FACULTY OF COMMERCE

DEPARTMENT OF BUSINESS MANAGEMENT

AN ASSESSMENT OF THE EFFECTS OF FORMALIZING THE INFORMAL GOLD

MINING SECTOR IN KADOMA

BY

SIMBARASHE M MUDZAMIRI (R102857C)

SUPERVISOR: MR NYAMWANZA

SUBMITTED TO THE MIDLANDS STATE UNIVERSITY

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR BUSINESS

MANAGEMENT

HONOURS DEGREE

GWERU ZIMBABWE

APRIL 2014

RELEASE FORM

NAME OF AUTHOR : SIMBARASHE M MUDZAMIRI

TITTLE OF PROJECT : An assessment on the effects of formalizing the informal

gold mining sectorin Kadoma

PROGRAMME FOR WHICH

PROJECT WAS PRESENTED : Bachelor of Commerce Honours in Business Management

Degree

YEAR GRANTED : 2014

Permission is hereby granted to the Midlands State

University Library to produce single copies of this project

and to lend or sell such copies for private, scholarly or

scientific research purposes only. The author does not

reserve other publication rights and the project nor may

extensive extracts from it be printed or otherwise

reproduced without the author's written permission.

SIGNED: ...............................................................................................

PERMANENT ADDRESS:4577 NGEZI T-SHIP

KADOMA

i

APPROVAL FORM

The undersigned certify that they have read and recommend to Midlands State University for

acceptance a dissertation entitled “an assessment of the effects of formalizing the informal gold

mining sector: a case of the informal gold mining in Kadoma”, submitted by Simbarashe

Mudzamiri in partial fulfillment of the Bachelor of Commerce in Business Management Honours

Degree

…………………………………………… ……………………………………………..

Supervisor Date

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Programme Coordinator Date

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External examiner Date

ii

DEDICATION

This research is dedicated to both my mom (Lucia Chimanikire Mudzamiri) and dad (Killiford

Mudzamiri). You have always been a source of inspiration and strength and I wouldn’t have

made it this far if it wasn’t for your support. I will forever be grateful.

iii

ACKNOWLEDGEMENTS

I would like to thank all those who supported me through my research project and appreciate

their efforts because I wouldn’t have made it this far without their support and guidance.

My family was the major driving force with their moral support; I wouldn’t have come so far if it

wasn’t for them.

Words fail to express my gratitude to my supervisor for his unwavering support. I am also

indebted to my colleagues: Cuthbert, Tanaka, David and Herbert- you are the best guys.

Thank you to all informal gold miners in Kadoma for your support. I really appreciate your time

and effort in the making of this research project

Last but not least I would like to thank the creator for his support in everything I do. You are my

rock.

iv

ABSTRACT

The study sought to investigate effects of formalizing the informal gold mining sector: The case

study of informal gold miners in Kadoma. The statement of the problem was; are there any

benefits that may be obtained from formalizing the mining sector and how can this be efficiently

achieved. The sample selected for this particular research was 100 respondents but only 86

responded to the questionnaire distributed. Chi squared testing among others were the chief tools

used to present and analyze data. The main objective of the study was to evaluate the

contribution of informal mining sector to the economy of the small town of Kadoma and also

determine ways that may encourage the formalization of this sector. 100 respondents were

conveniently selected from a population of approximately 10 000 possible respondents. The

study put to light a number of issues that were not clear in previous studies and these included

lack of knowledge, absence of assistance and relationships between formalization and different

variables. However, it was proven that the reason why they are failing to graduate is because of

avoiding consequences associated with formalizing such as criminalization, taxation and it was

also establish that there is a relationship between willingness to formalize the mechanism used

for the formalization process. This study recommends that informal gold miners should use

information and government programmes available and seek assistance to graduate into formal

sector so that they operate with ease without any hustles from government officials. Government

should also come up with policies and programmes that may increase the benefits accrued from

formalizing so as to encourage the informal miners to register their activities with the necessary

authorities.

v

Table of Contents Release form…………………………………………………………………………………….i

Approval form………………………………………………………………………………….ii

Dedication……………………..…………………………………………………………….…iii

Acknowledgements…………………………………………………………………………….iv

Abstract…………………………………………………………………………………………v

List of abbreviations and Acronyms……………………………………………………...…….x

List of tables………………………………………………………….………………………...xi

List of figures……………………………………………………………………………….....xii

Definition of key terms………………………………………………………………………..xiii

DEFINITION OF TERMS....................................................................................................xiii

CHAPTER 1...................................................................................................................................1

GENERAL INTRODUCTION.....................................................................................................1

1.0 Introduction.......................................................................................................................1

1.1 Background of the study...................................................................................................1

1.2 The Statement of the Problem...........................................................................................3

1.3 Statement of Hypothesis...................................................................................................3

1.4 Research objectives...........................................................................................................4

1.5 Significance of the study...................................................................................................4

1.5.1 To the researcher........................................................................................................4

1.5.2 To Operators and Government..................................................................................4

1.5.3 To Institution.............................................................................................................4

1.6 Justification of the Study...................................................................................................4

1.7 Assumptions......................................................................................................................5

1.8 Delimitations.....................................................................................................................5

1.9 Limitations........................................................................................................................6

1.10 Chapter Summary.............................................................................................................6

CHAPTER 2...................................................................................................................................7

2 LITERATURE REVIEW......................................................................................................7

vi

2.0 Introduction.......................................................................................................................7

2.1 Informal industry defined..................................................................................................7

2.2 Socioeconomic significance of informal gold mining activities.......................................8

2.3 Formalization in Theory..................................................................................................11

2.4 Formalization Mechanisms.............................................................................................12

2.5 The recommended steps in the process of formalizing...................................................14

2.5.1 Poverty reduction.....................................................................................................15

2.5.2 Creating a conducive economic climate..................................................................15

2.5.3 Ensuring sustainability.............................................................................................16

2.5.4 Stabilization of government revenues from informal miners..................................16

2.6 Importance of Formalizing..............................................................................................17

2.6.1 Freedom from corruption and embarrassment.........................................................18

2.6.2 Access to Business Development Services (BDS)..................................................18

2.6.3 Freedom to cooperate with other partners...............................................................20

2.6.4 Access to state protection........................................................................................20

2.7 Removing barriers to formalization................................................................................20

2.7.1 Creating a business friendly environment...............................................................20

2.7.2 Simplify official administration for businesses.......................................................21

2.7.3 Simplify tax administration.....................................................................................21

2.7.4 Rationalize business registration and licensing regimes.........................................22

2.7.5 Reduce registration fees and statutory requirements...............................................22

2.7.6 Setting up anti-corruption squads............................................................................23

2.8 Chapter Summary...........................................................................................................23

CHAPTER 3.................................................................................................................................24

3 RESEARCH METHODOLOGY........................................................................................24

3.0 Introduction.....................................................................................................................24

3.1 Research Design..............................................................................................................24

3.2 Research Strategy............................................................................................................24

3.3 Target Population............................................................................................................25

3.3.1 Sample size..............................................................................................................25

3.4 Sampling methods and sampling techniques..................................................................26

vii

3.4.1 Convenient sampling...............................................................................................26

3.5 Data sources....................................................................................................................27

3.5.1 Primary data.............................................................................................................27

3.6 Data collection techniques..............................................................................................27

3.6.1 Questionnaires.........................................................................................................27

3.7 Validity and Reliability...................................................................................................28

3.8 Data presentation.............................................................................................................29

3.9 Data analysis...................................................................................................................29

3.10 Chapter Summary...........................................................................................................29

CHAPTER 4.................................................................................................................................30

4 DATA PRESENTATION AND ANALYSIS.....................................................................30

4.0 Introduction.....................................................................................................................30

4.1 Analysis of data response rates.......................................................................................30

4.2 Age analysis of the respondents......................................................................................31

4.3 Gender analysis of miners...............................................................................................31

4.4 Educational level analysis...............................................................................................32

4.5 Years of involvement in Informal mining.......................................................................33

4.6 Major reasons for involvement in mining activities.......................................................34

4.7 Average monthly incomes from mining activities..........................................................35

4.8 Major uses of income obtained from mining activities...................................................36

4.9 Formalization..................................................................................................................37

4.9.1 Knowledge of mining laws......................................................................................37

4.9.2 The extent to which informal mining should be formalized....................................38

4.9.3 Respondents compliance with regulatory requirements..........................................39

4.9.4 Most favored formalization mechanism..................................................................39

4.9.5 Relationship between formalization and formalization mechanism used...............40

4.9.6 Most favored change agent......................................................................................42

4.9.7 Benefits of formalization.........................................................................................42

4.9.8 Government handling of informal gold miners.......................................................44

4.9.9 Barriers to formalization..........................................................................................44

4.10 Government measures to formalize the informal sector.................................................45

viii

4.11 Chapter summary............................................................................................................46

CHAPTER 5.................................................................................................................................47

5 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS.............47

5.0 Introduction.....................................................................................................................47

5.1 Summary.........................................................................................................................47

5.2 Findings...........................................................................................................................48

5.3 Recommendations...........................................................................................................49

5.3.1 To operators.............................................................................................................49

5.3.2 To Government and Law enforcers.........................................................................49

5.4 Conclusion......................................................................................................................50

REFERENCES............................................................................................................................51

APPENDIX I................................................................................................................................55

APPENDIX II...............................................................................................................................56

ix

LIST OF ABBREVIATIONS AND ACRONYMS

ASM Artisanal Mining

ZIMRA Zimbabwe Revenue Authority

HRW Human Rights Watch

TIZ Transparency International Zimbabwe

GDP Gross Domestic Product

RBZ Reserve Bank of Zimbabwe

OECD Organisation for Economic Co-operation and Development

ILO International Labour Organisation

ZIMSTATS Zimbabwe statistics

SME Small to Medium Enterprise

ESAP Economic Structural Programme

IRIN Integrated Regional Information Networks

CIFOR Center for International Forestry Research

MMCZ Minerals Marketing Corporation Zimbabwe

ZASMC Zimbabwe Artisanal and Small-scale Miners Council

UNDP United Nations Development Programme

x

LIST OF TABLES

Table 2.1 Topology of forms of enterprises

Table 3.1 Sample distribution

Table 4.1 Questionnaire response rate

Table 4.2 Age and frequency of surveyed sample

Table 4.3 Sex to frequency of respondents table

Table 4.4 Academic Qualifications of sample

Table 4.5 Number of years operational in mining

Table 4.6 Compliance with regulatory requirements

Table4.7-9 Chi-square test

Table 4.10 Most favored change agent

Table 4.12 Barriers to formalization

Table 4.13 Government measures to formalize the informal sector

xi

LIST OF FIGURES

Fig 2.1 National income statistics

Fig 4.2 Average monthly income

Fig 4.3 Uses of income obtained from mining

Fig 4.4 Knowledge of mining regulations

Fig 4.5 Extent to which informal gold mining should be formalized

Fig 4.6 Preferred formalization mechanism

Fig 4.7 Benefits of formalization

xii

DEFINITION OF TERMS

Formal activities, these are industrial activities that are carried out within the legal framework

of an economy.

Informal activities, in economics, the informal economy is a system of exchange used outside

state-controlled or money-based economic activities. In this particular case we are referring to

gold panning activities.

Structure of SMEs, The social and economic makeup of the enterprises. This includes the social

characteristics of the entrepreneurs such as level of education, gender composition, and age

profile of entrepreneurs, firm ownership and work experience of the entrepreneurs. The structure

also looks at the economic characteristics of the enterprises such as sources of capital.

