral assets. These unbeneficial tax incentives should be put in the context of the fact that mineral resources are wasting assets that cannot be recovered once exploited. In addition, the failure to judiciously exploit the country’s mineral resources means that treasury is starved of much needed revenue and this has the knock-on effect of stifling much needed investments in creating social safety nets to ameliorate the plight of many poor Zimbabweans.

Reviewing of MAs to unlock the mining sector’s potential in line with the new economic status of mining is critical to the realisation of ZimAsset’s transformation agenda. MAs should be publicly accessible and it is disheartening to note that the details of the much touted recent $3 billion platinum MA between Russian investors and government are not public. Do we have to wait for disputes to start exposing the malcontents of this MA as is the case with Zimplats? Zimbabwe should follow the lead of countries such as the DRC and Guinea in publishing mining contracts or mining agreements. This helps plug opportunities for corruption and ensures that public officials negotiate in good faith knowing full well that the mining agreements will be subjected to public scrutiny.

* Mukasiri Sibanda is an Economic Governance Officer at the Zimbabwe Environmental Law Association ( a member of Publish What You Pay Zimbabwe)

DECLARATION OF THE 6th ALTERNATIVE MINING INDABA- “MAKING NATURAL RESOURCES WORK FOR THE PEOPLE”

DECLARATION OF THE 6th  ALTERNATIVE MINING INDABA

 “MAKING  NATURAL RESOURCES WORK FOR THE PEOPLE”

 12th  February 2015,  Cape Town, South Africa

We, the representatives  of  over  300  members  of  Civil  Society  Organisations;  Faith  Based Organisations,   Pan-African   Networks  and  Organisations,   Labour   Movements,   media, international  partners  and Community  Based  Organisations,  have met from  9th    –  12th February,  2015,  in Cape Town  to share experiences and deliberate  on the role  and the impacts of extractives on communities, the environment, animal life and society at large. This  marks  the 6th   year  of  the Alternative  Mining  Indaba  (AMI)  which has  grown from  its modest 40 to over 300 international delegates, and in particular from Africa.

Cognisant  of  the failure  to fulfil  the Millennium  Development  Goals  (MDGs)   and the subsequent efforts towards the Sustainable Development Goals (SDGs) and the post-2015 agenda, financing for development should remain a national obligation.

We are convinced that the capitalist system puts profits  above people, and fails to sustain harmonious relations within  society. The failure of African governments to fulfil regional instruments, including the Africa Mining Vision (AMV),  is a demonstration of its weak governance.

We   have  further  noted  the flagrant  violation  of  ethical  and legal  standards  and believe  that without  principled,  just  and effective  regulation  of  the extractive  and related industries, people will remain impoverished.

We are cognisant of trade and investment policies that have had a negative impact on governments’ ability to fulfil its development agenda and lift communities out of poverty. Governments  have an opportunity  –  and  duty –  to ensure  that natural  resources benefit  more  people  more  widely  and that companie s operating  in  their  respective countries are acting according to ethical and legal standards.

We call upon all African governments to commit to rising to the challenge set  forth in our priority  recommendations  and make citizen-centred  decisions about  the investment of natural resources.

  1. Taxation and Illicit Financial Flows (IFFs)

1.1  There  is widespread consensus and  evidence  of  the devastating  impacts  of  Illicit financial flows (IFFs), tax avoidance and tax evasion on Africa’s ability to address its development and poverty challenges.  There  is therefore  an urgent need for African governments, individually and collectively under the leadership of  the AU to step up actions to stop  the bleeding of resources from  the continent. The launch of  the high level  panel  (HLP) report  on IFF  in  Africa led  by  former  president Mr  Thabo  Mbeki provides an opportunity  for  African  governments,  civil  society  and citizens  to join hands   and  push   for  real   transformative   changes  in   the  international   financial architecture. We support the need for a global framework that enables enhanced domestic resource mobilization, clamping down on corporate tax malpractice and putting an end to illicit outflows of resources from  the continent.

1.2 To realise the above, we call on the African Union  (AU) and African governments:

1.2.1   To  establish  and situate  a specific  agency within  the AU  and its  related processes as the leading African institutional space for dealing with  Illicit financial flows and asserting its eminence and legitimacy in relation to other international bodies in order to play  a greater and more active  role  within  the G20  and OECD processes and not consider Africa’s role as passive.

