Of the ‘lost’ 15 billion diamond revenue and why Zimbabwe, now more than ever, should consider the Extractive Industry Transparency Initiative

Barely two weeks after the Global Conference on the Extractive Industry’s Transparency Initiative (EITI) between the 24^th and the 25^th of February in Lima Peru, the president of Zimbabwe R.G Mugabe publicly stated that an estimated 15 Billion of diamond revenue from Marange diamond operations has been lost. In the same statement he quantified that the government might have received less than 2 billion in diamond revenues since the onset of formal diamond mining in 2009.

In his statement he stated “…our people who we expected to be our eyes and ears have not been able to see or hear what was going on and lots of swindling, smuggling have taken place and companies that have been mining…I want to say robbed us of our wealth and that is why we have decided that this area should be the monopoly area and only the state should be able to do the mining in the area”.

The statement by the President came on the back of the declaratory order by the Minister of Mines and Mining Development that diamond-mining companies should stop operations forthwith due to their resistance to government plans to merger all the companies into one entity, the Zimbabwe Consolidated Diamond Company.  

The President’s statement is particularly concerning given that the government has at least a 50% stake in all the 6 joint ventures that were operating in the diamond fields. When the biggest shareholder complaints about corruption, lack of accountability and leakages of revenue meant for government it is very unsettling.

The EITI global conference is arguably the biggest conference where issues of transparency and accountability in the extractive sector are discussed. Despite the challenges of secrecy in Zimbabwe’s extractive sector, government and industry representatives were conspicuous by their absence.

The absence of these two key stakeholders was also witnessed during the 2015 UN Forum on Business and Human Rights, a forum that is hosted annually to reflect on the UN guiding principles on Business and Human Rights. Both platforms are key in that they promote tri-focal discussions among civil society, industry and the government on extractives.

The Zimbabwean government seems to be conveying the sentiment that such platforms yield no meaningful results overlooking how there is immense benefit from learning and sharing with others that are in the same situation or adopting and domesticating experiences of others that have gone through the same experiences. The dismissal of these initiatives despite the evidence of them enhancing mineral resource governance in many countries may result in the country failing to benefit from its resource endowment.

The EITI is an international standard for transparency in extractive industry. In countries participating in the EITI, companies are required to publish what they pay to governments and governments are required to publish what they receive from companies. Would Zimbabwe be in its current deplorable situation if EITI principles were being implemented in country?

The 2016 EITI conference, which ran under the theme “From Reports to Results” focused on how the progress registered in publishing EITI reports now needs to be elevated to ensure there are more results and actual reforms in the EITI implementing countries. Currently there are 51 implementing countries and among these 31 are compliant with EITI requirements. For both the EITI candidate and compliant countries, almost half (23) are from Africa. 

In Zimbabwe, the challenges of opacity in the extractive sector, particularly in diamond mining, have come to a head at a time when there has been a continued decline of international mineral commodity prices, a review of indigenization guidelines and proposals for a new mines law. All these are factors that make it imperative for the government to set a new path. During “booms” like we anticipated in Zimbabwe post the diamond rush of 2009 and the subsequent assurance by government of windfall revenue, so much was at stake and we too detail for grunted that it became difficult to rationally consider transparency and accountability.

Nevertheless, the fall of diamond prices and the reported depletion of alluvial diamond reserves, presents Zimbabwe with a unique opportunity to take time to pause, reflect and structure the industry in the best way possible given that the country has so many best practices to learn from to improve mineral resources management. To chart a new course, the government has to be open to ideas and shun the thinking that solutions of choice are always those that reject international best practice. There has to be recognition that mineral resource governance has to tap into the collective wisdom of Zimbabweans and the global citizenry.

Contrary to some positions that have been shared before, the EITI has 3 key processes that allows the government to still maintain self determination within the framework:

Firstly, a national multi-stakeholder group (government, industry and civil society) decides how their EITI process should work.

This presents room for independence to tailor make an initiative that is contextual to match the country’s aspirations. Having the three stakeholders engage is important in creating a shared understanding of the Extractive Industry sector. This ensures that expectations are managed and sets a basis for accountability.

Secondly, Government revenue and company payments are disclosed together with other information about the extractive sector.

The importance of this process for Zimbabwe cannot be overemphasized. The country needs to know the revenue mining companies are paying to government as well as any other information on the sector. Otherwise if government is not willing to disclose the revenue they are receiving from mining then the question is; who is benefiting from this secrecy?

Zimbabwe, like many African countries, needs to play catch up on development and one of the obvious routes is the exploitation of mineral resources and judicious use of mineral revenues for broad based sustainable development. Transparency and accountability is critical in ensuring that the contradiction between rich mineral resources and continued poverty-what most call the resource case, is addressed.

It is important to note that information that should be disclosed should cover the whole value chain of mining, which includes contacts and licenses, production, revenue collection, and social and economic contribution of the sector.

