A Social, Economic and Environmental Impact Analysis

The Impact of Foreign Direct Investment in the Mining Sector in Zimbabwe

The Case of Chivi, Gwanda, Hwange, Marange, Mutoko and Penhalonga

Investing In People For Social and Economic Justice In Zimbabwe

ZIMCODDZimbabwe Coalition on Debt and Development

PublishedByZIMCODD

226SamoraMachelAvenue,Eastlea,Harare

Tel:04776830E-mail:zimcodd@zimcodd.co.zw

©ZIMCODD2018

Investing in PeopleFor Social and Economic Justice

A Social, Economic and Environmental Impact Analysis

The Impact of Foreign Direct Investment in the Mining Sector in Zimbabwe

The Case of Chivi, Gwanda, Hwange, Marange, Mutoko and Penhalonga

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Table of Contents

ACRONYMS.............................................................................................................................................................................4ExecutiveSummary............................................................................................................................................................5

INTRODUCTIONANDBACKGROUND.........................................................................................................71.0Introduction...................................................................................................................................................................71.1Background.....................................................................................................................................................................81.2StructureoftheResearch..........................................................................................................................................91.3Methodology...................................................................................................................................................................9

2.0FOREIGNDIRECTINVESTMENTTRENDSINZIMBABWE,2009-2018...................................112.1RegionalComparisonsinSouthernAfrica........................................................................................................15

3.0THESOCIAL,ECONOMICANDENVIRONMENTALIMPACTSOFFDIINTHEMININGSECTOR............................................................................................................................................................163.1Introduction.................................................................................................................................................................163.1.1CommunityVoices..................................................................................................................................................173.2EconomicImpactsofFDIinMining....................................................................................................................183.2.1InvestmentIncentiveRegimeanditsImpactonGovernmentRevenue............................................213.2.2ProposedFiscalSEZsIncentives......................................................................................................................223.2.3ProposedNon-FiscalSEZsIncentives.............................................................................................................233.3SocialImpacts..............................................................................................................................................................253.4EnvironmentalImpacts...........................................................................................................................................26

4.0CONCLUSION...........................................................................................................................................27

5.0RECOMMENDATIONS...........................................................................................................................285.1RecommendationstoGovernment.....................................................................................................................285.2RecommendationstothePrivateSector(Investor)......................................................................................285.3RecommendationstoCivilSocietyOrganisations.........................................................................................295.4RecommendationstoHostCommunities.........................................................................................................29

REFERENCELIST...............................................................................................................................................................30

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ACRONYMS

ACHPR AfricanCharteronHumanandPeoples’RightsAMV AfricanMiningVisionASM ArtisanalandSmallScaleMiningBOT BuildOperateTransferBOOT BuildOwnOperateandTransferBRICS Brazil,Russia,IndiaandChinaBVI BritishVirginIslandsCEDAW ConventionontheEliminationofAllFormsofDiscriminationAgainstWomenCNRG CentreforNaturalResourceGovernanceCSOs CivilSocietyOrganisationsDTA DoubleTaxationAgreementsEMA EnvironmentalManagementAgencyESAP EconomicStructuralAdjustmentProgrammeFDI ForeignDirectInvestmentEITI ExtractiveIndustriesTransparencyInitiativeFSP FinancialServiceProvidersFPIC FreePriorandInformedConsentGDP GrossDomesticProductHRIA HumanRightsImpactAssessmentsIFFs IllicitFinancialFlowsMNCs MultinationalCorporationsOSSIC OneStopShopinvestmentServicesRSA RepublicofSouthAfricaSEZ SpecialEconomicZonesSIA SpecialInitialAllowanceSMEs SmalltoMediumEnterprisesSADC SouthernAfricanDevelopmentCommunityUAE UnitedArabEmiratesUK UnitedKingdomUNCTAD UnitedNationsConferenceonTradeandDevelopmentUNGPHR UnitedNationsGuidingPrinciplesonBusinessandHumanRightsUSA UnitedStatesofAmericaVAT ValueAddedTaxZELA ZimbabweEnvironmentalLawAssociationZIA ZimbabweInvestmentAuthorityZIMCODD ZimbabweCoalitiononDebtandDevelopmentZIMASSET ZimbabweAgendaforSustainableSocio-EconomicTransformationZMRTI ZimbabweMiningRevenueTransparencyInitiativeZIMRA ZimbabweRevenueAuthorityZCC ZimbabweChamberofCommerce

EXECUTIVE SUMMARY

The study interrogates the social, economicand Environmental impacts of foreign directinvestmentintheminingsectorbasedoncasesfrom Chivi, Gwanda, Hwange, Marange,MutokoandPenhalonga. Thegovernment isdoing everythingwithin itsmeans to attractFDI across sectors of the economy followingnearly two decades of macroeconomicstagnationcharacterisedbyforeignexchangeshortages, high debt overhang, politicaluncertainty, capital �light, unemployment aswellas�iscalandcurrentaccountde�icit.Thegovernment policy thrust is to repositionprivate sector as the key driver of theZimbabweaneconomy.TheIndigenisationandEconomicEmpowermentActwasimmediatelyrepealed to limit the 51/49% indigenisationthresholdtoonlytwomineralsintheextractivesector namely diamond and platinum, andSpecial Economic Zones lawwas gazetted inAugust 2018 to operationalize the SpecialEconomic Zones which were adopted inOctober2016.Whilst thegovernment,underthe“neweconomicorder”anticipatesmassiveemployment creation, technology and skillstransfer,anincreasegovernmenttaxandnon-tax revenue, foreign exchange earnings andsurge in Gross Domestic Product (GDP), thecommuni t ies foresee env i ronmenta ldegradation which poses a threat to theirhealth, access to food and water, loss ofproductive land and properties withoutcompensation and/or suitable alternatives.The absence of an inclusive developmentframework for extractive industry coupled

with the exclusion of local communitiesthroughouttheentirevaluechaincastsalotofdoubt on the potential role of the sector intransformingtheeconomyandpeople'slives.

In ful�illing the government and corporateinterest of maximizing revenue and pro�itsrespectively,thecommunitiesaresubjectedtoadverse impactsof largescaleminingon theenvironment,sociallifeandlivelihoods.Thesesoc ia l , economic and env ironmenta lconsequences impact women the most. Theminingsectorbyitsnatureiscapitalintensiveandemploysveryfewpeople,whichlimitsthepositiveimpactofminingtoemployment,forinstance. Whereemploymentisguaranteed,usua l ly i t i s not qua l i ty and decentemployment. Worse still, the sector is maledominatedduetothetraditionalgenderrolesascribed to women and the unfavourableconditionsintheremoteworkingsites.

LocalcommunitiesinZimbabweareleftwithnothing since thehugechunkof tax revenueand royalties are channeled to the nationaltreasury. Local governments are entitled tounitary tax, which is charged per unitycomprising of 10 unskilled laborers. Withmechanizat ion of mining companies ,technology has crowded out unskilledworkforce, which ultimately affects revenuegenerationforlocalauthorities.Suchunequaldistributionofresourcesviolatesthenationalconstitution which provides for equitabledistribution of resources. Even at nationallevel, the excessive use of tax concessionserodesthetaxbasetherebyunderminingthestate capacity to provide the basic publicservicesandinfrastructuredevelopment.Forinstancethe5yeartaxholidaysundertheSEZs

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means that the investor will not be payingtaxesforthose5years.Thesametaxholidayscan also be abused by the multinationalcompanieswhonormallyexhausttheirinitial5years,closeshop,andcomeunderadifferentname to enjoy another tax holiday. Thegovernment should therefore balance thecompetinginterestsofattractingforeigndirectinvestorswhilst generating revenue to growtheeconomy.

Thecommunitiesarenormally leftwithghosttownswithoutalternativesourcesoflivelihoodsafter the lifetime of the mine. Mvuma townwhichwasonceahiveofactivityinthe1990sisnowaghost townafter the closureofAthensMinein1996.KamativiTinMine,MhanguraandBuchwa mine have also left the miningcommunitieswithoutanyalternativesourceoflivelihoodfollowingtheirclosure.Sincemineralresources are �inite, this is an impendingscenarioinmostminingtownsinZimbabwe.