1.2.2  To strengthen the role of regional and continental groupings such as RECs, UNECA   and  ATAF  by    putting  in   place   adequate  institutional   and  political mechanisms   that  ensure a  clear   vision,   roadmap  and  action  plan  for  the implementation  of  key  measures to tackle  illicit  financial  flows.  Such mechanisms must ensure and protect the role for civil society and citizen’s participation.

1.2.3  To  review their   fiscal  policies  domestically  and regionally  and remove tax incentives  that  erodes their   tax  bases and  promotes tax  competition.  African governments should learn from  other regional experiences, where governments are willing and able to tackle IFFs through the use of innovative country specific anti-tax avoidance practices.

1.2.4  To send a clear and firm message to the international community and call for cooperation in stopping IFFs from  Africa. Since this  is not only an Africa problem, finding  a solution  to  these  challenges  requires  international  cooperation  and leadership to support Africa and not undermine the continent’s efforts.

  1. Transparency and Accountability

2.1      We  call  for  the   real-time  disclosure  of  all  project-level  mining-related  permits, licenses,  compliance  reports,  monitoring results  (including  air,  water, waste  and health) and contracts in a public registry available both online and as a hard copy.

2.2      We call for the  public disclosure of all relevant contractual and fiscal terms relevant to  EI   projects  to  allow  critical  interrogation  of  the  timing and  magnitude  of extractive industry revenue flows.

2.3      We  call  for  the   real-time  public  disclosure  of  beneficial  ownership of  Extractive Industries companies, including, those entities providing services via  government contracts and beneficiaries of trusts.

2.4      We  call  on governments  to adopt  whistle  blowing  protection mechanisms  that incentivise those who publicise corruption and  illegal  government and corporate activities.

  1. Environmental rights and community monitoring

3.1      We call on governments to support mining community initiatives in  tracking and assessing multi-national corporation activities and mitigate the social, cultural and environmental impacts of those activities.

3.2      We  call on governments and MNCs  to negotiate with communities as opposed to consulting, since the latter is inadequate and diminishes our real rights  to negotiate the use of  our land  and environment. Consultation  fails  to include  the right  to say NO.

3.3      We  call  for  the adherence  to the international  law  principle  of  Free,  Prior  and Informed  Consent as  a continuous process, rather than a once-off  practice and adequate government investment in environmental compliance and enforcement.

3.4      We  call  on government and MNCs  to accept,  that where mining is unavoidable and   communities are   relocated,    that   communities be   compensated   in accordance with  the real  value of the land, including the value of the mineral resource under the land and pecuniary rights.

3.5      We call for the  rational and just utilisation of the land and the environment and an end to looting and land grabbing for foreign food production, mining and other forms  of  extractives.  Where the  environment  and livelihoods  are degraded  or destroyed, these actions should lend itself to stringent recourse.

  1. Access to Remedy: Litigation and Mining

4.1      We call on government to revoke mining licenses where there is non-compliance to

Social and Labour Plans (SLPs) that have been agreed to.

4.2      We  call  on government to give effect  to the fact  that SLPs  and Environmental Impact Assessments (EIAs) are public documents which should be readily available to the public.

4.3      We call on government to ensure that SLPs are actually and effectively negotiated with   communities and  workers. We   further   call   on  an  inclusive   process  with communities, as it pertains to EIA.

4.4      We call on government to strengthen judicial systems and to provide equal access to justice for mining communities.

4.5      We   call   on  governments   to  provide adequate   resources for   human  rights commissions to investigate; monitor and take action against human rights  abuses in the extractives sector.

4.6      Cognisant  of  the extreme danger of  climate  change to Africa,  where 200  million people are anticipated  to perish this century because of  droughts  and floods, we demand a proper accounting, mitigation and compensation for the  extremely high proportion of Africa’s greenhouse gas emissions that come directly and indirectly from  mining and smelting.

5.2.3  Investigate  what policy  and laws  must be enacted  at both national  and regional  levels which will  encourage cooperative formations  that can help ASM communities to  thrive  together and  ensure safety and  benefits  for  miners  and communities. ASM activities should also be part of  the policy process at grassroots levels.

