USAID STRATEGIC ECONOMIC RESEARCH AND ANALYSIS – ZIMBABWE (SERA) PROGRAM MINING SECTOR POLICY STUDY CONTRACT NO. AID-613-C-11-00001 This report was produced by Nathan Associates Inc. for review by the United States Agency for International Development (USAID). DECEMBER 2012 USAID STRATEGIC ECONOMIC RESEARCH AND ANALYSIS – ZIMBABWE (SERA) PROGRAM MINING SECTOR POLICY STUDY CONTRACT NO. AID-613-C-11-00001 Program Title: USAID Strategic Economic Research & Analysis – Zimbabwe (SERA) Sponsoring USAID Office: USAID/Zimbabwe Contract Number: AID-613-C-11-00001 Contractor: Nathan Associates Inc. Date of Publication: December 2012 Author: Paul Jourdan, Consultant Gibson Chigumira, ZEPARU Executive Director Isaac Kwesu, Zimbabwe Chamber of Mines Chief Economist Erina Chipumho, ZEPARU Senior Research Fellow DISCLAIMER This document is made possible by the support of the American people through USAID. Its contents are the sole responsibility of the author or authors and do not necessarily reflect the views of USAID or the United States government. Mining Sector Policy Study Paul Jourdan1 Gibson Chigumira Isaac Kwesu Erina Chipumho December 2012 1 Dr. Paul Jourdan was the lead researcher and principal author of this study. ZEPARU Figure 1: Map of Zimbabwe 1 ZEPARU CONTENTS Tables ................................................................................................................................................................... 4 Figures .................................................................................................................................................................. 5 Abbreviations ........................................................................................................................................................... 7 Acknowledgements .................................................................................................................................................. 9 Executive Summary ................................................................................................................................................10 1. Introduction ...................................................................................................................................................14 2. Zimbabwe’s Mineral Endowment ..................................................................................................................15 2.1 Geology ....................................................................................................................................................15 2.2 Mineral Resources ...................................................................................................................................17 2.3 Recent Mining History .............................................................................................................................18 2.4 Mining Sector Overview ...............................................................................................................................19 2.4.1 Gold ............................................................................................................................................. 24 2.4.2 Platinum Group Metals (PGM) .................................................................................................... 25 2.4.3 Coal & Coal‐bed Methane (CBM) ................................................................................................ 27 2.4.4 Asbestos ...................................................................................................................................... 29 2.4.5 Nickel ........................................................................................................................................... 29 2.4.6 Copper ......................................................................................................................................... 30 2.4.7 Chromite ...................................................................................................................................... 31 2.4.8 Iron and Steel .............................................................................................................................. 32 2.4.9 Diamonds ..................................................................................................................................... 34 2.4.10 Other Minerals ...................................................................................................................... 35 2.5 Future Prospects ......................................................................................................................................37 2.6 Minerals Marketing .................................................................................................................................40 2.7 Labour ......................................................................................................................................................40 2.8 Legislation ................................................................................................................................................41 3. Mineral Policy Analysis: Maximising the Development Impact .....................................................................43 3.1 Mineral Regimes ......................................................................................................................................43 3.2 The current crisis and the underlying commodities boom ......................................................................51 3.2.1 Phases of Global Steel Intensity of GDP ...................................................................................... 53 3.2.2 A Resource‐Based Strategy & the “Resource Curse” ................................................................... 55 3.3 Zimbabwe: Towards a sustainable resource‐based development strategy ............................................55 3.4 Resource linkages industrial clusters .......................................................................................................57 Phase I: .................................................................................................................................................. 58 Phase II: ................................................................................................................................................. 58 Phase III: ................................................................................................................................................ 58 Phase IV:................................................................................................................................................ 58 3.5 Optimising the resource linkages ............................................................................................................60 3.5.1 Fiscal Linkages: Resource rents ................................................................................................... 60 3.5.2 Spatial Linkages (Infrastructure) .................................................................................................. 60 3.5.3 Downstream value addition [forward linkages] .......................................................................... 61 3.5.4 Upstream value addition [backward linkages] ............................................................................ 61 2 ZEPARU 3.5.5 Knowledge Linkages [Human & Technology/Product Development] ......................................... 62 3.5.6 Developing the Linkages Industries and Clusters ........................................................................ 63 3.6 Mineral Fiscal Linkages ............................................................................................................................64 3.6.1 Economics of the Mineral Sector – special Features ................................................................... 64 3.6.2 Mineral Taxation in Zimbawe ...................................................................................................... 73 3.6.3 Fiscal Proposals ............................................................................................................................ 76 3.7 Backward Linkages .......................................................................................................................................84 3.7.1 International best practice ........................................................................................................... 84 3.7.2 Economies of scale: ...................................................................................................................... 88 3.7.3 Instruments to grow the Upstream (backward) linkages: ........................................................... 88 3.8 Forward Linkages .........................................................................................................................................89 3.8.1 Introduction ................................................................................................................................. 89 3.8.2 Mineral Feedstocks ...................................................................................................................... 89 3.8.3 Strategic Minerals demand sectors ............................................................................................. 89 3.8.4 Minerals for Energy .....................................................................................................................