Zimbabwe: laying down the law to attract responsible mining investment.
HARARE, ZIMBABWE – As one of Africa’s most notorious and much publicized mining countries, Zimbabwe has been on a challenging journey over the last 15 years. Zimbabwe has come to be known as a country rife with regulatory uncertainty and political instability, yet the situation is rapidly changing and the overwhelming verdict from both the private and the public sector is that the time to for serious investors to look to Zimbabwe is now.
The Zimbabwean economy has shown impressive GDP growth figures over the last few years, albeit coming from a low base. Although growth slowed in 2013 as Zimbabweans took to the polls for the general election, between 2009 and 2012 the average annual growth rate was 7.1%. Expectations are the Zimbabwe will boast an average growth rate of 4.7% from 2013 to 2017, as the growth in mining production stabilizes over the medium term. Such positive growth rates should serve as an incentive for foreign direct investment flows into any country and in Zimbabwe foreign direct investment increased more than eightfold from $51.6 million to $450 million between 2008 and 2012.
Despite this, Zimbabwe remains viewed as a high-risk country, a perception supported by its ranking in the World Bank’s Doing Business 2014 report: a bleak 170 out of 189 countries. The mining sector, which is central to the plan for Zimbabwe’s economic recovery, is suffering from a severe capital shortage.
With the 2013 elections, a new Minister of Mines and Mining Development has been appointed. A revamped ministry claims to be serious about changing Zimbabwe’s image and proving that they are willing to negotiate when it comes to indigenization. While the mining sector will play a pivotal part in the Zimbabwean government’s plan for economic recovery, policy will be spearheaded and inspired by the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset) that has replaced the Medium Term Plan that had been implemented in the years prior to the 2013 elections. Zim Asset will run from 2013 up to 2018 aiming to achieve a GDP growth rate of 10% by 2018, with the key focus falling on food security and nutrition, social services and poverty eradication, infrastructure and utilities and value addition and beneficiation. With mining set to be catalyst of growth, the Ministry of Mines and Mining Development is working on revising Zimbabwe’s Mines and Minerals Act and Precious Stones Act.
Zimbabwe’s law system is a combination of Roman-Dutch and English law and, contrary to perceptions, has well-developed mining laws based on its long history as a mining jurisdiction. “Mining legislation in Zimbabwe, such as the Mining and Minerals Act, is credible and is based on the equivalent South African legislation,” says Steven Gamble, director and solicitor at Norton Rose Fulbright South Africa.
The Mines and Minerals Act provides security of tenure and has provisions for acquisition, maintenance and relinquishing of mining rights. This Act is currently under revision, with key changes being made to ensure that it also accounts for environmental management and indigenization, and makes provisions for continued exploration in Zimbabwe. Value addition, an area that is receiving attention by governments around Africa, is also on the agenda. “We have to see what is possible to do in Zimbabwe given our state of development,” explains John B. R Chikombero, CEO of the Zimbabwe Chamber of Mines. “We have to look at areas where we can get greater value for the mineral endowment of the country. The policy is currently that minerals need to be beneficiated to the maximum extent possible before they are exported.”
Zimbabwe’s Indigenization and Economic Empowerment Act is often on the forefront of discussion when looking at the country as an investment destination. The Act stipulates that 51% of any foreign mining company operating in Zimbabwe be owned by a “designated entity” such as an Indigenization or Economic Empowerment Fund, the Zimbabwe Minerals Development Corporation, community share ownership trust or an indigenous previously-disadvantaged entity. While the Zimbabwean government is unapologetic about this policy it has indicated that it is open to dialogue with companies who care to find an optimal solution and who bring greater economic gain to the table. “Investors must start seeing indigenization as a commercial business transaction. It is not just giving away 51% of your company, as the local entity will have to bring its share to the table. Moreover, there is room for negotiation when the investor is serious and its intentions are right,” says Richard Mbaiwa, CEO of the Zimbabwe Investment Development Authority.
The damage wrought on what was once “Africa’s breadbasket” by the hyperinflation of the early 2000s cannot be refuted, but Zimbabwe is ready to rebuild its economy and its reputation. It has the foundations on which to do this: infrastructure is relatively well developed and it can boast a skilled labor force. It must also put in place adequate financing, however, if it wants its indigenization policies to be feasible. The lack of liquidity is visible in the country; especially in the mining sector on which the country plans to anchor the economy while other sectors are rebuilt.
Zimbabwe’s own financial sector is unable to issue long-term credit and is in need of restructuring and recapitalization. Zimbabwe plans to leverage its mineral wealth to establish long-term lines of credit. However, that is not all that it will take to lift the country out of its liquidity trap. It now becomes a question of time and dialogue to prove that Zimbabwe is committed to policy stability and to creating a favorable investment climate for much needed outside investment.
This article was written as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.