Zimbabwean diamond mines consolidation and the impact on accountability, transparency, shareholding and government revenue

Zimbabwe continues to face unique challenges in its diamond mining sector. Presently serious challenges pertaining to falling productivity have been haunting government until it resolved to consolidate the six or so diamond mining companies in the country into one. Other more important challenges include the lack of clear, transparent and accountable mining and revenue reporting practices. Hence government is now demanding more from diamond miners than before.

I would expect that the move to consolidate diamond mining companies into one will bring about numerous benefits to both the government and to the diamond miners.

Accountability and transparency, would naturally improve because monitoring would be simplified, since there will be one company which will be responsible and answerable to government for diamond mining productivity and revenues. The current situation where each company has its own separate and independent accountability mechanisms (principally to its shareholders - whomever they may be) means that the government and the general public cannot keep track of the goings on in these companies. This is despite the fact that government typically owns more than 50% of the shares in each of these companies, through its ZMDC, by virtue of its ownership of the minerals (which it holds in trust and on behalf of the generality of Zimbabweans).

The multiplicity of players in the diamond mining sector makes it difficult to keep track of each of them, or to exact effective productivity and performance demands/targets from them. The easiest excuses which can be given for low/poor productivity or the low revenue remittances to government would be that: "our mining claim has run out of rich veins of diamond ore (hence our low productivity), we do not have access to capital to do deep hard rock underground mining, or that our revenues are tied up (just like what recently happened after the diamond seizure fiasco in Belgium).

On the issue of shareholding, I would not expect much to change since the law says that government or indigenous Zimbabweans "MUST OWN AT LEAST 51%" of any company involved in or intending to do diamond mining in the country. Perhaps the only issue may be that pertaining to how the various former foreign owners will share their 49% (the maximum which foreigners can own in the mining sector anyway). However, this could be resolved easily by first ascertaining the actual value of investments made, knowledge contributed, equipment at hand and other unique assets held (e.g. intellectual property and or patented technologies/procedures) and then incorporating these values into the final ownership formula (which can typically be computed easily through standard/normal business accounting methods). 

However, the issue of shareholding formulas is (should not be) not the most challenging proposition if the various companies/investors are genuinely interested in diamond mining or mining of any sort in Zimbabwe, because its not really about the percentage of the company they own but rather the value of whatever shares they do hold. For example owning 1% of a very big company is much better than owning 30% of a very small company (I would expect this to be common sense to a serious miner).

The consolidation exercise will also reveal the genuine miners and expose those who have for long been holding on to mining and mineral rights for principally speculative purposes. The speculators would lose out because if you have not put in any money, you must not expect anything in turn (this is a sensible and simple proposition - NO TO SPECULATION).

Then on the final matter of revenue collection (I am assuming this relates to government revenues), the current review of the Zimbabwean mining and minerals tax regime can go a long way in resolving just how the Zimbabwean government van benefit by way of both tax revenues as well as proceeds from the equity held. The Mines and Minerals Act amendment can also go a long way to highlighting just what the government expects from the diamond mining (and by extension precious minerals sector) by way of revenues, in a legal format. The piece meal approach of commandeering revenues from the Zimbabwe Minerals Development Corporation and the Minerals Marketing Corporation of Zimbabwe (i.e. ZMDC and MMCZ) proved inefficient and inadequate to resolve, with finality, issues to do with government revenue needs from the diamond minerals resource (an indeed from the mining sector in general).

Opportunities and Prospects from the Diamond Sector

There are many opportunities which the Zimbabwean Government can harness with respect to revenue collection in the diamond sector. Particularly by advocating for, legislating for and actually conducting more MINERALS BENEFICIATION in the diamond sector government can radically increase the revenues collected from diamonds. Government need not necessarily do this by itself, but rather it must provide a conducive environment in which private players can exploit the potentially lucrative investment options. At the very least government can partner with private players, especially given that the Joint Ventures Bill has been finalised. The much famed 3Ps (i.e. Public--Private-Partnerships) can be used for this worthy cause. Government should give space to serious investors who intend to grow the value from diamond through investing in beneficiation processes. It must also provide legislation protecting and supporting those wishing to invest in these typically capital and knowledge intensive ventures.

There are also many other positive spin-offs which can be acquired from this simple tactic - such as introduction of improved technologies, skills development, economic tourism, infrastructure development, modernization of legislation and human capacity development. More importantly, opportunities abound in industrialization and growth of high tech industries in the country and generally an improvement in the standards of living of the local population.

In the final analysis, diamond mining should not really be the only problem which we should be focusing on, rather we should concentrate in building our capacities so that we would continue to have revenue flows from the country's rich mineral endowment into the future and to achieve inter-generational equity through savings in the Sovereign Wealth Fund (i.e. even many more years after the mineral has been exhausted).