The “new scramble” for and exploitation ofAfrica'snaturalresourcesledbytheemergingeconomies such as Brazil, Russia, India andChina (BRICS) has been characterised byviolationof human rights, displacements, andaccelerated levels of inequality and poverty.Failure to manage expectations between thegovernment, the community and miningcompanieshasfueleddisturbancesinthesocialfabric and con�licts. Mining companiescommencetheiroperationswithoutthesociallicensetooperate.Communityvoicescollectedduring district, provincial and nationalalternative mining indabas con�irms thatmininghasatendencyofdisruptingsociallives,causing gender-based violence, spreading

HIV/AIDS, and extreme levels of violence inresource-based con�licts. This is prevalent inHwange,MarangeandPenhalonga.

This study recognises the equally importantroles played by the government, the privatesectorminingcommunitiesandcivilsocietyinthe mining sector. Speci�ic recommendationsare, therefore proffered highlighting the keyactionsthateachshouldtaketoensurethatFDIcontributes to sustainable development inZimbabwe.

InorderforZimbabwetobene�itfromtheFDIintheminingsector,thegovernmentshouldputinplace safeguards to ensure sustainabledevelopmentinitsthreedimensionsofsocial,economic and the environment. This is verycritical for the management of differing andopposing expectations of the community,government and the private sector. The �irststep is a deliberate decision that ful�ills thesociallicensetooperateandrespectforsocialcontract apart from the resource contractbetween the government and the miningcompanies. Whilst civil society organisationsstep up efforts in holding the government toaccount on issues of transparency andaccountabilityinmineralrevenuemanagement,social and environmental degradation, theyshould step up efforts in building an activeagencyofcitizenryaroundminingcommunitiesso that the communities develop andstrengthen resilient mechanisms. The hostcommunities,should,ontheotherhandprepareandpositionthemselvesinordertobene�itfromlocal procurement arrangements throughcommunityledlobbyandadvocacyefforts.

6

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INTRODUCTION AND BACKGROUND

1.0 Introduction

Foreign Direct Investment (FDI) in theextractive industry is inevitable especially inmining due to its complexity, high risk andcapital intensive nature of the sector. TheMultinational Corporations (MNCs) normallybringincapitalandtechnologythatisrequiredtoconvertpassivenaturalcapitalinto�inancialcapital.Allthingsbeingequal,FDIstimulatesemployment creation, technology and skillstransfer,increasegovernmenttaxandnon-taxrevenue,propelforeignexchangeearningsandultimately Gross Domestic Product (GDP).Once extracted, natural resources have thepotential to improve standards of living,promote wealth creation and eradicatepoverty. Private sector investment inZimbabwe's mining sector presents thecountrywith greater opportunity for sharedeconomicgrowthandcouldpotentiallycreatejobsandimprovelivelihoodsaswellasaccessto water, health care, education, and otherinfrastructure. More often, this developmentstrategy poses signi�icant risks to localcommunities, aswell asaccelerated levelsofpoverty and inequality. Multinationalextractive companies come with signi�icantrisksincludingenvironmentaldamage,whichthreatenpeople'srightstohealth,water,food,and housing, especially in countries wherecommunit ies are not involved in thecontractual processes. Mining communitiessuffer from loss of productive land and

properties, are subjected to inadequatecompensation, or suitable alternatives. Thishas remained a challenge for many mineralresource rich countries in Africa includingZimbabwe.

Notwithstanding the natural resource curse,AfricanHeadsofStatescollectivelyagreedontheAfricanMiningVision(AMV)whosegoalisto create a “Transparent, equitable andoptimalexploitationofmineralresourcestounderpin broad-based sustainable growthand socio-economic development”. Despiteitsadoptionby theAfricanHeadsofState in2009, little has been done to reverse theresource curse in Africa. Zimbabwe, as asignatory to theAMV, has done very little inpursuitofthisvision,butstillbelievesthatthemining sector is the springboard to turningaround the economy. The absence of aninclusive development framework forextractiveindustrycoupledwiththeexclusionof local communities throughout the entirevaluechaincastsalotofdoubtonthepotentialroleofthesectorintransformingtheeconomyandpeople'slives.ThesectorisstillguidedbytheMinesandMineralsActof1961.TheMinesandMineralsBillwhichwasproposedin2010isstill indraft form.Civilsocietyactorshavemadeenormouscontributionstothedraftbillaimed at reversing some of the regressiveprovisions of theMines andMinerals Act of1961includingthevestingofresourcesinthehands of an individual rather than the state,poorgeologicaldataandlackoftransparencyand accountability. As a result, the miningsector has remained an enclave economy,isolated from the rest of the economy. TheDiamond rush in Chiadzwa had negatively

1

8

affectedtherestoftheeconomytoanearDutchdiseasewhereall the resources,bothhumanand�inancialmigratedtothediamond�ields.Adecade later, the mining communities inChiadzwaaremuchpoorerthanbefore.

In a regime where contracts are negotiatedbehind closed doors with guarantee fromcon�identialityandstabilizationclauses,miningcompaniesengageintaxevasionandavoidancewhichperpetuateresourceleakagestotherestof the world, particularly to tax havens andsecrecyjurisdictions.TheZimbabweisOpenforBusiness mantra ushered in a plethora ofinvestmentincentivesforattractinginvestmentinto the mining sector which subject thecountrytothe“racetothebottom”syndromebyout-competingotherAfricancountries.

Women's rights are compromised and/orviolated.Theybear the social costsofminingincluding sexual harassment, gender basedviolence, HIV/AIDS prevalence, and resourcebased con�licts as well as drug abuse. Themining sector is known forpersistent genderbasedbarriersforwomenaccesstoresources.Therefore, there is simply no effectivemechanism to address social exclusion in thecurrent policy and legislative frameworkgoverning the mining sector in Zimbabwe.Engagement between the private sector andCivil Society Organisations (CSOs) remainsgenerallyhostileandcharacterisedbymistrust.

The government has , however, h i ghexpectationsoftheminingindustry,projecting

exportreceiptsof$2.5billionin2018upfrom$2.3billionin2017.Miningcontributesaround13% to GDP and 68% of Zimbabwe's totalexportreceipts.

1.1 Background

Following nearly two decades of economicregression, the government of Zimbabweusheredinthe“neweconomicorder”whichispremised on re-engagement with theinternational community and creation of aninvestor friendly environment¹. Pursuant tothat , the “Investment Guidelines andOpportunities in Zimbabwe” framework waspromulgated,todriveinvestmentinthecountry.This policy pronouncement places FDI at theforefront of Zimbabwe's development agenda.The country is premised for a radical shifttowards a market economy which guaranteeslegal protection that encourages and protectsprivate enterprises². Quite striking under the“New Era” i s the amendment o f theIndigenisationandEconomicEmpowermentActwhich con�ined the 51/49% indigenisationthresholdtoonlytwomineralsintheextractivesectornamelydiamondandplatinum.Thishassparkeda lot of debate amongandacross thepoliticaldivide,academiaandmembersofcivilsociety, with regard to the effectiveness of acoterie of investment incentives for attractingFDI into the country. The new administrationcarriesforwardtheaspirationsoftheZimbabweAgenda for Sustainable Socio-EconomicTransformation (ZIMASSET) which identi�iedtheparticipationofprivatesectorandtheneed

¹2018NationalBudgetStatement²InvestmentGuidelinesOpportunitiesinZimbabwe,January2018

9

for increasingFDIas integral inrebuilding theeconomy following nearly two decades ofstagnation.The government took anumberofstrides in improving the conditions of doingbusiness in thecountry includingreducingthecost,timeandproceduresofdoingbusinesswithaviewtoattractingdomesticandforeigndirectinvestment. In October 2016, ZimbabweadoptedSpecialEconomicZones(SEZ)asawayof providing investment incentives toinves tments in agr i cu l ture , m in ing ,manufacturing,tourismandservicessector.

