Zim on the back burner of Australian investors

AS African countries scramble for limited foreign direct investment (FDI), particularly in the mining sector where the industry is at rock bottom due to falling global commodity prices, the message from Australian mining giants is clear — that they will only invest in stable countries with clear legislative frameworks, attractive incentives and good tax systems, pull factors which Zimbabwe currently lacks.

By Faith Zaba

It is not only mining executives who have expressed concern over the country’s indigenisation legislation, which compels foreign-owned firms in key sectors of the economy such as mining to cede a majority stake of at least 51% to locals, but also Australian investors in Melbourne, Victoria state.

According to Legislative Council of Victoria president Bruce Atkinson, businesspeople in Victoria have pointed out that “with Zimbabwe, there are things like corruption and government policy, whether or not government policy is going to change”.

“There would be a perception in Zimbabwe that there isn’t necessarily (going to be) a continuity of policy, that policies can change fairly radically and fairly quickly and without consultations, so that risk factor is very important,” he said.

A partner with renowned South African law firm that specialises in mining, oil and gas and infrastructure, Peter Leon, said if Zimbabwe wants to jump onto the investment bandwagon in Africa, it must relax its indigenisation laws.

“The fact that government said it is going to relax indigenisation requirements for the non-mining sectors, they obviously need to do the same for mining. It is not clear why they haven’t,” he said.

“It is too expensive for companies to invest on that (indigenisation) basis. I suppose the other factor in Zimbabwe is no one knows whether the rules will remain the same or not; so what you have is that the key things in mining are regulatory, certainty and predictability since mining is a capital-intensive high risk business with very long lead time between exploration and production.

“Mining companies have to have absolute certainty and predictability. If you don’t have that you won’t get investment. Those are the issues — that is why sadly Zimbabwe is not being mentioned.”

There is no doubt among many Australian investors that Zimbabwe can be a very attractive investment destination due to its mineral resource reserves, but it is scaring away potential investors through its toxic policies such as indigenisation.

About 60% of the country’s land is said to comprise of ancient rocks renowned worldwide for hosting rich varieties of minerals resources including platinum, diamonds, gold, base metals such as nickel, copper, zinc and lead and industrial minerals like limestone, phosphates, clay and dolomites as well as coal.

Zimbabwe is also sitting on gas reserves which are more than those of all other countries in the region combined. Sadc gas resources amount to 420 billion cubic metres of coalbed methane, while it is estimated that Hwange and Lupane areas have over 800 million cubic metres per square kilometre, suggesting Zimbabwe could have one of the largest reserves in the world, alongside Canada, Russia and China.

In addition, Zimbabwe has the second largest deposits of platinum in the world after South Africa and Russia.

However, this is not reflected by the country’s FDI inflows, which marginally grew from US$400 million in 2013 to US$545 million last year compared to Zambia’s US$2,4 billion, Mozambique US$4,9 billion and South Africa’s US$5,7 billion, a strong indicator of the country’s hostile investment climate.

Australian lawyers, mining executives, investors, bankers and government officials interviewed by the Zimbabwe Independent at the Paydirt Africa Down Under Conference held in Perth a fortnight ago, said Zimbabwe fell off the radar of investors who, due to the global market slump in the mining industry characterised by limited financial resources and a fall in commodity prices, are looking at investing in risk-free countries where they can be get guarantees of a return on their investments.

Zimbabwe was this year ranked 171 out of 189 countries on the World Bank’s Ease of Doing Business Index.

Throughout the three-day mining conference in Perth as mining executives presented mining projects and new investments into Africa, it was apparent Zimbabwe was not in their future plans.

Australia Africa Mining Industry Group project manager Liam Foran said while Zimbabwe is resource-rich, the business climate is hostile.

“Zimbabwe is quite an attractive destination,” Foran said. “You have a highly qualified workforce and vast mineral resources, but you need a clear taxation system and a stable investment climate.”

While Zimbabwe’s Deputy Mines minister Fred Moyo tried to explain the controversial indigenisation policy, other African ministers and representatives were busy trying to outbid each other for Australian investment.

In his presentation at the conference, Moyo said Zimbabwe was currently reviewing the Mines and Minerals Act to make it relevant and desirable to foreign investors.

“Reviewing of the law focuses on ensuring that investors have security of tenure. They are able to do that and be sure that once they have been given authority, they have been given access to that piece of land, it belongs to them and nobody else,” said Moyo added. “We are also looking at policy clarity and consistence in policy. I know there have been a lot of discussions with regards to policy consistency and clarity.

“We also want to focus on transparency in revenue management, on the part of investors and also on the side of government — how funds paid as royalties and taxes are going to be used.”

Australian Foreign minister Julie Bishop said: “So it is in the interest of African countries looking for global investment, including Australian investment, to have the most attractive environment for business that includes transparency, no corruption, an opportunity to obtain licences freely and fairly subject to appropriate regulatory frameworks, mining standards and environmental standards and other standards.”

“Our message of course, to African nations looking for foreign direct investment if they wish to compete with other regions of the world, is to ensure that the government standards are high, transparency is an integral part to their government and that corruption is stemmed out.”