Artisanal Mining, Another term which is used to describe informal mining activities.

xiii

CHAPTER 1

GENERAL INTRODUCTION

1.0 IntroductionThis chapter of the project will highlight the background of the study, statement of the problem,

objectives of the study, significance of research, assumptions, delimitation, limitations, and

definition of key terms and the summary of the chapter.

1.1 Background of the studyThe country of Zimbabwe has recorded a very huge increase in economic activities even though

there is still political uncertainty and unpredictable policies that affect industry and commerce.

After spending a decade from 1998-2009 on the decline, the country then recorded an increase of

9% per year from 2010-11, before slowing to 5% in 2012, as a result of poor crop harvests and

low revenue generation from diamond sales (Mangudhla, 2012). Regardless of these

developments, government still needs to address many issues in terms of infrastructure

improvements, poor regulations, policy uncertainty and low formal employment. Due to the high

level of unemployment being witnessed in the country many people have resorted to informal

business activities as a source of livelihoods and one of the major informal activities being

carried out in the country is small scale gold mining (Mukwakwami, 2013)

Informal gold mining is one of the major economic activities that are being carried out in

Zimbabwe (Chase, 2013). Although informal gold mining activities are not registered or

recorded in national economic statistics, their contribution to the national economy has been

immense. Informal gold mining has a new role in industrial development and economic success

(Helmsing and Kolstee 1993). Koltsee and Helmsing (1993) also argue that over the past few

years, the informal gold mining has increased and also has begun to raise and answer some of the

main industrial development questions of employment generation and profitability. The success

of this sector can be improved by addressing macro-economic policies that affect the sector.

Helmsing and Koltsee (1993) also postulate that there is need to address the issue of formalizing

the industry as a way of improving the economic performance.

1

Other researchers are also skeptic about the contributions of the informal gold mining sector to

the improvement of economic conditions. According to a study that was conducted by the

Transparency International Zimbabwe (TIZ) which highlighted massive gold leakages with about

97% of unprocessed gold being sold on the parallel market illegally by informal gold

miners(Langa, 2013). According to Langa (Newsday, 2013), Zimbabwean artisanal/Informal

gold miners produce an approximated total of two tonnes raw gold per month and out of this

total amountten to fifteen percent of total gold output is lost through illegal trafficking activities.

Langa (Newsday, 2013) also said out of this total output, licensed gold dealers buy 3% of the

gold, 10% is traded illegally to other countries and 87% is purchased by private buyers who

sometimes also sell their gold on the parallel market. During the presentation of the 2013

National Budget, the former Finance Minister TendaiBiti also lamented the lack of economic

efficiency in the mining sector and accused mining companies of making poor contributions to

the Gross Domestic Product (Langa-Newsday, 2013). Before the introduction of the multi-

currency system, the Reserve Bank of Zimbabwe used to purchase the precious metal from small

scale miners and custom millers through its subsidiary Fidelity Printers (Mukwakwami, 2013).

With the introduction of the multicurrency system, the reserve bank could no longer control the

distribution of money since it had no printing capacity therefore miners began to smuggle the

precious metal outside the country where there was a ready market.

After a research conducted by TIZ (2013) most of the recommendations that were forwarded

included the fact that the informal gold mining activities should be formalized. According to

Langa (2013) if the activities of informal or artisanal small scale miners are formalized they

could have a huge impact on the improvement of the economy and reduce the unemployment

rate in the country. According to Shoko (2013), the country has nearly fifty thousand informal

small-scale miners whose activities affect the livelihoods of over two million individuals in the

country.

In Zimbabwe there are laws and legislature that govern the activities of formal big mining

Corporations; however there is little that is being done to recognize the small informal gold

miners who are regarded as illegal by law officials (Shoko, 2012). Small scale gold mining has

become the backbone of the economies of small towns such as Kadoma but the major problem is

that it is not yet being recognized as an economic activity but rather a social ill hence many

2

miners are constantly being disrupted by law officials. Police reports state that approximately

500 illegal gold miners are arrested each week for illegal mining activities in

Kadoma(Sokwanele, 2007). After the closure and low operational capacity of the major

industrial sites such as David Whitehead, Kadoma Paper Mills, Dairyboard, Zimbabwe Glass

Company and many others, the unemployment situation in the small town escalated which

resulted in many people seeking alternatives ways of making money and gold mining was the

next best alternative. Mukwakwami (2013) acknowledges the existence of informal gold mining

activities to many factors such as the land reformprogramme. When a large number of former

farm laborers were disrupted of their farming activities by the land reform program, the majority

of them went into informal gold miners as a source of income, livelihood and sustenance.

Afterwards a large number of individuals who were trading as informal vendors were also

eliminated by Operation Murambatsvina / Operation Restore Order in 2005 also joined in the

informal small scale gold mining so as to sustain their livelihoods. Mukwakwami (2013) mainly

argued that the continued existence of the informal gold mining sector is being fueled mainly by

poor policies from the policy makers in the country and many other scholars agree with him. Due

to the increase in the informal sector there is need for us to start investigating whether

formalizing the sector would have a positive or negative effect on the economy.

1.2 The Statement of the ProblemMajor researches conducted mainly concentrated on the adverse effects of informal gold mining

activities and less on the benefits brought about by their existence and effects of formalizing

them. The fact that they were/are in existence means that there was something people were

observing and benefiting from that. For the country to benefit economically there is need for us

to identify how the economy may benefit from the formalization if the informal gold mining

sector and its contribution towards employment and sustainable development of small urban

centers like Kadoma. This study seeks to contribute to the discussion on the formalization of

gold mining in Kadoma.

1.3 Statement of HypothesisH0: There is no relationship between willingness to formalize and formalization mechanism used

H1: there is a relationship between willingness to formalize and formalization mechanism used

3

1.4 Research objectives To examine the structure of informal gold mining in the economy of Kadoma.

To determine the contribution of informal gold miners to the socio-economic

environments.

To determine the benefits brought about by formalizing informal gold mining activities

To come up with strategies of formalizing the informal gold mining sector.

1.5 Significance of the study

1.5.1 To the researcherThe research will highlight the skills of the student in conducting a research and coming up with

results that may be used for future reference and recommendations.

1.5.2 To Operators and GovernmentThe informal gold miners will have a reference point from the findings, conclusions and

recommendations brought forward by the research and this will help them to understand the

manner in which they an graduate to the formal sector and also benefit from

governmentprogrammes that are available to small scale gold miners.The overall benefit of this

research will be realized by the country at large as it will highlight methods that we can

formalize the informal economy and therefore improving the Fiscus

1.5.3 To InstitutionThe research will also benefitthe Midlands State University by providingsecondary data research

material for other studentswho may be interested in studying about the topic of formalization by

providing a background to basic problems faced by informal gold miners and how to improve

their understanding and also venture into other aspects of the topic that have not yet been

tackled.

1.6 Justification of the StudyMany studies have been carried out on informal gold mining activities development in

developing countries and all of these studies mainly focused on the problems that are witnessed

as a result of the existence of informal gold miners. Very little has been directed at the

contribution of informal gold mining activities to the economies of various countries especially

their role in the mining industry. There is thus need to build up research capacity in Africa

capable of generating information regarding the contribution of informal gold mining to national

4

development and how formalizing their activities can help in developing the mining sector in

developing countries (Bebbington and Bebbington, 2001). Particular attention in previous

researches has been placed on the quantity dimensions of informal gold miners (i.e. how many)

andlittle attention has been given to the long-term issues of the role played by informal gold

mining in the economies of developing countries. This study seeks to examine the role that has

been played by informal gold mining in the development of the mining sector in a small urban

center in Zimbabwe and also highlight the effects associated with the formalization of these

mining activities to the economic success of small urban centers. The study has also been

influenced by the present economic climate prevailing in Zimbabwe. Most researchers argue that

small businesses prosper in economies that are in decline.

1.7 Assumptions All data obtained from this research study represent the true picture of the informal gold

mining sector in the relevant town.

Legislature regarding informal gold mining activities will remain unchanged throughout

the research.

The data sources will be reliable and give accurate and give accurate results.

The respondents have a general understanding of informal gold mining sector.

Information collected from respondents is accurate, relevant and can be relied on.

The researcher will have adequate funds necessary to complete the study.

1.8 Delimitations The study will be carried out in the small mining town of Kadoma (Etina, Chakari and

Pickstone areas) mainly because there are a large number of informal gold mining sites

and it would not be possible to conduct a research of the whole country given the amount

of time and resources available.

Were secondary sources of data are to be used, they will be from the period 1995 to 2013

and this is mainly because any information that is not within that range would be obsolete

to this particular research as policies and procedures evolve rapidly with time.

5

This study will be carried out from November 2013 to April 2014.This is the period

within which data needed will be gathered , presented, analyzed and recommendations

made.

1.9 Limitations

The majority of informal SMEs are reluctant to divulge important information because

they fear prosecution due to the nature of their businesses. In order to probe information

from such respondents the researcher avoided making use of references such as names

and other personal information of the respondents. This in turn improved the response

rate

The political environment at the particular time was also a major obstacle as it was

difficult for the researcher to ask some sensitive questions. In this particular case the

researcher tried to ask impartial questions that did not spark any political tensions.

The majority of informal gold miners were illiterate so the researcher tried by all means to

use both English and Shona in trying to address the issue at hand. In some instances the

researcher used the questionnaire as an interview guide and completed it on behalf of the

informal gold miners

1.10 Chapter SummaryThis chapter has laid the framework for the study by providing the background and the key

objectives of the study. Basic assumptions have been highlighted which also set out the

foundation of the study. The significance of the study to the stakeholders was pointed out. The

next chapter is a review of existing literature pertaining to the implementation of success

strategies, the challenges faced in success strategy implementation an d the issues embraced

under the subject topic.

6

CHAPTER 2

2 LITERATURE REVIEW

2.0 IntroductionThis chapter mainly focuses on literature that has been put forward by other researchers in regard

to the topic of formalizing the informal gold mining sector. Literature review is a process of

reading what other researchers have published that appears relevant to the research topic (Bless,

1995).

2.1 Informal industry defined.The informal sector is that part of the economy that is not taxed or monitored by any form of

government (Cross, 1998). Vodopivec and Nisha (2008) support this definition and define

informal activities as those activities that are partially or completely outside the government

regulation and are not recorded in national economic statistics. Nelson and De Bruijn (2005)

have categorized the different forms of enterprises in four different ways and these are shown in

Table 2.1 below

Table 2.1.Topology of forms of enterprises

State Legality Description

Illicit None In this particular case there is no legally permittedlicensed or registered organisation

Informal None An activity that does not comply with requirements of the regulatory system regarding licenses, permits, certificates, notification or registration of the activity is licit but informal

Semi-formal Local authority licensed enterprise

An activity carried on by an operator who appears on a local authority list of licensed operators of enterprises but is not registered with the state registrar is semi-formal

Formal State registered enterprise

Person(s) registered to conduct business activities underenterprise a registered business name; for example, enumerated on a state register as a sole ownership, a private limited company, or a joint stock company open to public subscription shareholdings

Source: EDWIN G. NELSON and ERIK J. DE BRUIJN (2005)

The origins of the name informal economy was coined by an anthropologist named Keith Hart in

the early 1970s. He used this particular phrase to highlight those individuals who were involved

7

in irregular income earning businesses in Ghana during that period (Kachere, 2011). He deduced

a topology that categorized the formal economy as those individuals in both private and public

sector earning a wage or transfer payment while the informal sector encompassed all those

activities that fell outside the organized work force of the society (Kachere 2011). Such activities

in Ghana included agriculture, mining, barter trade, market gardening, prostitution, etc. Hart

(1973) was the first individual to use the term phrase informal economy on a particular group of

individuals known as the Frafas which was a migrant group that was found in Ghana at that time.