Underthecurrentinvestmentregime,allcapitalexpenditure on exploration, development, andoperating incurred wholly and exclusively formining operations is allowed in full, miningcompanies are allowed to carry over losesinde�initely and taxable income of holders ofspecialminingleasesaretaxedataspecialrateof15%.TherecentlygazettedSpecialEconomicZones Law increases the vulnerability ofZimbabwetoillicit�inancial�lows(IFFs)astheMNCs take advantage of and manipulate theabsolute5yeartaxholidayandthesuccessivetaxbreaks.MNCsarenotoriousformanipulatingtrade mis-invoicing and trade mis-pricing toavoidpayingtaxes.Inmostcasestheyfacilitatetrade between subsidiaries, borrow fromown�inancial service providers and seek specialservicesfromownconsultancycompanies.Theanti-avoidance provisions towards aggressivetax planning structures introduced in thetransfer-pricingframeworkasof1January2016isanattempttocurbthisscourge.

1.2 Structure of The Research

Theresearchbeginswiththegeneraloverviewof FDI regime in Zimbabwe under the 'new

dispensation'. The analysis of FDI trends inZimbabwe between 2009 and June 2018 isbased on �igures from the United NationsConference on Trade and Development(UNCTAD) and the Zimbabwe InvestmentAuthority(ZIA).Theanalysiswasdoneonthebasis of both source and sector. Regionalcomparisons were also made against benchmarkingonthe trend in theSouthernAfricanDevelopment Community (SADC) region. TheresearchnarrowsdowntotheimpactsofFDIintheminingsectorontheeconomy,thepeopleand theenvironment.Theresearchconcludeswithspeci�icrecommendationstogovernment,private sector, civil society organisations andtheminingcommunities.

1.3 Methodology

To understand the legal and regulatoryframeworksforFDIandminingsector,policydocuments such as the budget statements,InvestmentPolicy,NewInvestmentGuidelinesandOpportunities in Zimbabwe, and variousActs of parliament have been consulted. TheActs of Parliament that are relevant to thisanalysisincludestheFinanceAct(1965),MinesandMineralsAct(1961)ZimbabweInvestmentAuthority Act (Chapter 14:30) as amendedamongothers.StatutoryInstrumentsthatareinplacewerealsoreviewed.

The research teamalso used secondarydataparticularly research papers on �iscal policy,�iscal governance and investment reform inZimbabwe. The reports were drawn fromgovernment agencies, academia and civilsocietyinordertohaveabalancedview.

10

In terms of primary research, the authorconductedkeyinformantinterviews,withtheZimbabweRevenueAuthority(ZIMRA)andtheZimbabwe Investment Authority. Theresearcher also consulted several policydocumentsintherepositoryoftheMinistryofFinanceandEconomicDevelopment,MinistryofIndustryandCommerce,ZimbabweRevenueAuthority,ZimbabweInvestmentAuthority,theChamberofMinesandtheZimbabweChamber

of Commerce (ZCC) among others. Theresearch drawsmajor conclusions from casestudiesonimpactsofFDIintheminingsectortominingcommunitiesinHwange,PenhalongaandGwanda.Theresearchteamconsolidatedvoicesfromcommunitieslivinginandaroundmining areas which were collected duringDistrict and Provincial Alternative MiningIndabas in order to capture their views onimpactsofminingtotheirlives.

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FOREIGN DIRECT INVESTMENT TRENDS IN ZIMBABWE, 2009 - 2018

FDIintoZimbabweisonadownwardtrendsince2014,fallingby23%toUS$289millionin2017comparedtoUS$372millionrecordedin2016³(referto�igure1below).Thiswaslargelyduetothe political uncertainty which dampenedinvestmentprospectsamongotherbottlenecksintheinvestmentenvironmentsuchasthepoorimplementationoftheindigenisationpolicy.

Figure 1: FDI to Zimbabwe (US$ Million)

Figure 2: Total FDI Approvals (US$ Million)

TheUNCTADbasedFDIin�lowsandtheZIAFDIapprovals followed a similar trend between2012and2017.FDIapprovalsfellfromUS$3.2billion in 2015 to US$2.3 billion and US$1.5billion in2016and2017 respectively.Havingapproved US$33 .94 b i l l ion worth o finvestmentsbetween2009andJune2018,US$15.76 billion worth of investment approvalswere made from 165 investment proposalsbetween January and June 2018. During thisperiod 107 foreign investors registered withZIAwhilst57projectsand1project are jointventures between foreign and local investors,and indigenous investors respectively. Theannualapprovalsarearecordofinvestorswhohave sought approval from the Zimbabwe

2

FDI to Zimbabwe (US$ Million)

600

500

400

300

200

100

02012 2013 2014 2015 2016 2017

Source: Author based on the UNCTAD World Investment Report figures of 2018

Year

18,000.00

16,000.00

14,000.00

12,000.00

10,000.00

8,000.00

6,000.00

4,000.00

2,000.00

0.00

2011

2013

2014

2015

2016

2017

2009

2010

2012

2018

Source: ZIA Database, 2018

³WorldInvestmentReport,UNCTAD,2018

12

Investment Authority in a given year. Suchinvestmentsmaynotmaturewithin thesameyearandsomeinvestmentsmayevenfailtoseethelightofday.Inotherwords,approvalsarenoguarantee that the investors will eventuallycomeandinvest.Therefore,fromtimetotime,ZIAshouldundertakeperiodicFDIsurveys inorder to improve the credibility of theirinformation on foreign direct investment.However,theapprovalsgiveanindicationofthedirectionof�lowbysourceandcountrywhichiscriticalforinformingthepolicydirection.

OutoftheUS$15.76billionapprovedin2018,theenergysectorcontributed74%followedbyservicessector (15%)andmining(7%). Thesharpincreaseisattributedtotherestorationofinvestor con�idence since November 2018whenPresidentMnangagwatookoverthereinsafter37yearsof theruleof formerpresidentRobert Mugabe who was known for policyinconsistency and reversals, especially on theIndigenisationPolicy.

Figure 3: FDI Approvals by Sector (2009 – 2018)

Fromthe timePresidentMnangagwaassumedof�iceinNovember2018,hispolicythrustplacesFDIattheforefrontofZimbabwe'sdevelopmentagenda. The need to promote, attract andfacilitatedomesticandforeigninvestmentundertheZimbabwe isOpen forBusinessmantrahasbeenreverberatedasacriticaltoolforrevivingtheeconomy.Theinvestmentdriveisexpectedtoaddress the other bottlenecks in the economyincludinghighunemploymentamongtheyouth,addressing the infrastructure gap, acceleratedindustrializationandmodernization.Thereisadeliberate policy shift towards neoliberalism.Following the neoliberal route would riskexacerbating poverty and inequality, drawinglessons from the Economic StructuralAdjustment Programmes (ESAP) implementedin the late 1980s and early 1090s. The biastowards FDI should, however, be promoted inways that strengthen good governance andsustainabledevelopment.

Theenergysectorwhichregisteredthebiggestvalue of projects proposed by investors at acombined value of US$11.7 billion were fromonly6projects.Thiswasfollowedbytheservices

Agriculture

Construction

Energy

Manufacturing

Mining

Services

Tourism

Transport

12,000.00

10,000.00

8,000.00

6,000.00

4,000.00

2,000.00

0.002011 2013 2014 2015 2016 20172009 2010 2012 2018

Source: Author based on figures from ZIA

13

sectorwithacombinedvalueofUS$2,33billion.TheminingsectorcamethirdwithacombinedvalueofUS$1.1billion.

Figure 4: FDI Approvals by Sector (Jan-Jun 2018)

In terms of number of approved projectproposa ls , 59 mining companies , 44manufacturing companies, 33 services, 8constructions, 6 agriculture, 6 energy, 6tourism and 3 transport registeredwith ZIAbetweenJanuaryandJune2018.Thiscoincideswiththetrendpriorto2018wheretheminingsectorleadsthepackwithacumulativevalueofUS$7.4 billion followed by manufacturing atUS$4.2billionandenergyatUS$2.3billion.

