Growing mining revenue: which way for Malawi?

Mining has been billed as one of the sectors that could help boost the economy, but its contribution to the country’s gross domestic product (GDP) in the past five years has continued to shrink.

From lack of better negotiation skills on contracts with companies, limited capacity to monitor mining activities to reported elements of corruption, Malawians, especially in mining areas continue to remain poor.

Going by figures from the Malawi Extractive Industries Transparency Initiative (Mweiti) reports, in 2017/18, the country raked in K18.711 billion, moved up to K23.594 billion in 2018/2019, but moved downwards to K18.703 billion in the 2019/2020 fiscal year.

In terms of contribution to GDP, it accounted for 0.85 percent during the 2017/18 financial year, then 0.84 percent during the 2018/19 financial year and 0.85 percent during the 2019/20 financial year.

The dream had been to grow the GDP contribution of the mining sector to 20 percent by 2020, but the draft fifth report now suggests a potential growth of 20 percent by 2023, providing the song that the country has sung since the 2014/15 fiscal year.

Why failure to grow?

In all the reports, there are similar challenges, solutions are provided but very few turn around the situation.

While there was a jump from K11 billion revenue in 2016/17 to K18.711 billion in 2017/18, total unreconciled discrepancies amounted to K3.9 billion, representing 39 percent of government revenues, and this was attributed to some of the companies that did not submit their reporting templates.

These unreconciled differences include payments not reported by extractive companies at K1.3 billion, payments not reported by the government agencies at K909.7 million and missing extractive companies’ details at K417.3 million.

For the fifth draft report, according to consultants EMJ Advisory, some extractive companies could not submit their reporting templates amounting to over K9 billion, and that some reporting entities did not follow the guidance and instructions for completing the templates.

“For the Financial Year 2018/19, five active companies out of the 16 included in the reconciliation scope did not submit their reporting templates. Receipts reported by government agencies and relating to these extractive companies amounted to K4.718 billion.

“For the Financial Year 2019/2020, six active companies out of the 16 included in the reconciliation scope did not submit their reporting templates. Receipts reported by government agencies and relating to these extractive companies amounted to K4.472 billion.”

Mining governance expert Elyvin Chawinga says in the absence of the EITI law, some companies fail to respond to the reporting templates.

“Revenues being collected from the sector is not as much and mainly because there is no active large-scale mine in operation. Forestry companies still don’t consider themselves as extractive hence they don’t see the need why they should respond to the EITI reports, despite several inductions conducted,” she says.

Kossam Munthali of the Natural Resource Justice Network (NRJN) observes that even the Mines and Minerals Act (2019) is promoting secrecy on mining revenue, through Section 38.

Section 38 (4) reads: “Unless otherwise specified in this Act, any information submitted by the holder [mining company] shall remain confidential for as long as the licence is valid and two (2) years after the expiry or termination of the licence.”

The fifth draft report also notes some capacity challenges at the Ministry of Mining, Malawi Revenue Authority and many other sectors.

For instance, the EITI requirement 3.2 demands the disclosure of production data for the fiscal year covered by the report, including total production volumes and the value of production by commodity. This is supposed to be done by the Ministry of Mines.

“The Department of Mines (DoM) does not have its own procedures to collect and control production data reported by mining companies. As a result, data on the mining production is unreliable.

“We note from the analysis of the production data by region and by company provided by the Department of Mines that the value of production is not available. Additionally, we note that the mineral production data declared by DoM does not match production values and quantities declared by extractive companies,” it says.

Smuggling, corruption

President Lazarus Chakwera admits! Failure to realise enough revenue from the mining sector is a crime, it cannot allow the sector to be unstructured, exploitative, lawless and free for all.

In a policy speech on mining, Chakwera says: “You are all aware that recently there have been increasing reports of unregulated mining in this country, including the illegal selling and smuggling of such natural resources as gold and gemstones.”

A 2021 study, Scratching the Surface; Tracing coloured gemstone flows from Mozambique and Malawi to Asia, shows that smuggling networks of gemstones are prominent, resulting in vast quantities of stones being trafficked.

While Kamuzu International Airport has been identified as a major conduit for gemstone export and smuggling, it says consignments of precious and semi-precious stones also leave Malawi in container traffic from Dedza and Mwanza to Beira in Mozambique, and to the Songwe Border Post in Tanzania, en route to Dar es Salaam.

It reads: “From Mozambique and Malawi, coloured gemstones are taken to the major trading hubs of Thailand and Sri Lanka, either directly or via Tanzania or Kenya. Rough stones are smuggled in and polished, and cut gems and jewellery are exported.”

