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Zimbabwe pins hopes on mining sector to revive economy

Zimbabwe’s power-sharing government is trying to revive an economy crippled by low productivity, high unemployment and a lack of foreign investment. One focus of attention is the country’s mining industry, which provides nearly one-half of government revenues and thousands of jobs.

Tricky proposition

Zimbabwean men dig for gold in the midday sun at an informal mine 45 kilometers outside Harare. From a hole several meters deep, they haul up sacks of earth and rocks which are sifted above ground by the rest of the crew.

The work is hard and dangerous. They use candles to light the shaft. They have no shoes or safety helmets.

Survival story

These miners cannot afford the permits required to market the gold legally, so they sell it to middlemen for a bit more than half the market price of nearly US$1,400 per ounce.

Juda Bhururu, 30, says he earns $100 to $150 a month, which helps feed his family of four.

“This is how we survive. If we are moved from here then life will become tough,” he explained. “Of course we are afraid about safety but we do not dig deep shafts and we move to another one if this one gets too deep.”

Nearby, on the small-scale Rhodo Mine, a mechanic tries to start up an aging compressor.

The machine powers a drill several meters down operated by two men wearing helmets and torn work clothes. The diesel-powered machine is vital since there is no public electricity here.

Difficulties

Owner Christopher Chiwalo says his 10 miners last month extracted 65 grams of gold worth nearly $3,000. But all the money went to cover expenses and salaries.

“I am always having difficulties in having working capital,” he said. “I am not having diesel [fuel] when it is needed. The compressor is there, but it [the mine] needs consumables such as explosives or oils to run [the] compressor.”

He adds that the lack of electricity and poor roads also make it hard for him to turn a profit.

Recovery

The head of the Zimbabwe Chamber of Mines, Chris Hokonya, says Zimbabwe’s mining industry now contributes 16% of the country’s domestic product. He says this is due in part to the severe decline of other major sectors such agriculture and manufacturing.

He says a few years ago mine production had fallen to one-tenth of its peak in the late 1990s. Smuggling was rampant. He says this was caused by government controls that choked revenues and imports of machinery and supplies.

“The mining sector was basically losing money because of the unfavorable exchange-rate controls,” Hokonya said. “Coupled with the fall of commodity prices in 2008, it became unprofitable to remain in mining so many mines actually closed.”

Hokonya says the recovery began when the government ended a ban on informal mining, began paying market prices to miners and replaced its inflation-battered currency with the U.S. dollar.

The discovery several years ago of large diamond deposits in Marange, eastern Zimbabwe, fueled hopes that Zimbabwe could become a major diamond exporter. But the open pits also attracted thousands of desperate prospectors.

New measures

Inhuman conditions and reports of brutality by security forces led to reports of human rights abuses and to restrictions on Zimbabwean diamond sales.

A year ago, the government enacted laws requiring companies with revenues of more than $500,000 to transfer 51% ownership to black Zimbabweans within five years. The indigenisation programme was meant to address economic inequality.

But local economist John Robertson says the programme is stifling foreign investment and, with it, the job creation the government has been seeking.

“These are serious discouragements and the international companies feel that it is wrong for the government to impose such a requirement on them because of the enormous amount of money that has to be invested to make a company successful,” he said.

He notes that it can take five years and millions of dollars for a mine to become profitable. The prospect of handing over controlling shares in a venture just as it begins to make money has discouraged most foreign investors.

But the manager of Rhodo Mine, Shupikai Manhando, says he and his workers support the programme.

“I say it is a good thing. We do our own thing here, mine the ore, crush and process everything,” he said. “So it is good, especially for the blacks.”

Long-term process

Hokonya of the Chamber of Mines acknowledges that mining requires larges amounts of start-up capital that can only come from outside the country.

“So we need to structure an Indigenisation and Empowerment Programme that is a win-win for both foreign investors as well as local citizens or Zimbabweans,” he said.

He suggests the stakeholders should be allowed to negotiate a mutually agreeable division of ownership in any venture.

The government has set up a federation that seeks to boost production of informal and small-scale mines through machinery and supplies, but a lack of funds hinders this project.

As a result, most leaders in the industry say foreign capital will be needed if the mining sector is to become the engine of economic revival and job creation that the government wants.  – VOA


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