The investment proposals between JanuaryandJune2018weremainlyfromSouthAfrica(US$499million),MauritiusUS$5billion),NewZealand (US$2.2 billion) and China (US$1.5billion).SouthAfrica,ChinaandMauritiusareaconstant supplierofFDI intoZimbabwe,andinvestors from these countries are usuallyspreadacrosssectors,with investors fromatleastallthethreecountriesinvestinginmining.ChinawithFDIvaluedatUS$292.5millionwasalsoamongthetopforeigndirectinvestorsin

2017togetherwiththeBritishVirginIslands(US$435 million) and Bulgaria (US$256.6million).

Figure 5: Cumulative FDI by Sector (Jan-Jun 2017)

Whilst celebrating investments comingfrom Hong Kong, British Virgin Islands,Mauritius, Luxemburg, United ArabEmirates, Germany and Japan, it is quiteworrying that these countries are typicaltaxhavenswhichofferverylowtonotaxesatalland�inancialsecrecy.Thesetwoareconduitsfortaxavoidanceandevasion.

NewZealandwhichcontributedabout14%ofFDIbetween Januaryand June2018 isalsonotoriousforofferingoffshore�inancecompanystructures.TheFinancialServiceProviders Act of 2008 enables theregistrationofNewZealandcompaniesasFinancialServiceProviders

Services10%

Tourism5%

Agriculture2%

Transport0%

Construction4%

Mining25%

Manufacturing13%

Energy41%

Services6%

Tourism9%

Agriculture3%

Transport0% Construction

5%

Mining41%

Manufacturing23%

Energy13%

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Figure 6: Approved FDI by Source (2017)

Figure 7: Approved FDI by Source (Jan-Jun 2018)

Itisnotbycoincidencethatforeigninvestors

from9outof28 source countries registered

andapprovedbyZIAbetweenJanuaryandJune

2018 have double taxation agreements with

Zimbabwe. Zimbabwe has double taxation

agreements with Australia, Canada, China,

German, Mauritius, South Africa, Sweden,

United Kingdom and Zambia. To date,

ZimbabwehassignedseveralDoubleTaxation

Agreements in order to avoiding double

taxationofthesameincomeorcapitaltothe

sametaxpayerinthesameperiodinZimbabwe

and the source country. Double Taxation

agreements are used as an incentive in

Zimbabweastheygivecertaintyoftreatment

totheforeigninvestoronthetaxingrightsof

contracting parties. The double taxation

agreements provide a leeway for treat

shopping for purposes of minimizing tax

payment in Zimbabwe. The DTAs also offer

reduced rates of withholding taxes on

dividends,interest,royaltiesandtechnicalfees

asshowninthetablebelow.

UAE1%

RSA35%

USA3%

Others1%

Australia1% China

10%India3%

Newzealand14%

Mauritius32%

Table 1: Withholding Tax - Treaty Against Non-Treaty Rates

Normal Tax Rate %

Non Resident tax on Dividends (Minimum of 25% shareholding)

Non-Resident tax on Dividends (In all other).

Non Resident tax on interest (repealed with effect from 30 Sept 2009)

Non Resident tax on Fees

Non Resident tax on Remittances

Non Resident tax on Royalties

UK Germany Netherlands Sweden South Africa China Botswana

10

10

-

15

15

15

5

5

-

10

20

10

10

10

-

7.5

20

7.5

10

10

-

10

20

10

15

15

-

10

20

10

5

10

5

5

-

10

2.5

7.5

7.5

10

-

7.5

5

10

10

10

-

10

Source: PKF, 2013

Bulgaria17%

BVI29%

China19%

Others6%

UK6%Singapore

4%Scotland4%

RSA2%

Mauritius2%

Marshal Islands

5%Israel6%

Source: ZIA Database, 2018

15

2.1 Regional Comparisons in Southern Africa

ConsistentwiththeglobalandSouthernAfricantrends where FDI fell by 23% and 66%respectively, Zimbabwe experienced a 22%decline in FDI in 2017 fromUS$372 in 2016.Angolawastheworstaffectedwithanegativerecordof–US$2.3billionfromUS$4.1billionin2016 as foreign af�iliates in the countrytransferredfundsabroadthroughintracompany

loans⁴. South Africa, Swaziland, Malawi andMozambiquefollowedsuitwithSouthAfricaandMozambique experiencing a 41% and 26%decline respectively. Paradoxically, FDI intoZimbabwe remain lower than that of SouthAfrica and Mozambique despite the hugedecline. Zambia on the other hand,was themajorbene�iciaryofFDIin�lowsintotheregionin2017,recoveringfroma49%declinein2016.

Table 2:

2012

7 330

-6 898

487

139

129

5 629

1 122

4 559

32

1 732

400

2014

16 370

1 922

515

162

599

4 902

441

5 771

26

1 489

545

2013

11 677

-7 120

398

123

446

6 175

770

8 300

85

2 100

400

2015

19 028

9 282

679

169

288

3 867

1 247

1 729

41

1 305

421

2016

11 437

4 104

129

132

326

3 093

361

2 235

21

663

372

2017

3 836

-2 255

401

135

277

2 293

416

1 325

-137

1 091

289

Southern Africa

Angola

Botswana

Lesotho

Malawi

Mozambique

Namibia

South Africa

Swaziland

Zambia

Zimbabwe

FDI into Southern Africa from to 2012-2017 (USD million)

⁴UNCTAD,WorldInvestmentReport,2018

⁵’⁶SpecialRepresentativeonBusinessandHumanRights,JohnRuggie,(2011)GuidingPrinciplesonHumanRights:ImplementingtheUnitedNations“Protect,RespectandRemedy”Framework,unanimouslyadoptedbytheUnitedNationsHumanRightsCouncil,A/HRC17/13.

16

THE SOCIAL, ECONOMIC AND ENVIRONMENTAL IMPACTS OF FDI IN THE MINING SECTOR

3.1 Introduction

The government of Zimbabwe is doingeverythingwithinitsmeanstoattractFDIacrossthe entire sectors of the economy. It isindisputable that the country is desperate forforeigndirect investment followingnearly twodecadesofeconomicstagnationcharacterisedby�iscalandtradede�icits,capital�light,shortageofforeign exchange, high unemployment,corruption, policy inconsistency and reversals,andpoliticaluncertaintieswhichhaverenderedthe country an unfavourable investmentdestination. The policy thrust under the newgovernment is towards attracting FDI andreengagement with the internationalcommunity. Whilst FDIs have the potential toturnaroundtheeconomy, theanticipatedgainswillremainafallacyifnosafeguardsareputinplace toensuresustainabledevelopment in itsthreedimensionsoftheeconomy,environmentand the society. Theboneof contention is theexcessiveliberalizationoftheeconomytoallowfull foreign ownership and control of mineraland other resources by relaxation of theIndigenisation and Economic EmpowermentAct, save for diamond and platinum. Miningcommunitieswerethe�irsttoraisethered�lagsasthepolicyshiftmeantlosingthebene�itsthatwereguaranteedtothemundertheCommunity

ShareOwnershipSchemes.Miningliberalizationsubjectsthecountryandminingcommunitiesinparticulartotheadverseimpactsoflargescaleminingontheenvironmentandlivesofminingaffectedcommunities.

The United Nations Guiding Principles onBusinessandHumanRights⁵ (UNGP)providesfor business enterprises to take responsibilityovertherespectforhumanrightsandplacesonStates the duty to ensure that businessenterprisesrespecthumanrights.Boththestateandtheprivateenterprisesshouldensurethatthe social and economic rights of miningcommunitiesarepromotedandrespected.Theprivateenterprisesalsohavearesponsibilitytorespect human rights and ensuring effectiveremedybyvictims.Thereisstill,howeveralotofeffortneededtoensurethattheseprinciplesaredomesticated and implemented in Zimbabwe.The African Charter on Human and Peoples'Rights (ACHPR) on the other hand provides aregional framework for the protection ofcollective rights of African peoples to freelydisposeoftheirnaturalresources,andtherighttoageneralsatisfactoryenvironmentfavourableto their development⁶. At national level, theconstitutionprovidesforthebillofrightsandthegovernment ismandated to ensure that thoserights are promoted, protected and respected.With all these international, regional andnational frameworks, and provisions, peoplessocial, economic and environmental rights arestillbeingviolated.

