Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

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Convenient disregard of facts

Eric Bloch: Convenient disregard of facts

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 

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.


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