Lithium Mining and National Economic Development in Zimbabwe

Data analysis: prospects for a resource-driven economic development strategy

Below is an analysis of interviews undertaken with a diverse range of stakeholders as part of the writing of this policy paper. These interviews highlight some of the opportunities and challenges facing Zimbabwe in its attempt to pursue a resource-driven national development strategy in order to achieve an upper middle-income economy by 2030. As noted earlier in this policy paper, the main aim of the data-gathering process was to investigate the contribution of the Zimbabwe’s growing lithium mining sector to its national development strategy. During an interview, an independent Member of Parliament who once chaired the Zimbabwe’s Parliamentary Portfolio Committee on mining argued that:

When it comes to lithium mining, we are giving away our minerals for free. Most foreign mining companies are coming here to mine lithium and export it to their countries for processing. As a result, we lose value as these companies end up beneficiating these minerals and then come back to sell us expensive finished products such as lithium batteries for solar. Why can we not make it a policy that whoever wants to mine our lithium should set factory here so that we benefit from the processing and export of finished products? If they cannot set shop here, why can they not give us a share of the percentage from processed products? As law makers, we must put together a policy framework that protects our mining sector from resource grabs that do not benefit our people. The current ban on the export of unprocessed lithium ores is benefiting certain individuals who have been allowed to continue exporting the mineral, while everyone else has been banned. Corruption is another challenge we face as we try to benefit from the global demand of mineral which are in abundance in our country (Themba interviewed in Harare 04 July 2023)

As captured in the above interview, the issue of corruption was also highlighted by other informants who argued that corruption in the awarding of mining leases and export of minerals was undermining local economic development. During an interview, a researcher working in the mining sector observed that:

There has been a lithium rush all over the country, everyone is prospecting for lithium. The major challenge is corruption. Politicians and certain individuals who have influence are the major beneficiaries of the lithium rush as they are forcing those without political connections out. Some of these political figures are using their connections to facilitate the acquisition of lithium mine claims by foreign investors while locals have been barred from prospecting for lithium. It is like what happened at the Marange Diamond Fields in 2006 and 2007 where foreign mining companies were allowed to loot diamonds while locals were violently evicted. If it is not well managed, we are likely to see no social benefits from lithium mining especially where the resource is being mined. So, you find that in most cases the major beneficiaries of lithium mining might be those from outside such as the Chinese, the Russians are other Europeans, and particularly the British. (Chigomba interviewed in Harare 15 July 2023)

Corruption does not only undermine development, but it also promotes the exclusion of locals from participating in mining activities in favor of so-called investors who are given preferential treatment by the government. This highlights some of the potential challenges facing resource-rich countries in addressing socio-economic challenges facing their populations such as high levels of unemployment. However, not everyone was pessimistic about the potential of the lithium sector to contribute to national economic development. During interviews, a trade unionist highlighted how the opening of new lithium mines across Zimbabwe was creating employment and other economic opportunities:

We are a trade Union registered to represent mine workers in Zimbabwe and beyond. The Lithium sector to us is an emerging sector, we used to know one lithium mine called Bikita Minerals but now we currently have five mining companies that have moved into the lithium sector. We are seeing a big constituency in terms of workers being employed. Jobs have been created, if I tell you Bikita Minerals has developed itself from employing 200 workers to about 1200 workers as of today. Zulu Lithium has about 300 in Fort Rixon it was an area that was quiet in terms of mining. You would see cattle and no rain etc. There is now a huge company that has been established and by December it will employ a lot of people amounting to 800 workers. We also have prospect resources that have created over 2000 jobs right now. We have Kamativi which is setting up it has been closed now its opening and will be mining lithium instead of tin. It’s going to have about 500 workers by December. These are jobs that have been created. So, to us as a trade union we are seeing job creation, and this makes us very happy. It’s an emerging sector which has some problems as we are celebrating the job creation that has come (Bhebhe interviewed in Harare 15 July 2023)

However, despite the new employment opportunities created by the new lithium mines, the trade union official highlighted some of the challenges associated with the growing lithium mining sector such as poor working conditions and lack of compliance with environmental regulations by some mining companies:

