Eric Bloch: Convenient disregard of facts
http://www.theindependent.co.zw/
Thursday, 24 March 2011 20:09
By Eric Bloch
PRESIDENT Robert Mugabe, his sycophantic colleagues in general, and Youth,
Empowerment and Indigenisation minister, Saviour Kasukuwere in particular,
relentlessly pursue their determination to oust foreign ownership of any
major Zimbabwean economic entities. This is being done with pronounced
focus on one of the country’s key resources sector; mining. With
intensifying vigour, they have raled against foreign mine ownership.
A fortnight ago, Kasukuwere sought to justify the intended emasculation of
foreign investor control of Zimbabwean mines. He said that although mineral
exports had exceeded US$1,7 billion in 2010, approximately 20% of Zimbabwe’s
gross domestic product, the benefit from those exports was miniscule, with
only US$4 million in taxes having been paid to government by the mines. He
contended that Zimbabwe was being denuded of its natural resources without
any compensatory benefit, saying that “we have been getting a raw deal all
this time”.
This contention is grossly devoid of substance, and by focusing exclusively
upon taxes paid by the mines (being clearly, in the minister’s perception,
only income taxes), he is misrepresenting issues. First and foremost, the
minister conveniently disregards the fact that all mines are obliged to pay
substantially for the mineral resources accessed by them. Based upon the
gross export values of the mines’ production, without any regard for the
costs of extraction and production, all mines have to pay considerable
royalties, as much as 15% of value for diamonds and 10% for other precious
stones, 5% for platinum and 4% for other precious metals, 2% for base and
industrial metals and coalbed methane, and 1% for coal. These royalties
represent a significant payment for Zimbabwe’s natural resources, and
especially so as they are assessed upon gross export values, irrespective
of, and with disregard for, the very considerable costs of production of the
exported minerals.
In addition to the payment of income tax and royalties, the mining
enterprises very extensively contribute other revenues to the fiscus. They
pay customs duties on their imports of plant and machinery, mining
equipment, and other capital goods, and upon almost all other imported
operational inputs. Similarly, they have to pay value added tax (Vat) on
those imports and also on most operational inputs and services sourced
within Zimbabwe. They generate withholding taxes for the fiscus on any
expenditure on technical and allied services accessed by them from
non-resident sources, and on whatsoever dividends they declare in favour of
their foreign shareholders. The mines also have to fund diverse mining
licence fees.
As if all these contributions to governmental resources did not in
themselves represent a very considerable sum, the mining sector is also a
major indirect fiscal contributor. It employs many thousands of
Zimbabweans, their earnings being subject to Pay as You Earn, and upon the
expenditure by the employees of their net earnings, most of those
expenditures include Vat, and generate taxable profits in the hands of
suppliers to the employees. Similarly, the mines source very considerable
inputs from Zimbabwe suppliers, with consequential Vat inflows, as well as
many of customs duties to the fiscus and enhancing the taxable profits of
those suppliers.
Over and above these very considerable direct and indirect fiscal inflows
from the operations of the mining companies, the major mining enterprises
spend enormous sums on the provision of housing, clinics, schooling
facilities and other communal services for not only their employees, but
also for the surrounding communities. In the absence of the mines so
doing, it would be incumbent upon the state to do so, exacerbating its
bankruptcy.
Moreover, Kasukuwere misleads himself and seeks to mislead the population by
implying that it is only the foreign shareholders who have benefitted from
the 2010, prior and subsequent export earnings. He disregards that those
earnings are gross receipts and a very major portion thereof funds the
mines’ production, operating and administration costs, be they wages and
salaries, payment for energy supplies (erratically forthcoming), other
parastatals’ and local authorities’ charges, fuel and innumerable other
costs. Both the president and the minister and their political activists
conveniently overlook or do not consider the very great investment funding
provided by the mine owners. That funding is essential for prospecting and
exploration, for mine development and for effective working capital. The
magnitude of the required investment funding is far beyond the means of the
impoverished Zimbabwean economy and the meaningful growth of the mining
sector, with consequential benefits for the economy, the fiscus and the
populace, being forfeited if the investment funding were not forthcoming
from the foreign investors.
In order to pursue its misguided intent to oust foreign investor majority
ownership of many of the mines, government proposes the establishment of a
sovereign wealth fund. However, it does not have the resources to finance
that fund and with the exception of a very few, overly-endowed, mainly
politically connected individuals, Zimbabweans do not have the necessary
investment resources. Therefore, government envisages that it will levy
private enterprise to endow the proposed fund, thereby obligating the
private sector and current enterprise owners to fund their own
disinvestment. Effectively, the intents are naught but the expropriation
and nationalisation of private sector resources, virtually comparable with
the state-managed and orchestrated grabbing of the pre-2000 agricultural
lands and the improvements and developments thereon.
Once again, international norms of legitimate and ethical legal ownership
and process are to be ignored, as will yet again be many of the Bilateral
Investment Promotion and Protection Agreements, by a devious, pretend-to-be
legitimate technique.
That this is so should not surprise the international community, investors
or the Zimbabwean private sector; for government has long demonstrated its
remarkable ability to disregard, dismiss, distort or misrepresent and
misconstrue facts, in such way as is convenient to it.