Thesocial,economicandenvironmentalimpactsofminingimpactonwomenthemost.Failureto

3

17

promote gender equality in themining sectorwhilst protecting women will undermine thecurrent effort in the emancipation of womenpursuanttotheGenderPolicy,theSADCProtocolonGender,theConventionontheEliminationofAll Forms of Discrimination Against Women(CEDAW1979),theInternationalConferenceonPopulation and Development (1994), BeijingDeclaration and Platform for Action (1995),SustainableDevelopmentGoals(SDGs,2015).

3.1.1 Community Voices

During community engagements at district,provincial and national alternative miningindabas conducted in Manicaland (includingPenhalonga), Mashonaland East (Mutoko),Midlands and Matebeleland Provinces, thecommunity members revealed some of thesocial,economicandenvironmentalimpactsofminingasoutlinedbelow;

Social, Economic and Environmental Impacts

à Increased violence and crimeà Lack of work securityà Relocation of 1500 families from Marange to Arda Transau without compensation and livelihood

optionsà Prostitution and alcoholismà Small scale miners were assaulted, tortured and others killedà Loss of livestock as a result of drinking contaminated water and falling into open pitsà Water pollution in Odzi and Save river making it unsafe for domestic use

à Pollution of Odzi river rendering the water unsafe for domestic useà There is violence and community conflict in Penhalonga;à Air pollution from Redwing mine à There is a serious proliferation of prostitutes/commercial sex workers in Tsvingwe which is

resulting in the destruction of many homes and families;

à Infrastructure damages especially roads by trucks carrying graniteà Pollution (air, water, land)à Disturbance of the ecosystemà Relocation of people without compensation à Social degradation (early marriages)à Health hazard (miscarriages due to blasting)à Poor revenues (U$1 for every tone of granite extracted)à Lack of community participation and involvementà High School dropoutsà Role of local authorities not recognised

Marange

Penhalonga

Mutoko

Mining Community

18

Social, Economic and Environmental Impacts

Hwange

Gwanda

Chivi

Mining Community

à Mining in Hwange and surrounding areas has caused a serious environmental damage and

continues to cause destruction. Environmental assessments are not carried out and companies

pay to pollute and the proceeds from that are not cascaded to the communities. à Disused dumps in Deka have been left open for years and the community has lost its livestock due

to such with no compensation.à There is depletion of water sources due to excessive usage of water. à There also massive water pollution which has led to death of livestock and affected the fishing

business in the Deka area. à Working conditions for those employed are also pathetic as they work in mines without protective

clothing and job security. à Community members are threatened by mining companies for voicing out their concerns;à Houses for most communities in mining areas are cracking due to blasting from the mines. The

situation has now affected the railroad system causing a number of derailments and putting

people's lives at Risk.

à Pathetic working conditions for workers à The mining companies flout labour lawsà Pollution of Mtshakazi river which is the main water source for Bulawayo and Gwanda

à Disruption of education at Zhara Primary School and nearby secondary due to drilling within the

school premisesà Exploration in people's farms without consent, leaving large pits uncoveredà Livestock dying due to water pollutionà Local youth missing out on employment opportunities at Murowa Diamond à Murowa Diamond diverted a water pump supplying the community to own useà Early pregnancies and prostitutionà There are fears that people will be relocated

3.2 Economic Impacts of FDI in Mining

AlthoughtheConstitutionmandatesthestatetoensurethatlocalcommunitiesbene�itfromtheresourcesintheirarea,miningcommunitieswhobear thebruntofextractivismhavenothing toshowfortheresourcesintheircommunities.

The mining sector by is capital intensive bynature and employs very few people, whichlimits the positive impact of mining toemployment.Whereemploymentisguaranteeditisusuallynotqualityanddecentemployment.

To make matters worse, the mining sector inZimbabwe is male dominated due to thetraditionalgenderrolesascribedtowomenandthe unfavourable conditions in the remote

Mutoko RDC receives as little asUS$1/tonneofblackgraniteextractedin the area, despite high levels ofenvironmental degradation anddestruction of road infrastructure.This is the case for most miningcommunities

19

working sites. Based on the Zimbabwe 2011LabourForceandChildLabourSurvey,only2%of employed population in Zimbabwe was in

miningandquarryingwithmoremales(3.6%)thanfemales(0.3%)employedinthesector.

Distribution of Employment by Economic Sector

Source: Zimbabwe 2011 Labour Force and Child labour Survey P. 61

Agriculture, Forestry and Fishing

Mining and Quarrying

Manufacturing

Electricty, Gas Steam and Air Conditioning Supply

Water Supply, Sewage, Waste Management and Remediation Activities

Construction

Wholesale and Retail Trade, Repair Motor Vehicles and Motor Cycles

Transportation and Storage

Accommodation and Food Service Activities

Information and Communication

Financial and Insurance Activities

Real Estate Activities

Professional, Scientific and Technical Activities

Administrative and Support Service Activities

Public Administration and Defence, Compulsory Social Security

Education

Human Health and Social Work Activities

Arts Entertainment and Recreation

Other Service Activities

Activities of Households as Employers

Activities of Extra-territorial organisations and bodies

Not Stated

Total %

59.9

3.6

7.7

0.3

0.1

3.4

8.2

3.1

0.5

0.5

0.5

0.1

0.4

2.5

2.1

2.8

0.9

0.5

2.3

0.4

0.0

0.1

100

71.6

0.3

2.3

0.0

0.0

0.4

10.7

0.2

0.6

0.1

0.3

0.1

0.3

0.8

0.5

3.4

1.6

0.2

3.6

2.7

0.1

0.2

100

65.8

2.0

5.0

0.2

0.1

1.9

9.5

1.7

0.6

0.3

0.4

0.1

0.4

1.6

1.3

3.1

1.2

0.4

2.9

1.5

0.1

0.1

100

Male Female TotalIndustrial Sector

20

Local communities inZimbabweare leftwithnothingsinceahugechunkoftaxrevenueandroyaltiesarechanneledtothenationaltreasury.Localgovernmentsareentitledtounitarytax,which is charged per unity comprising of 10unskilled laborers. With mechanization ofminingcompanies,technologyhascrowdedoutunskilled workforce, which ultimately affectsrevenuegeneration for localauthorities.Suchunequaldistributionof resourcesviolates thenational constitution which provides forequitabledistributionofresources.

Withoutasustainabilityminingplanthat promotes forward, backwardand sideway linkages, the miningsector remains an enclave economywhose impacts becomes severe atdecommissioningstage

Thecommunitiesarenormally leftwithghosttownswithoutalternativesourcesoflivelihoodsafterthelifetimeofthemine.Mvumatownisatypical example, which was once a hive ofactivityinthe1990sisnowaghosttownaftertheclosureofAthensMinein1996.KamativiTinMine,MhanguraandBuchwaminehavealsoleftthe mining communities without anyalternativesourceoflivelihoodfollowingtheirclosure.Sincemineralresourcesare�inite,thisisanimpendingscenarioinmostminingtownsinZimbabwe.

Thereisnoguaranteethatpeoplewillreceivecompensation for compulsory acquisition ofland to pave way for mining activities. The

People of Chiadzwa are still �ighting for theirlandmorethan5yearsafterrelocationtoArdaTransau in contravention of section 72 subsection3(a)oftheconstitutionwhichprovidesfor compensation of relocated persons forimprovements made on the land before itsacquisition.