We are so angry about the poor working conditions although we celebrate the jobs that have been created. We are facing a big challenge in terms of the working standards and working environments, the salaries and abuse of workers in many ways. The Chinese who are the main investors who have come to mine lithium in Zimbabwe, are people who don’t even recognize the labor laws of the country including any other law be it environmental or our cultural beliefs. The safety conditions, especially in the lithium sector, are a major concern and they need urgent review. We once raised a lot of these issues to an extent where Bikita Minerals was once forced to suspend operations due to poor working standards. The subcontractors especially the Chinese manage each section without providing proper protective equipment. Some people are working without proper protective clothing. As much as the jobs are created the working conditions are very bad (Bhebhe interviewed in Harare 23 July 2023).

Although most informants agreed that lithium mining had the potential to transform the economic fortunes of Zimbabwe, they were aware of many challenges that the country faced in its pursuit for a resource-driven development strategy:

I will hasten to say that the boom in lithium mining is just a small window, the price of metals, commodities and natural resources go up and down in terms of their demand so it’s a window that Zimbabwe can benefit from or lose if the natural resources governance sector is not well attended to. If the framework is not right, which I think is not right at the moment, we are not going to achieve a lot from this window of opportunity. Remember that Zimbabwe has had booms in diamonds, it still has abundant resources of gold and other minerals. We have up to 44 commercially viable minerals, but we have not seen a lot of development, or we have not developed at a pace that we think we deserve. Lately we have been talking about resource curse and so on. I think it stems from the fact that we have weak government systems in terms of economically exploiting resources and allowing investors into the country (Ziga interviewed in Harare 27 June 2023)

As noted in the previous interviews, corruption and weak government institutions were highlighted as potential bottlenecks which undermined the country’s ability to realize the full value of its mineral wealth. During an interview, an informant went further to highlight some of the challenges a resource-rich country like Zimbabwe is likely to face in using its resource endowments to promote national economic development:

From a developmental point of view investments are not being channeled properly in terms of the law governing the royalties they pay, the fees they pay, the taxes they pay, the development projects that they pay. There is a need to implement an Environmental and Social Governance framework. There are a number of weak links and the government of Zimbabwe just like any other African governments are very weak when it comes to negotiating mining leases because they use antiquated laws, they do not have the political willpower to implement some of these things because some of our authorities seem to get corrupted along the way and we do not have the competence to fundamentally change the status quo of our laws which were created towards exploiting resources for the benefit of conglomerates. Given this trajectory, we do not think that we are going to see fundamental changes from this. We can get some money. very quick money from investments that are coming but I don’t think it will bring so much change to the economy especially in a long term (Ziga interviewed in Harare 27 June 2023)

The problem of exporting unprocessed raw materials such as lithium ores remains one of the fundamental challenges facing African countries such as Zimbabwe. Lack of industrialization and technological capacity to process minerals forces many resource-rich countries to allow the export of unprocessed ores. Until recently, Zimbabwe suffered under two decades of unilateral sanctions imposed by the United States after the implementation of its fast-track land reforms in 2000. This economically crippled the country and undermined its ability to invest in infrastructure and attract FDI. Through its ‘Zimbabwe is open for Business’ mantra, the country has been on aggressive drive to promote investments across key sectors of the economy including the mining sector. As a result, there has been an increasing number of investments in the lithium, gold and platinum group metals sectors. The creation of the ZIDA in 2020 to streamline various government policies and lessen red tape in setting up businesses has promoted new investments especially in the mining sector. However, the country is yet to go beyond the banning of export of unprocessed lithium ores to putting in place a deliberate policy to promote local beneficiation of its minerals such as lithium. Unless the country puts in place a deliberate policy to promote local processing and beneficiation of minerals, the historical trend of commodity exports will continue to the detriment of local economic development. As a counter point to the above, an interview with a Zimbabwe Ministry of Mines official highlighted what influenced the government’s controversial ban on the export of unprocessed lithium ores:

