ZGC-LTD Press Statement on President, Professor Arthur Peter Mutharika Remarks on Artisanal and Small Scale Mining and Exportation of Raw Minerals

Zozodo Gemstone Consultancy and Mining Company Limited (ZGC-LTD), on behalf of growing Malawian owned Mining Companies and all Artisanal and Small Scale Miners in Malawi. We express our profound respect for the President administration's efforts to maximize Malawi's economic potential. We commend your vision for a more prosperous Malawi and your dedication to ensuring the country's mineral wealth benefits all its citizens

While we share your commitment to a strong and transparent mining sector, we wish to respectfully offer a nuanced perspective on the proposed ban on small-scale mining and raw mineral exports. Such a drastic measure, while seemingly a direct path toward formalization and value addition, could trigger significant unintended consequences that could hinder our collective economic goals.

ZGC-LTD believes that a more collaborative, inclusive, and phased approach would better serve the long-term interests of the nation. By focusing on formalizing, regulating, and integrating small-scale miners into the value chain, we can transform this often-informal sector into a powerful engine for national development, while also attracting and retaining large-scale, responsible foreign investment just like other bordering countries such as Zimbabwe -Tanzania in ASM gold production and Zambia in ASM copper production.

Small Scale miners in Malawi are represented by a number of legally registered Associations namely, Federation of Artisanal and Small-Scale miners (FASM), Malawi Women in Mining (MAWIMA), Gemstone Association of Malawi (GAM), Nyasa Mining Cooperative (NGC), Women in Energy, Extractives and Mining Association (WEEMA), Mzimba Gemstone Cooperative (MGC) and others. ZGC-LTD humbly and respectfully request the opportunity that the mentioned associations and leading Miners in Malawi to engage in a collaborative dialogue with your office, Mr. President and the Ministry of Mining, which is something that the government of Malawi has neglected over a period of time. Together, we can explore innovative solutions that build a robust, transparent, and prosperous mining industry that serves the interests of all Malawians

ADVANTAGES AND DISADVANTAGES OF THE PROPOSED BAN

A ban on artisanal small-scale mining (ASM) and raw mineral exports presents a complex set of potential outcomes for a developing country like Malawi.

ADVANTAGES OF THE BAN

Improved Revenue and Transparency: By ending the informal export of raw minerals, the government could more effectively monitor and tax the mining sector, increasing state revenues. Formalization, in theory, allows the government to capture a larger share of the resource value

Encouraged Value Addition: An export ban is a powerful incentive for investors to establish local processing and manufacturing facilities. This could create a domestic mineral processing industry, leading to higher-value exports and new jobs. Environmental Protection: Informal and unregulated ASM often involves environmentally destructive practices, such as uncontrolled use of mercury for gold extraction. A ban could reduce this damage and allow for stronger environmental regulations within the formal sector.

Enhanced Regulatory Control: Banning informal operations allows the government to gain better control over the mining sector, enforcing safety standards, labor laws, and environmental protocols.

DISADVANTAGES OF THE BAN

Loss of Livelihoods: ASM provides a crucial source of income for millions of people in developing countries with few other employment options. A ban would eliminate these livelihoods, potentially driving already vulnerable populations further into poverty and creating social instability.

Illegal Activity Increase: Completely banning ASM rarely stops the activity. Instead, it drives it further underground, fueling black markets and creating a more dangerous and less regulated environment. This makes oversight and taxation even more difficult. Reduced Foreign Investment: Export restrictions and policy uncertainty, such as sudden bans, can seriously damage investor confidence. Foreign investors, including those in medium-scale operations, may become hesitant to invest in a country where regulations can change unexpectedly, leading to a flight of capital.

Slowed Economic Growth: While a ban is intended to boost value addition, the transition can be slow and painful. If local processing capacity is not ready, it can lead to a significant drop in production and exports, resulting in a short-term economic contraction

REACTIONS TO THE BAN FROM DIFFERENT STAKEHOLDERS

Impact on Investor

Foreign Investors: International investors value stability and predictability. A ban would be seen as a negative signal, increasing political and regulatory risk. This could lead to

Delayed or Canceled Investments: Prospective investors may postpone or abandon projects until policy stabilizes

Reduced Sector Competitiveness: Malawi's investment attractiveness could diminish compared to other countries with more predictable mining policies. Domestic Medium-Scale Mining Companies: These companies would face new restrictions on their raw mineral exports

Disruption of Business Models: Companies that export raw or semi-processed materials would need to invest heavily in processing facilities, which may be unfeasible for many

Supply Chain Challenges: The ban could disrupt their supply chains and access to international markets, affecting profitability and operational stability

Impact on the Mining Sector

Formalization vs. Marginalization: The ban could drive the formalization of the sector, but if not managed carefully, it will simply marginalize and criminalize thousands of artisanal miners, leading to more conflict and instability

Growth of Illicit Markets: An unintended consequence is the potential for a more organized and resilient illicit market for mineral smuggling, which would continue to evade taxes and regulations.

Inadequate Infrastructure: The development of local processing requires significant investment in infrastructure (power, roads, and water) and technical skills, which can take a long time to build up. Without this, the ban could cripple the sector's production capabilities

Increased Conflict: The displacement of artisanal miners can lead to increased conflicts over resources, especially in areas where formal mining operations exist

Impact on the Economy of Malawi

Reduced Foreign Exchange: In the short to medium term, the immediate drop in mineral exports would reduce Malawi's foreign exchange earnings, worsening the country's balance of payments and potentially increasing economic instability

Decreased Tax Base: While aiming to increase revenue, the ban could lead to a shortterm decrease in tax revenue from both ASM and medium-scale miners. The potential long-term gain depends on the successful establishment of the value-added sector

Potential for Industrialization: In the long run, if the government successfully promotes downstream processing, the ban could spur industrialization, create higherpaying jobs, and lead to greater economic diversification. This would require substantial investment and political will

Impact on FDI: The ban's effect on foreign direct investment (FDI) would be critical. If it is perceived negatively, it could reduce inflows across all sectors, affecting Malawi's overall economic growth. A successful policy would need to focus on formalizing, regulating, and empowering small-scale miners rather than outright banning them, while also working closely with all investors to build local capacity for value addition.

Sincerely,

John Vasco Chidule

CEO, ZGC-LTD