Themining sector in Zimbabwe is treated ashighly political, opaque and compromised intermsoftransparencyandaccountability.Thisisinviolationofsection62oftheconstitutionwhichguaranteesaccesstoinformationheldbythe state or any institution or agency ofgovernment at every level in the interest ofpublic accountability. An attempt to enhancetransparency and accountability has beenthwartedbythegovernmentaftercivilsocietypushedfortheestablishmentoftheZimbabweMining Revenue Transparency Initiative(ZMRTI)whichwaslaunchedbythethenPrimeMisterofZimbabwe,MorganRichardTsvangiraiduring the inclusive government. The miningcompanies are instead protected by secrecyclauses.Contractsandthecontractualprocessisnot made public in violation of section 315section (1) and 2 (c) of the Constitution ofZimbabwe which mandates parliament toprescribe procurement procedures of goodsandservicesbythestateandallinstitutionsofgovernmentincludingconcessionsonmineralsto ensure transparency, honest , costeffectiveness and competitiveness. When theformer Minister of Mines and MiningDevelopmentwassummonedbyparliamenttoanswer on issue of mineral resourceGovernance,hedeliberatelyrefusedtorespondin violationof section119of the constitutionwhichsubjectallinstitutionsandagenciesofthestate and government at every level to beaccountabletoparliament.

⁷SpecialEconomicZonesAct(Chapter14:34),2016⁸ZimbabweRevenueAuthoritywebsite,2018

21

Withaviewtorestoretheeconomy'scapacitytoproducegoodsandservicescompetitively,creatingeconomiesof scale goodenough forthe locator of the proposed SEZs to beinternationallycompetitive, ensureinclusivegrowthemanatingfromthespreadofgrowthnodes and diversi�ied provincial offerings,maximize the economic bene�its of a givengeographicallocationanditsstakeholdersandattractmoreinvestmentfromtheInternationalworld⁷, the Special Economic Zones Actwasenactedon1November2016toprovidefortheestablishment of the Zimbabwe SpecialEconomicZones.

The SEZ Act has largely been criticized forsuspending the Indigenisation and EconomicEmpowermentAct(Chapter14:33)whichnowapplies todiamondandplatinumsectorsandtheLabourAct(Chapter20:01).

TheInvestmentGuidelinesandOpportunitiesinZimbabwewhichcameintoeffectinJanuary2018 reiterated the decision to liberalize theeconomy by al lowing corporates andindividualsfreedomtoundertakecrossbordertransactions without seeking prior ExchangeControl Approval. The Investment policyreaf�irmed the tax and non-tax incentivesoutlinedundertheSpecialEconomicZones.

3.2.1 Investment Incentive Regime and its Impact on Government Revenue

The Zimbabwean government is increasinglyusing investment incentives as a tool forattracting foreign direct investments. The

ZimbabweRevenueAuthorityisresponsibleforadministeringtaxincentives⁸whiletheMinistryof Industry and International Trade, theIndustrial Development Corporation and theZimbabwe InvestmentAuthorityare themainadministratorsofnon-taxincentives.Inthecaseof Zimbabwe, tax and non-tax incentives areoffered to enhance incomegeneration, exportpromotion, employment creation and skillstransfer,smallbusinessdevelopment,industrialdevelopment and revenue in�lows. The taxincentivesinZimbabweareofferedintheformof tax holidays, reduced tax rates, andaccelerateddepreciation.

Whilstconferringanadvantagetotheinvestors,the tax incentives impose a cost to thegovernmentintheformofforgonerevenue.Forinstancethe5yeartaxholidaysundertheSEZsmeansthattheinvestorwillnotbepayingtaxesforthose5years.Thesametaxholidayscanalsobeabusedbythemultinationalcompanieswhonormally exhaust their initial 5 years, closeshop,andcomeunderadifferentnametoenjoyanothertaxholiday.Theproposedtaxandnon-taxinvestmentincentivesaresoexcessiveandhence costly to the government. This is cleartestimony that the government has failed tobalance the competing interests of attractingforeign direct investors whilst generatingrevenuetogrowtheeconomy.Thegovernmenthas however argued in favour of investmentincentives assuming that FDI will createemployment,necessitatetechnologyaswellasincreased foreign exchange earnings.Consideringthefactthatthemoderninvestorstake the following forms; resource seeking,marketseeking,ef�iciencyseekingandstrategic

⁹UNECA,IllicitFinancialFlows:ReportoftheHighLevelPanelonIllicitFinancialFlowsfromAfrica,2015

22

asset seeking, investment incentives are noteffective. Instead, they lead to the race to thebottom phenomenon as Zimbabwe continuesgiving tax concessions to outperform otherAfricancountries in competition for the sameresources.

Apartfromenjoyingthesetaxconcessions,theMNCsaresynonymousfortaxplanningtoavoidpaying taxes in Zimbabwe. MNCS normallyengage in treaty shopping where companiescreate new subsidiaries in order to takeadvantageoftaxationtreaties.Thiswillenablethecompanytoenjoyrelatedpartytransactions

thattakeplacewithinaf�iliatecompanies.Asaresult,itbecomesextremelycomplicatedfortheZimbabweRevenueAuthoritytotracethewebof cross border transactions. There are otheraggressivetaxplanningbytakingadvantageofmultiple structures to shift pro�it acrossdifferent jurisdictions, preferably tax havensandsecrecyjurisdictions.Thishasbeenamajorbattle for ZIMRA until they introduced the“arm's-lengthprinciple”⁹uponwhichthenewtransfer-pric ing framework that wasintroducedintotheZimbabwetax lawasof1January2016isbased.

The tax incentives act like subsidies to investors and has the following implications;

Erosion of Tax Base§ With or without tax incentives, efficient, market and

strategic asset seeking investors will still invest in Zimbabwe

§ Tax incentives are subject to abuses and thereby perpetuating illicit financial flows (IFFs)

§ Efficiency and welfare costs

§ Shifting of tax burden to immobile tax bases (labor)

§ Tax incentives distorts resource allocationAdministrative Cost§ Tax incentives increase tax burden on non-qualifying

activitiesEquity§ Tax incentives violate the principle of equity as it

disadvantage other investors who are not in Special Economic Zones for instance.

Corruption § Selective treatment of tax payers creates room for

corruptionRegional Impact § Results in race to the bottom as SADC countries

compete for the same resources using tax incentives

Exemption from Corporate Income Tax for the first 5 years of operation. Thereafter, a corporate tax rate of 15% applies.

Special initial allowance on capital equipment to be allowed at the rate of 50% of cost from year one and 25% in the subsequent two years.

Specialized expatriate staff will be taxed at a flat rate of 15%.

Exemption from Non-residents tax on Royalties.

Exemption from Non-residents tax on dividends.

Capital equipment for Special Economic Zones will be imported duty free.

Inputs which include raw materials and intermediate products imported for use by companies set up in the Special Zones will be imported duty free. The duty exemption will, however, not apply where such raw materials are produced locally.

Corporate Tax

Special Initial Allowance

Employees` Tax

Non-Residents Withholding Tax on

Fees

Non-Residents Withholding Tax on

Dividends

Customs Duty on Capital Equipment

Customs Duty on Raw Materials

3.2.2 Proposed Fiscal SEZs Incentives

Tax Head SEZs Incentives Impact

23

§ Foreign investors have preference over ownership of land over locals. This would result in unnecessary displacements

§ Erosion of the tax base.

§ Total ownership and control of Zimbabwe's resources is against local content development

§ This is a conduit for capital flight and illicit financial flow

§ Local labour maybe pushed out of the market, with preference for expatriates. Chinese investors bring own labour

§ Unequal treatment of investors which disadvantages others outside the SEZ

§ The investors may abuse this facility and exceed the debt to equity ratios

§ This results in forgone revenue for Zimbabwe

Investors shall enjoy 50 year lease and where they purchase urban land, they shall duly receive their title deeds.

Single-window facility for investment registration, c learances through the OSSIC in each enclave/zone.

All importation of clean technologies, those that pre-treat effluent, solid waste and emissions to the Blue and Green Bands shall be duty free in order to promote the use of environmentally friendly technology.

Ownership of companies within the SEZs shall be 100% as per international best practice.

Investors are entitled to 100% repatriation of Capital and profits.

The use of multi-currency regime shall persist.

Automatic work and residences permits of expatriates and investors.

Dedicated water and energy supply in SEZs.

