ADDRESS BY HON. G. MOYO, MINISTER OF STATE ENTERPRISES AND PARASTATAL AT THE ZIMBABWE MINING INDABA 2012; 12 - 14 SEPTEMBER 2012: HARARE INTERNATIONAL CONFERENCE CENTRE, RAINBOW TOWERS, HARARE, ZIMBABWE
‘State owned mining enterprises as drivers of a modern developmental state’
1. I am very delighted to have been invited, not only to be part of this special occasion, but also to be given an opportunity to share views and ideas at this Mining Indaba, at a time when debate on the developmental role of state enterprises has gained worldwide prominence. In the mining sector, the subject has also received wide publicity due to its social, economic and political significance. Indeed policy pronouncements in this sector impact on multinational corporations’ relevance across the world as well as in national economies and the well being of the country’s citizens.
2. Over the past years, the degree of government’s interest in the mining sector reflects to a large extent the cyclicality and success of the sector. In the 1960s and 1970s, the developing countries pinned their hopes on the socioeconomic development potential of mining, based on the industry’s economic performance over the preceding decades, the period between the Second World War and the mid-1970s was a period of growth in metal production and metal prices. In this period, ferrochrome, nickel and copper, to name a few, were considered strategic for the reconstruction of Europe and Japan after the Second World War and the industrialization of the Soviet Union. With independence, developing countries recognized the importance of the mining sector as a source of revenue to fund national development projects. This triggered nationalizations of mining companies toward the end of boom period to the mid 1970s.
3. From the mid 1970s, reconstruction demand decreased, and the next 30 years saw metal prices in an almost continuous decline. Proļ¬ts fell and the industry could no longer meet its societal responsibilities and, in some cases, became a burden to the fiscus. Mining state enterprises were now being described as inefficient and poorly managed and ought to be privatized. Indeed a number of state mining enterprises were privatized during this period of downturn.
4. Thus developing country governments entered the industry when the prices were high and exited when the prices were down.
5. Now today, metal price have been on the increase from about 2003/2004. The impact of the financial crisis in 2008 was shot lived, as recovery of metal prices continued from late 2009 through today. Demands for an increase in the sharing of the profits are now coming from civil society groups, political parties, trade unions in almost all developing countries. The renewed political interest is being expressed in several ways:
• increase in taxes and royalties in several countries including industrialized countries;
• legislation to transfer ownership in the interest of broad based empowerment;
• concerns over security of supply of metals and minerals;
• discussions and actions to limit foreign ownership of strategic resources;
• re-negotiation of mining agreements;
• establishment of state mining development enterprises to function as an alternative to the private enterprises; and
• Review of mining legislation.
6. State ownership of a mining enterprise is not necessarily bad. At independence, Zimbabwe considered it prudent to create two state mining enterprises, one responsible for the control and promotion of marketing activities for all minerals produced in Zimbabwe with the exception of gold, with the objective of improving revenues to the country; and the other responsible for mining activities particularly to take advantages of those mineral deposits which were considered unattractive for private investment, and yet strategic for industrial development. Today the Zimbabwe Mining Development Corporation is very active in diamond mining operations, in gold mining, platinum and chromium development among others. Government, in partnership with private investors, is also in coal mining.
7. Policy makers now need to focus on developmental strategies that will achieve national goals through improved contribution from both private and state mining enterprises to ensure equitable and sustainable growth.
8. Distinguished Guests, Ladies and Gentlemen, let me emphasise that state enterprises in developing economies are the engine that drives national economic growth, and state mining enterprises have an important role in macroeconomic development and stabilization. Indeed, developing countries are now emphasizing the need for minerals to be further beneficiated within their countries to add value before export, to create employment opportunities, and support industrialization based on minerals as raw materials and also to support local supplier industries.
9. The success of state mining enterprises is determined by the governance framework/structure, assets, and capital base. In this regard, the Ministry of State Enterprises and Parastatals has developed and produced two important policy documents; The Corporate Governance Framework for State Enterprises and Parastatals and The Restructuring Procedures Manual.
