Impact of sanctions on the Mining sector

Impact of sanctions on the Mining sector

Impact of sanctions on the Mining sector

By Ransom Mandhlazi

THE sanctions imposed by the West on Zimbabwe, have proven to be tactless, miscalculated economic warfare, fashioned to ‘kill’ Zimbabwe. Curiously, at the center of this ugly theater of a blistering neocolonial attack by western imperialists, are their minions, right inside Zimbabwe beguiled as opposition parties, civil society, and queer diplomats.

The idea is to cripple the country major economic pillars, with Mining among the target by the Western Imposed sanctions. The sector was negatively affected by the sanctions resulting in limited funding to recapitalize as most financiers stopped providing lines of credit to the industry. According to the Ministry of Foreign Affairs and International trade, on the impact on mining sector, sanctions reduced ability to access new markets.
“Of particular concern are the negative effects on the minerals marketing and the diamond companies.
“Two minerals marketing companies were designated by the US and the EU as some entities against which sanctions were imposed in 2008 and 2012 respectively, with the American and EU citizens and entities, and other entities outside these two jurisdictions prohibited from doing business with or providing financial and technical assistance to these organizations.

“Assets belonging to these marketing companies within the USA and the EU were immediately frozen and could not be withdrawn or liquidated. In essence, the marketing companies could not deal with US and EU persons and entities because anyone who violated these measures was liable for prosecution. Potential buyers of Zimbabwean minerals risked losing the minerals or proceeds thereof,” reads part of the report. It further states that after selling the minerals on behalf of producers, marketing companies are supposed to receive all monies for sales outside the country. However due to sanctions, the two companies were incapacitated to carry out this mandate and this affected the Corporation’s receipts of funds.

“On its part, one of the marketing companies has failed to implement its turnaround strategy due to the failure to attract investors, high cost of capital and/or inability to recapitalize, inaccessible lines of credit, and inability to trade in any USD denominated currency,” it added. More so, from a marketing perspective the sanctions have led to reduced ability to access new markets and market share as it eliminated the US and the EU as its markets.
“Reduced negotiation clout, competitiveness and choice as it could not access essential services like banking, logistics, and marketing journals from the USA and the EU; “Loss of customers/clients as major corporations were unwilling to deal with the minerals marketing companies; Compromised monitoring role as the corporation is no longer involved in logistics and movement of products to the market; and Forced to sell on an ex-works basis instead of free-on-board or delivered basis, thus significantly reducing potential revenue to the government,” it state.
From a financial perspective, the sanctions have affected all the foreign currency transactions with the companies unable to directly transact in foreign currency.

To date, a total of USD1.2 million in producer funds and government royalties has been blocked by the US government.  “Producers are now receiving their funds directly from customers outside Zimbabwe creating a problem for the government as some producers tend to evade paying taxes and royalties. It is never guaranteed that Zimbabwe will recover its blocked funds,” reads the report.

On the diamond companies, the sanctions made it difficult for them to effectively market and trade their diamonds at competitive prices, forcing them to sell the precious mineral at discounted prices of more than 25 percent below the normal prices.  “The companies traded their diamonds through unconventional means because major international banks, insurance companies and couriers did not want to be associated with diamonds from Chiadzwa.
“Furthermore, some global diamond players could not trade and deal directly with Chidzwa diamond companies under their normal banners/names for fear of retribution. They had to find other entities to trade with, a process that had serious business and cost implications,” it added.

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