Analysis: Why Zimbabwe’s mining investment drive has brought property rights to the surface

Fears prompted by an earlier announcement that authorities would require it to be compulsory for foreign mining companies to list on the local bourse have been allayed by the mines minister Winston Chitando, saying at an investment conference this week that lawmakers will soon remove that clause from a mines amendment bill.

 

By Justice Zhou

 

Zimbabwe has emerged as the preferred choice for mining investors after authorities relaxed a controversial empowerment law earlier this year, which had previously compelled foreign nationals to cede majority control to locals. But the question which perhaps still lingers is whether the move will be enough to ensure the country recaptures its status as a safe destination, which was eroded by years of misrule.

The first major step in his bid to put the economy back on track saw President Emmerson Mnangagwa keep his promise to open the economy to investors, when he speeded up the amendment of the indigenisation law in March.

Analysts say the development was positive. However, it needs to be backed by sufficient evidence that he will not revert back to the ways of his predecessor Robert Mugabe, who disrespected property rights and the rule of law.

“These far-reaching changes, first announced in the 2018 Budget in December 2017, should pave the way for foreign investors wishing to establish operations in the country and boost the economy,” said Celia Becker, an executive in the regulatory and business intelligence team at law firm ENSafrica in Johannesburg.

‘‘President Emmerson Mnangagwa kept his promise of December 2017 that the Act will be significantly amended and the changes will be affected in the first quarter of 2018. These momentous changes suggest that he is serious about Zimbabwe being ‘‘open for business’’.”

In terms of the changes, the rules will now only apply to companies involved in diamond and platinum mining. Everyone, regardless of origin, is now free to invest or acquire the ownership or control of any business without stringent restrictions.

A safe environment to do business

Vast deposits of minerals ranging from platinum, lithium, diamonds, coal and gold to chromites and tin, have attracted the interest of foreign miners, with some having already snapped up major projects, while a large number are lining up to unveil their deals as they seek to benefit from higher returns that come with a new surge in the prices of global minerals.

Chief among the commitments made was by a Cypriot investor, Karo Resources, which recently signed a US$4.2billion deal towards setting up a major platinum mine and refinery in Zimbabwe, an investment that the president hailed as proof that the country was “open for business” as he has repeatedly said.

“So far, Mnangagwa has set an encouraging tone, focusing on the need to resuscitate the economy and open the political system. But doubts remain. Questions surround in particular the government’s willingness to address structural economic issues through fiscal discipline, transparency and accountability,” analysts at the International Crisis Group have said.

A safe environment to do business will be crucial in order for the country to attract the roughly US$11 billion which the Chamber of Mines of Zimbabwe says is required to modernise mines and ramp up production over the next five years.

On the surface, the government appears to be doing everything it could to ensure the mining sector attracts the capital it needs to turnaround its fortunes. If its efforts are anything to go by, they will support the chamber forecasts that mineral revenue will grow to US$2.5 billion this year, up from US$2.3 billion in 2017, as gold and platinum miners ramp up output.

Fears prompted by an earlier announcement that authorities would require it to be compulsory for foreign mining companies to list on the local bourse have been allayed by the mines minister Winston Chitando, saying at an investment conference this week that lawmakers will soon remove that clause from a mines amendment bill.

At the same time, some analysts have not been convinced that a lot has been done to show that there has been a shift towards policies that will ensure the new government has a different and encouraging stance as compared to the previous regime of former ousted president Mugabe. The quest to show investors is setting the government on a property rights are setting Zimbabwe on a collision course with local communities when it comes to their own land and property rights.

Rule of Law

With accountability issues still surrounding the mining of diamonds at Marange, eastern Zimbabwe, where billions of dollars worth of revenues from the sale of the minerals are alleged to have vanished without trace, a prominent activist has suggested that it’s still early to celebrate as those changes appeared to be carried out at the expense of the communities.

“Nothing has changed with regards to land and property rights – the unjust legal framework that prioritises the rights of the miner over those of the farmer have remained intact. Right now the government is planning to displace more Marange families in Kusena village to pave way for a Chinese diamond miner,” director of the Centre for Natural Resource Governance, Farai Maguwu, told Zimbabwe Digital News.

“Mnangagwa is going to displace tens of thousands of people with his ‘Zimbabwe is Open for Business’ thrust. Most of the deals he is signing are in the mining sector and this will lead to displacements. Mining in Zimbabwe has condemned communities to poverty. Dispossessing communities of their land or merely polluting rivers and disturbing underground water table through blasting, as is the case in Mutoko, has affected livelihoods in mining areas.”

The effects of defying property rights and the rule of law on the economy was perhaps best illustrated by the Mugabe’s land reforms, which some critics say was not conducted in a proper way, with the evictions having been chaotic and sometimes violent. According to Craig J. Richardson, a professor of economics at Salem College in the US, the author of The Collapse of Zimbabwe in the Wake of the 200-2003 Land Reforms Zimbabwe, the country provides a compelling case study of the perils of ignoring the rule of law and property rights.

Domino-like effect

“We have seen how Zimbabwe’s markets collapsed extraordinarily quickly after 2000, with a domino-like effect. The lesson learned here is that well-protected private property rights are crucial for economic growth and serve as the market economy’s linchpin,” Richardson said in a study.
“Once those rights are damaged or removed, economies may be prone to collapse with surprising and devastating speed. That is because of the subsequent loss of investor trust, the vanishing of land equity, and the disappearance of entrepreneurial knowledge and incentives-all of which are essential ingredients for economic growth.”

Although the capital-intensive sector needed a massive injection of money for its revival, Mugabe, who was ousted in a forced resignation assisted by the military, his hostile policies have been blamed for having caused foreign miners to be reluctant to invest in the country , citing the rampant flouting of property rights and the rule of law.

It will take a lot of getting used-to for some investors, but the new administration seems to be well-placed to follow through its promise to uphold property rights. But the elephant in the room isn’t just the need to play by the rules.

“The central contradiction in the supposedly new-and-improved environment for investors is the lack of hard cash for returning profits to the head office. There is a US$1 billion backlog now on profit repatriation,” Patrick Bond, a professor of political economy at the University of Witwatersrand, Johannesburg, told Zimbabwe Digital News.

“The reason this is a contradiction is that, according to Robert Mugabe speaking two years ago, an estimated $13 billion out of $15 billion in Marange diamond revenues remains unaccounted for.

 

Justice Zhou is a Zimbabwean journalist based in South Africa.  Contact him at  justice_zhou@yahoo.com

 

This article is published in partnership between Zimbabwe Digital News and Zim Diaspora Scribes.

See http://zimbabwedigitalnews.com/2018/05/07/zimbabwe-catholics-choirs-hit-the-right-note-at-johannesburg-choral-competition/

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