5.2.4   Legislation  must be  empowering for  ASM  and for  the  communities that depend on it for their livelihoods and must not be  prohibitive especially where no other alternatives are available to communities living in poverty.

5.2.5  Legislation and Policy should ensure that Artisanal  industrial  beneficiation is funded and supported in order to create industrial capacity at local level that can serve as alternatives to mining for communities living in poverty.

  1. Women and Extractives

6.1      We call  on government to ensure the equal  inclusion of women in  all decision- making processes that directly or indirectly affect them.

6.2      We call on government to create adequate platforms for women to organise and that these platforms are protected.

6.3      We  call  on governments  to amend mining  and labour  legislation  to effect  the gendered re-engineering of the workplace and ensure the enforcement of the law; particularly as it relates to women in the workplace.

  1. Mining, Health and Labour

7.1      We  insist  that the extractive  industry  accepts  its  responsibility  for the  health  and safety of mine workers and communities and to compensate those directly and indirectly impacted. This is especially important for those who have suffered from tuberculosis; silicosis and other mining related illnesses.

7.2      We   call   for  the   regulated   development and  implementation   of   sustainable monitoring  systems in  all  mining  operations  throughout  the  African region.  The monitoring systems must be:

7.2.1   linked to production;

7.2.2   implemented and enforced independently from  industry;

7.2.3   capable of adequate monitoring of exposures and health;

7.2.4   Capable of  adequate monitoring on a  global  and societal  basis,  so  as  to monitor the broader effects of mining on communities.

7.3   We call on the Medical Bureau of Occupational Diseases (and other bodies throughout the  region   charged with   the  administration   of   compensation   for occupational  lung  disease) to fulfil  their  statutory  obligations and requirements, including   the  obligation   to  provide  detailed   reports   on  the  exposure  of mineworkers to harmful toxins, which includes data on:

7.3.1   What mineworkers are exposed to;

7.3.2   The levels of exposure; and

7.3.3   How many mineworkers have been exposed.

7.4   We  call  on all  corporations involved  in  mining throughout the  region  to include details of dust monitoring and the mitigation of risk of exposure to dust on their mines in their  due diligence reports.

7.5   We  call  on the AU to harmonise the standards,  regulations,  policies  and practices relating to occupational health and safety regionally.

We  hereby affirm  our commitment to the above  stated  issues  and pledge our on-going support on the same with  unflinching resolve. We are also committed to working together with  governments, corporations, communities and other progressive forces to ensure that these demands are met.

Declared at the 6th  Alternative Mining  Indaba held in Cape Town, South Africa in February

2015  with  participants from:  Angola ,Argentina, Australia, Belgium, Botswana, Cameron, Canada,  Chad, Colombia,  Congo, Democratic  Republic  of  Congo, Ethiopia,  France, Ghana, India, Ivory Coast , Kenya, Lesotho, Madagascar, Malawi, Mozambique, Niger, Nigeria and  Norway,  Republic  of  South  Africa, Senegal  ,  South  Sudan  ,  Swaziland  , Sweden , Switzerland , Tanzania , Togo, Uganda, Zambia, Zimbabwe.

The Alternative Mining  Indaba is supported by  Economic Justice Network of FOCCISA; Oxfam South Africa; Oxfam America; Bench Marks Foundation; Open Society Foundation of South Africa; OSISA; Diakonia; Norwegian Church Aid (NCA)  and Kairos.

  1. Artisanal mining

5.1      We call  upon government to decriminalise artisanal  mining, so  that miners can be trained;  safety  standards  can be maintained  and whole  communities  can be liberated from  the oppression of criminal gangs.

5.2      With  reference  to 5.1,  proactive  measures must be  found  inter  alia  through the formation of a national Commission which will bring the activities of artisanal miners into the mainstream protection and support of the state.

In addition, this national Commission should:

5.2.1   Consider  how  markets  for  the   sale  of  ASM  mined  minerals  and for  the purchase chemicals such as  mercury, can be created to ensure the regulation  of the sector and the protection of human and environmental health.

5.2.2   Pay  special  attention  to  the  intersections where women  are  faced  with violence,  oppression and  exploitation   in  order to  ensure that  protections   and safeguards  are built  into the legislation  which decriminalises  ASM and brings the sector under the protection of the state.