His findings were then presented to the International Labour Organisation conference on Urban

unemployment and hence the use of the term informal economy (ILO 1973).

In this particular study the informal sector will refer to small scale gold mining activities that are

not taxed or monitored by the government or recorded in the Gross Domestic Product (GDP) of

Zimbabwe. Most of the mining activities that are being witnessed in Zimbabwe are those which

are both informal and illicit in nature. Informal gold mining activities are also at times referred to

as Artisanal mining activities (Darby and Lempa, 2006). Informal gold mining is usually

conducted by groups, families or cooperatives with minimal or no equipment and mechanization

(Simon, P. 2001). In Zimbabwe an estimated 500 000 individuals are directly involved in

informal gold mining activities and more than 150 000 of them being children and woman while

up to 2 million individuals are affected by artisanal mining (Mukwakwami, 2013), so in relative

terms the informal sector is large and deserves recognition.

2.2 Socioeconomic significance of informal gold mining activitiesIn other countries such as Ghana, Tanzania and Peru the small scale informal gold mining sector

has a significant socioeconomic impact on many individuals and communities since it provides

both part and full time jobs for the people and in some cases it is the only source of income

available to the people (Amankwah, 2003).

Anon (2002) also argues that in the rural communities where these activities take place, it has

reduced the rural to urban migration by 45% and informal mining has also helped in improving

the economies and livelihoods of the individuals undertaking the particular activity of mining. In

addition, the mining operations are useful in basic skill development (blasting licenses and

metallurgical assaying) and contribute to the transformation of unskilled labour into semi-skilled

8

and skilled workers (Amankwah, 2003).According to the ZIMSTATS (2013), the informal gold

mining sector employed an estimated total of 100 000 individuals in 2012 and the numbers are

still rising. It claimed that a licensed operator employs between 5 and 20 groups of tributes

consisting of 5–10 workers each that excavate ore and processes gold. More importantly, due to

the low barriers to entry in terms of capital needs and formal educational requirements, small-

scale informal gold mining operations offer excellent opportunities for the evolution of

indigenous entrepreneurs (Mukwakwami 2013).

In the budget presented by Honorable Biti (2012), it also reinforced the notion of economic

improvements as a result of SME informal activities and this is shown in fig 2.1 below.

Fig 2.1 National income statistics

Cash Remittance Salaried Employment Self employed0%5%

10%15%20%25%30%35%40%45%50%

2%

30%

43%

3%

43%47%

20092011

Factor

Perc

enta

ge

Source: National Income Statistics 2012

This clearly shows that informal SMEs have the potential to result in employment growth as a

result of their labour intensive nature and flexibility to adjust to market conditions. According to

Mukwakwami (2013) the formalization of the informal gold mining activities has many positive

effects on the economic development. Amankwah (2003) also supports this notion and states that

the gold mining sector of Ghana experienced a rapid growth in the level of gold outputs in the

year 2003 when the sector was legalized by the state. In the year 2003, 300 mining concessions

were formalized and more than 40,000 ounces of gold worth $50 million was also purchased. By

9

the end of 2003, the small-scale legalized mining sector of Ghana had sold about 1.5 million

ounces of gold (Amankwah and Amin-Sackey 2003).

Amankwah and Anim-Sackey (2003) also state that apart from the direct monetary contribution

to the economy by small-scale mining, the sector also results in the awareness of the vast mineral

deposits that are available within the country and this is also evident in Zimbabwe in cases such

as the discovery of the Sherwood deposits that where near the small town of Kwekwe. Big

mining companies are now opening new mining sites as a result of findings by informal gold

miners and in Ghana (2003) informal gold mining gave leads to leads to large-scale prospecting

and exploration companies which resulted in larger outputs of gold in the country (Amankwah

and Amin-Sackey, 2003).

In The early1990's Zimbabwe’s economy was not performing well due to poor economic policies

such as the Economic Structural Adjustment Program (Sokwanele, 2007). With the devaluation

of the Zimbabwe dollar and the high gold price in Zimbabwean dollar terms, more people began

to join the informal gold panning trade as a result of the retrenchment that was caused by ESAP

(Sokwanele, 2007). In an effort to reduce informal gold mining activities, the government

launched an operation code named Operation ChikorokozaChapera (End to informal gold

mining) but this did not stop the mining activities but rather fueled tension between the miners

and the government officials (Human Rights Watch 2009)

According to the Human Rights Watch (2009) 25 000 informal gold miners were arrested when

the operation was initiated and a 15 000 were displaced from their activities. Government

officials argued that informal gold mining was wreaking havoc in the country and was the major

reasons why the mining industry was not performing very well (Sokwanele, 2007). The major

reasons cited for this included environmental destruction, corruption and gold leakages amongst

others (IRIN, 2008). In order for the Government to come up with policy that can be accepted by

informal gold miners, it is important to understand why informal gold miners operate illegally

and seek strategies used in formalizing other sectors of the economy and apply them to the

mining sector (Mukwakwami, 2013). Considering the fact that the informal gold mining

activities that are being conducted in Zimbabwe are parallel to those being conducted in Ghana,

10

some researches may argue that similar policies may also improve the country’s economy

(Mukwakwami, 2013).

2.3 Formalization in TheoryFormalization of an enterprise is a process of changing the legal status so that it may be

registered to conduct business activities with a business name and it can be now recognized by

the Government officials (Mukwakwami, 2013). Nelson and De Bruijn (2005) also supports this

definition and states that Formalization’ means graduating from the informal to the formal sector,

either directly or through a semi-formal status. According to Nelson and De Bruijn (2005) the

formal sector is made up of organisations that are registered with the country’s Registration and

Licensing Authority with a business name as a legal entity. Nelson and De Bruijn (2005)

postulated that Voluntary formalization is when informal gold miners decide to register their

business activities without the influence of other parties such as government or non-

governmental organisations. Non-voluntary formalization is defined as that which is coerced.

Voluntary formalization is instinctive, with no force exerted on the parties, as when operators act

under a cultural compulsion to comply with the law (Nelson and De Bruijn, 2005).

According to Nelson and De Bruijn (2005) the formalization process is a step by step paradigm

shift and each step takes the form of a legal change which eventually leads to the formalization

of the entity. Mukwakwami (2013) also supports this notion and states that formalization is a

continuous process whereby the two parties involved (in this case informal gold miners and the

government) make certain initiatives that would eventually lead to one end which is the

formalization of the business. In this process of change there are a set of objectives that have to

be fulfilled that would lead to protection of the consumers, employees and the environment, and

to raise public revenue (Nelson and De Bruijn 2005). Time is a major factor to consider in the

process of formalizing a particular entity. The total time taken for one to formalize his/her

business determines the formalization mechanism that has been adopted. The burden of

responsibility becomes more intense with the level of legal progression on the part of the

informal operator this is why the majority of informal gold miners prefer a smooth transition.

This slow process of shifting from the informal sector to the formal sector is known as the ‘de

facto’ process of formalization (Nelson and De Bruijn, 2005).

11

According to CIFOR (2012) de facto formalization is a type of voluntary formalization

procedure whereby artisanal miners take a step by step transformation towards the state of being

fully formalized. These step by step progressions may take to two years before the organisation

can be a fully formalized organisation. Mukwakwami (2013) states that the de facto route to

formalization is most suitable to developing countries like Zimbabwe since the informal gold

miners are not ready for a radical change like that which can be expected when a de jure

formalization mechanism is adopted. This particular study is mainly focused at identifying the

most suitable formalization mechanism for the informal gold mining in Kadoma.

On the other hand de jure formalization is a radical change of legal state from informal to formal

state, de facto formalization frequently represents a transition in the manners in which the entity

operates to a more civilized or rather rational manner. An operator may progress via a semi-

formal stage (de facto), or graduate directly from informal status to the registration of a business

name or limited company (de jure) (Nelson and De Bruijn 2005). There is need for us to

determine the best method in which we can formalize the informal gold mining sector in

Zimbabwe and adopt one particular method between de facto or de jure

2.4 Formalization MechanismsThere are mainly two formalization mechanisms that may be adopted as highlighted by Nelson

and De Bruijn (2005) and these are mainly De jure and De facto formalization mechanisms.

According to Wiley et al (2005) de jure formalization results in a higher legal change of the

business state and this is whereby an individual accepts wholly the conditions of formalization

dictated by the government and complies without disputing to any. This type of relationships

results in the recognition of the entity as a legal persona which in turn pays taxes. According to

CIFOR (2012) this is a usually an involuntary way to formalize business activities whereby the

state gives the informal miner an alternative to formalize their business activities or face the

wrath of the law. This particular method of formalization is most effective in areas where the

informal gold miner is not willing at all to formalize their business activities even though the

authorities have ensured a smooth transition option for them to do so (Mukwakwami, 2013).

According to Nelson and De Bruijn (2005) this particular arrangement (de jure) is in the form of

an exchange between the miner and the state and it also gives rise to a win-win situation between

parties involved. The miner would benefit from government initiatives supporting small scale

12

miners while the miner complies with regulatory policies such as paying taxation. Nelson and De

Bruijn (2005) argue that with co-operation and efficient coordination of their actions, the parties

to a transaction can in principle maximize the benefits they realize from it their relationship (a

win–win outcome). The choice that each makes is dependent on the clarity and acceptability of

the terms of the transaction, and whether there are mechanisms for reaching prior agreement on

them (Wiley et al, 2005).

In this particular transaction the informal gold miner has no means to negotiate the conditions

that are offered by the government but to simply accept them as they are detected to him (Wiley

et al, 2005). According to Night (2001) the terms of the particular agreement would be

negotiated by intermediaries (Agents) on behalf of the principal and the government officials,

such as lawyers and advocates, bargaining on behalf of the collective membership, the

bargaining mechanism which is subject to the relative bargaining power of the parties involved.

The unequal distribution of power between the parties means that superior government power

prevails at the cost of informal miners, and this one of the major barriers to formalization of

many small informal enterprises including the informal gold mining sector (Wiley et al, 2005).

On the other hand De facto formalization usually takes the form of many small and slight gradual

changes which are not radical (Wiley et al. 2005). De facto formalization has no specific time

limit that is set for it to be put to effect. Having no specified time limits or fixed obligation

during the stages of the change process, an informal miner enjoys considerable latitude and

flexibility for managing transition process. De facto formalization usually is a voluntary process

on the part of the informal gold miner which then leads to formalization. Nevertheless the two

formalization processes eventually lead to one outcome and this is the formalization of the

enterprise in the end. CIFOR (2012) on the other hand states that this form of formalization may

take time in order for both parties to enjoy the benefits brought about by formalization and

usually the informal enterprise may not complete the whole formalization process. CIFOR

(2012) also argue that this manner of formalization is not suitable in developing countries where

usually the benefits of operating informally overshadow those of operating formally.

Governments officials usually recommend the de jure route of formalization since that way they

do not have to spend much time and resources trying to convince the informal gold miner to

formalize their activities while on the other hand the informal gold miners prefer to use the de

13

facto route since they do not have the resources and know-how to make a radical change all at

once (CIFOR, 2012).

2.5 The recommended steps in the process of formalizingDue to the lack of decent work in the formal sector, changing from informal to formal has been

seen as fundamental to the development challenge in many countries and this is one of the major

problems that are being faced by many countries all over the world (ILO, 2014). According to

Bacchetta et al (2014), the debate of informal activities and strategies to formalize them is of

paramount importance and it is also an agenda for major institutions such as the International

Labour Organisation. The informal economy was a central focus of the 11th ILO African

Regional Meeting in 2007, and was the main theme of the African Union–ILO workshop on the

informal economy held in 2008 (ILO, 2014). In recent years, many countries have devoted

considerable attention to informal employment, and attempts have been made to understand the

mechanisms through which the benefits of growth may or may not be transmitted to the poor

(ILO, 2014). A new consensus has emerged around the belief that if economic growth is not

associated with formal job creation, a shift towards better employment opportunities in the

formal economy and an improvement in the conditions of employment in informal activities, it

will continue to generate inequality, poverty and vulnerability (Bacchetta et al, 2014).

