Mine takeovers not in Zimbabwe’s interests

By Tawanda Hondora


THE proposed change to Zimbabwe’s mining laws that would see the government acquiring at least 51% of the shareholding of all mining companies over a five-year p

eriod has unsurprisingly caused uproar and led to accusations of nationalisation that have unsettled the industry.


Possessing the world’s second largest deposits of platinum and significant deposits of gold, coal, gas, chrome, palladium and diamonds, Zimbabwe has the potential of becoming a noteworthy global player.


It is reported that the government would, on coming into effect of the proposed law, acquire 25% on a non-contributory basis of the shareholding of mining companies and the balance of 26% would be acquired on a contributory basis over the next five years.


The proposals are ill-considered, ill-timed and unconstitutional. The government must abandon these proposals and affirm its commitment to respect private property rights as well as investment agreements. For a multitude of reasons, these proposals are not in Zimbabwe’s national interest. Anything less will exacerbate the continuing decline of the economy.


Following the chaotic farm acquisitions which led to a collapse of the country’s agriculture industry, the government must realise that it suffers from a lack of goodwill. Hardly anybody believes that the Zimbabwe government has the expertise, let alone motivation, to make a success of any business venture. If anything, the manner in which the government has handled the land acquisition process reveals that the beneficiaries were more interested in asset stripping than productive investment.


An evaluation of the performance of mining companies such as the Zimbabwe Steel Company (Zisco) and Hwange Colliery, among others, in which the government has a majority stake, reveals that government ineptitude, mismanagement and corruption have undermined these entities and the growth of the mining industry in Zimbabwe.


And it is because of the Zimbabwe government’s political choices that mining companies have been unable to access foreign currency to fund imports, production and expansion. The fact the government felt compelled to cede management of the perennial loss-making Zisco to Global Steel Holdings Ltd for 20 years is in itself telling.


Betrayed by such an ignominious history of failure, it is surely folly and against the country’s interests for the government to seek to take over the majority shareholding of mining companies that are in any event reeling from an economic crisis created by this Zanu PF government.


With many mining companies being foreign-owned and subject to bilateral investment agreements, or transaction-specific agreements, it would be foolhardy for the government to assume that these companies would meekly accept these proposals. If promulgated into law, these proposals will most likely lead to international litigation, which the government will probably lose.


The government’s demand for 25% of mining companies’ shareholding on a non-contributory basis amounts to expropriation of property without compensation. To that extent, the proposal violates Section 16 of the Constitution of Zimbabwe which prescribes that fair compensation must be paid for any expropriation of property or interest.


The additional proposal that within five years mining companies must have ceded to the government a total of 51% of their entire shareholding amounts to nationalisation. This will lead to legal claims for compensation for lost value and income. And if the government refused to pay out any judgements, Zimbabwe’s assets located outside the country would be attached and liquidated to satisfy the judgements. This is hardly in the interests of the country!


In addition, assuming that the proposals became law, how will the government fund the acquisition of 26% of the shareholding of the mining companies? Through printing more money, fuelling inflation in the process? Has the government become so unhinged that it does not realise when to stop?


It is shocking that the government appears not to realise that these proposals confirm a perception that it is an irrational and rogue government with no respect for private property, the well-being of its economy and the industrial development of the country. It is not a secret that political and sovereign risks associated with Zimbabwe have discouraged inward investment.


Further, the proposals, even if not implemented, will further erode the country’s investment profile which was desecrated by the manner in which farms were nationalised.


Zimbabwe is currently the subject of sanctions imposed by the European Union, America and others due to Zanu PF’s bad human rights record and alleged rigging of national elections. These sanctions severely restrict Zimbabwe’s ability to access international credit from the world’s credit institutions. Assets belonging to persons and institutions linked to, or associated with the government, have been frozen in Europe and America.


Given that the Zimbabwe government constantly complains of the sanctions, it is surely insane for it to seek to publicly obtain control of the country’s mining companies which would see them being subjected to these same sanctions. If the government contemplates that the Chinese would come to its aid and develop these mines, it may be shocked to find that the Chinese will also demand security of investment before sinking any money in any major investment in the country.


It is highly likely that these mining proposals will delay the normalisation of Zimbabwe’s relations with the international lending community and in particular with the IMF. It is reported that the mining proposals took centre stage during discussions held by the IMF with Reserve Bank governor Gideon Gono. Zimbabwe’s voting rights were not reinstated despite paying off its arrears of more than $200 million to the IMF.


On the other hand Zimbabwe has not, in all fairness, benefited from its bountiful minerals. Very little, if any of the revenues and profits of multinational companies operating in Zimbabwe are retained locally. Most capital flies out either in terms of the investment agreements which guarantee 100% repatriation of income and profits, ridiculously long tax holidays, or through illegal transactions such as smuggling, transfer pricing, etc. This is the curse of most African and other developing countries — resource rich but dirt poor.


There is some merit in the argument that developing country governments must have a stake in certain strategic sectors of the economy — such as mining — to ensure that the population as a whole benefits from the resources existing in the country. However, nationalisation is not the answer. Zimbabwe needs to assess how South Africa is implementing its own proposals to increase black participation in the mining industry.


The role of government is to create an enabling environment that promotes entrepreneurship, transparency and certainty in transactions. If the government is to acquire equity in mining companies, it must be at fair value exchange and done in a transparent manner that respects current investment agreements and private property rights.


Tawanda Hondora is a lawyer, writing in his personal capacity and can be contacted at hondst@yahoo.co.uk

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