10. The Corporate Governance Framework addresses issues of reporting lines, responsibilities and relationships among key stakeholders in the management and administration of State Enterprises and Parastatals. There is no more room for indecision and policy vacillations on our part and, therefore, state enterprises’ managers have no excuse either.
11. It is, however, important that are all stakeholders are aware of their roles in the exercise of good Corporate Governance; stakeholders include Governments, Boards of Directors, Chief Executive Officers of enterprises among others; whose actions or inactions have an impact on the seven pillars of good corporate governance which are:
• fairness,
• responsibility,
• accountability,
• transparency,
• discipline,
• independence; and
• social responsibility.
I have always emphasized that, it is only when an organization observes these principles that it can be said to be practicing good corporate governance. Boards of Directors, as custodians of Corporate Governance, must ensure proper governance in the organizations they lead.
12. Boards of State Enterprises and Parastatals should therefore have the necessary authority, competencies and objectivity to carry out their function of strategic guidance and monitoring Performance of senior management and the organization as a whole. Members of Boards are expected to act with integrity and should be held accountable for their actions.
13. Communications and reporting lines must be clear, and this is valid for all enterprises and not specific for the mining sector. The owner providing its input at the AGM and through its Board members. The Board must oversee that, the strategy of the enterprise and its plans for the future are developed and executed. Decision making power over the use of the cash flow should be the prerogative of the Board, and not the treasury department of the parent ministry. In the mining sector, it is particularly important that sufficient re-investments are made to secure the long term performance of the enterprise. It is equally important that the day-to-day management is placed in the hands of experienced and motivated professional managers.
14. Some governments, under certain conditions, believe that confidentiality and opacity or non-transparency are important to manage and operate a state enterprise. In the long run, the opposite is true. A state enterprise should be fully transparent and follow the most stringent reporting rules, even if it is not required to do so from a formal point of view. In fact, a state enterprise should be a model for private enterprises rather than the opposite.
15. Revenue from a state mining enterprise ought to be budgeted for by way of declared dividends, and not to cover budgetary deficits or other demands for money, skills or capital elsewhere in the national economy. Contributions to the national economy must be appropriate compared to the size and profitability of the enterprise. Mining, and in particular sustainable mining, demands re-investment in exploration and development to maintain current reserves and to provide for future production, which includes developing at least 5–10 years of ore reserves.
16. Once established, both state and private companies assume social responsibilities for the provision of public utilities, health facilities and road networks for the mine and the surrounding communities. It becomes the nucleus for development in those usually remote areas.
17. Our role, as Ministers, is therefore, to ensure that an independent Board of Directors consisting of members with sufficient experience and knowledge of the mining sector including mining financial engineering is constituted in a manner that is transparent, a prerequisite for success. If such persons are not available within the country they have to be attracted from abroad.
18. Ladies and gentlemen, mining is highly capital intensive industry with high risks of failure for a new project. If the enterprise does not have a sufficient size and capital base to attract the necessary expertise and to operate for a number of years without positive cash flow, it will fail. In order to be successful in an international competitive environment, only enterprises with the best management and resources will survive and this is regardless if the owner is a state or private investors. This bring me to the importance of The Restructuring Procedures Manual.
19. Restructuring of State Enterprises and Parastatals has been ranked high on economic reform agendas of many developing countries as a strategy geared at improving performance and efficiency of state enterprises in the production and delivery of public goods and services, among other reasons. The success story of democratic developmental states is premised on reformed state enterprises that respond to domestic and external pressures, and timely to meet the challenges of globalisation. In that regard, restructuring of state enterprises offers new management mechanism and new ownership structures that support more dynamic economic growth.
20. The broad objectives of restructuring include, among others: promoting economic efficiency by promoting competition; reducing the financial burden of loss-making enterprises, thereby releasing limited state resources for financing other demands; and to spread share ownership. For Zimbabwe, the restructuring of state enterprises is seen as a crucial step towards enhancing the contribution of state enterprises to economic growth through efficient service provision to other industries along the value chain.
21. Furthermore, restructuring help to attract new investment; particularly foreign investment, new technology and management skills, that can help transform the fortune of many of our state enterprises.
