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A Fair Share Or Legalized Theft?

As elections near in Zimbabwe, the government leans heavily on mining to support its fragile economy. Platinum investment appears to be easing these worries—mining contributes 13% to GDP and 60% of export earnings—but foreign investors still face tough times.

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If Zimbabwe’s economic problems hang like a cloud, you could argue that mining is the platinum lining. Platinum investment has poured into Zimbabwe—a country where mining contributes 13% to the GDP and accounts for 60% of export earnings.

Zimbabwe may be rich in resources but it is poor in policy. Most Zimbabweans have seen little of the wealth mined from beneath their feet. The irony is the unpredictable policies aimed at tackling this problem are putting off the foreign investors needed to fuel the long-term, capital-intensive business. Zimbabwe has, for the past decade, recorded among the lowest foreign direct investment (FDI) inflows in the sub-Saharan Africa region. In 2011, it didn’t even see $400 million in investment, compared to South Africa, Zambia and Angola, which received more than $1 billion apiece.

Platinum claims by government under the Mines and Minerals Act are a prime example. This year, the government acquired nearly 28,000 hectares of platinum claims held by Zimplats—a subsidiary of South Africa’s Impala Platinum—in the Mhondoro-Ngezi district. Earlier, the state had acquired Anglo American Platinum claims, in Shurugwi, to pave way for Todal Mining—a Russian-linked subsidiary of Central African Mining and Exploration Company. Government heavyweights are linked to the acquisition.

“It’s pointless to grab claims that you can’t make good use of,” says a mining engineer based at neighboring Zimasco chrome mine, which was taken over in 2007 by the Chinese.

There is talk that Chinese investors have been eyeing Anglos Unki Mine in the heart of the mineral-rich Great Dyke. This talk, along with the grabbing of the platinum claims, is enough to cause disquiet among investors.

“It will send a negative signal on security of investments in the country and will likely result in a slowdown in FDI into the sector. Mining is generally a long-term investment and investors want security that they will be able to recoup their investments without fear of repossession of their assets. The impact of this uncertainty has already been seen on the local stock market, where mining firms have struggled to raise funding from both local and foreign investors, while trading in these stocks has been quite subdued as the sector sometimes goes for days without recording a single trade,” says Isaac Isaki, head of sales and trading desk at EFE Securities.

With the benefit of foresight, perhaps none of the companies would have invested in the first place. Instead of taking the claims, Isaki argues that the government should have traded the excess claims in partial fulfillment of the indigenization laws, rather than force companies to comply with indigenization laws and then take away the claims.

Zimbabwe has the second largest platinum reserves, which Anglo, the world’s largest platinum producer, tapped into. While it is divesting in its core operations in Zimbabwe, it will keep its gold and platinum production going. Recently, Anglo ceded around 51% of its stake to black Zimbabweans, in a move that created ructions in the financial sector.

Impala Platinum, Zimplats’ owner, and Mimosa Platinum have also conceded to government’s indigenization demands. Once Anglo American had pumped $300 million into its Unki Mine operation, the government cajoled them into an empowerment deal, which, according to legal experts and analysts, had many holes.

Under the empowerment deal: the Tongogara Community Share Ownership Trust; the Unki Employee Trust; and the ‘strategic indigenous investors’ will receive 10% each of the shares. The government will acquire 21% through an indigenous empowerment board through decade-long loans. The Tongogara Community Share Ownership Trust, launched in 2011, was also given $10 million, with $1.3 million spent so far on schools, mortuaries and irrigation schemes.

Harare-based economist John Robertson, who has been studying mining in Zimbabwe for more than four decades, criticizes the empowerment laws.

“I regret that community share ownership schemes will probably make only modest contributions to rural societies, given the fact that their funds will be derived from dividends that will be paid only if and when the companies whose shares are owned by the schemes make profits big enough to justify dividends. If these dividends can be accumulated for long enough to pay for needed social infrastructure, such as roads, schools, dams, water purification plants and hospitals, the benefits will be important, but the word transform might be too extravagant to use to describe the benefits,” he says.

There is a strong perception in the market that the indigenization demands amount to legalized theft.

“Government has passed a law that states all foreign investors have to hand over 51% of their shares. What is the difference between this and a mugger demanding that you let him take half the money out of your wallet? It is wrong and passing a law to legalize it does not make it right,” says Robertson.

Despite these economic setbacks, the country’s future appears to lie in platinum. According to Anglo general manager, Walter Nemasasi, Unki Mine produced 62,692 equivalent platinum-refined ounces in 2012, with projected annual increases.

So far, Anglo has pumped in nearly $350 million into the operations, with the bulk going into a new raw water supply dam and a 17km-long tar road to the mine. At the very least, this investment is turning remote villages into booming towns.

The question is whether these government-brokered empowerment share ownership deals will bring the much needed development and give Zimbabweans a share of the wealth of their land. That is a question likely to be asked ahead of this year’s elections.

REFERENDUM

Hope, fear, optimism and change. These are some of the things that precede the Zimbabwean elections expected to be held later this year following the successful signing of a constitutional referendum that saw the three parties in the country make compromises.

With reportedly 3.3 million Zimbabweans having cast their vote in a referendum on a new constitution that seeks to curb presidential powers and strengthen human rights in their country, the spotlight is on Zimbabwe to see if democracy and change will be attained.
Leaders in the country are seeing the agreement as a stepping stone to new beginnings but political commentators are not convinced it will yield the desired results. Gabriel Shumba, a human rights lawyer and political analyst from Zimbabwe is not celebrating just yet.
Shumba believes if the Southern African Development Community (SADC) does not step in to assist leading to the elections, history could repeat itself and violence could erupt.
“We are going to see violence preceding the next elections if precautionary measures are not taken by SADC to prevent violence that is already evident on the ground. The arrest of the human rights activist [Beatrice Mtetwa] is evidence that the next elections won’t be different from those of the past. We have to keep in mind that it is not a constitution that prevents violence or rigging, it is political will,” he says.

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