There is a lot of potential in terms of lithium. You then realize after this boom that we have different deposits or discoveries of late, which is a sign of great potential. We also need to explore more to identify other larger discoveries of lithium. I believe there could be larger deposits of lithium because we are under exploring. The ban on the export of unprocessed lithium ores is a strategic move that will force investment into lithium processing, because if investors know that there is plenty of lithium but there is a gap of value addition they will be forced to invest in local processing. So, it’s a strategic move for the government to draw investment in the value addition sector. If you look at it from the perspective that minerals are a finite resource, you will understand that we can get value from processing lithium because if we leave it there it’s not going to lose value there. If we are looking at the global trajectory where the demand for electric vehicles, electronics, you will notice that lithium will always be in demand because of the global trajectory. So, if you look at it from a perspective that you want money now, it won’t make sense but if it is future investments that you want to benefit from then that will come in handy (Pangu interviewed in Harare 23 June 2023

While the ban on the export of unprocessed lithium has been blamed by some commentators as unfair and beneficial to a few politically connected companies. The above highlights the government’s thinking around the ban, especially its intention to promote local processing of lithium as a value addition measure. Whether this ban will lead to the setting up of local refineries given the challenges in setting such infrastructure remains to be seen. The Ministry of Mines official interviewed above went on to clarify why some companies especially those which are partially owned by the government were allowed to continue exporting unprocessed lithium ores:

The exemption on the ban is because there are companies which are strategic to government remember we are under sanctions raising capital is difficult so why can’t we not empower our indigenous companies to export and fund their investments in local processing plants. Would you be comfortable if we leverage those resources or others to come and say we are using those resources to raise funds for you? So, these indigenous companies with potential are given that exemption so that they raise funds from the ore (Pangu interviewed in Harare 23 June 2023)

However, the problem of processing lithium is not limited to African countries. China remains a dominant player in the processing and manufacturing of lithium products as it has the refining infrastructure and the leading technology in lithium-ion batteries. According to Meghalayan News (25 February 2023), while China holds ‘less than 7 percent of the world’s lithium reserves, it is the world’s largest importer, refiner and consumer of lithium, buying 70% of lithium compounds and supplying 70% of lithium product to domestic lithium battery makers six of which are among the top ten in the world’. The report further goes to say that after a ‘long push China’ wields considerable control over supply chains for lithium-ion batteries’. As a result, ‘Chinese companies have managed to make good quality batteries in large quantities and at a low cost’. Given the above, a major question to be asked is whether -resource-rich African countries, such as Zimbabwe, are able to compete against dominant players, like China, who now control the global lithium value chain or, are they better off maximising their tax revenue? This is an important question with no easy answers. The potential challenges facing Zimbabwe’s lithium sector were highlighted during an interview with a Researcher working in Zimbabwe’s resources sector:

We lack industrial capacity to process our minerals, we have to rely on foreign countries such as China with the capacity to beneficiate these minerals. The government has tried to stop the export of raw lithium with limited success. Some companies have ongoing obligations to supply the unprocessed lithium, they had signed contracts before the ban was implemented, they cannot just stop. Lithium mining has already created employment opportunities in rural areas although the quality of some of the jobs is poor compared to for example to the platinum mining sector. It has also created business opportunities such as retailing businesses that were not there before lithium mining companies started operating in these areas. From a fiscal perspective, there are always tax avoidance risks when it comes to mining, the government must tighten its tax regime and make sure there is compliance across the board. China is a global player in the processing of minerals, we should make sure we negotiate better deals with Chinese mining companies which can promote long term technological transfer which could benefit us. (Chipo interviewed in Mberengwa 22 June 2023)

The problem of poor industrialization and lack of capacity to beneficiate minerals featured across many interviews. A diversity of stakeholders including government officials highlighted this challenge during interviews. The fact that most resource-rich African countries lack the technological capacity to process minerals reduced them to what a government official called ‘price takers’ during interviews:

The main challenge of resource-rich countries is we are price takers, yet we have the producer power. Look at how many people are producing lithium. We are price takers. So, if there are going to dictate to us that is the challenge number one. We do not have adequate technology and expertise to process our minerals. So you will find that if these things are in play the foreigners have the upper hand. We do not have much to say or control, we just produce, and we take what is there. That’s a major problem that I see especially in mineral resource-rich countries of Africa. We cannot utilize producer power we are producers of platinum, but we have South Africa right down there but we cannot really come up with an OPEC of some sort for us to come up with global prices because we are the producers. So we wait for the international markets to dictate the price for us (Chari interviewed in Harare 15 June 2023)