One of the authors, Chikomeni Manda, says due to an immediate need for cash for household goods, including food, miners often have little choice on prices.

He says: “Malawi officially exported $746 114 worth of coloured gemstones from 2018 to 2020, but this is thought to significantly undervalue actual flows.

“Stones may be smuggled out of a source or transit country to avoid export taxes, regulatory requirements or the paying of bribes. Smuggling not only deprives producer countries of tax revenues, but also thwarts efforts to trace supply chains and establish responsible sourcing.”

The Anti-Corruption Bureau director general Martha Chizuma also confirms that they have finished investigations into the alleged bribery on the renewal of licence of Illomba Granite Company (IGC) in Chitipa.

Recorded voice and phone-call clips in November 2019 detail how a Chinese investor managing IGC dangled $300 000 (about K225 million) to senior government officials to have a mining licence renewed.

Government has since refused to renew the license until the company gets community concent owing to lack of ‘benefits’. In the 25 years of operating in Chitipa, the company only drilled two boreholes.

Contractual issues, dormancy

Government has long admitted that it lacked capacity to negotiate a better deal with Paladin Energy, the then managers of Kayelekera Uranium Mine in Karonga.

But last year, on September 1, Capital Hill renewed the contract under new operators, Lotus Resources Limited, which has just announced expanding the known mineralised zone by up to 100 metres.

The company’s managing director Keith Bowes says such results are very encouraging as they are able to confirm that shallow mineralisation extends outside the existing pit shells.

In addition, Keith says exploration results from the Milenje Hill rare earth prospect and the Livingstonia uranium deposit are expected shortly while drilling has also recommenced at the Chilumba prospect, north of Livingstonia.

Secretary for Mining Joseph Mkandawire says the expansion is good for the country, but also admits that the country lacks lawyers on mining who can negotiate contracts.

He says: “Obviously we need mining lawyers to negotiate, but we have been trying to have a pool of lawyers who have some knowledge in mining so that we can engage companies. Currently, we are using lawyers from the Ministry of Justice.”

The dream has been to grow the mining sector’s contribution to GDP to 20 percent by 2020, but the fifth Mweiti report has shifted the target to the year 2023, due to among others, the situation at Kayelekera Uranium Mine.

It says: “It is estimated that with increased emphasis on mineral extraction, the sector’s contribution to GDP has potential to grow to 20 percent by 2023. However, this is difficult to attain in the current situation with the largest mining project at Kayelekera still being under care and maintenance due to low global uranium prices.

“The expected new large mining projects’ namely Kanyika Niobium in Mzimba and Songwe Rare Earth Project by Mkango Resources Limited are likely to delay their commissioning dates due to the impact of Covid-19 pandemic.”

Any hope?

Chawinga urges the government to consider reviewing all the key legislations governing the sector, and most importantly focus on implementing them.

“There is a need to finalise the implementation guidelines for the Mines and Minerals Act of 2019. It’s sad to see that two years down the line, the law has still not attained its full implementation. The oil and gas sector is another area with huge policy gaps.

“There is a need to put in place the Oil and Gas Policy, finalise the model Petroleum Sharing Agreement and to review the Petroleum Exploration and Production Act of 1983,” she says.

On failure to monitor the exact amount of data from mining companies, Mkandawire says government is in the process of recruiting 42 new staff members who will be placed in districts with serious mines, so that they can easily verify.

He says: “We have a challenge because of the numbers that we have, but we are employing 42 mining engineers and inspectors and some of them will be sent to districts. These will be able to monitor companies on time.

“Each entity wants to maximise profits, which is not acceptable, but they take advantage of not being monitored and we hope that the situation will change, essentially leading to increased revenue.”

In his mining policy speech, Chakwera outlined how mining could transform the country’s economy and the steps his administration will take to push forward a vision of industrialisation in the country which he described as “mineral rich”.

He said: “As a country, we have issued over 250 mining licences, but we still have no proper mining industry or returns to speak of. This is a crime we cannot allow to happen again. Nor can we allow our mining sector in general to be the unstructured, exploitative, and lawless free for all it has been in recent years.”

Major policy directions announced include the establishment of a mining authority to regulate the industry; establishment of a new national mining company to implement business interests of the country’s mining sector, and the establishment of a gold market by the Reserve Bank of Malawi. Anything changed since? The draft Mweiti report records that the Ministry of Mining has submitted a K5 billion budget proposal to Treasury for consideration during the 2022/2023 financial year, towards the formation of a new mining company.