HomeEditorial CommentConsolidation perpetuates diamond mining woes

Consolidation perpetuates diamond mining woes

The proposed consolidation of diamond mining firms is a random, knee jack, inconsistent and incoherent action by the Mines ministry, which I unfortunately do not foresee as the panacea to the rather colossal challenges bedevilling diamond mining in Chiadzwa.

Sunday Opinion with Brian Sedze

I nominally agree to the “what” needs to be reformed but just cannot agree on the “how” to go about that reform.

The proposed solution will not answer questions of national interest like why yesteryear mining firms’ revenue enabled the building of towns like Kwekwe, Redcliff, Zvishavane, Bindura, Shurugwi, Renco, Mhangura, Hwange and many others, yet there is nothing much to show for Chiadzwa diamonds in that respect outside creating private wealth which is being flashed for all and sundry to see.

It will not answer the question on why there has been no significant investment in education, sport and health despite the huge revenue from their mining activities, unlike the miners of years gone by.

The question of why Zimbabwe is wallowing and sliding further into abject poverty despite being blessed with such a valuable natural resource requires answers. I believe we cannot bank our hopes to a solution being proffered and derived from the same players who are part and parcel of creating the problem in the first place.

It’s not clear how the new consolidation structure removes Zimbabwe out of the economic quagmire through the mining firms’ contribution to communities and the nation. I think the proposed and adopted new model is a perpetuation of a failed business model. We need a new model.

The compulsory consolidation solution proposal is so simplistic yet it’s an attempt to pull wool over our faces as if to say as a nattion we have already forgotten why we are in the diamond mining mess. If the ministry is going to bamboozle us, they should try to make their proposal a little sophisticated so that we at least try to work it out.

Consolidation will not solve the opaqueness of diamond mining but will rather perpetuate economic injustices to Zimbabweans of a national resource being made a preserve of just a few. My considered view is that we need a fresh start if we are serious of our strategic intention of making diamond mining a part of the solution matrix to the ailing, near death economy.

The challenges that bedevil diamond mining in Chiadzwa has its genesis in crony capitalism whereof patently incompetent and hastily incorporated companies were awarded licences to practise mechanised panning, while masquerading as mining firms.

This crony capitalism resulted in corruption, lack of transparency and accountability with regards to revenue declaration, tax and royalties. The government by omission or commission failed to design robust corporate governance frameworks, systems, procedures, audits and corporate reporting systems that could have helped curb leakages. If these are agreed facts, I am at odds as to how consolidating these same soiled firms will yield any positive economic outcomes yet it is self-evident that the loyalty-driven parcelling out of this strategic finite national resource was self-destructive, dangerous and devastating.

Part of the challenge in the proposed diamond mining business model is the perpetuation of the increased role of government through its 50% participating equity. Our government has a putrid track record in running business, including that of mining.

The sad truth is that any marriage with the State in business has this far resulted in predictable routine of non-delivery of positive economic outcomes, perennial losses, shoddy products, worst of breed corporate governance, non-payment of salaries, loud-sounding-nothing turn around strategies, customer services deficiencies, dependency and dysfunction.

We already have the evidence of government failures in mining business, the microcosm of that being Ziscosteel, Shabanie-Mashava, Hwange and diamond mining firms. A solution in which the government is an equity partner is simply irrationality and will be history repeating itself.

I am a stern believer in less government play in business outside providing an enabling policy and regulatory environment as surely the fiscal outcomes are more likely achieved when competent private entrepreneurs are allowed to run business. Government can achieve its desired fiscal outcomes in this instance through tailor-made royalties, resource depletion fees, corporate tax and other taxes.

To add to the difficulties of implementing the proposed model is the fact that the mines ministry is also yet to resolve a plethora of other underlying fundamental defects.

These defects include but are not limited to diamond marketing, pricing structures, devastating sanctions on diamond mining companies, value addition and down-stream industry capacitation, taxation system, sector specific investment and economic empowerment policies, legal frameworks for mining of diamonds, corporate governance systems, community share ownership schemes (and attendant governance challenges) and joint ventures strategic partnership frameworks.

A consolidation framework without a comprehensive alignment of these fundamentals will exacerbate the present rot and create further challenges.

The present model of mining is not benefitting the country as employees are not paid, taxes are not being paid, royalties are under-declared and transfer pricing reduces the value of the country diamonds. We must disband the present model as an enabler to delivering optimum economic outcomes. My take and my suggestion will be:

The government must disband and revoke all diamond mining licences and have a fresh start in diamond mining licensing/rights. These firms have failed and the government cannot be found rewarding and accentuating failure. The present firms have no capacity to mine diamonds.

The granting of new licences must be overseen by an independent panel of local, regional and international experts in finance, corporate governance, mining, engineering, law and strategy among others. Diamond mining is a relatively new area to Zimbabwe and we should readily accept to learn from regional and international experiences and experts. The task of granting licences should be taken away from politicians.

A team of competent technocrats like chartered accounting firms should be allowed to design and deploy robust best practices in the areas of good corporate governance, systems and procedures, marketing and pricing systems. These technocrats must have the mandate to conduct due diligences on potential mining firms, joint venture partners and board members for these mining firms. The mining ministry oversight role should be conducted through periodic audits (maybe quarterly) by truly independent audit firms.

Mining firms must be compelled to publish detailed financial statements to remove the veil of secrecy. Extracting a finite resource owned by the populace is surely of national interest and these miners must be subject to public scrutiny through publishing financial statements.

The government should dispose its 50% stake to competent companies. The economy will grow and Zimbabwean entrepreneurs and businesses can do something the government can never do — increase productivity and tax pool across the entire mining landscape.

What the government needs to do is unfortunately something it has historically found impossible to do —nothing. Stay out of the way.

Get out of areas that it has no business or the competence. The government simply needs to create robust policy and corporate governance frameworks.

The mines ministry must come up with a clear well thought out competence based economic empowerment policy framework that avoids traps of crony empowerment. Community ownership should be revived and competent trustees originating from the communities appointed to oversee the community ownership schemes.

The government should attempt to increase parliamentary oversight role at both provincial and national level. This must be with clear guidelines on the oversight systems and procedures that go beyond seeking donations.

The government must accentuate the monitoring and evaluation systems by using parallel monitoring by the central bank, revenue authority, security sector and mining ministry.

Resource depletion fees should be increased as a substitution of government being a player and referee in diamond mining.

The present diamond mining firms have failed the nation and surely must not be given a second chance to mess the nation again through incompetence. Crony capitalism must have no role in a nation trying to extricate itself from the economic abyss but instead competence should be a barometer of entrepreneurship. It will be prudent to disband the proposed consolidation.

Brian Sedze is a strategy and innovation author and consultant. He is the president of Free Enterprise Initiative and chairman of Africa Innovation Hub. He can be contacted on brian.sedze@gmail.com

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