AT a mining indaba last year, President Robert Mugabe promised investors that Zimbabwe would “respect the sanctity of property rights”.
He smiled and waved goodbye to the men and women whose capital could lift the fortunes of the country’s mining sector and the economy. All seemed to have gone well. To a great extent, Mugabe had calmed apprehensive investors.
But a few months later, his government gazetted economic empowerment regulations compelling foreigners to dispose of controlling stakes in businesses valued at US$500 000. Analysts see this as typical of Mugabe’s government –– saying one thing and doing the exact opposite.
The regulations have left shares depressed and investors in a wait and see mode.
But investors have not entirely lost hope and will once again meet later this month at another indaba. For investors, analysts say, attending such indabas is one thing while investing is another. This year, according to a representative of the indaba’s facilitators, Washington Mehlomakulu, 1 000 delegates will be attending the meeting.
Economist Brains Muchemwa says general country perception has changed significantly but other factors such as elections and the possible return of the Zimbabwe dollar could hurt the sector.
He said: “The general perception issues about Zimbabwe being unstable and very volatile have definitely improved, and indeed the fundamentals have improved, but the key issues regarding the return of the Zimbabwe dollar, the elections in the coming few years put a lot of long-term investments such as mining into uncomfortable positions considering that some fundamental changes in any of these could influence policy change. And considering the huge initial capital investments needed in mining, few investors would be interested in taking chances, the reason why there has been a lot of talk about our many lucrative minerals but very few tangible developments have happened on the ground.”
Economist David Mupamhadzi said the major challenge was long-term for investors while worries over the return of the Zimbabwe dollar would hurt the economy more than the indigenisation regulations.
He said: “If it is to return, what exchange rate will be used? As long as such issues are not clear it would be difficult to convince someone to come and invest in Zimbabwe.”
But this year’s mining indaba will evolve around matchmaking and providing a platform for investors to network and share ideas on ways to grow the local mining industry.
The conference will run under the theme, “Building a Sustainable Mining Industry in Zimbabwe: prospects and challenges.”It is scheduled for September 15-17.
“The first mining indaba (held last year) was a good launch pad as it gave investors a clearer idea of issues, such as indigenisation, the application of prospecting and mining rights, and mining tax. It also served as a communication medium between investors and government,” said the Mines ministry.
“The focus this year is on assisting matchmaking between foreign investors and local entities, including building a database of local opportunities vetted by the ministry of Mining Development and culminating in optional site visits to mining areas on the third day of the Indaba,” the ministry said.
As of Tuesday a total of 400 foreign investors had confirmed their participation. All in all, 1 000 delegates are expected to attend.
Mehlomakulu says while the inaugural conference focused on reassuring investors of the sound investment climate in the country, the second conference will provide a platform for investors to network and share ideas on ways to grow the local mining industry.
But analysts say the investment climate has not changed in anyway. If anything, they say the investment climate has taken a turn for the worst, worsened by the empowerment regulations and continued farm seizures.
“I can confirm that a total of 1000 delegates have so far confirmed their participation at the prestigious conference and this year a lot of attention will be on minerals such as chrome, coal and diamonds,” said Mehlomakulu.
Attention will be on investment in the diamond industry which is anticipated to account for over 25% of the global diamond supply.
After the formation of the unity government last year it was widely believed that the sector will record positive growth powered by more investments into the country.
This was against a background of the global financial crisis coming to an end and most investors eager to broaden horizons into countries with mineral resources such as Zimbabwe after being cautious over political instability before the formation of the unity government.
However, Finance minister Tendai Biti during his mid-term fiscal policy announced in July revised growth projections downwards.
“In mining, productivity in the sector continues to be hamstrung by erratic power supply. This has meant that mining houses have not been able to sustain increased production, even in cases where they have had limited access to lines of credit in support of recapitalisation,” he said.
Biti said most of the growth in the sector this year was underpinned by continued bullish mineral and metal prices.
“As a result, realised output during the first half of 2010 has prompted downwards revision to overall mining sector growth from 40% to 31% in 2010,” Biti said.
Analysts said the major deterrent to investment in Zimbabwe’s mining industry was the indigenisation legislation that is currently being implemented.
The Indigenisation Act aims to put a 51% share of any investment valued at over $500 000 in the hands of Zimbabwe nationals, but the implementation of this law has been slow, as political factions debate its effects.
The Zimbabwe Chamber of Mines is petitioning government to reduce to 15% the shareholding that foreign-owned mining companies must cede to black Zimbabweans.
The chamber wants mining companies that have invested heavily in building schools, roads, clinics and other facilities to earn empowerment credits for these investments.
According to the Ministry of Mines, the second annual Zimbabwe Mining Indaba will focus more on the business operating environment in the country, rather than the country’s political atmosphere.