Investors will be allowed to borrow offshore without RBZ approval.

Exemption from local government taxes and levies on underdeveloped land.

Land tenure

One Stop Shop investment Services

(OSSIC)

New Clean Technologies

Ownership

Capital and Profit repatriation+

Medium of Exchange

Residences and Work Permits

Water and Energy Supply

Offshore borrowing

Local Government Taxes and Levies On

Land

3.2.3 Proposed Non-Fiscal SEZs Incentives

Tax Head SEZs Incentives Impact

Besidesthetaxandnon-taxincentivesunderthe SEZs, Foreign direct investors enjoy thefollowing incentives classi�ied according to

sector, type of activity, form of organization,andgeographicallocationofinvestment

Source: Invest in Zimbabwe Handbook, 2017

24

§ Enjoys tax holiday for first 5 years§ Taxed at 15% for the second five years

With effect from 1 January 2015 the rate of tax for manufacturing or processing companies which exports :-§ more than 30% or more of its output but less than 41%------20%§ more than 41% or more of its output but less than 51%------17.5%§ more than 51% or more--15% § All capital expenditure on exploration, development, and operating incurred wholly and

exclusively for mining operations is allowed in full.§ There is no restriction on carryover of tax losses; these can be carried forward for an

indefinite period.§ Taxable income of a holder of special mining lease is taxed at a special rate of 15%. § Allowed on expenditure incurred on construction of new industrial buildings, farm

improvements, railway lines, staff housing and tobacco barns. Also allowed on additions or alterations to existing items as already mentioned

§ SIA is also allowed on articles, implements, machinery and utensils purchased for purposes of trade.

§ The definition of articles , implements, machinery and utensils now include tangible or intangible property in the form of computer software that is acquired, developed or used by the taxpayer

§ Allowance is optional and once claimed this replaces wear and tear§ Allowed at the rate of 25% of cost from year one and the next three years§ The rate of SIA for Small to Medium Enterprises (SMEs) is 100% which 50% is allowed in

first year of use the balance over two years @ 25% as accelerated wear and tear. w.e.f 1/01/2011.

§ The rate of SIA for licenced investor is 100% which 50% is allowed in first year of use the balance over two years @ 25% as accelerated wear and tear. w.e.f 1/01/2017.

§ Farmers are allowed special deductions over and above the normal deductions.§ Examples include expenditure on fencing, clearing and stamping land, sinking

boreholes, wells, aerial and geophysical surveys.

§ VAT at 0% for services offered to persons who are not residents of Zimbabwe and who are required under the exchange control Act to pay for such services in foreign currency.

§ Subject to VAT at 0% [Section 10 a. r. w. 2nd schedule of the Regulations]§ Most farm inputs such as animal feed, animal remedy, fertiliser, plants, seeds and

pesticides and equipment or machinery used for agricultural purposes are zero-rated.

INCOME TAX

Build Own Operate and Transfer (BOOT) and Build Operate Transfer

(BOT) arrangements

Manufacturing Companies

Mining Companies

Special Initial Allowance (SIA)

Farmers Special Deductions

VALUE ADDED TAX

Tourist Facility Operators

Farming inputs and equipment

Nature of Tax Investment Incentives

25

Theminingsectoristhemajorbene�iciaryofthe investment regime. Over and above theother investment incentives, all capitalexpenditureonexploration,development,andoperatingincurredwhollyandexclusivelyformining operations is allowed in full, miningcompanies are allowed to carry over losesinde�initelyand taxable incomeofholdersofspecialminingleasesaretaxedataspecialrateof15%.Theminingcompanies furtherenjoystabilization clauses, which entail that themining contract will not be affected by anychanges in domestic laws. In the event of arenegotiationofDTAs,forinstance,theminingcompanies will not be affected by the newterms¹⁰. Without harmonisation of theseinvestment incentives, theminingcompaniesfor instance are likely to invest and operatewithoutcontributingtothenational�iscus.

3.3 Social Impacts

The “new scramble” for and exploitation ofAfrica'snaturalresourcesledbytheemergingeconomies such as Brazil, Russia, India andChina (BRICS) has been characterised byviolation of human rights, populationdisplacement, and accelerated levels ofinequality and poverty. Failure to manageexpectations between the government, thecommunityandminingcompanieshasfueleddisturbancesinthesocialfabricandcon�licts.Miningcompaniescommencetheiroperationswithoutthesociallicensetooperate.Womenasthepredominantactorsintheinformaland

communal economies such as artisanal andsmall scalemining areworst affected by thecoming in of the large scale miners in anenvironment where they are consideredillegal. There is therefore, genderbias in thedistribution of the risks, costs and bene�itsw i t h i n t h e m in i n g s e c t o r wh i ch , i funaddressed,couldfurtherwidenthegendergaps in access to resources and resource-related opportunities. Community voicescollected during district, provincial andnationalalternativemining indabascon�irmsthatmininghasatendencyofdisruptingsociall ives , causing gender-based violence,spreading HIV/AIDS, and extreme levels ofviolenceinresource-basedcon�licts.Withthediamond mining companies using excessivewater,groundwaterisdepletingcausingmanyboreholes to dry. The repercussions aremultifaceted but mainly affect women wholargelycarrytheburdenofsourcingdomesticwater for their families. Livestock and cropproductionhasalsodrasticallyfallenduetothewater problem. In short, diamondmining inMarange and Chiadzwa areas has negativelyimpactedpeople'slivelihoods.

InsomeareassuchasTsvingweinPenhalonga,Manicaland province, there is seriousproliferationofprostitutionwhichisresultinginthedestructionofmanyhomesandfamilies.SuchminingareasarethebreedinggroundforHIV/AIDSwhichifnotaddressedwillhaveanimplicationonhumandevelopmentindicatorssuch as the life expectancy and infancymortality.

¹⁰PublishWhatYouPay,OverviewofDoubletaxationAgreements:TheCaseofZimbabwe,2017

26

When people get relocated from the miningcommunity, they are denied access to basicservices such as health, education, safe andportable water. Children have to walk longdistancestoschoolandsometimeslearnfrommakeshift classrooms without adequatefacilities.Theminingcompaniessometimesdonot prioritise serviceprovision and focus onmaking pro�its. The health facilities at ArdaTransau do not have a quali�ied doctor toattendtopatients.Theresidentsareattendedtobygeneralnurses.

ThecostoflivinginMiningtownsisextremelyhigh. When diamond mining started inManicaland Province, the cost of livingwenthigh beyond the reach of local communities.There was market for most food staffs andotherluxuriesbutonlyaccessibleatexorbitantprices.Thiswasabigblowtothesurroundingcommunities. Basic commodities like sugar,breadandcookingoilwereunaffordable.Thisiscommonaroundminingtowns.

3.4 Environmental Impacts

Mining communities are subjected toenvironmental pollution and degradation incontraventionofsection73oftheconstitutionwhich asserts every person's right to anenvironmentthatisnotharmfultotheirhealthand wellbeing. The people's livelihoods andlives are at stake due to environmentalpollution and degradation. Whilst the

Environmental Management Act (Chapter20 :27) mandates the Env ironmenta lManagement Authority to regulate andmonitor the discharge or emission of anypollutant or hazardous substance into theenvironment,theminingcompaniescontinueto pollute the environment especially mainwater bodies further threatening people'srightstohealth,water,food,andhousingandother livelihood options. The communitymembersdonothaveaccesstoandareinmostcasesnotconsultedforenvironmentalimpactassessments.TheActhoweverisnotclearontheextentofpublicconsultationsinEIAs.Thisviolates provisions of Chapter 14 of theconstitution which provides for democraticparticipationingovernmentbyallcitizensandcommunitiesofZimbabwe,andtheequitableallocation of national resources and theparticipation of local communities in thedetermination of development prioritieswithintheirareas.

Incidentally,ArtisanalandSmallScaleMining(ASM)areconsideredasinformalandcriminalunderthecurrentregime,thishasnegativelyimpactedontheperformanceofArtisanalandSmallScaleminersdespitecontributing53%ofGoldsalesin2017¹¹.TheArtisanalandSmallScale miners have thus been operatinginformallywithout taking responsibilityoverenvironmentaldegradationacrossthecountry.This isnowahealthhazardasmostpitsareuncoveredandsometimesthreateningpublicinfrastructureincludingroads.

