Another disaster waiting to happen

THIS week President Mugabe dumped another instalment of corrosive policy on the nation when he announced the government would force its way into acquiring a 50% shareholding in all mines.
Mugabe, addressing students at Moleli Hi

gh School, was engaging in his habit of making policy on the hoof. He said government would demand a shareholding in mining companies. He believes participating from within is the best means of control.

“We are going to demand that government be given 50% shares in mines,” he told the students. “We cannot recognise absolute ownership of our resources. No, that must be corrected.”

He said countries such as Botswana had walked the same route.

But the Botswana model has been carefully crafted to ensure that there is a mutually beneficial relationship between the government and private investors. The 1999 Mines and Minerals Act which revised the 1977 legislation in Botswana was fashioned to make government participation in new developments more attractive to investors.

The legislation ensures the government of Botswana participates in ventures through equity and board representation. Generally, for large projects government participation falls within the range of 15% to 25% issued free. The government exercises minimum control on business operations and management is left entirely to the private-sector partner.

While the Botswana government retains the right to acquire a minority interest in new mines, this is generally up to a maximum of 15%, and is on commercial terms with the state paying its pro-rata share of costs incurred.
We wonder if this is the t

emplate Zimbabwe’s rulers would work with when they demand participation in mining ventures. There are also doubts about the Zimbabwe government’s ability to pay for its shareholding in the capital-intensive mining sector. No investor would want to benevolently cede a 50% stake. The trend worldwide is that governments should create the right environment for capital and not try to run businesses.

Mugabe believes however that involvement of the state in the operation of mines will increase efficiency and counter multinational companies accused of underhand dealings in mineral exports.

He is wrong and this fallacy poses a major threat to recovery in the mining industry which accounted for about 30% of export earnings four years ago.

The alleged underhand dealings in the mining sector constitute a key component in Mugabe’s ever-lengthening list of scapegoats for the country’s economic meltdown. Missing from the list however is his government’s contribution to the morass.

We would like to remind the president that the near collapse of the mining sector stems largely from poor macro-economic policies in which the skewed exchange rate was employed for extended periods despite urgent calls for review.

By fixing the exchange rate at an unrealistically low level, the government ensured mines earned less money than they should have for their exports, yet their domestic costs were going up in sync with inflation which peaked at 623% in January.

More worryingly is the idea of government trying to run mines. No one should be fooled into believing that the government will be able to run mines any better than it has run other state enterprises over the past 24 years. State-owned corporations have a record of inefficiency, graft and debt that mirrors that of government itself.

Until just recently, government has declined to push them into producing audited results. Instead quangos have become nests of political patronage, playing the black market at will and serving as key contributors to national debt. Then there is the burden they impose of taxpayers.

The Zambian government in the euphoria of self-rule nationalised copper mines using the spurious premise that Zambians had to enjoy the national resource. That piece of the national cake was never shared as the mines were run down and production fell. Zambians became poorer than they were in 1964.

The process was reversed in the last decade and mines have gone back to multinationals. A lesson for Zimbabwe’s control freaks!

This is not the first time that Mugabe has threatened the mining industry. Just before the 2000 parliamentary election he told a South African newspaper that mines were next. This was met with indignation from large investors in that sector who described Mugabe’s threats as “unhelpful” and “disastrous”.

Disastrous the gung-ho grab-and-go policy has indeed been. The destabilisation of the agricultural sector can only be replicated in the mining sector with dire consequences for the economy.

The government should tell us what has happened to Mhangura Copper Mine which was run by the inept Zimbabwe Mining Development Corporation (ZMDC). The country is still waiting for copper ore from the Democratic Republic of Congo to be processed at ZMDC smelters.

We need to know how many carats of diamonds the country is mining in the DRC and who is picking up the cheque.

The country needs a mining policy which inspires investor confidence, guarantees employment creation and replenishes foreign currency reserves. Not one that sends mining companies looking for opportunities elsewhere, unemployment figures doubling and forex evaporating.

Previous articleEric Bloch Column
Next articleEditor’s Memo

Recent Posts

Stories you will enjoy

Recommended reading

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

NewsDay Zimbabwe will use the information you provide on this form to be in touch with you and to provide updates and marketing.