BUSINESS Editor’s Brief: ZMDC needs  urgent, real reform

BUSINESS Editor’s Brief: ZMDC needs urgent, real reform

FOR centuries, Africa’s “resource curse” or the paradox of plenty as some would call it, where countries that boast of an impressive array of mineral resources scandalously occupy the bottom of the stack in development indices, has been the subject of much discussion and debate.

As much as most of the leakages can be linked to illicit flows from and by multinational corporations, our own internal resource governance structures have to be considered as well.

In this regard, one need not look further than the Zimbabwe Mining Development Corporation (ZMDC), a statutory body that was created by Government in 1982 in order to ensure that the people of the republic get the maximum possible value out of the country’s finite resources.

Most crucially, Government is both a regulator and participant in the sector.

Ideally, ZMDC, in view of expansive reach in mining, is supposed to contribute significantly to the fiscus.

By size, the parastatal is a Goliath.

In the diamond mining sector, the entity is, or was, a shareholder in eight companies – Marange Resources, Mbada Diamonds, Diamond Mining Corporation (DMC), Anjin Investments, Jinan Mining, Kusena Diamonds, Rera Diamonds and Gye-Nyame Resources.

It also has significant holdings in gold production through Sabi, Jena and Elvington mines, which are valuable assets in their own right.

In addition, there is significant interest in emeralds (Sandawana mine), copper (Mhangura), tin (Kamativi) and most importantly, platinum.

However, despite having such a huge portfolio, ZMDC financial state remains worrying.

It is not contributing as much as it should or as much as what is expected.

And grumblings from bean counters at the Ministry of Finance and Economic Development, who endlessly complain of the little contribution that is coming from the industry, is a tell-tale sign that there is big problem that needs urgent attention.

Two letters that were written recently by the Minister of Finance and Economic Development, Mr Patrick Chinamasa, and the Governor of the Reserve Bank of Zimbabwe (RBZ), Dr John Mangudya, to IMF’s managing director Ms Christine Lagarde are quite revealing in as far as the governance of ZMDC is concerned.

In a letter of intent that is dated July 1, 2014; the two officials indicated that Government in December 2013 had dissolved the management boards of three state-owned enterprises – the Minerals Marketing Corporation of Zimbabwe (MMCZ), the Zimbabwe Mining Development Corporation (ZMDC) and Marange Resources – for “failure to exercise proper oversight over the management of these public enterprises”.

Again, in a letter signed on September 30, 2015; the duo makes an undertaking to publish the audited financial statements of the ZMDC.

It is therefore trite to say the governance structures, particularly at ZMDC, are not what they ought to be.

SOEs are required by the Public Finance Management Act, Chapter 22:09 sub-section (1) of section 49, to produce annual audited reports and financial statements within three months from year end.

The 2012 Auditor-General’s report managed to give instances where ZMDC management gratuitously abdicated on their fiduciary duties.

Notably, the report notes that ZMDC did not have its representatives on the boards of joint venture companies as per the joint venture agreements.

For example, it was observed that while the Corporation was supposed to have four board members in Anjin and DMC, where it controlled 10 percent and 50 percent respectively, it had none at the time that the report was compiled.

Furthermore, in Mbada Diamonds, it only had one board representative when it was supposed to have two.

It is therefore unsurprising that Government could have been short-changed by its joint venture partners is such circumstances.

Such a cavalier approach to the interests of the company were again noted in several instances where the Corporation transferred assets from one company to other subsidiaries without supporting documentation, a practice that the Auditor-General flagged as potentially prejudicial to the parastatal.

Also, boards of subsidiaries such as Sandawana and Jena Mines were not properly constituted and were not meeting as often as is required.

Perhaps the most disturbing infraction was the violation of the Income Tax Act in instances where corporate tax and royalties were remitted to the Ministry of Mines and Mining Development instead of through Zimra and the MMCZ respectively.

There are still concerns of how the $62 million that was paid in 2011 in this way was appropriated and used by the Ministry of Mines and Mining Development.

It creates room for serious leakages and misappropriation.

Ordinarily, these resources should have gone through Zimra and MMCZ to the Consolidated Revenue Fund.

As Government hands over more responsibilities to the ZMDC through the re-organisation of Chiadzwa, there is need to ensure that the entity, as a conduit that will move money to the fiscus, ZMDC itself is reformed.

Its governance structures must be water tight. All this needs to be attended to as a matter of urgency, lest the leakages continue.

The publication of audited and up to date financial statements must also be considered a priority.

A situation where 2013 financial statements are considered as current can no longer be supported.

It denies authorities the opportunity to make timeous interventions, especially in circumstances where they are needed.

It is ironic that listed companies that have a limited constituency of shareholders that have vested interest in the company are the ones that are forced to disclose material information about the operations of the same, while parastatals, who account to all of the country’s citizens, are not held by the same principle.

We should mimic what the Chinese are doing.

Under current reforms, Chinese state-owned enterprises will be divided into two – the commercial and the public service oriented.

Logically, those that can be operated on a commercial basis will receive limited financial support from Government.

Instead, they will be expected to significantly contribute to the Chinese economy. However, those that are not commercial will continue to serve the interest of the public.

Already, Government has for long indicated its interest in making the mining sector transparent through the Zimbabwe Mineral Revenue Transparency Initiative.

So Government knows exactly what has to be done, and it must simply do it.

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