¹¹RBZ,January2018MonetaryPolicyStatementEnhancingFinancialStabilitytoPromoteBusinessCon�idence,2018

27

CONCLUSION

InorderforZimbabwetobene�itfromtheFDIin themining sector, the government shouldputinplacesafeguardstoensuresustainabledevelopmentinitsthreedimensionsofsocial,economic and the environment. This is verycritical for themanagement of differing andopposing expectations of the community,government and the private sector. The �irststep is a deliberate decision that ful�ills thesociallicensetooperateandrespectforsocialcontract apart from the resource contractbetween the government and the miningcompanies. This is very critical for ensuringtransparencyandaccountabilityintheminingsectorwhichisthebedrockforbalancingthecompeting interests of the state which isattracting investments whilst optimizingrevenuecollectionfornationaldevelopmentintheshort,mediumandlongterm.

Freepriorandinformedconsentisverycriticalfor inclusive growthanddevelopment. In theabsence of such, the country is prone to the'naturalresourcecurse'whichmanifestsitselfin the form of lower economic growth,inequality,displacements,disturbances in thesocial fabric, con�licts, environmentaldegradation, exploitation of labour, andincreased vulnerability of the sector tocorruption and mismanagement. Excessiveliberalization of the economy, whose biastowards the private sector has a tendency toignore the role of the society in national

development. Ignoringthesocietydefeatstheultimate role of FDI which is to eradicatepoverty,overandaboveemploymentcreation,technologyandskillstransferandincreasedtaxandnon-taxrevenue.

The role of multinational corporations inu nde rm in i n g s o c i a l , e c onom i c a ndenvironmental rights should not be overemphasised.Theiractionsarenotonlyillegal.Theyusealltheavailableloopholesinthelegalandinstitutionalframeworkstominimisecostsandmaximizepro�its.Therefore,thebuckstopswith the Government of Zimbabwe whosemandateistoputinplacereasonablelegislativeandothermeasuresthatpreventpollutionandecological degradation promote conservationand secure eco log i ca l ly sus ta inab ledevelopmentandtheuseofnaturalresourceswhile promoting economic and socialdevelopment, in linewith the Constitution ofZimbabwe. These should be implementedjointly with regional and internationalframeworksandbestpracticesforthebene�itofthe country. If the rule of law is respected inZimbabwe, the minimum legislative andinstitutional provisions in place would havebeensuf�icienttoturningaroundtheeconomyandthefortunesofthiscountry.

The impacts of FDI in the mining sector forwomenareunprecedented.Deliberatepoliciesfor increasing women's access to andownershipofnaturalresourcesarerequired.Byallowingwomentoin�luencethedistributionofmineral and other natural resources, theinequalitygapwouldautomaticallyreduce.

4

28

RECOMMENDATIONS

Thisresearchrecognisestheequallyimportantroles played by the government, the privatesectorminingcommunitiesandcivilsocietyinthemining sector. Speci�ic recommendationsare, therefore proffered highlighting the keyactionsthateachshouldtaketoensurethatFDIcontributes to sustainable development inZimbabwe.

5.1 Recommendations to Government

à The government should enforce policiesthat protect people and the environmentsuch as the Environmental ManagementActwhichmakesitmandatoryforminingcompaniestoobtainEIAspriortomining.Compliance to regulations shouldalsobeenforced.

à WiththecominginoftheSpecialEconomicZones, the government should worktowards theharmonisationof investmentpoliciestoavoidexcessivetaxandnon-taxincentivesintheminingsector.

à Thegovernmentshouldmakeitmandatoryfor mining companies to obtain a sociallicense tooperatebefore commencing itsoperations in order to enhance peopleparticipation in extractions of naturalresources. The government should alsopromote and protect communities' FreePriorandInformedConsent(FPIC)whichgivespeoplevoiceindecidingwhatisgoodforthemandtheenvironment.

à The government should expedite the

amendmentoftheMinesandMineralsActof 1961 to include a requirement forHuman Rights Impact Assessments inordertoconsidertheactualandpotentialhumanrightsrisksandimpactsofminingactivities, andhow the impacts and riskscan be mitigated and/or avoided. HRIAsare more comprehensive and couldaddresstheimpactsofminingonchildrenand women who are most vulnerable tohumanrightsabuses.

à The government should come up withframeworks for integrating the miningsector to the restof theeconomyso thatpeoplebene�itbeyond the lifespanof themines. This can be achieved by creatingbackward, forward, technology andsidewaylinkagesalongthevaluechain.

à The government should come up with alocalcontentpolicywhichempowerslocalcommunitiestoplayasigni�icantroleintheextraction of mineral resources inZimbabwe.ThiswillenableZimbabweansto directly and indirectly bene�it fromnationalresources.

5.2 Recommendations to the Private Sector (Investor)

à Theprivatesectorshouldconductpositiveandgenuineengagementswiththeminingcommunities during the development,constructionandoperationphasesofthemining project in order to balance theexpectations of the people with thebene�itsoftheproject.Withoutthesociall i cense to operate , there wi l l beunnecessarydelaysandcon�licts.

5

29

à The mining companies should meet itscorporateresponsibilitytorespecthumanrights; and greater access by victims toeffective remedy as provided for in theUnited Nations Guiding Principles onBusinessandHumanRights.

à Whilst Corporate Social Responsibility isvoluntaryinZimbabwe,theinvestorsmustpay attention to the needs of thecommunities rather than imposing theirown priorities. The communities shouldalwaysbeinvolvedinmakingdecisionsthataffecttheminordertoavoidcon�lict.

à There is need for investors to supportderivation of a home-grown grievancehandlingmechanismthatisfriendlytothelocalpeopleinordertomanagecon�licts

à The investorsmustadhere to the lawsofthelandinordertoprotecttheemployees,the communities and the environment.Speci�ically, theminingcompaniesshouldhave clear plans on reclaiming andrestoration of mining areas during andafter mining. The investors shouldconstruct and make use of designateddumping sites in line with internationalbest practice and national laws to avoidpollutionofriversanddams.

5.3 Recommendations to Civil Society Organisations

à Civ i l soc ie ty shou ld l everage oninternational initiatives and frameworks(such as the Extractive IndustriesTransparencyInitiative(EITI),FPICandthe(UNGPHR)thatsupportnationalprocessesandempoweringcommunitiestodemandtheirrights.

à Empower local communities to monitoroperationsofminingcompaniesinrespecttotheirimpactonthesociety,theeconomyandtheenvironment.

à Civilsocietyshouldsupportciviceducationon the investment and mining laws,displacements and compensation,including working with human rightsdefenders.

à Facilitate public interest litigation onenvironmentalissuesinordertosafeguardthe environment and natural resourcesfrompollutionandecologicaldestruction.

5.4 Recommendations to Host Communities

à Thehostcommunitiesshouldprepareandposition themselves in order to bene�itfrom localprocurement arrangements. Inthisregardcommunitiesshouldlobbytheirrespective local governments for localcontentpolicyanditsimplementation.

à Local communities should utilize theExtractives Monitoring Communities ando t h e r c o mm u n i t y m o n i t o r i n garrangements established by ZIMCODDandCSOpartnerssuchasZELAandCNRGinordertomobiliseandcollectivelyengagethe government on emerging issues toresistsocial,economicandenvironmentalinjustices.

à Developresiliencemechanismsinthefaceof growing in�lux of FDI in the miningsector.

à Host communities should positionthemselves to derive bene�its fromdownstreameconomicvaluechain.

30

REFERENCE LIST

1.AfricanUnion,AfricanMiningVision,2009

2.ChamberofMines,AnnualReport,2017

3.ConstitutionofZimbabweAmendment(No.20)Act,2013.

4.DanishTradeUnionCouncilofInternationalDevelopmentCorporation,ZimbabweLabourPro�ile,2014

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