That Zimbabwe is an economic jungle at best for investors seeking to do business in the troubled southern African country could not have been further amplified than this week’s abrupt government decision ordering diamond producers operating in the Marange diamond fields to cease operations immediately.
Mines minister Walter Chidhakwa ambushed producers at a meeting on Monday and ordered them out of the mining area. It was just like that.
The following day reports of massive looting of equipment were documented in both state and private media, creating a public relations nightmare for a government already stuck with a less than flattering reputation internationally.
While government had every right to act in any manner it found befitting on the diamond issue, there is no doubt in the minds of all right-thinking Zimbabweans that the Marange issue could have been handled better. Now, in a bid to get a handful of small time operators to play ball, the move has sent wrong signals to the investors with potential to invest in world class projects.
If anything, the latest incident further emboldens and confirms long held suspicions that the Zimbabwean government is not a reliable business partner, lacks clear policies and can make arbitrary and illogical decisions. In fact, the latest stunt proves businesses in resources sector are a no-go area for investors. Why? Government has sovereign rights to all resources in the country and can wake up one morning feeling like merging and many other things depending on the mood. And there is nothing investors can do about it.
Such cowboy mentality can only work in a world where Zimbabwe is not competing with the likes of South Africa, Mozambique and Zambia in the region for foreign investment.
Given that Zimbabwe is not the only country in the world with diamond reserves, such behaviour is retrogressive at best and dangerous at worst. Even for a government that is notorious for disrespecting its own laws, Chidhakwa’s hardline stance could be the PR disaster any country struggling to attract foreign direct investment should shun at all costs.
Recent attempts to relax the indigenisation legislation have come to naught in a week. Apart from worrying about indigenisation, investors must now also worry about the security of their investment in the resources sector, if Chidhakwa’s stance is anything to go by. It’s not the only excursion he is planning in the resources sector. Zimplats is under pressure from Chidhakwa to cede platinum rights it holds. Zimasco and Zimalloys also risk losing chrome rights they hold. All these indiscretions do not help government’s cause for foreign capital.
Any businessperson worth his/her salt must carefully evaluate what the parties to such a merger are bringing. Who was going to assume the liabilities of these joined companies? Taxpayers?
Who gets what in terms of equity? What is the criteria for that? It was a marriage made in hell to start with. Chidhakwa’s actions seem like a red herring attempt to divert attention from blatant problems at the Zimbabwe Mining Development Corporation, which is in a parlous state to say the least.