22. In that regard, my Ministry together with the State Enterprisese Restructuring Agency, has produced a Restructuring Procedures Manual with the main objective of providing various stakeholders with the requisite information on the process and basis on which the implementation of the programme can be assessed as well as to give investors the needed confidence to transact business with Government in a manner that is transparent to all.
23. Most mining state enterprises that are 100 percent state owned are in need of capital for exploration and development work. Thus for new and expantion projects, it would be of interest to create a mixed capital type of enterprise with a set timetable for gradual transfer of ownership from the state to private national entities and investors on a jointly agreed timetable.
24. Listing of a state owned enterprise is another way to share the burden to raise capital particularly in countries where the government’s capital-resources are limited. A listing will also subject the enterprise to more stringent reporting.
25. A state enterprise must be subjected to the same competitive conditions as its international peers. Taxes, royalties and other fees should be levied as per the industry standards in the country. If a state enterprise is given exceptional treatment for example reduced environmental standards it will affect its competitive position and hence its ability, in the long term, to perform compared to the rest of the industry. A level playing field, as provided for by a conducive regulatory framework, is therefore of paramount importance.
26. In conclusion, ladies and gentlemen, restructuring policies and strategies to enhance efficiency and effectiveness of our state mining enterprises require continuous assessment to ensure relevance to prevailing social, economic and political environments. Given our current circumstances it is prudent to pursue inclusive restructuring policies and strategies that brings together strength from all stakeholders, in particular our abundant mineral resources and financial resources both from foreign investors and our own domestic savings.
27. In addition it is important that governments continue with intervention strategies in line with the need to promote exploration activities, the exploitation of strategic minerals, and the need to bring development in mineral reach remote areas of our regions.
28. It is my sincere hope that as we deliberate on matters that have a bearing on the effectiveness of state mining enterprises, we will not only come up with strategies for successful management of these entities, but also be able to link the strategies to concepts of the developmental role of mining enterprises.
29. “Finally brethren, whatsoever things are true. Whatsoever things are honest, whatsoever things are just, whatsoever things are pure, whatsoever things are lovely, whatsoever things are of good report, If there be any virtue; and if there be any praise, think of such things and work for such things”. I will add believe in such things and work to achieve them (Philippians 4 vs 8)
Hon. Gorden Moyo
Minister of State Enterprises and Parastatals
‘State owned mining enterprises as drivers of a modern developmental state’
1. I am very delighted to have been invited, not only to be part of this special occasion, but also to be given an opportunity to share views and ideas at this Mining Indaba, at a time when debate on the developmental role of state enterprises has gained worldwide prominence. In the mining sector, the subject has also received wide publicity due to its social, economic and political significance. Indeed policy pronouncements in this sector impact on multinational corporations’ relevance across the world as well as in national economies and the well being of the country’s citizens.
2. Over the past years, the degree of government’s interest in the mining sector reflects to a large extent the cyclicality and success of the sector. In the 1960s and 1970s, the developing countries pinned their hopes on the socioeconomic development potential of mining, based on the industry’s economic performance over the preceding decades, the period between the Second World War and the mid-1970s was a period of growth in metal production and metal prices. In this period, ferrochrome, nickel and copper, to name a few, were considered strategic for the reconstruction of Europe and Japan after the Second World War and the industrialization of the Soviet Union. With independence, developing countries recognized the importance of the mining sector as a source of revenue to fund national development projects. This triggered nationalizations of mining companies toward the end of boom period to the mid 1970s.
3. From the mid 1970s, reconstruction demand decreased, and the next 30 years saw metal prices in an almost continuous decline. Proļ¬ts fell and the industry could no longer meet its societal responsibilities and, in some cases, became a burden to the fiscus. Mining state enterprises were now being described as inefficient and poorly managed and ought to be privatized. Indeed a number of state mining enterprises were privatized during this period of downturn.
4. Thus developing country governments entered the industry when the prices were high and exited when the prices were down.