In our particular case, the process of formalizing the informal gold mining sector should follow

certain steps (mainly De facto) and the first of these is to legalize informal gold mining by

creating a ministerial legislation on artisanal mining (or involving it in National Minerals Policy)

and this will be used as a guideline by the legislature in formalizing all forms of artisanal gold

mining activities in an environmentally friendly manner (Mukwakwami, 2013). When this has

been put to effect it is necessary that the law be administered in a decentralized and efficient

manner (Mukwakwami, 2013).  The government should efficiently implement the law by

providing adequate human, financial and material resources.

According to Mukwakwami, formalization must be based on four strategic pillars. The

international labourorganisation (ILO, 2014) also supports this notion and states that in

developing countries the formalization of informal activities is a step by step process and a slow

but sure approach should be implemented if governments wish to get desired results. The steps

that can be followed may include:

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2.5.1 Poverty reduction

The first and major one was to reduce poverty. Informal gold mining activities usually take place

in poverty stricken rural areas hence the need to improve such conditions.Mukwakwami (2013)

also postulates that formalization of informal gold mining activities has potential to improve the

local economies of such areas and Government, through the MMCZ and Reserve Bank should

create a fair market that would provide informal gold miners with a competitive price thereby

increasing the multiplier effects in other sectors of the economy.

According to Nelson et al (2005) in-order for the informal miner to formalize his/her activities

there should be an incentive for him to do so. The informal gold miner should see that he is

better of operating formally as compared to informally and the necessary authorities should make

sure to create such an environment. The main factor that drives people into conducting informal

activities is poverty. By improving the prices of minerals which are being purchased from formal

gold miners, informal miners may be urged to formalize their activities (CIFOR, 2012).

2.5.2 Creating a conducive economic climate

The second pillar is to create conducive economic climate that will attract informal gold miners

to legalize their activities by providing incentives and extension services through the departments

of the Ministry of Mines (Mukwakwami, 2013). In return the artisanal gold miners will be

expected to conform to environmental and operational. The miners will also receive management

support services and access to financing from financial institutions.This would go a long way in

formalization of the sector.

Tokman (2007) argues that a conducive economic environment will also help in the recognition

of labour contracts. He states that the main goal is not to punish illegality of these activities but

to create citizens who are willing to gain access to labour protection and embrace the logic of

business, as would be the case of micro-entrepreneurs who have to adapt to formal labour

relationships. Having to respect certain labour rules is conducive to more modern management

standards.

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2.5.3 Ensuring sustainability

The third process is to ensure sustainability through environmental management and

occupational hazards management as a way of mitigating the risks associated with informal gold

miners (Mukwakwami, 2013). According to Sundet (2006) most of the informal gold miners face

occupational hazards which include rock falls and diseases as a result of contaminated water.

According to ZIMSTATS (2008) approximately 600 illegal gold miners died when there was a

cholera outbreak in the country and this was mainly because of the poor sanitation conditions

found in the gold mining fields. By ensuring environmental and occupational health management

government may encourage more informal gold miners to formalize their activities throughout

the country.

CIFOR (2012) argues that most of the informal gold miners that were formalized in the

Democratic Republic of Congo from 2004 to 2005 failed to maintain operations due to the fact

that there was no sustainable economic environment in the country to continue their gold mining

activities. Lack of funds was the major reason for their collapse and governments must

constantly chip in to assist the activities of the gold miners and monitor their activities during

their first years of formalization.

2.5.4 Stabilization of government revenues from informal miners

The fourth is the stabilization of government revenues from the artisanal mining by sustainably

managing mining taxation revenues and promoting opportunities for adding value to mineral

production in the country while ensuring minerals are not traded through the black market

(Mukwakwami, 2013). Sundet (2006) supports this notion and also states that one of the major

barriers to formalization is due to high taxes that are associated with operating in the formal

economy. Government through the Zimbabwe Revenue authority must put in place a flexible tax

regime for newly formalized entities in order to ease the tax burden.

Mukwakwami (2013) also states that apart from the four steps the formalization of artisanal

mining sector should be incentivized. Informal gold mining is a profit-motivated activity and if

there are no economic benefits to operating legally, miners will continue to operate illegally.

Sokwanele (2007) also supports this notion and states that there must be economic incentives for

16

miners to operate legally and these incentives can be either direct or indirect. Direct incentives

include access to finance and direct subsidies while indirect incentives include tax holidays and

technical assistance (Mukwakwami, 2013). Additionally artisanal miners will be able to use

formal markets, formal banking systems and the legality of the operations as a marketing

argument with fair trade organizations.

Finally Mukwakwami (2013) states that informal gold miners should organize themselves in

unions, cooperatives and partnerships to secure their titles, attract investment and obtain loans.

The ILO (2014) also states that Governments should then avail mining technologies and

specialized mining services to the informal gold miners. It is important that the government and

the miners decide on what organizational form will best suit the informal gold mining sector

(Mukwakwami, 2013).

2.6 Importance of Formalizing

According to Mukwakwami (2013) on average, gold panners receive 60% of the real market

price of the gold they produce but however they remain in poverty while the runners and middle

men and their respective sponsors make a fortune without sacrificing much. The major

beneficiaries in the mining sector are the gold dealers and their sponsors while the informal gold

miners are suffering. Currently the government charges a royalty of 7% on all the gold that is

sold in the country and by formalizing the gold panning sector effectively and thus eliminating

the black market, ZIMRA will be able to collect US$4.5 million annually from royalties paid by

the informal gold miners (Mukwakwami, 2013). With this money government can ensure the

sustainable development of the mining communities by providing them with schools, health

facilities, tarred roads, dams and mining and agricultural extension services that will develop and

diversify the local economy (Mukwakwami, 2013).

The newly formed Zimbabwe Artisanal and Small-scale Miners Council (ZASMC, 2013) also

argued that the continued existence of the informal gold mining sector would result in the

country losing billions of dollars through smuggling activities. The body whose main function is

to maintain sustainable development in the small to medium mining sector argues that small

scale mining can contribute to the Gross Domestic Product by 25% and this is a very huge

amount considering the current economic performance.

17

In light of the information given above and as a drive to Indigenize the economy it is of

paramount importance that the informal gold mining sector be formalized so that the country can

realize its full potential (Sokwanele, 2007). Formalizing should not just be an issue of legalizing

artisanal mining but also of creating a good business model, ensuring sustainability and social

acceptance of the activity (Integrated Regional Information Networks (IRIN), May 2008).

According to Mukwakwami (2013) the other objectives of formalizing are to ensure that a win-

win scenario is created for both miners and the government, to achieve good governance as

artisanal miners respect the rule of the law. Transparency of mineral production and downstream

minerals trade will be achieved while the government gets to control the sector and ensure that

social and environmental requirements are met.

Other main benefits that may arise from the formalization of informal activities may include:

2.6.1 Freedom from corruption and embarrassment

According to Maliyamkono et al (2012) one of the major benefits associated with formalization

is the fact that formal enterprises operate free from corruption, harassment and confiscation of

property which the informal operators frequently experience. Ishengoma et al (2006) argued that

government institutions regard informal businesses as unofficial and illegal and this is why in

most cases their discovery is associated with corrupt practices and harassment. The suseptability

of informal business to corruption and embarrassment has been widely viewed by many

researchers as one of the benefits of formalizing business activities (UNDP et al, 2002;

ESAURP, 2009). Studies show that most of these businesses run a high risk if detected, and thus

they maintain a budget for bribery which is sometimes as high as 20% of their total budget in

transition economies (UNDP et al, 2002).

2.6.2 Access to Business Development Services (BDS)

Maliyamkono et al (2012) argues that by increasing the number of business development

services to formalized gold miners, the informal sector may realise the importance operating a

registered enterprise and this may increase their willingness to legalize their business activities.

Business Development Services may include the following:

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Finance (Loans, Grants, Subsidies)- most lending institutions need to see whether the

organisation is registered as a formal enterprise before they can give financial assistance

or loans in-order for them to know that their investment is in sound hands

(Mukwakwami, 2013). Due to the nature of informal gold mining activities. They cannot

get access to these particular loans and hence the need to formalize their activities.

Public procurement opportunities- gold mining is a very capital intensive activity and

it is necessary for miners to obtain the right equipment in-order to increase productivity.

It is often difficult for non-registered organisations to acquire equipment through public

procurement schemes since they are not registered (CIFOR, 2012). By registering their

activities, informal gold miners may obtain the necessary equipment and machinery

without any problems.

Management support- managing the resources of an enterprise is key to its success and

failure to effectively manage these may reduce the competitiveness of an enterprise. Most

of the informal gold miners are not educated and may need assistance in the management

of their resources and it may not be easy for a non-registered enterprise to seek such

assistance. By registering their activities informal gold miners may access help in terms

of managing their finances, human resources and also their operations.

Training opportunities-mining processes and procedures are constantly improving and

advancing and usually miners that are always seeking new and better methods of

conducting their trade make huge profits (Nelson and De Bruijn, 2005). Many training

opportunities for training are available for registered miners and usually those who attend

lean more effective methods of mining.

Information services-access to information about new mining techniques, mineral

prices, mining policies, mining taxes and many others is of paramount importance. By

registering informal gold miners may access all this information if they register their

activities and this may improve their competitiveness in the mining industry.

Mukwakwami (2013) also argues that the registration process will benefit those who wish to get

Bank loans and micro-finance and those who wish to protect their intellectual property.

19

2.6.3 Freedom to cooperate with other partners

Maliyamkono et al (2012) states that opportunities to collaborate with other business partners

and Development agencies are mainly restricted to those businesses that have formalized or

registered their business activities.Milinga (2002) argues that formalized enterprises have the

opportunity to be sub-contracted by other enterprises and this increases their access to

technology transfer, reliable markets and training. In the informal mining sector small scale

miners are able to cooperate with Freight forwarding agents in-order to purchase mining

equipment from other countries and this may go a long way in improving their outputs.

2.6.4 Access to state protection

Formalized enterprises have increased legal rights for protection as compared to the informal

ones. Most formalized enterprises operate within the framework of legal contracts and if a breach

of contract occurs, legal processes may be used to enforce execution of the contract

(Maliyamkono et al 2012). According to Sokwanele (2007) lack of protection and insurance

when doing business with third parties was recognized as a major disadvantage in operating in

the informal gold mining sector.

2.7 Removing barriers to formalizationThere are a number of ways of trying to reduce informality in the gold mining sector. The

following are some of the methods that may be used to encourage the informal gold miners to

formalize their activities.

2.7.1 Creating a business friendly environment.According to Addo (1999) government may increase compliance by just creating a business

friendly environment without sacrificing anything in terms of resources. Creating a business

friendly code of conduct may go a long way in improving compliance with regulatory framework

because most the issues that restrict informal gold miners from registering are psychological. The

necessary authorities should also create accessible locations to help informal miners understand

and comply with their obligations and these locations will play an intermediary role between

informal gold miners and government services, pressing the latter to improve service delivery

when necessary.

20

CIFOR (2012) also argues that one of the main reasons why informal miners were not very

willing to formalize their business activities in the DRC and Rwanda was mainly due to the

registration process and bureaucracy that was involved in the whole ordeal. Most of the informal

miners sited that the officials were not always friendly to them when they went to the registration

offices and this deterred them from registering. State officials’ should develop a customer

friendly approach and should not be stereo-types when handling such issues. The USAID (2005)

also highlighted the following as the major barriers caused by poor service provision:

Too much paper work.