Thirdly, the findings are communicated to create public awareness and debate about how the country should manage its resources.

Progress and development is nested in a country’s ability to promote multi-stakeholder engagement, public debate and the flourishing of ideas. There is a need to break with the culture that government leaders have a monopoly on ideas.

In Zimbabwe a version of EITI was once set up in 2011 under the name the Zimbabwe Revenue Transparency Initiative (ZMRTI). This points to a general consensus on the benefits that such initiatives can offer to a resource rich country like Zimbabwe.

The ZMRTI comprised three stakeholders, including the government (Office of the Deputy Prime Minister, Minister of Mines, Reserve Bank of Zimbabwe), mining companies (ZMDC, MMCZ and the Chambers of Mines) and civil society (Zimbabwe Environmental Law Association and Chiadzwa Community Development Trust and universities). Since inception the government noted that there were two major challenges to overcome – the mistrust between government and civil society, and the lack of financial resources.

Although ZMRTI was a promising initiative towards EITI, it suffered a stillbirth. The current situation requires that the Minister of Finance urgently take lead in resuscitating this initiative as has been promised in at least the last 3 National Budget Statements.

Good governance can lead to trust when there is participation of all stakeholders and this is more important in the extractive industry. There should be a common platform to share, review and learn from each other and the EITI offers a multi-stakeholder engagement platform for government, business and the civil society. Such tripartite engagements are not new and their results are known with the Kimberly Process Certification Scheme (KPCS). The Kimberly Process (KP) is a joint governments, industry and civil society initiative to stem the flow of conflict diamonds-rough diamonds used by rebel movements to finance wars against legitimate governments

Natural resources are owned by the people of a country and managed through the custodianship of the government. Business on the other hand make investments to exploit these natural resources not to be owners but rather to make profit which should also cascade down to ensure that it changes the lives of the community as well as provide revenue that can be used by governments to support development.

The African Mining Vision states that the key element in determining whether or not a resource endowment will be a curse or blessing, is the level of governance capacity and the existence of robust institutions.  It goes on to argue that some elements critical for consideration include new global resource and resource rent monitoring systems such as the EITI and Kimberley Process.

In its wisdom, the AMV also acknowledges that it is clear that there is no “one size fits all” strategy for strengthening African resource governance and institutions. Nonetheless, there are a few broadly applicable strategies such as accession to international protocols (e.g. African Peer Review Mechanism, EITI) and the establishment of critical institutions to facilitate the optimal exploitation of natural resources. 

That African governments are sceptical to EITI is not a secret, but ever since embracing EITI some of the African countries have seen immense benefits. For Nigeria the EITI process has exposed outstanding debts by the national oil company to the Federal Government, recovered uncollected taxes, identified weaknesses in the regulatory bodies, audited oil-related transfers to subnational government, estimated oil theft, and examined oil sales. Whilst in Ghana the EITI has led to improvements in tracking the use of revenue on the local level. These are just but two examples that can demonstrate for Zimbabwe the potential of EITI in addressing a scenario such as the ‘loss’ of 15 billion.  

The High Level Panel Report on Illicit Financial Flows, which was led by former South African president Thabo Mbeki, identified the EITI as an important part of international architecture designed to tackle illicit financial flows of resources from the African continent. The same report comments that in some African countries the institutional architecture for responding to IFFs was at best uneven or, as in several key instances, non-existent. Lack of transparency, secrecy and the difficulty of obtaining information and systematic data remain key challenges across the board and Zimbabwe is not spared.

Zimbabwe’s economic blueprint, the Zimbabwe Agenda for Socio-Economic Transformation (ZIMASET) states that the mining sector continues to be a major foreign currency earner and has potential to become the pillar for economic growth through value addition and beneficiation. However, the sector continues to be constrained by energy and transport infrastructure challenges, depressed international mineral prices and shortage of utilities among other factors and (I will add) Transparency and Accountability.

That Zimbabwe should consider EITI is inherent for countries that choose mining to be the central nerve to the economy. The Mbeki High Level report on Illicit Financial flows notes that reliance on extractive industries for revenue and export earnings in Africa usually means that the sector has a high degree of discretionary power and political influence. This is the source of the secret and unequal contracts that African countries sometimes enter into with multinational mining companies. These contracts in turn undermine efforts to promote transparency and accountability in the extractives industry but with EITI all stakeholders will become involved.  

In conclusion it is important to restate the late Justice Louis D. Brandeis of the United States’ words that “sunlight is the best disinfectant”, Zimbabwe more than ever needs to shine the light on the mining sector and one possible path to follow is the EITI.

From the lessons learnt from countries implementing EITI to the strong recommendations in documents such as the AMV, the high level panel on illicit financial flows and the shortcomings of the current mining regime, all seem to point to the need for Zimbabwe to consider implementing the EITI.