5. Now today, metal price have been on the increase from about 2003/2004. The impact of the financial crisis in 2008 was shot lived, as recovery of metal prices continued from late 2009 through today. Demands for an increase in the sharing of the profits are now coming from civil society groups, political parties, trade unions in almost all developing countries. The renewed political interest is being expressed in several ways:
• increase in taxes and royalties in several countries including industrialized countries;
• legislation to transfer ownership in the interest of broad based empowerment;
• concerns over security of supply of metals and minerals;
• discussions and actions to limit foreign ownership of strategic resources;
• re-negotiation of mining agreements;
• establishment of state mining development enterprises to function as an alternative to the private enterprises; and
• Review of mining legislation.
6. State ownership of a mining enterprise is not necessarily bad. At independence, Zimbabwe considered it prudent to create two state mining enterprises, one responsible for the control and promotion of marketing activities for all minerals produced in Zimbabwe with the exception of gold, with the objective of improving revenues to the country; and the other responsible for mining activities particularly to take advantages of those mineral deposits which were considered unattractive for private investment, and yet strategic for industrial development. Today the Zimbabwe Mining Development Corporation is very active in diamond mining operations, in gold mining, platinum and chromium development among others. Government, in partnership with private investors, is also in coal mining.
7. Policy makers now need to focus on developmental strategies that will achieve national goals through improved contribution from both private and state mining enterprises to ensure equitable and sustainable growth.
8. Distinguished Guests, Ladies and Gentlemen, let me emphasise that state enterprises in developing economies are the engine that drives national economic growth, and state mining enterprises have an important role in macroeconomic development and stabilization. Indeed, developing countries are now emphasizing the need for minerals to be further beneficiated within their countries to add value before export, to create employment opportunities, and support industrialization based on minerals as raw materials and also to support local supplier industries.
9. The success of state mining enterprises is determined by the governance framework/structure, assets, and capital base. In this regard, the Ministry of State Enterprises and Parastatals has developed and produced two important policy documents; The Corporate Governance Framework for State Enterprises and Parastatals and The Restructuring Procedures Manual.
10. The Corporate Governance Framework addresses issues of reporting lines, responsibilities and relationships among key stakeholders in the management and administration of State Enterprises and Parastatals. There is no more room for indecision and policy vacillations on our part and, therefore, state enterprises’ managers have no excuse either.
11. It is, however, important that are all stakeholders are aware of their roles in the exercise of good Corporate Governance; stakeholders include Governments, Boards of Directors, Chief Executive Officers of enterprises among others; whose actions or inactions have an impact on the seven pillars of good corporate governance which are:
• fairness,
• responsibility,
• accountability,
• transparency,
• discipline,
• independence; and
• social responsibility.
I have always emphasized that, it is only when an organization observes these principles that it can be said to be practicing good corporate governance. Boards of Directors, as custodians of Corporate Governance, must ensure proper governance in the organizations they lead.
12. Boards of State Enterprises and Parastatals should therefore have the necessary authority, competencies and objectivity to carry out their function of strategic guidance and monitoring Performance of senior management and the organization as a whole. Members of Boards are expected to act with integrity and should be held accountable for their actions.
13. Communications and reporting lines must be clear, and this is valid for all enterprises and not specific for the mining sector. The owner providing its input at the AGM and through its Board members. The Board must oversee that, the strategy of the enterprise and its plans for the future are developed and executed. Decision making power over the use of the cash flow should be the prerogative of the Board, and not the treasury department of the parent ministry. In the mining sector, it is particularly important that sufficient re-investments are made to secure the long term performance of the enterprise. It is equally important that the day-to-day management is placed in the hands of experienced and motivated professional managers.
14. Some governments, under certain conditions, believe that confidentiality and opacity or non-transparency are important to manage and operate a state enterprise. In the long run, the opposite is true. A state enterprise should be fully transparent and follow the most stringent reporting rules, even if it is not required to do so from a formal point of view. In fact, a state enterprise should be a model for private enterprises rather than the opposite.
15. Revenue from a state mining enterprise ought to be budgeted for by way of declared dividends, and not to cover budgetary deficits or other demands for money, skills or capital elsewhere in the national economy. Contributions to the national economy must be appropriate compared to the size and profitability of the enterprise. Mining, and in particular sustainable mining, demands re-investment in exploration and development to maintain current reserves and to provide for future production, which includes developing at least 5–10 years of ore reserves.
