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Environmental and industry policy gaps, corruption constrain industry

ERRATIC POLICIES The raw chrome export ban is unlikely to improve investment in what is currently seen as a volatile investment climate

ENVIRONMENTAL NEGLIGENCE Natural resources are in abundance in Zimbabwe, which makes the granting of prospecting and mining rights in environmentally protected areas unnecessary

Photo by Reuters

9th September 2022

By: Cameron Mackay

Creamer Media Senior Online Writer

     

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The Zimbabwe government’s decision to grant prospecting and mining rights in environmentally protected areas, such as the Hwange National Park, has been criticised by the international community, says law firm Beech Veltman CEO Warren Beech.

Natural resources are in abundance in Zimbabwe, which makes the granting of prospecting and mining rights in environmentally protected areas extremely controversial and probably unnecessary, he adds.

“While the Zimbabwean government reportedly banned mining in all national parks following the global outcry over the granting of mining rights in Hwange, reports of mining activities in other national parks persist, with miners disregarding the ban implemented by government.

“For example, the Mavhuradonha Wilderness area is reportedly being explored by a subsidiary of Chinese conglomerate Tsingchan Holdings Afrochine.”

In addition to negatively impacting on the environment, this lack of protection of environmentally sensitive areas is an indication that “certain mining companies operate in Zimbabwe on a preferential basis, probably as a result of their political connections rather than a proper consideration of the consequences”, Beech stresses.

This also indicates that the legislation which is in place to regulate mining operations is not consistently implemented, which does not bode well for investor confidence.

He adds that this is particularly damaging in light of the global focus on environmental, social and corporate governance (ESG), and the global trend for miners to have increased ESG awareness when conducting operations.

“The Zimbabwean population have been sceptical of the government’s relationship with China, especially in the mining industry, where Chinese investors have been granted dubious mining rights in national parks. There have been widespread reports in Zimbabwean media around the effects of Chinese mining on the environment, owing to the lack of environmental rehabilitation processes.”

Further, Beech states that there have been reports that Afrochine has been granted exclusive rights to mine and process chrome in Zimbabwe’s Chivhu region; however, many details of this investment have not yet been disclosed.

This investment occurred subsequent to the Zimbabwe government’s announcing an export ban on raw chrome, effective as of July this year, to protect the country’s ferrochrome industry.

Beech, however, argues that the ban is unlikely to improve investment in what is “currently seen as a volatile investment climate”.

He explains that Zimbabwe’s ferrochrome smelting capacity is currently limited because of low investment in the industry, owing to high operating costs and challenges associated with obtaining foreign currency, both a result of government policies.

Afrochine is currently the largest smelting operator in Zimbabwe because local smelters are unable to compete, owing to the high costs associated with smelting, he adds.

Beech emphasises that, while the ban should theoretically enhance opportunities for local smelting, the ban may cause more harm than good amid an unattractive investor climate.

Centralised Gold Buying

Beech highlights that, by law, gold producers in Zimbabwe are required to sell gold through central bank the Reserve Bank of Zimbabwe (RBZ) through State-owned subsidiary gold buyer Fidelity Printers.

This requirement has had detrimental effects on the country’s gold mining sector and has facilitated corruption in the industry.

“The country’s gold sector has several challenges before it reaches the RBZ and Fidelity. The involvement of the army in artisanal gold mining fields, as well as gangs in the artisanal mining sector, has created a volatile environment for gold mining companies. Exacerbating these political and social challenges are high operating costs to extract gold, as a result of the hyperinflation of the struggling economy,” he explains.

Further, after gold producers sell gold to Fidelity, there is no guarantee that producers will receive the “going rate” for the gold. The producers are often underpaid, paid late or paid a combination of US dollars and Zimbabwean dollars.

Being paid in Zimbabwean dollars is less than ideal for companies trying to make profit, as hyperinflation instantly devalues the amount received for gold, adds Beech.

He points out that industry body Zimbabwe Miners Federation president Henrietta Rushwaya was caught allegedly attempting to smuggle about 6 kg of gold to Dubai in October 2020.

While the charges have been dropped against Rushwaya – a niece of Zimbabwe President Emmerson Mnangagwa – Beech argues that this is indicative of how endemic corruption is in the country’s gold mining sector.

“It has been estimated that Zimbabwe loses almost US$1.5-billion a year to gold smuggling. It is simply more profitable for gold producers to smuggle their gold out of the country and sell it on the black market than use the flawed centralised system,” he concludes.

Edited by Nadine James
Features Deputy Editor

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