Inefficiency which later resulted in delays.

Poor skills and few workforce

Too much red-tape as a result of poor delegation

Abuse of position (linked to corruption).

2.7.2 Simplify official administration for businessesAccording to Amegbey et al (1994) government institutions that are responsible for the

formalization of informal gold mining activities should review and reduce paperwork for

businesses and make use of information technology (IT) where possible.By also keep official

forms to a minimum the necessary authorities can make the process less tiresome and

demanding. According to Nelson and De Bruijn (2005) the necessary authorities must also

consider exemptions for smaller informal gold miners, or more appropriate thresholds for

entering into regulatory regimes.

Mukwakwami (2013) also argues that the waiting process for informal gold miners who want to

register is a major obstacle to the registration process. Responsible authorities must invest in

state of the art equipment that makes it easier for the informal miner to register without any

hassles.

2.7.3 Simplify tax administration.

According to USAID (2005) Taxation as a barrier to growth and formalization is closely linked

to business registration, because formal registration is often the means of entry into the tax

system. Tax administration is more often cited as a problem than tax rates, (Al-Hassan et

al,1997). The necessary authorities should consider single taxes for informal gold miners as a

21

way of reducing the number of payments that should be made. Complicated tax structures make

it difficult for the informal gold miner who at most of the times has little or less knowledge about

the tax systems.

According to Mukwakwami (2013) the Zimbabwe Revenue Authority should provide different

payment options, one-off or by installment to the informal gold miners in order to reduce the

complications faced by informal gold miners.The tax burden that is also being levied on the

informal miners should be reviewed since most of them are not able to pay the high amounts

because their activities may face financial challenges. ZIMRA should also share information on

what taxes are used for and how businesses will benefit from enhanced services (Sokwanele

2007). Evidence suggests that compliance rates go up when businesses know what they are

getting in return for their payments.

2.7.4 Rationalize business registration and licensing regimes.According to Sokwanele (2007) the Zimbabwe chamber of mines must also make the registration

process as simple as possible and also the administrative process must be separate from

licensing. By separating the registration process from the main administration, officials may

reduce the time consumed in the registration process hence a larger response rate Mukwakwami

(2013).

According CIFOR (2012) most of the informal gold miners in the DRC and Rwanda complained

that the registering and licensing process was too complicated and this was one of the major

reasons why the formalization process took long but when the necessary authorities reduced the

channels that were supposed to be carried out there was a surge in the number of individuals

registering their activities.

2.7.5 Reduce registration fees and statutory requirements.According to Nelson and De Bruijn (2005) the authorities that are responsible for registration

and operating fees for informal gold mining activities should also make sure that the fees they

charge to the small scale miners are reasonable and take into consideration the incomes that are

being made by the informal miners on the ground. Informal gold miners are not producing much

as a result of poor mechanization (Sokwanele, 2007)

22

High registration fees may act as a huge barrier to formalization of gold mining activities and the

amounts being charged on the miners are of paramount importance. According to a research

conducted by the Artisanal Small Scale Miners association (2012), about 90 % of informal gold

miners do not want to register their activities due to the fear of high fees that may be levied on

them in order to obtain Prospectus licenses. Similarly, with minimum capital requirements for

businesses wishing to adopt limited liability status, many developing countries put large barriers

in the way of their enterprises.

2.7.6 Setting up anti-corruption squadsCorruption has been seen as one of the major barriers that hinder informal gold miners from

formalizing their activities. According to a research conducted by the Human Rights Watch

(2012) it was proved that many miners fear that if they register their activities with the necessary

authorities they would make huge losses due to payments they would have to make to corrupt

officials who solicit for bribes and also conduct witch-hunt investigations on informal miners

activities.

According to USAID (2005) by setting independent anti-corruption squads that are not in any

particular manner related to the revenue collecting authorities, this would reduce the amount of

corruption that the informal gold miner suffers from. Corruption deters formalization as

businesses stay off registries and tax rolls in order to minimize contact with corrupt public

officials. One broad study of sixty-nine countries found a direct link between decreasing

corruption and an increasing formal economy.

2.8 Chapter SummaryThe informal businesses are not always opposed to paying tax but they try to avoid the hassles of

complex registration processes, tax systems and high taxes. The registration of these businesses

is critical as a first step towards improving wages and productivity within the informal sector and

in particular the informal gold mining sector and as a means of promoting growth and releasing

the enormous potential of the informal sector. They thus have a significant potential to play a key

role in addressing major development challenges such as poverty, unemployment and industrial

development in Zimbabwe.

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CHAPTER 3

3 RESEARCH METHODOLOGY

3.0 IntroductionResearch methodology refers to the way in which the particular research is going to be

conducted. This chapter gives a detailed insight into the research design and research instruments

that were used in both primary and secondary data collection and their justification. This

particular chapter also highlights the actual data sought, the sources of the data and the collection

ways that were implemented. This chapter will also highlight the methods that were used to

analyze the particular data obtained in the field.

3.1 Research DesignThe research design is defined as the particular steps taken to fulfill the paramount purpose of the

research being conducted. In this particular research the researcher used a Descriptive approach

to research. The descriptive research design involved both the quantitative and the qualitative

approaches in doing this research project. Sheilds and Rangaranjan (2013) defined quantitative

research as a technique that involves a relatively large number of respondents and it is designed

to generate information that can be projected to the whole population. The type of information

being required for the project also encouraged the researcher to also embark on a Qualitative

research approach. Qualitative research aims to gather an in-depth understanding of human

behavior and the reasons that govern such behavior. Hence the use of qualitative research

ensured that the researcher generated information from a number of respondents and applied this

information to the entire population. On the other hand quantitative research allows the

establishment of what, when, where and how of behavior, Bickman and Rog (1998). Due to the

nature of the research, both qualitative and quantitative approaches were the most appropriate.

3.2 Research StrategyAccording to Shields and Rangaranjan (2013), research method is a strategy used in the

collection of data. The researcher chose the survey method for this particular research. Survey

research is often used to assess thoughts, opinions, and feelings (Andersen and Taylor, 2009).

24

The survey research has been found to be an efficient way of collecting primary data from people

who have experienced certain phenomena to reconstruct these phenomena for others. When

conducting the research, the researcher approaches and issues questionnaires to individuals

presumed to have undergone certain experiences and interview them concerning those

experiences. The researcher has also chosen the survey strategy mainly because it is easy to

obtain information from a large sample of respondents which is the case for informal gold

miners.

3.3 Target PopulationTo obtain a sample, you must begin by defining a target population. The target population is the

group or the individuals to whom the survey applies (Kitchenham and Pfleeger, 2002). In this

case the target population was the informal gold miners that are located in the small town of

Kadoma who are conducting small scale mining activities in the marginal areas surrounding the

town which include Empress, Golden Valley, Etna and Pickstone. The main reason why the

researcher chose Kadoma is the fact that there are a large number of informal gold miners and

according to Svotwa and Mtetwa (1997) there is a panner density of more than 100 individuals

per square kilometer in the area surrounding Kadoma giving a total number of approximately 10

000 informal gold miners in the ares. The target population size consists of ten mining sites and

it is expected that each mining site will be occupied by an average of 10 individuals mining

together

3.3.1 Sample sizeThe researcher used a sample size of one hundred individuals for this particular research. This

particular sample will be manageable and also will allow the researcher to make clear and

conclusive statistical observations.The sample was comprised of purposefully selected units, thus

was a representative of the target population. A sample is said to be representative if an analysis

made on its sampling units produces results similar to those that would be obtained had the entire

population been analysed (Kachere, 2011).

Table 3.1 below shows the distribution of the selected sample in its respective area of location

25

Table 3.1 Sample distribution

Mining area Administered

Empress 50

Etna 25

Pickstone 25

Total 100

Sampling would also allow the researcher to manage his time effectively since the informal gold

miners are scattered all over the small town of Kadoma. Kotler (1997) argues that it is not really

necessary to sample the entire target or even a substantial percentage to produce reliable results.

3.4 Sampling methods and sampling techniquesTwo methods exist for selecting samples, probability and non-probability methods. In this case

the researcher used Non-probabilistic methods mainly because it was difficult to get a higher

response rate if one selected his sample using probabilistic techniques due to the fact that

informal gold miners are always shifting from one site to the other mainly due to police

invasions since their activities are generally illegal. One has to select a particular sample he or

she knows will respond to his enquiries since the subject is one that is sensitive. In this particular

research, the researcher has chosen Convenient Sampling technique in-order to obtain

information from respondents.

3.4.1 Convenient samplingAccording to Kitchenham and Pfleeger (2002) it is sometimes appropriate to obtain responses

from those individuals that are available and also willing to take part in the research process and

this type of sampling is known as convenience sampling. The researcher used convenience

sampling based on the following parameters: accessibility of the respondents in terms of

location, availability of references within the area of study and probability of getting information

from the chosen respondents. According to Lethbridge (2000) convenient sampling is also most

suitable for populations that do not have stable characteristics like those found in informal gold

mining areas. Individuals are constantly moving in search of new mining sites and also fleeing

from law officials.

26

Convenient sampling is non-probability sampling technique and hence can be subjected to bias

and error (Peter in Greenfield, 2002). However, the sampling method is most suitable since a

sampling frame for informal gold miners is not available. Moreover, the population of informal

traders is so widely dispersed in Zimbabwe that other sampling methods would not be efficient.

3.5 Data sourcesData sources refer to the places were the data will originate from (Kachere, 2011). In this

research the researcher will make use of Primary data sources in this particular case.

3.5.1 Primary dataIn trying to address the problem topic the researcher will also gathered data by asking problem

related questions to respondents who included Council officials, Kadoma chamber of Mines

officials, small to medium scale miners and also the Kadoma police. Primary data is that data

that is obtained from the source with no third parties in-between (Kachere, 2011). Great care was

taken in making sure that the survey was tailor made to the problem at hand.

Primary data gave the researcher first-hand information which reduces the bias that may be

found in secondary information.

3.6 Data collection techniquesThe relevant data will be collected directly from the sample individuals through questionnaires,

using face to face interviews and observations.

3.6.1 QuestionnairesUse of questionnaires was one of the most important methods of collecting information from the

respondents during the research project. Webster, (2008) defined a questionnaire as a printed

document which may be used to solicit for information about a particular subject of interest.

According to Kachere (2011) a questionnaire is also defined as a list of survey questions asked to

respondents and designed to extract specific information about a particular survey of individuals

may be found using different methods but a questionnaire is one of the major reliable

ones(Greenfield et al, 2002).

The questionnaire was crafted in such way that it would be able to capture both statistical

(quantitative) and non-statistical (qualitative) information about the activities of informal gold

miners. The questions were also crafted in such way as to reveal how the informal gold mining

27

system functions, the key players, gender characteristics, earnings and main obstacles to

formalization. Analysis of such question would enable the researcher to make valid conclusions

on the effects of formalization and also best ways to achieve this purpose. Before

commencement of the data collection process, the questionnaire had to undergo a process of

refinement with supervisors so as to make it perfect for the whole data collection process. A

three page questionnaire was created that aimed at highlighting the major activities of informal

gold miners in Kadoma. Factual, opinion and attitude related questions were asked in the

questionnaire. The questionnaire was subjected to a pilot survey from 4 April – 7 April 2014.

The reasons for conducting a pilot survey included the need to ensure that the language used was

clearly understood, to gauge the appropriateness of the length of the questionnaire and to test the

reactions of respondents to different questions. The main purpose of the pilot survey was to test

the questionnaire so as to see if it was valid and reliable for the particular task and also check

whether the questions were comprehendible.

