RBZ’s export incentives from 05 May 2016 to 31 December 2017 sterilised mineral royalty revenue by a discounting factor of nearly 86%. This obviously hurts the government’s desire to create fiscal space, when revenue generation is constricted by toxic incentives
But is the 2018 monetary policy statement, themed “Enhancing financial stabilisation to promote business confidence,” tooled to support mining sector led contribution to socio-economic development? This monetary policy was crafted in the context of:
• cash shortages that are choking the formal trade
• the central bank’s gold support fund, although a welcome development, will only benefiting a few and there is no clarity on how men and women are benefiting from the fund currently
• moratorium to facilitate recoupment of externalised money and assets
• ballooning government debt crowding private sector access to capital
• and complaints by Civil Society Organisations (CSOs) that export incentives have sterilised mining royalties.
This articles specifically focuses on rationality of the export incentive scheme where it pertains to mining.
To stimulate export earnings, RBZ introduced a five percent export incentive scheme in May 2016. Mining as the largest exporter automatically became the largest beneficiary of the scheme. During public pre-budget consultations, CSOs like ZELA raised concern that the scheme would sterilise royalties in the mining sector.
Furthermore, the incentives are an unnecessary sweetheart deal to a sector that largely exports raw minerals. A sector whose resource base is finite which Treasury and civic society have often accused of not fairly contributing to community development and where illicit financial flows remain
a major concern.
Cumulative export receipts and incentives amounts (05 May 2016- 31 December 2017)
| Sector |
Export Receipts (USD) |
Incentive Amounts (USD) |
Bond Notes Issued to Banks (USD) |
| Mining excluding gold |
$2,645,809,356 |
$58,268,089 |
$56,000,000 |
| Gold producers |
$1,282,023,093 |
$59,313,208 |
$59,200,000 |
| Totals |
$3,927,832,449 |
$117,581,297 |
$115,200,000 |
Extracted from the 2018 Monetary Policy Statement, Page 8
From the above table, the mining sector received export incentives amounting to $117,581,297 from 05 May 2016 to 31 December 2017. Looking at annual revenue performance reports produced by Zimbabwe Revenue Authority (ZIMRA), the only distinct mineral revenue stream is royalty income. In 2016 and 2017, mineral royalties’ contribution was $62,901,509.54 and $136,013,3018.23 respectively.
Considering that mining sector received $117,581,297 as export incentives from 05 May 2016 to 31 December 2017 and paid $136,013,308.23 royalties in the same period, January 2016 to 31 December 2017, in real terms, mining paid royalties amounting to $18,432,011.23.
Effectively, royalties were discounted by nearly 86 percent as a result of the incentives. Royalties are a reliable and predictable income stream which is less sustainable to tax evasion and tax avoidance, unlike profit based taxes. RBZ’s move to sterilise mining royalties hurts government’s fiscal abilities to finance service delivery from the country’s huge mineral wealth endowment.
According to RBZ, the rationale for export incentives is to drive export earnings. In the mining sector, export earnings can be boosted by several factors which include either price or production increments or a combination of the two. Also export earnings can be boosted by mineral value addition and beneficiation and access to capital among others. The monetary policy contends that world commodity prices for base metals and precious metals are firming, platinum being an exception.
Ferrochrome production has spiked mineral export earnings, and the the lifting of the government ban on raw exports is the main driver, in addition to favourable market prices. Gold, the lead export earner in the mining sector is anchored by artisanal and small-scale gold mining (ASGM) whose production eclipsed large scale miners in 2017. ASGM accounted for 53% of the country’s total gold production of 24,843.87 kgs.
A combination of factors can be credited for this success story. The “no questions asked policy on gold deliveries” and RBZ’s gold production support fund are some of the prominent factors. $74 million was disbursed to 255 small scale gold miners in 2017 and RBZ has doubled the fundat $150 million in 2018.
If the above factors are to be considered, RBZ must surely come up with a sensible justification on how the incentives scheme in the mining sector has boosted mineral production.
The central bank’s failure to address the liquidity situation means the sector is always susceptible to the black market.
RBZ pays 70 percent in USD cash and the balance through bank transfers or bond notes, the latter getting a five percent premium. But the black market is prepared to pay 100 percent cash in foreign currency.
Government policies on incentives as currently constituted is contradictory: on one hand government is incentivising miners for exporting raw minerals and on the other it is taxing raw exports to encourage the beneficiation of raw minerals.
Minerals are a finite resource and the opportunity to garner taxes to fund social service delivery will not last forever.
-Source