Mining’s alternative summit: Painting a different picture of Africa’s most conflicted industry

REBECCA DAVIS 12 FEB 2015 12:43 (SOUTH AFRICA) THE DAILY MAVERICK

http://www.dailymaverick.co.za/article/2015-02-12-minings-alternative-summit-painting-a-different-picture-of-africas-most-conflicted-industry/#.VORQBfmUdqV

How can you tell the difference between the Mining Indaba and the Alternative Mining Indaba? One trick is to look for people who are actually miners, or who come from mining-affected communities. If there are any around, chances are good that you’re at the Alternative incarnation. Another trick is to ask people if they paid up to R23,000 for a ticket to the event. If the answer is ‘yes’, then they’re at the Mining Indaba. REBECCA DAVIS has been at the other one.

In 2002, a young man called Fortunate Siziba was walking home in Mapanzure, Zimbabwe, at night when he fell into an open, unsecured, un-lit pit previously used for chrome mining. The pit was 17 metres deep. Siziba was left partially blind.

In 2012, nine-year-old Asa Mpofu fell into an open, unsecured, un-lit chrome mining pit in the same area. She drowned.

In neither case was any compensation paid by the chrome mine operators, or even an apology given. The most assistance that Siziba received from the mine operator was to be transported “in the bucket of a front-loader” to a nearby clinic.

Over the course of a few days at the Alternative Mining Indaba, you hear so many of these kinds of stories that it becomes hard to keep track of each individual case. The atmosphere here is a world apart from that in the glitzy exhibition halls of the Cape Town International Convention Centre, just a few kilometres down the road, where the Mining Indaba is taking place. There, well-heeled movers and shakers in the mining industry make deals, talk investment, and compare annual returns.

Here at the Alternative Mining Indaba, people are angry. They are so angry, in fact, that the very first address of the first day cannot be completed without activists demanding the microphone, determined to have their say.

At a march to the Mining Indaba on the summit’s first day, placards summed up the range of issues at stake: “Please leave my land, I am using it for agriculture (I am a widow)”. “Stop polluting our water.” “Africa is not for sale!” “Our mineral resources, our future!” “It’s not development when the environment is being destroyed.” “No to tax dodging!”

This year saw the biggest Alternative Mining Indaba yet, at around 300 delegates. It’s growing every year, and every year those attending seem more passionate, more vocal and angrier.

“These companies are in Cape Town [at the Mining Indaba] to discuss how to exploit the natural resources in Africa and all over the world to benefit a few,” the Economic Justice Network’s Malcolm Damon told the audience on the first day. “They may be 7,000 [delegates]. But we represent the concerns of millions of people whose lives are affected by the extractives industry.”

At points the discourse of the Alternative Mining Indaba appears straightforwardly anti-mining. At one stage, mining is compared to rape: violent, penetrative and non-consensual. But that’s not the message at the core of the summit.

“We are not anti-development,” Southern Africa Green Revolution’s Matthews Hlabane said. “We are anti-development we don’t understand.”

“Development” at all is something of a contested term in these circles – promised by mining companies, yet often failing to materialise in the way governments or communities hope.

Southern African Resource Watch’s Georges Bokundu summed it up most flatly in a presentation on the second day, with regards to the situation in his home country: “Mining copper, gold [and so on] has brought no development to DRC. Only more conflict.”

Part of the problem is how little say communities are generally granted into what mining companies do around them. Mining legislation in South Africa and other countries demands that mining companies produce Social and Labour Plans – SLPs – which should lay out their plans for how they will contribute to socio-economic development around the mine. As the Legal Resources Centre’s Wilmien Wicomb pointed out, however, these are generally kept secret from the communities – who then have no way of knowing whether mining companies are sticking to whatever they promised in order to win their cherished mining rights.

This lack of information also affects community-members concerned about the environmental impact of mines.

Lawyer Gilbert Makore, of the Zimbabwean Environmental Law Association, said that “most communities have never seen an environmental impact assessment report”. Even if they are granted access to such a report, the language is often highly technical, and often in English only. Corruption occurs between some environmental consultants, too, who produce copy-paste reports for different mines. Even when such consultants are not corrupt, Makore said, they can “go in, hold one meeting with a local leader, and then pass that off as community consultation”.