The researcher made use of research assistance in the process of distribution and then collection

of questionnaires due to the size of the sample and its distribution. Respondents were issued with

questionnaires in the month of April and where given one day to complete the questionnaire

since it had no complicated questions. Due to the fact that the majority of informal gold miners

are illiterate, the researcher will use the questionnaire as an interview guide and complete it on

their behalf.

3.7 Validity and ReliabilityAccording to Chikoko et al (1995) validity refers to how sound the measuring instrument is. The

key question the researcher was concerned with here was that “was he really measuring what he

thinks he was measuring”. To answer this question the researcher tried by all means to research

on the particular instruments and the sample that he was using in his research to make sure that

they were the exact necessary for the particular research. Constant referrals to the supervisor also

helped in increasing the validity and reliability of data being researched on.

A research can hardly proceed without any data. However mere collection of raw undisciplined

data would not serve the researchers purpose. One needs to subject data to some process of

measurement. This assists one to see facts in some order. To ensure reliability and validity, the

28

researcher did editing, coding and analysis of all information that was gathered through the

interviews and secondary data sources. To bring about valid results in a descriptive research, the

sample must be representative. According to Babbie (1979) representativeness is therefore, that

quality of a sample of having the same distribution of characteristics as the population from

which it is selected hence the researcher will try by all means to select a particular sample that is

representative of the whole population.

3.8 Data presentationThe researcher’s first step will be to slot the figures into tables. This involves counting the

number of observations and classifying them into categories. The researcher will then calculate

percentages to make it easy to present and compare the figures were necessary. The researcher

will also use graphics to display the data and these will include:

Bar charts

Pie charts

tables

3.9 Data analysisData analysis is an integral part of research. It involves reducing accumulated data to a

manageable size and applying statistical techniques. In this study, data analysis was performed

using the Microsoft Excel Package and also Hypothesis testing to check whether there is a

relationship between willingness to formalize and mechanism used to formalize the informal

sector. The process began by coding responses. Data that was obtained from questionnaire was

then put on spread-sheets for the process of coding. Thereafter the data was processed using

excel graphs and also analysis was made using Hypothesis testing.

Responses open-ended questions were summarized and were used to explain the responses in the

closed ended questions or as justification for some questions or concepts. Cross tabulations of

variables were done, so as to establish the relationships between variables.

3.10 Chapter SummaryThe chapter looked at various methods of collecting data. It focused on research design, sample

size, research instruments, sampling techniques data collection procedures as well as data

presentation and analysis. The next chapter (Chapter four) is on Data presentation, Analysis and

Discussion.

29

CHAPTER 4

4 DATAPRESENTATION AND ANALYSIS

4.0 IntroductionThis study seeks to assess the effects of formalizing the informal gold mining sector on the

economy of Zimbabwe and the towns where the informal gold mining is taking place. In this

chapter the researcher was mainly concerned with presentation of the data obtained from the

field and its analysis. The data was obtained mainly from Questionnaires that were distributed to

the selected respondents in different sections of the small town.

4.1 Analysis of data response ratesTable 4.1 below summarizes the response rate for the questionnaire that was distributed by the

researcher.

Table 4.1, Questionnaire response rate

Mining area Administered Collected Response %

Empress 50 43 86%

Etna 25 22 88%

Pickstone 25 21 84%

Total 100 86 86%

A response rate of 86% was obtained from the questionnaires that were distributed. This

response rate was greater than that obtained by Nelson and De Bruijn who conducted a similar

research that yielded a 64% response rate. The response rate on the questionnaire was a good one

given the size of the sample (100 respondents) mainly because the researcher tried by all means

to make the questionnaire as much comprehensive and simple to understand as possible and also

the use of the research assistance proved to be very effective. Fourteen percent of the

respondents did not respond and the main issue that was cited was that they feared that we were

government officials who were trying to get information that would lead to their arrest and

prosecution. This factor was one of the major obstacles that the researcher faced in his data

collection process. Most informal gold miners are always in fear of the law officials and react

quickly with quotient to any questions that may come their way.

30

4.2 Age analysis of the respondentsThe table 4.2 below shows the respondent’s ages in respect to the Questionnaire that was

distributed.

Table 4.2, Age and frequency of surveyed sample

Age Frequency Percentage

0-20 years 19 22%

21-25 years 24 27%

26-30 years 33 38%

31-40 years 6 8%

Above 40 years 4 5%

Total 86 100%

The modal range of the respondents was 26-30 which represented the highest number of informal

gold miners within that age group with 38% of the respondents in this particular age group. This

is also consistent with the findings made by Mukwakwami (2013) who also discovered that the

majority of informal gold miners were mostly between the ages of 20 to 30 years since this is

usually the economical active segment of most populations. This range is usually the

economically active age group and usually the employable given a stable economic environment.

The second highest age group is that of 21-25 which represents mostly the school leavers who

are looking to make a living but since most of them do not have any formal education they seek

the easiest form of employment with low barriers of entry and informal gold mining is the best

alternative.

In the past the manufacturing industry was the major driver of the economy which created a

multiplier effect that result in optimum performances also in the agriculture and service industry.

Now that the manufacturing sector is not performing well, the major aspects of the economy are

suffering and hence people are always looking for alternative employment elsewhere.

4.3 Gender analysis of minersTable 4.3 below summarizes the gender characteristics of the informal gold miners that

responded to the questionnaire that was distributed.

31

Table 4.3, Sex to frequency of respondents table

Sex Frequency Percentage

Male 74 86%

Female 12 14%

According to the data obtained, most of the informal gold miners are male (86%), and this is

mainly because of the nature of the work they do which is usually very physical and requires one

to be physically fit. Another reason why most of the informal gold miners are man is because of

the turf wars that usually occur between informal gold miners, fighting over claims and also the

constant arrests by police officials. A few women are also involved in informal gold mining

(14%) but usually they would be cooking for the men and also selling other things such as food,

beer and clothing. Sokwanele (2007) who also wrote a report about the characteristics artisanal

miners in Zimbabwe highlighted the fact that the sector constituted 76% of males and the

remainder being women and children and this was as a result of the “masculine” nature of

mining activities.

4.4 Educational level analysisTable 4.4 that follows summarizes the academic qualifications of the respondents.

Table 4.4, Academic Qualifications of sample

Academic qualification Frequency Percentage

No formal education 9 10%

Primary level 22 26%

Secondary/High school level 39 45%

College Diploma level 12 14%

University Graduate/Post Graduate 4 5%

Total 86 100%

The majority of the respondents had only managed to reach secondary and high school level

(39). It is very difficult to obtain formal employment without any formal education these days

resulting in most youths looking for other informal employment opportunities and informal gold

mining is a major avenue and this was also seen as a major reason for the proliferation of the

informal gold mining sector in Tanzania (Nelson and De Bruijn, 2005). In Tanzania informal

32

gold miners castigated the government for failing to provide cheap basic education for them so

that they would proceed with their education and they urged that the necessary authorities to ease

the costs burden of education.

Nine individuals claimed that they had never set foot in an educational institution and claimed

that mining was the only education they knew. Some stated that they started mining as early as 8

years old and they did not have the opportunity to gain formal education. 22 respondents claimed

that they had attended primary education but failed to progress in their education due to poor

economic conditions that led to poverty. Furthermore 4 individuals claimed to have university

degrees but failed to secure work formally and hence they took the next best alternative which

was available in informal gold mining activities.

4.5 Years of involvement in Informal miningTable below shows the number of years the informal respondents have been involved in informal

gold mining activities. This will shed more light on the capacity of the miners to formalize

operations.

Table 4.5, Number of years operational in mining

Time Frequency Percentage

0-5 years 24 30%

5-10 years 39 45%

10-15 years 16 19%

15-20 years 5 6%

More than 20 years 2 2%

Total 86 100%

According to the results obtained from the questionnaires, most of the informal gold miners have

been operating for a period of between 5 to 10 years with a total of 39 individuals testifying to

this. It is approximately ten years since the economy of Zimbabwe started to perform poorly

since 2004 and this may be the major reason why most of the informal gold miners are within

this range. This is also supported by Mukwakwami (2013) who argues that the majority of

informal gold mining activities experienced a surge in numbers during the period of 2002 to

2013 as this was the period in which the country started to experience poor economic

33

performance and high labour turnover. 24 respondents claimed that they had been operating in

the mining sector for not more than 5 years.

A total of 23 respondents claimed to have operating informally for more than 10 years and in

such circumstances one has to ask the question that “is it really failure to graduate to formal

methods of operating or sheer will to operate as such”. Amankwah and Amin-Sackey (Ghana,

2003) argued that as an individual spent more years operating informally his propensity to

formalize decreased because one gets used to operating informally such that any change would

be viewed as negative.

4.6 Major reasons for involvement in mining activitiesFig 4.1 below shows the extent to which each of the given reasons has led the individuals into

informal gold mining activities.

Unemployment

Hobby

Part time work

Attractive returns on investment

Culture

Profession

0 10 20 30 40 50 60 70 80 90

8

63

39

4

17

78

8

30

3

22

8

1

4

23

11

74

5

5

17

9

4

9

8

39

27

Very significantSignificantNeutralNot significant Least

Frequency

Reas

on

Fig 4.1, Reasons for involvement in Mining activities

According to the data obtained from the respondents the majority claim that the major reason

they entered into the mining sector was because of unemployment with the whole sample of 86

respondents agreeing to this. Most if not all industries (David Whitehead, Kadoma paper mills,

Cottco, Maranatha, Dairyboard Holdings etc.) that where located in the area in which the

34

research was conduct have shut down and this has resulted in major job losses hence the large

numbers that are being witnessed practicing informal gold mining.

46% of the individuals also claimed that they were involved in informal gold mining activities

mainly because it provided a high return on investments. Gold mining activities have proved to

be a major revenue generator due to the high prices of gold with a single gram of gold going for

$42 dollars (Fidelity Printers, 2013). Many individuals have claimed that informal gold mining

has generated more income for them as compared to the monthly salaries they obtained from

their formal jobs.

The other reasons cited included part time work were one wanted to in supplement the income

obtained from their daily jobs and also some claimed that it was a family thing (culture) and to

others it was a profession.

4.7 Average monthly incomes from mining activitiesFig 4.2 below shows the average monthly incomes of informal gold miners that completed the

questionnaires.

50%

26%

13%

8%

3%

Average income 0-500 500-999 1000-2000 300-5000 above 5000

Fig 4.2 Average monthly income

According to that data obtained from the respondents most of them earn (50%) earn an income of

not more than $500 per month and this is an amount that is below the poverty datum line. Nelson

and De Bruijn (2005) also highlighted the fact that informal gold miners in Tanzania operate

mainly of low ore bodies with poor or no machinery which in turn resulting in low production

35

hence poor incomes. 26% of the miners claimed to earn an average of $500 to $1000 per month

and the majority of these individuals used machinery of some sort from hired compressors to

electronic gold detectors. They claimed that machinery was of paramount importance if one is to

increase production but also argued that the high costs associated in hiring and purchasing

machinery was a major set-back. 24% of the respondents claimed that they earned an average

income that was above $1000 and most of these individuals were syndicate leaders and gold

buyers. Mukwakwami 9013) states that 15% of the individuals who make considerable incomes

in gold miners are the gold dealer and their runners and usually these individuals are not directly

involved in mining activities.

4.8 Major uses of income obtained from mining activitiesFig 4.3 below is will highlight the major uses of the money obtained from mining activities and

this will help elaborate the amount which is being devoted to formalization process.