16. Once established, both state and private companies assume social responsibilities for the provision of public utilities, health facilities and road networks for the mine and the surrounding communities. It becomes the nucleus for development in those usually remote areas.
17. Our role, as Ministers, is therefore, to ensure that an independent Board of Directors consisting of members with sufficient experience and knowledge of the mining sector including mining financial engineering is constituted in a manner that is transparent, a prerequisite for success. If such persons are not available within the country they have to be attracted from abroad.
18. Ladies and gentlemen, mining is highly capital intensive industry with high risks of failure for a new project. If the enterprise does not have a sufficient size and capital base to attract the necessary expertise and to operate for a number of years without positive cash flow, it will fail. In order to be successful in an international competitive environment, only enterprises with the best management and resources will survive and this is regardless if the owner is a state or private investors. This bring me to the importance of The Restructuring Procedures Manual.
19. Restructuring of State Enterprises and Parastatals has been ranked high on economic reform agendas of many developing countries as a strategy geared at improving performance and efficiency of state enterprises in the production and delivery of public goods and services, among other reasons. The success story of democratic developmental states is premised on reformed state enterprises that respond to domestic and external pressures, and timely to meet the challenges of globalisation. In that regard, restructuring of state enterprises offers new management mechanism and new ownership structures that support more dynamic economic growth.
20. The broad objectives of restructuring include, among others: promoting economic efficiency by promoting competition; reducing the financial burden of loss-making enterprises, thereby releasing limited state resources for financing other demands; and to spread share ownership. For Zimbabwe, the restructuring of state enterprises is seen as a crucial step towards enhancing the contribution of state enterprises to economic growth through efficient service provision to other industries along the value chain.
21. Furthermore, restructuring help to attract new investment; particularly foreign investment, new technology and management skills, that can help transform the fortune of many of our state enterprises.
22. In that regard, my Ministry together with the State Enterprisese Restructuring Agency, has produced a Restructuring Procedures Manual with the main objective of providing various stakeholders with the requisite information on the process and basis on which the implementation of the programme can be assessed as well as to give investors the needed confidence to transact business with Government in a manner that is transparent to all.
23. Most mining state enterprises that are 100 percent state owned are in need of capital for exploration and development work. Thus for new and expantion projects, it would be of interest to create a mixed capital type of enterprise with a set timetable for gradual transfer of ownership from the state to private national entities and investors on a jointly agreed timetable.
24. Listing of a state owned enterprise is another way to share the burden to raise capital particularly in countries where the government’s capital-resources are limited. A listing will also subject the enterprise to more stringent reporting.
25. A state enterprise must be subjected to the same competitive conditions as its international peers. Taxes, royalties and other fees should be levied as per the industry standards in the country. If a state enterprise is given exceptional treatment for example reduced environmental standards it will affect its competitive position and hence its ability, in the long term, to perform compared to the rest of the industry. A level playing field, as provided for by a conducive regulatory framework, is therefore of paramount importance.
26. In conclusion, ladies and gentlemen, restructuring policies and strategies to enhance efficiency and effectiveness of our state mining enterprises require continuous assessment to ensure relevance to prevailing social, economic and political environments. Given our current circumstances it is prudent to pursue inclusive restructuring policies and strategies that brings together strength from all stakeholders, in particular our abundant mineral resources and financial resources both from foreign investors and our own domestic savings.
27. In addition it is important that governments continue with intervention strategies in line with the need to promote exploration activities, the exploitation of strategic minerals, and the need to bring development in mineral reach remote areas of our regions.
28. It is my sincere hope that as we deliberate on matters that have a bearing on the effectiveness of state mining enterprises, we will not only come up with strategies for successful management of these entities, but also be able to link the strategies to concepts of the developmental role of mining enterprises.
29. “Finally brethren, whatsoever things are true. Whatsoever things are honest, whatsoever things are just, whatsoever things are pure, whatsoever things are lovely, whatsoever things are of good report, If there be any virtue; and if there be any praise, think of such things and work for such things”. I will add believe in such things and work to achieve them (Philippians 4 vs 8)
Hon. Gorden Moyo
Minister of State Enterprises and Parastatals
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