What emerges from the Alternative Mining Indaba is not solely a simplistic picture of mining companies being bad and local communities being good. The failure of African governments to protect the interests of their people is also cast into stark relief.

A man from Kankoyo, in Zambia, requested the microphone on the summit’s second day to give his account of the effects of copper mining on his community. They are neighbours to a major copper mine, and the resulting mining activities have had a “devastating impact” on their environment, he said, claiming that the soil can now only support the growth of mango trees and small plants. Residents complain of respiratory problems.

Houses have developed cracks in the walls ranging in size from relatively small to big enough to allow two people to shake hands. The soil erosion which results from mining leaves the house foundations unsupported, he explained.

In 2012 the community presented their problems to the mining company. “But we were surprised,” he said. They discovered that in terms of the agreement signed with the Zambian government, the mine was exempted from environmental liability.

This is an extreme tale, but there is little doubt that governments do not do enough to ensure that environmental or social contracts are stringently adhered to by mining companies.

The LRC’s Wicomb pointed out that erstwhile South African mining minister Susan Shabangu was receiving annual reports from Lonmin, was aware that the mine was failing to live up to its socio-economic obligations in the Marikana area, and took no action for a long time.

Unsurprisingly, the shadow of the Marikana Massacre continues to hang over the Alternative Mining Indaba.

The Bench Marks Foundation’s Hassen Lorgat said that there was a tendency among certain conservative media pundits, government and corporations to see what happened at Marikana as an “aberration” – an unpredictable event spawned by union conflict – to avoid discussing ”corporate neglect of workers, abuse of power and privilege of exploiting our mineral resources”.

In Lonmin’s own 2011 Annual Report, Lorgat pointed out, they had already identified risks including “poor community relations due to internal and external factors that could result in civil unrest”.

What you hear at the Alternative Mining Indaba disrupts a great many seemingly black-and-white media narratives. One is about the zama-zama, or illegal miners, who are continuously vilified and criminalized. Mention of the zama-zama has recurred throughout the summit in tones of outrage or concern about their criminalisation – as if “legitimate” mining activity can only be undertaken by European and North American mining corporations. One delegate summed up what seemed to be a widespread sentiment: It’s like when Europeans kill endangered animals and they call it hunting, but when Africans do it they call it poaching.

The “n” word – “nationalisation” – is one that has cropped up relatively infrequently in discussions, superseded by basic concerns for the environment and human rights, advice on how to litigate against mining houses, and so on. But Action Aid’s Brian Kagoro sounded a note of caution at the summit’s opening.

“We risk here, as the elite of civil society – civilocracy – becoming irrelevant,” Kagoro said, in the face of an “emerging radical critique” – exemplified by political movements like the Economic Freedom Fighters.

“If you want mining to carry on, in just a bit more humane way [than previously], there will be another Alternative Mining Indaba happening in the streets.”

AU should take steps to adopt recommendations of the High Level Panel on Illicit Financial Flows

Africa is estimated to be losing an estimated US$50 billion every year to illicit financial flows (IFFs) and this figure has been growing. The estimated US$50 billion may indeed be a conservative figure as there is no accurate publicly available data on all transactions. The amount of money that Africa loses to IFFs is approximately double the amount of Official Development Assistance that the continent receives annually. IFFs refer to money that is illegally earned, transferred and or utilized. Much of IFFs in Africa is a result of the commercial activity of multinational corporations operating across the continent. It is without doubt mining; gas and oil companies operating in Africa are key actors in IFFs. IFFs are made possible through secrecy, tax havens; money laundering and transfer pricing among other techniques. The situation in countries like Zimbabwe and Angola is dire as there are no up to date statistics to compute the possible tax or revenue losses that the countries suffer as a result of IFFs.

African Ministers of Finance set up a High Level Panel (HLP) on Illicit Financial Flows in 2012 and it is chaired by H.E Mr Thabo Mbeki. The panel was set up having realised the negative impacts of IFFs including; reduced tax base, reducing capital available for infrastructure and social development programmes, draining foreign currency reserves; negating investment inflows and domestic resource mobilisation efforts. IFFs also contribute to continued African dependency on aid; conflict; and weakened democratic accountability institutions. The HLP on IFFs’ mandate is to investigate the nature and scale of IFFs and put forward recommendations for the continent to tackle IFFs.