Purchase or hiring of equipment

Leisure and recreation

Registration initiatives

Sustenance or livelihood

0 10 20 30 40 50 60 70 80

42

8

67

39

18

12

19

5

37

37

31

29

Strongly disagreeDisagreeAgreeStrongly agree

Fig 4.3 Uses of income obtained from mining

According to the information obtained from the questionnaire the major use of the income

obtained from mining activities is mainly used for sustenance and livelihoods of the informal

gold miners with all 86 individuals testifying to this. Due to the high levels of unemployment in

the country people have ventured into informal gold mining activities as a means of improving

their livelihoods (Mukwakwami, 2013). Judging by the average income being obtained by the

informal gold miners (fig 4.2) which is mostly in the range of 0 to 500 dollars one cannot

36

purchase any materials or hire any substantive labour with it and that is why most of it is being

used for sustenance.

Purchasing of equipment and hiring of labour is also a major use of their income with a total of

81 respondents agreeing to that. This can be attributed to the capital and labour intensive nature

of mining activities and one needs the appropriate machinery if they wish to improve

productivity. Not much income is devoted to registration initiatives and this is a major concern

for the researcher and the question that comes to mind is “do the informal gold miners have

limited income or is it that they do not want to register all in all”.

4.9 FormalizationThe respondents were also asked to give information in regard to formalization and mechanisms

they prefer in order to formalize their activities and this information was presented in this

section.

4.9.1 Knowledge of mining lawsFig 4.4 below shows the extent to which informal gold miners had knowledge about the laws that

govern gold mining in Zimbabwe.

None Less Greater extent Greatest extent05

101520253035404550

26

43

12

5

Frequency

Fig 4.4 Knowledge of mining regulations

According to the data obtained from the questionnaire, a total of 69 individuals claimed that they

had little or no knowledge of the laws that govern mining activities and this may also be

attributed to the level of education of the respondents as highlighted by the information that was

obtained in regard to their level of education (table 4.4). The majority of the informal gold

37

miners had no tertiary education and this is where the majority of information regarding laws and

regulations of business are taught. In order for respondents to undertake the formalization they

should have the necessary information regarding formalization.

A total of 17 respondents claimed to have knowledge about mining laws but still had not

formalized their mining activities which may suggest other reasons that may explain why they

are still operating informally apart from the knowledge of mining laws.

4.9.2 The extent to which informal mining should be formalizedThe respondents were also asked to rate the extent to which they believed the informal gold

mining sector should be formalizes and the results are shown on the Fig 4.5 below.

strongly disagree

disagree

agree

strongly agree

0 5 10 15 20 25 30 35

frequency

Frequency

Exte

nt

Fig 4.5 Extent to which informal gold mining should be formalized

According to the data obtained from the respondents 60 of them agreed that the informal gold

mining sector should be formalized. Informal gold miners are constantly harassed by law

officials because of their legal status and hence the need to formalize their mining activities

(Sokwanele, 2007). 26 respondents claimed that they preferred to continue their activities

informally and this was mainly if fear of the unknown judging with the level of knowledge about

the mining laws within the country as shown in fig 4.4. Amankwah and Amin Sackey (2005)

also argue that the main reason why informal gold miners where resisting to formalize was

mainly because they had spent a very long period operating informally such that they have

38

adopted informal gold mining as the only way of operating. This may also be attributed to the

number of years they have spent operating informally which is shown in table 4.5.

4.9.3 Respondents compliance with regulatory requirementsTable 4.6 below shows the respondents compliance with regulatory requirements

Table 4.6 Compliance with regulatory requirements

Mining regulation Frequency Percentage

Exclusive prospective order 0 0%

Mining license 5 6%

Special mining lease 2 2%

Mining rights 0 0%

None 79 92%

Total 86 100%

According to the information obtained from the respondents 79 out of the 86 did not comply with

any regulatory requirements. This may be due to factors such as lack of knowledge of the laws

that govern mining regulations and their levels of education. This is in relation with the majority

of conclusions brought forward by the majority of authors who claim that the majority small

scale mining activities are not regulated.

The low numbers of formalized miners may also be attributed to the barriers that are associated

with formalizing business activities as highlighted in table 4.12. Addo (1999) argued that stiff

barriers to formalization that are witnessed in most developing countries such as Tanzania,

Zimbabwe, Ghana and Peru were the chief factor that was restricting informal gold miners from

formalizing their business activities.

4.9.4 Most favored formalization mechanismFig 4.6 below show the formalization mechanism that most informal gold miners would prefer

given the option to do so

39

8%

92%

Radical change De durestep by step change De facto

Fig 4.6 Preferred formalization mechanism

According to the results obtained from the respondents 92% of them claimed they mostly

preferred a step by step smooth transition into the formal sector rather than a radical one and this

is also supported by the research that was conducted by Nelson and De Bruijn (2012) which

claimed that most informal gold miners in DRC and Rwanda prefer a slow process. The major

reason for this was that the informal mining was not generating much money and they had little

knowledge about the regulations and laws pertaining to formalization of their activities.

4.9.5 Relationship between formalization and formalization mechanism usedHypothesis 1

H0 there is no relationship between willingness to formalize and strategy adopted

H1 there is a relationship between willingness to formalize and strategy adopted

Table 4.7 Establishing the contingency table

Objective Formalization strategies  

  De facto De jure Total

Formalize 57 3 60

No formalization 22 4 26

Total 79 7 86

Calculation of expected frequency (E)

E= (column total*row total)/Grand total

40

Table 4.8 Expected frequencies

 Variables De facto De jure Total

Formalize (60*79)/86=55 (60*7)/86=5 60

no formalization (26*79)/86=24 (26*7)/86=2 26

 Total 79 7 86

Calculation of Chi square

X2=∑ ((O – E) 2 / E)

Where O = observed frequency of any value

E = expected frequency of any value

Table 4.9 chi square

Observed Expected O-E (O - E)2 (O - E) 2

E

57 55 2 4 0.07272727

22 24 -2 4 0.16666667

3 5 -2 4 0.8

4 2 2 4 2

Total 3.03939394

Calculation of degrees of freedom

V= (raw-1) (column-1)

= (2-1) (2-1)

=1

At 10% level of significance the cut of point of chi-square for 1 degree of freedom tables is 2.71.

As the calculated value (3.0394) is greater than the table value (2.sgf), I therefore reject the Null

hypothesis and accept the alternative hypothesis and conclude that there is a relationship between

willingness to formalize and the formalization mechanism adopted.

41

The results from the hypothesis clearly show that there is a relationship between the

formalization mechanism that has been chosen and the willingness of the informal miners to

formalize. Nelson and De Bruijn (2005) who also conducted a similar research in Tanzania also

concluded that the miners responded differently to different formalization initiatives.

4.9.6 Most favored change agentThe respondents were asked which change agent they preferred for the formalization process and

the information is shown in table 4.1 below.

Table 4.10 Most favored change agent

Agent Strongly agree Agree Disagree Strongly

Disagree

Government officials 14 13 22 37

Non-Governmental Organisation 39 22 8 17

Informal gold miners themselves 58 21 7  0

According to the information obtained the majority of the informal gold miners prefer that the

formalization process should be handled by the informal gold miners themselves (79) since they

are the ones who really know the nature of their business activities and would recommend the

right choices that result in a positive outcome. This is also supported by the findings made by

CIFOR (2012) in trying to identify methods to formalize the in formal gold mining activities in

DRC and Rwanda. The informal gold miners highlighted the need to attain a mechanism “by the

people for the people”.

61 individuals agreed to the fact that Non-Governmental organisations should be responsible for

the transition process but the situation in Zimbabwe is a complicated one given the strained

relationships between NGOs and the government. 27 individuals suggested that the process

should be initiated by the government and this is mainly because they do not have the know-how

about the formalization process.

4.9.7 Benefits of formalizationFig 4.7 below shows the benefits that may be obtained from formalizing as highlighted by the

respondents.

42

Freedom from corruption and embarrassment

Access to finance (loans, grants, subsidies)

Freedom to cooperate with other partners

Access to state protection

Management support

0 5 10 15 20 25 30 35 40 45

42

39

33

5

22

31

33

36

27

32

8

11

12

25

24

5

3

5

29

8

Strongly disagreeDisagreeAgreeStrongly agree

Frequency/Number of respondents

Bene

fits

Fig 4.7 Benefits of formalization

According to the data obtained from the questionnaire the major benefit that would be attained

from formalizing mining activities was freedom from corruption and embarrassment from state

officials such as the police force. 73 individuals agreed to the fact that freedom from corruption

and embarrassment would be the major reason why they would want to formalize their mining

activities and this is supported by the research conducted by Maliyamkono (2012) who argued

that one of the major benefits associated with formalization is the fact that formal enterprises

operate free from corruption, harassment and confiscation of property which the informal

operators frequently experience

The data obtained from the questionnaire also highlighted that the majority of the informal gold

miners wanted to formalize their activities because they want access to financial loans and

freedom to cooperate with other parties in the mining sector. The mining sector is both labour

capital intensive and in order to increase profitability one has to have the necessary financial

backing and formalization allows informal gold miners to access such benefits. This is also

supported by Mukwakwami (2013) who argues that informal gold miners are failing to increase

productivity mainly because they cannot get financial assistance from banks and financial

institutions mainly because they do not have the necessary paper work to enable them to do so.

43

The majority of the respondents (54) individuals did not agree to the fact that state protection

was a major benefit of formalization mainly because they though believe that the majority of the

state officials are corrupt and mainly seek to milk as much money from them as possible.

4.9.8 Government handling of informal gold minersThe table 4.11 below shows the miners’ opinions in regard to government’s handling of issues to

do with informal gold miners

Table 4.11

Activity Opinion      

  Strongly agree Agree Disagree Strongly disagree

Police raids 23 63

Confiscation of gold 13 73

Forced removals 13 39 34

Criminalization 3 32 51

Judging from the data obtained from the questionnaire the majority of the informal gold miners

do not agree with the manner in which the Government is handling the informal gold miners.

Most if not all disapprove the police raids, gold confiscation, forced removals and

criminalization and argue that most of these activities are characterized by violence which at

times leads to loss of life. Due to the lack or higher education and lack of knowledge of the laws

and regulations, informal gold miners are vulnerable to abuses the some corrupt officials

(Sokwanele, 2007).

4.9.9 Barriers to formalizationTable 4.12 below highlights the major barriers to formalization and this may help us identify the

major reasons why the informal sector is failing to graduate into the formal sector.

44

Table 4.12 Barriers to formalization

Barrier Frequency Percentage

Regulatory barriers 9 10%

Administrative barriers 4 5%

Fees and financial requirements 26 30%

Corruption 13 15%

Criminality 34 40%

Total 86 100%

The major barrier that was highlighted by the respondents (40%) was the fear of criminalization

by the state. Most of them fear that if they come out and wish to formalize their activities they

might be investigated by police officials since the current nature of their activities is still illegal.

In a similar research conducted by Nelson and De Bruijn (2005) the majority of the miners also

highlighted that they feared prosecution if they tried to formalize their activities hence they

prefer to remain unknown. Financial requirement and fees was the other major reason cited as a

barrier to formalization as the informal gold miners (30%) claim that they are not earning enough

from their mining activities to pay for the formalization process and also the other costs that

come afterwards such as taxes and license fees. Corruption, Regulatory and Administrative

barriers also contribute to a lesser extent to the continued illegal operation of informal gold

miners.

