HomeBusiness DigestEric Bloch:Kasukuwere must ‘get real’

Capital injections breathe life into Ariston Holdings

IT has become fashionable for ministers in the Zimbabwean government to castigate the mining industry in general, and foreign-owned mines in particular, for allegedly denuding Zimbabwe of its mineral resources, and giving nothing back in return.


Although only briefly so, the Minister of Finance Tendai Biti did so when presenting his 2010 Budget, and recurrently and more vociferously, so too has the Minister of Mines and Mining Development Obert Mpofu.  Several others in the Zimbabwean political hierarchy have frequently done likewise.


Joining their ranks of lambasting the mining sector is the Minister of Indigenisation and Economic Empowerment, Saviour Kasukuwere (has anyone else been so inappropriately vested with his first name?).  As with his colleagues, he berated the miners, contending that they are parasitically expropriating Zimbabwe’s wealth. In one of his innumerable speeches seeking to justify the unjustifiable, disastrous manner that it is intended to achieve indigenisation and economic empowerment, he speciously contended that foreign investors (and those from Australia, in particular) are coining immense fortunes from their Zimbabwean operations, whilst giving naught back to Zimbabwe.

The realities are that, on the one hand, Zimbabwe has minimal prospects of realising the overwhelming potential of its very considerable and diverse mineral resources without significant foreign investor participation and, on the other hand, the mining sector is the source of considerable benefits to Zimbabwe, albeit that those benefits would increase exponentially if there was extensive investment, development and growth of mining operations.

Zimbabwe cannot go it alone, because it does not have the very considerable capital that is a prerequisite of viable, large-scale mining. Government certainly does not have the resources.  On its own admission, it is bankrupt!  It cannot fund the maintenance, rehabilitation and refurbishment of existing infrastructure, let alone enhance that infrastructure.

Energy generation, telecommunications, transport facilities, water supply, roads, hospitals and schools are all grievously deficient.  And government cannot even fund realistic and fair salaries for civil servants.  So its prospects of funding mining development are non-existent.

Similarly, the private sector does not have the necessary funding (with very rare exception, mainly being those enriched indirectly from their past politically-associated activities).  Almost all in the private sector are pronouncedly under-capitalised, unable to fund their existing operations.  Such capital as they had was eroded by operational losses sustained during Zimbabwe’s calamitous 2008 economic circumstances, including world-record shattering hyperinflation.  Such capital as survived the economic tsunami was further eroded by the 2009 Zimbabwean currency demonetisation.

Compounding the parlous inadequacy of capital availability in Zimbabwe is the straitened circumstances of the country’s money market.  Banks, pension funds, insurance companies and other financial institutions have rarely had such limited access to funds as presently is the case. International lines of credit are minimal and, when forthcoming, of very short duration, for Zimbabwe has one of the world’s lowest credit ratings — a direct result of its appalling political environment and policies, its decimated economy and its contemptuous disregard for its Bilateral Investment Promotion and Protection Agreements (Bippas). 
In addition, the limited currency in circulation results in a paucity of deposits to banks, further constraining their lending ability.  The harsh fact, therefore, is that Zimbabwe does not have the necessary investment resources to achieve any substantive realisation of the enormous potential of mining the country’s great wealth in gold, platinum, diamonds, nickel, lithium, methane gas and much else.
It is also fallacious to contend, as the ministers recurrently do, that the foreign investors are “milking” Zimbabwe, and “creaming it” at Zimbabwe’s expense without commensurate quid pro quo.  The realty is that although some realise considerable profits (justly and fairly so, in view of their capital and other inputs on which they are entitled to an equitable return), they give Zimbabwe a very fair share, in diverse ways.  Amongst others, these include:

lProvision of millions of dollars of capital to fund exploration and prospecting, development and equipping of the mines, and the considerable associated infrastructures, including workshops, offices and housing. They also fund operational working capital, especially so during the often extended periods from “start-up” to income generation;

lCreation of continuing employment for many thousands of Zimbabwean workers who provide for the needs of their families and other dependants;

lPayment of prescribed royalties to government on all minerals produced.  (Up to now these royalties have been at rates realistically aligned to those prevailing in other countries, but recently government has foolishly and counterproductively been contemplating highly unrealistic increases in royalty rates);
lSimilarly, payment to government of income tax, although at a marginally concessionary rate, on profits, together with withholding taxes on dividends, management and other fees, and other indirect taxes;
lSubstantial sourcing of goods and services from within the downstream economy;

lIndirect enhancement of the state’s fiscal inflows by way of taxes upon the sector’s employees’ earnings, and the indirect taxes (such as Vat) on much of the spending of employees’ remuneration, and similarly from the enhanced operations within the downstream economy fuelled by the mining operations;

lConsiderable community support in rural areas, with many mines funding the development or operations of schools and clinics, construction or maintenance of roads, provision of housing, and the like;
lEffecting technology transfer to Zimbabwe, including providing managerial and operational skills which, as Zimbabwe’s brain drain intensified progressively over the last decade, became scarcer, and imparting those skills to Zimbabweans.

The above are but some of the many ways in which the mines, and particularly the foreign investors, are compensating and rewarding Zimbabwe for the extraction of mineral resources.  There is, therefore, no foundation to the government contentions of foreign mining investors exploiting Zimbabwe, to its prejudice.

The reverse is incontrovertibly the case, but for so long as government persists in its vilification of foreign investment in general, and into the mining sector in particular, as perpetuated yet again by minister Kasukuwere last week, government is further undermining recovery, and extending the poverty and suffering of the majority of the population.  The minister, and his colleagues, must “get real” as a matter of urgency!

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