The HLP will launch its final report on Sunday, February 1 2015 at the United Nations Conference Centre in Addis Ababa, Ethiopia. The launch of the Report will follow its prior submission to the Assembly of the African Union (AU) on 31 January 2015. Civil society organisations across Africa call on the AU to take the necessary steps to ensure that the recommendations of the HLP are adopted and implemented. This is critical to the future development of the continent and its ability to self-finance that development. The report and recommendations of the HLP on IFFs is coming at a time when there are reports that over 70% of the AU budget remains funded by Western donors. It is high time that Africa takes superintendence over her own development.

The call for action is not just targeted at the AU but extends to the international community as there is realisation that IFFs require a global solution. Africa alone cannot resolve this challenge given the interconnectedness of today’s global economy

Publish What You Pay has for over decade called for a more open and transparent extractive sector. Information on beneficial owners of mining companies and strong transparency and accountability principles within national legislation will go some way in ensuring that IFFs are addressed.

Illicit financial flows curtail economic growth

NewsDay

September 15, 2014 in News

https://www.newsday.co.zw/2014/09/15/illicit-financial-flows-curtail-economic-growth/

ALTHOUGH Finance minister Patrick Chinamasa’s 2014 Fiscal Policy Review statement announced last week seeks to widen government’s revenue inflows, analysts contend that there is need to seriously curb illicit financial flows (IFFs) from Zimbabwe if the economy is to experience the anticipated growth.

Veneranda Langa

Illicit financial flows through tax evasion, bribery, corruption, lack of transparency and accountability in mineral wealth and porousness at the country’s borders seem to have cost Zimbabwe a lot.

Although there are no exact and recent statistics on how much Zimbabwe is losing through IFFs, a research by Ndikumana and Boyce (2008) ranked Zimbabwe sixth in Africa on IFFs between the years 1970 to 2003.

African Development Bank statistics on Zimbabwe revealed that in the past decade Zimbabwe lost $12 billion to illicit financial flows, which made individuals and corporations richer at the expense of society.

Tafadzwa Chikumbu a policy officer on Economic Governance at the African Forum and Network on Debt and Development (AFRODAD) recently told delegates at a Transparency International-Zimbabwe workshop on curbing illicit financial flows from Zimbabwe that IFFs were money that was illegally earned, transferred or utilised in violation of laws in its country of origin.

He said IFFs were not a problem that affected Zimbabwe only, but were a global issue which had international implications and tremendously affected developing countries.

“The sources of funds may be legal, but their transfer may be illegal through tax evasion by individuals and companies. IFFs range from simple private individual transfer of funds into private accounts abroad without having paid taxes, to highly complex schemes involving criminal networks that set up multilayered, multijurisdictional structures to hide ownership,” Chikumbu said.

“Governments the world over are now joining forces to combat money laundering, tax evasion and international bribery, which makes up the bulk of IFFs. The exact scale of the problem is unknown, but IFFs have devastating effects on developing countries,” he said.

According to Baker (2005) quoted by Kar and Cartwright-Smith (2010) IFFs which happened through corruption, bribery and embezzlement of national wealth constituted 5%, those that happened through criminal activities such as the trade in drugs, weapons, and people constituted 35%, and commercial transactions through multinational companies constituted 60%.

IFFs rampant in mining, forestry, wildlife sector

Chikumbu said IFFs in Zimbabwe were more apparent in mining, forestry and wildlife-related safari activities.

“IFFs were noted in the diamond sector, where according to the Kimberly Process Certification Scheme (KPCS) Monitor, Zimbabwe sold at least $30 million worth of diamonds from Marange, which Treasury and Zimra confirmed that IFFs occur through tax evasion and tax avoidance schemes by multinational corporates, due to weaknesses in tax legislation.”

He said economic hardships and greed drove IFFs through corruption.

“Gaps in the legislative framework governing the mining sector create opportunities for corruption and rent-seeking behaviour.
Information asymmetry between government and investors in the mining sector contributes to tax avoidance through under-reporting of the quantity, quality and composition of minerals.”