During fieldwork, the issue of industrialization and poor technological capacity appeared across interviews. This situation reflects the broader challenges facing many resource-rich African countries in utilizing their mineral resource endowments for national economic development. While Zimbabwe has imposed a ban on the export of unprocessed lithium ores, this should be followed by a deliberate policy of promoting industrialization and technological transfer. Some of the challenges of beneficiation are to do with bureaucratic capacity to implement technical projects. During interviews, a director at a large mining company in Zimbabwe observed that:

Our company currently owns a nickel refinery in Empress near Kadoma. While this refinery was designed for nickel processing, it could be easily retrofitted to process lithium at a cost of US$ 30 million dollars. This is a worthwhile investment which the government must promote. As long as there is a guarantee on ore supply this refinery can promote local beneficiation of lithium and local manufacturing. What is needed is political will by the government to promote such an investment (Interview Denga 29 July 2023)

The above shows that sometimes lack of political will and bureaucratic bottlenecks undermine the implementation of key infrastructure projects which could help the country benefit from the boom in CRMs. Beneficiating minerals locally is achievable if the policy framework is in place, a recent article in the Mining weekly magazine (02 July 2023) showed how Argentine is setting up a lithium-ion battery plant which would process lithium mined locally. According to the report:

Argentina’s first plant for lithium batteries will begin operations in September, using metal extracted locally by US company Livent Corp, mining officials said on Saturday. Livent had agreed earlier this year to supply lithium to the new plant, which was developed by Y-TEC, a unit of Argentine state oil firm YPF.

The above shows how Argentina (located in the mineral rich lithium triangle) are promoting the mining and beneficiation of lithium locally in the process improving the value of their minerals and creating local economic linkages which benefits local companies. Another challenge raised during interviews is tax evasion and corruption. Weak tax laws undermine revenue collection which is critical for investments in social services and other key infrastructures. For a country to benefit from a boom in its resources sector, it must strengthen its tax laws to improve compliance and hence revenue collection. It has been proven that in developing countries with weak tax laws and poor law enforcement regimes, mining companies often prefer to pay bribes in order to gain access to the resource and to avoid paying taxes. According to a Ministry of Mines official:

Investors generally don’t want to pay taxes but as a country we need those taxes, we need that revenue. What is important is to have a stable taxation and royalty system which is transparent to investors, so they know before they make decisions. Because you find that the moment we put tax incentives like rebates on royalties it’s a race to the bottom we won’t be getting anything because our revenue comes out of taxation that’s where we get our revenue as government so if we reduce that, it means we are reducing the revenue that we are going to get as a government (Pangu interview in Harare on 3 June 2023)

The issue of a flexible taxation regime also came up during interviews with government officials. A government official highlighted that there is a need for a flexible tax regime which can quickly adjust to global trends in commodity prices. This could allow governments to realise more value during commodity booms in form of windfall taxes:

We do not have flexible taxation systems in resource-rich countries. If you look at the royalties you will find that they are flexible when there is a global boom, and prices are high you also charge higher prices of royalties. It’s difficult to adjust these when there is a slump in global commodity prices. I think there is a need to have a hybrid system which adjusts to global prices because I don’t think right now with the current prices that lithium is fetching the 2% in royalties for base minerals is correct, it needs to be reviewed. You will find that the process of reviewing royalties is underpinned by too much bureaucracy. You will see that by the time a certain percentage is approved the prices will have adjusted. An example is copper in Zambia where the copper prices were high by the time they were adjusting royalties the prices went down so you will find that the process is long (Pangu interviewed in Harare on 3 June 2023).

