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Timing key in Mining Sector Reform

WHILE there might be a genuine need to give Zimbabweans a piece of the economic pie, the indigenisation of the mining sector could prove to be an uphill task in the current economic and political environment because indigenisation must also ensure growth of the industry.


Chamber of Mines president Victor Gapare says although he strongly believes in the need to empower locals, pursuing a wealth redistribution programme in the current economic environment could stunt the growth of the industry. He says in order for government’s planned empowerment programme to succeed, it required a “functional” economic and political environment.

“The best conditions for empowerment entail a functional economic and political situation,” he said. “Empowerment entails that those being empowered have to raise capital on the market to buy into existing businesses or to establish new businesses.
“In South Africa, for instance, the financial sector was ready to fund Black Economic Empowerment transactions. In addition, there were strong public sector institutions which assisted a number of deals and some of these include the Industrial Development Corporation, the Public Investment Fund and the Development Bank of Southern Africa.”
Back home, banks are struggling at the moment to fund working capital requirements for existing companies to lift output, let alone provide buyout debt.
A few years ago, the African Development Bank emphasised the need for a stable macro-economic environment before implementing any kind of wealth re-distribution exercise.
At the moment financial institutions do not have the resources to finance economic empowerment transactions, says Gapare.
On the other hand, foreign financial institutions have been sitting on the fence as they cannot make head nor tail of the situation, largely owing to a perceived risk associated with the country at the moment.
In instances where debt was provided to local companies from foreign financiers, the interest rates were “diabolical” at over 14% annually with a 90-day tenure.
“Buying equity in a company requires long- term debt as in most cases the returns are over a long period of time. It’s impossible to fund empowerment with a 90-day debt. In short, what we need is a stable political and economic environment to ensure that economic empowerment deals are successful. In the current unstable political and economic environment, it’s difficult to see how empowerment deals can be done successfully,” adds Gapare.
Against a background where local banks need to be recapitalised to support working capital requirements of existing operations, Gapare says individuals looking at empowerment deals would have to look at other means to raise capital.
“It will take time for the Zimbabwean financial institutions to be able to finance long- term capital required for empowerment deals,” he explains.
But Empowerment minister Savior Kasukuwere says Zimbabwe should not give away its resources because it does not have the financial resources to pursue empowerment.
“Just because we don’t have financial resources doesn’t mean we should give away our resources,” said Kasukuwere. “Against such a background we will work with investors who are serious about investing notwithstanding the absence of capital. We cannot undermine the base value of our yet to be developed mining resources because we don’t have the money to mine.”
Instead of fighting over a smaller cake in the form of only 10 foreign-owned mines, Gapare says the bulk of empowerment deals could come from the creation of new mines through partnerships between local people or formation of consortiums and foreign investors, who will bring the capital. This way, Zimbabweans would not have to share crumbs, Gapare says, but dig into a whole bigger cake of the mining sector.
“The chamber is not against empowerment in the mining industry,” he said. “What we want is a process which will result in the industry growing rather than the growth of the industry being stunted. There are less than 10 foreign-owned mining companies in Zimbabwe, so the existing mines do not provide much scope for many empowerment deals. The principle which we want to achieve is to share a bigger cake rather than a smaller one.”
The chamber is currently discussing ways in which empowerment could be achieved including equity ownership, assistance in the development of small-scale miners to graduate into formal mines, sourcing goods and services from local suppliers, skills development, and infrastructure development.
“Equity participation, while important, is not the only way to achieve empowerment in the mining industry and invariably equity holders are the last to get income from a business,” he said.
“The bulk of empowerment deals have to come out of the creation of new mines and these have to be partnerships between local people or consortiums and foreign investors who will bring the capital,” Gapare concluded.
Only three of Zimbabwe’s mines are operating at near capacity while the bulk of mines are operating at below 20% capacity. Gold mines were the worst hit by years of economic mismanagement at the hands of President Robert Mugabe’s government. Mugabe has been advocating for empowerment for years but it remains to be seen whether government will come up with an empowerment programme that will grow the mining industry, let alone benefit the bulk of ordinary Zimbabweans.
Mugabe’s critics believe the empowerment exercise could benefit a handful of the aged leader’s cronies, citing the land reform programme where party officials got the best farms in an initiative meant to benefit the poor, as a case in point.

BY CHRIS MURONZI

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