In wildlife and fisheries sector, Chikumbu said IFFs happened through weak governance and corruption.

In the timber industry, he said the problem was illegal logging due to the land reform programme that resettled families in indigenous forest reserves and national parks, which have exposed indigenous forests to exploitation.

In the mineral sector, he said export over-invoicing between 2009 and 2012 totalled $2,79 billion for which South Africa contributed 97,4% of the illicit flows from Zimbabwe.

Chikumbu said illicit financial flows in the mining sector were between Zimbabwe and countries like Belgium, China, Germany, Japan, United States and South Africa, they amounted to over $3, 1 billion.

In the wildlife sector between 2011 and 2013, the country is said to have also lost $17 423 952 through poaching, illegal trade in ivory and trophy hunting fees. In fisheries during 2007 to 2013 the estimated potential revenue lost to Zambia was $11 335 964, while over-invoicing in timber exports cost the country about $17,3 million in 2009 to 2013.

Strengthen legal, institutional frameworks to curb IFFs

AFRODAD policy officer Tafadzwa Chikumbu said in Zimbabwe there was no specific legal or institutional arrangement that dealt with IFFs, adding the situation was the same with other regional countries.

He said some frameworks to curb IFFs included the Anti-Corruption Commission to combat corruption, theft, misappropriation, abuse of power and other improprieties in the conduct of affairs in both public and private sector, as well as a unit in the RBZ (Bank Use Promotion and Financial Intelligence Unit established in 2004) to suppress money laundering, receive and analyse suspicious transaction reports from financial institutions and designated non-financial businesses.

Other legal frameworks included the Mines and Minerals Act which empowered the Mining Affairs board to assess books, accounts, plans, and other documents for purposes of assessing applications for carrying out investigations.

“However, the shortfall of these provisions is that they are responsive, rather than preventive of IFFs. In the wildlife sector, the Parks and Wildlife Act is the principal law regulating and controlling the trade and harvesting of wildlife and fishery. Zimbabwe is also a signatory of CITES [Conventon on International Trade in Endangered Species] which regulated the worldwide commercial trade in wild animal and plant species to ensure that international trade does not threaten the survival of any species,” he said.

Other legal instruments that can curb IFFs in Zimbabwe include the Forest Act, the Environmental Management Act, Criminal Code, Criminal Matters (Mutual Assistance) Act, Extradition Act, Trafficking of Persons Bill, Money Laundering and Proceeds of Crime Act, as well as that Zimbabwe is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG)
Although these legal instruments are available, the problem is said to be lack of enforcement.

“At global level, there is need for institutional co-ordination and information exchange to reduce the loopholes that are exploited by cross-border crime syndicates to curb IFFs. At country level, countering IFFs would require strengthening of the legal and institutional frameworks that are fit for a purpose, credible, enforceable and adaptable to the dynamic and complex illicit activities that facilitate IFFs,” he said.

On solutions to curb IFFs, Chikumbu said weaknesses in tax legislation needed to be addressed to curtail tax avoidance and aversion schemes by multinational corporates.

Government was also encouraged to carry out a comprehensive audit of the country’s minerals, and harmonise Zimbabwe’s wildlife laws with those of neighbouring countries.

It was also observed that there was need to disclose beneficial owners of shell companies.

Researcher, Farai Mutondoro from Transparency International-Zimbabwe said there was urgent need for policy dialogue to curb illicit financial flows.

“IFFs reflect the proceeds of corruption, crime and tax evasion.

Addressing IFFs will automatically increase the level of development while simultaneously reducing poverty. The money we receive in aid is less than the money we lose to IFFs, meaning that if there were no leakages Zimbabwe could be in a better economic position. The natural resources we have will not be always in abundance and the nation must benefit from them while they are still available.

“The public must therefore demand Parliamentary oversight to ensure the full enforcement of the recently gazetted Anti-Money Laundering and Proceeds of Crime Act, as well as enactment of a Whistle Blowers Protection Act to encourage both witness and victims of corruption to come forward. A mechanism for asset declaration on how individuals acquired wealth should be formulated,” Mutondoro said.