4.10 Government measures to formalize the informal sectorThe respondents were asked to highlight the measure they think Government should take in order

to formalize the mining sector and the results are shown in Table 4.13 below

45

Table 4.13 Government measures to formalize the informal sector

Measure Strongly

agree

Agree Disagree Strongly

disagree

Reduction of poverty 59 27 0 0

Creating a conducive economic climate 72 14 0 0

Ensuring sustainability 62 24 0 0

Stabilization of government revenues from

mining activities

69 17 0 0

Source: Primary data

As shown in Table 4.12 above, the informal gold miners agree with most of the measures that

were highlighted in the literature and creating a conducive environment was the major objective

that was highlighted with 72 individuals strongly agreeing to this. Stabilization of revenue from

mining was the second major measure that was selected by the respondents, with 69 respondents

claiming that the necessary authorities should take into consideration the fact that informal gold

miners are not earning much from their mining activities.

4.11 Chapter summaryThis particular chapter gave a detailed analysis of the data that was obtained from the survey. In

trying to address the matter at hand, tables, graphs and pie charts were used to try and interpret

the information obtained from the respondents. The presentation's main focus was to make sure

that the data collected is summarized and portrayed to enhance the understanding the research

objectives. The following chapter will focus on making conclusions and recommendations about

the topic of formalization of the informal gold mining sector.

46

CHAPTER 5

5 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.0 IntroductionThis chapter is mainly focused at highlighting the significant areas of the research, summarizing

the conclusions and also giving recommendations in areas that were unclear before the

commencement of the research process. This chapter will also reflect on the achievement of the

set objectives.

5.1 SummaryThe main thrust of this research was to find out the effects of formalizing the informal sector and

also methods in which we could facilitate the formalization of the sector with its main focus on

the informal gold mining activities that are taking place in Kadoma. The formal sector has been

in existence for more than four decades after it was officially defined by Keith Hart (1973).

Keith Hart used the term informal economy to define those individuals that were operating

outside the normal regulatory environment. Most of these individuals earned irregular incomes

and their activities were not recorded in the Gross Domestic Product of the country (Ghana).

Informal gold mining activities in Kadoma have been in existence for more than 20 years now

but the majority of them have not been registered with the chamber of mines.

The economy of Zimbabwe is still on the decline despite the stabilization of inflation due to the

introduction of the multi-currency system. Company closure has becomes an ordinary

phenomena and the informal sector is spreading like nobody’s business. Approximately two

billion dollars is circulating in the informal sector but on the other hand the country is suffering

from a massive liquidity crunch. The major issue of interest was how the informal economy

contributes to the GDP of the country and also come up with ways in which we can formalize it.

A sample of 100 respondents was carefully selected from the small mining town of Kadoma for

this particular purpose. Questionnaires were issued and the information obtained was

summarized in the previous chapter for recommendations purpose.

47

5.2 FindingsThe informal gold mining sector is mainly dominated by male individuals and women are lesser

players in this particular field. Amankwah and Amin Sackey (2004) also conducted a similar

research in Ghana and concluded that male individuals constituted the majority of the informal

gold miners which raises issues of gender bias in this particular field. This is mainly caused by

the masculine nature of informal gold mining activities.

According to the information obtained from the questionnaire, the majority of the informal gold

miners had only attained secondary level of education and this has affected their operations

immensely. Knowledge is a very key aspect in any business venture and without it the success of

an enterprise would be questionable. Mukwakwami (2013) who also conducted a similar

research on informal gold mining activities in Umzingwane district also highlighted the issue of

lack of adequate education as a major obstacle in the formalization of the mining sector. It is

very difficult for someone who has no knowledge about mining regulations to let alone register

his/her activities.

Unemployment is the major reason why most individuals are involved in informal gold mining

activities and this is also in relation to the study that as conducted by Mukwakwami (2013)

which tried to highlight the major pull and push factors that led people into informal gold mining

and unemployment and poverty were top of the agenda.

Information obtained from the field highlighted the fact that the majority of informal gold miners

did indeed want to formalize their activities regardless lack of knowledge about mining laws.

This however goes against the findings that were made by Nelson and De Bruijn (2005) who

concluded that the majority of informal gold miners preferred to stay informal as they cited the

fact that they could not pay the high amounts of taxation and registration fees that were being

charged and also fear of corrupt officials who solicited for bribes.

Information obtained from the respondents indicate the fact that the majority of them prefer a

step by step transition into the formal sector rather that an involuntary enforcement by

government officials. The researcher went a step further and established a chi-square relationship

between the formalization mechanism and willingness to formalize. Nelson and De Bruijn

(2005) also support this notion and state that the majority of the informal gold miners in

48

Tanzania support a voluntary change which is characterized by small steps which eventually

leads to the formalization of the entity.

The major benefit that may be obtained from formalizing the informal sector was freedom from

corruption and embarrassment. The majority of the informal mining sector highlighted the fact

that they want to formalize their activities mainly because they have to pay a huge sacrifice in

terms of bribes to avoid forced removals and harassment. Another reason is that they want access

to financial assistance

5.3 Recommendations

5.3.1 To operatorsLack of knowledge is a major stumbling block in operations of informal gold miners and it is of

paramount importance that the informal gold miners seek information about the laws and

regulatory systems, government programmes that support small scale mining activities in

Zimbabwe. Government through its Indigenization programme has introduced many

programmes that affect informal gold miners but due to lack of knowledge about them the

majority are not benefiting from them. Informal gold miners must not be afraid to seek

information on formalizing their activities as the majority of them are missing a lot of

opportunities such as financial assistance, management support services, access to state

protection and freedom from corruption that come with the initiative.

The majority of income obtained from mining activities by informal gold miners is being mainly

used for sustenance and livelihood but and only a little is spared for mechanization and hiring of

labour which in turn results in lower productivity. Mining activities are very labour and capital

intensive hence the need to invest in machinery and the labour-force in order to improve

productivity

5.3.2 To Government and Law enforcersGiven the fact that the informal gold mining sector has the ability to formalize if certain

conditions are met, the officials should therefore come up with policies that support the smooth

formalization of the sector. The country is suffering from high levels of unemployment and

budget deficits and the majority of the money in the country is circulating in the informal sector,

there is need for the necessary authorities to come up with attractive policies that may influence

49

the informal gold miners into formalizing their business activities without the use of force or

coercion.

Bureaucracy and too many Administrative hurdles should be avoided in the registration process

in order to allow the smooth process of formalization as these have been found to be major

barriers to the whole process. Government workshops and projects should be initiated to raise

awareness about this economic activity so as to fully highlight to the nation the importance of

this sector so as to raise awareness of its capabilities and benefits that may accrue from its

formalization.

In formulating a formalization mechanism, government should take the following aspects into

great consideration

Suitability

Validity

Feasibility

Vulnerability and

Adoptability

5.4 ConclusionInformation obtained from the research highlights the fact that lack of knowledge about mining

laws and also fear of the unknown are the major reasons that are resulting in the continued

informal operations and there is need for state enterprise to improve on the information

dissemination. Most of the informal gold miners showed enthusiasm for formalization but there

hasn’t been a proper mechanism that has yet been enforced to facilitate the whole formalization

process hence the need to partner with government and non-governmental organisations.

50

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economy-the case of Tanzania.Journal of International Development.Wiley Inter-Science.

Norman Mukwakwami, 2013. Formalizing Zimbabwe’s Artisanal Mining Sector.Project 263.

GeirSundet, 2006.The formalization process in Tanzania: Is it empowering the poor?Norwegian

Embassy in Tanzania.

Aaron Barbour, MarlenLlanes, 2013. Supporting people to legitimize their informal businesses.

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practice.United States Agency for International Development. Bannock Consulting Ltd

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Sam Spiegel, 2012. Policy and Regulation in Artisanal Mining Communities: Examining

Strategies, Experiences and Key Lessons. University of Cambridge

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Wadzanai Kachere,2011. Informal Cross Border trading and poverty reduction in the Southern

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TuvAimag. International Labour Office.

SiduduziwePhiri, 2011.Impact of artisanal small scale gold mining in Umzingwane district

(Zimbabwe), a potential for ecological disaster. University of the Free State

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Samuel J. Spiegel, 2012. Formalization policies, informal resource sectors and the de-/re

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formalization agenda and some empirical evidence from Africa.Colloque international.

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a research note. Elsevier Ltd

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mining sector. Globalvoiceonline.org

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www.herald.co.zw

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APPENDIX ILETTER OF INTRODUCTION

Midlands State University

P. Bag 9055

Gweru

August 2012

To whom it may concern

I kindly seek your information in completing a research project which is an investigation to find

the effects of formalizing the informal gold mining sector on the economy of small towns the

case of informal gold mining in Kadoma.

I have provided a questionnaire soliciting for information on the research topic under study. May

you please answer the attached questionnaire. All the information you provide will be treated as

confidential and used for academic purposes only.

The project is in partial fulfillment of my degree course Bachelor of Commerce Business

Management Honours Degree.

Your cooperation will be greatly appreciated.

Yours faithfully

R102857C

55

APPENDIX IIQUESTIONNAIRE

NB: please tick where appropriate

1) Please indicate your age by ticking in the appropriate boxes?

0 – 20 years 21 – 25 years 26 – 30 years 30- 40 years Above 40 years

2) Please indicate your gender below?Male Female

3) Please indicate your level of education by ticking the appropriate box?

No Formal educational backgroundPrimary levelSecondary/ High School levelCollege Diploma levelUniversity Graduate/Post Graduate

4) For how many years have you been involved in gold mining activities?

0-5 years5-10 years10-15 years15-20 yearsMore than 20 years

Key

1-least, 2 - not significant, 3 - neutral, 4 - significant, 5 - very significant

5) Please indicate your reason for being involved in gold mining activities?

Reasons 1 2 3 4 5UnemploymentHobbyPart time workAttractive returns on investmentCultureProfessionOther, (please specify)?

………………………………………………………………………………………………………

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6) In what average monthly income bracket do you fall in?

0-500 $ USD 500-999 $ USD

1000-2000 $ USD

2000-3000 $USD

3000-5000 $USD

Above 5000 $USD

Key

4- Strongly Agree, 3-Agree, 2-Disagree, 1-Strongly Disagree

7) Please indicate the major use of the income you obtain from mining activities?

Use 1 2 3 4Purchase or hiring of equipmentLeisure and recreationRegistration initiativesSustenance or livelihoodKey

1-none, 2-less, 3-greater extend, 2-greatest extend

8)

To what extent do you understand the mining laws of this country? 1 2 3 4

Key

4- Strongly Agree, 3-Agree, 2-Disagree, 1-Strongly Disagree

9)

To what extent do you agree that the informal gold mining sector should be formalized?

1 2 3 4

10) Which regulatory requirements have you complied with in your gold mining activities?

Exclusive Prospecting OrderMining LeasesSpecial Mining LeasesMining Rights

11) If given an option to formalize, what formalization mechanism would you prefer?

Radical change (de jure) step by step change (de facto)

Give a reason for answer in (11)

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

12)

57

Who should be responsible for making gold mining activities legal? 1 2 3 4Government officialsNon-Governmental organisationInformal Gold miners themselves

13)

What are the benefits of formalizing gold mining activities? 1 2 3 4Freedom from corruption and embarrassmentAccess to finance (loans, grants, subsidies)Freedom to cooperate with other partnersAccess to state protectionManagement support

14)

To what extent do you agree with government’s handling of informal gold miners?

1 2 3 4

Police raidsConfiscation of gold

Forced removalsCriminalization

15) Which of the following is the major barrier to formalization?

Regulatory barriers

Administrative barriers

Fees and financial requirements

Corruption

Criminality

Key

1-none, 2-less, 3-neutral, 4-greater extend, 5-greatest extend

16)

What should government do to help formalize the informal gold mining sector

1 2 3 4 5

Reduction of povertyCreating a conducive economic climateEnsuring sustainabilityStabilization of government revenues from mining activities

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THANK YOU!

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