More importantly, a resource-based development strategy must be based on transparency and fair competition, this will boost the economy through optimal resource rent collection. Australia provides a classic example of how a vibrant resources sector underpinned by a competitive environment can boost the economy through taxation and payment of royalties. A report by the Minerals Council of Australia notes that

‘Minerals have helped propel our economy forward, boosted economic opportunity and freedom, and enabled the governments to invest in the things that really matter (such as) families, communities and vital services like hospitals, schools, childcare, aged care and infrastructure,” MCA chief executive officer Tania Constable said. “Australia does well when Australian minerals do well.” Over the past ten years, Australian minerals have contributed 21 per cent of Australia’s gross domestic product growth, through $168 billion paid in company tax and $127 billion paid in royalties- adding to a total of $295 billion that underpinned Australian government revenue. The above highlights how a transparent resources sector can boost government revenue through taxation which can be invested into key sectors of the economy. According to the Mineral resources council of Australia, ‘The royalty and company tax payment report found that in 2021-22, the country’s minerals sector contributed $63 billion to federal, state and territory governments, a notable increase of $21 billion from the previous year. Out of the total, $39 billion was company tax, a third of all company tax paid in Australia, and $24 billion was the sector’s contribution to royalties’.

Given the above, despite the popularity of the ‘resource case’ concept in literature on extractives it is possible for a country to prosper on the back of a resource – boom if it puts in place rigorous tax laws. Australia provides a good example of how revenue from taxation and royalties can be used to invest in communities. Despite many informants being pessimistic about a resource-driven development strategy in Zimbabwe, interviews with government officials from the Ministry of Mines show that they are optimistic about the potential for CRMs and indeed the broader mining sector to transform the economy:

Resource-driven economy is feasible in Zimbabwe. If you look at the exports receipts 60% are coming from minerals or mining that means that our economy is resource-driven. That means the growth even if you look at all blueprints there have been talking to mining as a pivot for economic growth. So a resource-based economy is feasible. Yes, mining will definitely lead to the country realizing its national goals because it’s attracting FDIs into the country so it’s important. It’s creating employment local community development. If you look at the issues of devolution you will see how critical this sector is in terms of driving economic growth. People know where there is money. Currently, the government has banned the registration of lithium claim for strategic reasons. The remaining claims are now reserved for the government for strategic purposes. There are some resources or areas that are large that if you give a small-scale miner, they will scrap the ground and leave so for such areas we would need serious investors who can be able to market and develop those areas effectively. So, such strategic areas have been banned to register and are now reserved for government (Jari interviewed in Harare on 11 June 2023).

The debate on the benefits of local beneficiation remains unresolved, most resource-rich African countries lack the technology to process minerals locally. Beyond technological limitations, the manufacturing of for example lithium-ion batteries require the creation of an entire value chain in order to bring all the required minerals and components in place. For example, Zimbabwe might produce lithium but making the batteries require other components made from minerals that might not be available in Zimbabwe. Given the above, the setting up of a battery manufacturing plant might require regional collaboration as countries like Zambia, South Africa and the DRC are major producers of some of minerals needed for making batteries. There thus a need for collaboration and cooperation among African countries in order to build their capacity to beneficiate some of their minerals. The bilateral agreement between Zambia and the DRC to produce nickel, manganese and cobalt battery precursors provides an example of a regional approach to mineral beneficiation which can be cascaded across the southern African region.

A major change that emerged during interviews is how resource-rich African countries like Zimbabwe are often vulnerable to bribery and corruption which undermine revenue collection. This is why in countries such as Angola and the DRC’s resource endowments have not resulted in what James Ferguson (2006) have called ‘social thickness’, which generally means a boom in resources must be accompanied by investments in social services such as schools, hospitals, roads and other social welfare arrangements which can improve the social welfare of local communities. Instead in these mineral rich jurisdictions, mining (of a diverse range of minerals) has led to ‘enclaves’ and ‘social thinness’ which has not improved the social wellbeing of local communities or national economic development. In countries where extractive activities do not contribute to ‘social thicknesses and resource rents benefit a few politically connected elites, conflicts and social instability emerges as the mining activity fails to secure a ‘social license’ to operate among local populations. This is especially the case of the DRC where in some areas extractive activities have led to conflicts and civil war thus destabilising the country rather than enriching it. For Zimbabwe to avoid the above, it must tighten its taxation regime, promote industrialization and technological transfer for the long-term sustainability of its mining sector. The boom in the global demand for CRMs which it has in abundance can bring the much need foreign currency to invest in public services such as health, schools, electricity generation and infrastructure development which has for many years suffered from under funding due to a decade’s old economic crisis.