‘Politicians involved in IFFs

Chairperson of African Parliamentarians Network Against Corruption (APNAC) and MP for Kambuzuma Willias Madzimure (MDC-T) said asset declaration for legislators and other people in high positions of power had been proposed long back.

“However, the issue of asset declaration has not been taken up; obviously it is because of lack of political will.A resolution was passed in Parliament to introduce a motion on Asset declaration, but it was shot down by the Standing Rules and Orders Committee. There is need for political will and the understanding of the impact of corruption in society.

Zimbabweans are not fully aware of what corruption has done to this country. There are a lot of issues of people transferring money out of the country. There is need for awareness and understanding of how sophisticated corruption has become.”
Madzimure said it was imperative for Parliament to expose corruption during committee sittings and cause arrests of perpetrators.

“In Uganda when the Public Accounts Parliamentary Committee sits there will be members of the Criminal Investigations Department who then pick up the people implicated. In Zimbabwe, people are being exposed, but we have not seen any action being taken or arrests,” he said.

Co-ordinator with Publish What You Pay Campaign Gilbert Makore said IFFs were also a sign of capacity gaps within our institutions.

“There is need to strengthen Zimra capacity in terms of knowledge and sector specific tax issues, as well as to strengthen the oversight roles of institutions such as the Auditor-General’s Office and the Zimbabwe Anti-Corruption Commission.Legislation dealing with IFFs should be reviewed and absence of such laws makes it difficult to address it. Parliament oversight also needs to be strengthened and reports of committees of Parliament should show evidence of IFFs and corruption and action should be taken on that evidence by committees.”

Makore said the former Mines and Energy Portfolio Committee which was chaired by the late Zanu PF MP Edward Chindori Chininga once produced a damning report on the mining sector in Zimbabwe and exposed corruption, but to date no action had been taken on the report.

“We have audit reports, but beyond the noise generated on the reports, there has not been follow up. They are just debated in Parliament and nothing is done in terms of arrests. Artisinal small scale mining is a big problem and there are many unregistered gold diggers and millers in the country resulting in a lot of minerals not accounted for. There is need to improve regulation of that sector.

“There is also need for geological surveys because we do not know how much minerals are in this county. Mines might have more geological information than government. We also need transparency and accountability as well as disclosure of information of mining contracts signed. Corrupt investors are also linked to political elites and this corrupts State institutions. There is also need to do a lot of research on minerals and come up with figures that are Zimbabwe specific, as well as to capacitate the media and civic society organisations to expose corruption,” Makore said.

Mabvuku Tafara MP James Maridadi (MDC-T) said the Zimbabwe Republic Police were well-trained and the best in the region, but he had noted that there was a big loophole in terms of investigating cases of corruption.

“It is high time that Zimbabweans should react whenever any individual is fingered for corruption. We need to speak out and demand to know how that person acquired their wealth because we have seen a lot of people getting rich overnight while the country suffered,” Maridadi said.

Evelyn Masaiti Muzungu (proportional representation MP MDC-T) said there was no political will to deal with IFFs.

“People involved in IFFs are very influential people, including politicians. We need to expose those politicians,” Masaiti Muzungu said.

Fanny Chirisa Proportional Representation MP (MDC-T) said there was need for urgent crafting of the Whistle Blowers Act, as well as to ensure bodies like the Zimbabwe Anti-Corruption Commission were adequately resourced to deal with issues of corruption and IFFs).

Lorraine Marima, a projects officer with the Chiadzwa Community Development said in the mining sector she had noted that most diamond companies mining in Marange were hiding under the name of exploration to steal Zimbabwe’s minerals.

“There is need to put a statutory instrument in place to guide exploration. The Mines and Minerals Act was also crafted in 1961 and it needs an overhaul because it is an archaic law,” Marima said.

Themba Mahleka, a researcher with Transparency International-Zimbabwe (TIZ) said Zimbabwe was a signatory to the United Nations Convention Against Corruption which is a tool to curb IFFs.

“We have laws to curb IFFs in Zimbabwe, but there is lack of implementation. A TIZ study revealed that the level of prosecution for offences were limited to petty corruption and major financial corruption crimes were not enforced and perpetrators were not brought to book. Enforcement should be improved and we need a good legal system to help us recover our assets for the development of the country,” he said.