HomeAnalysisDiamond mines shut-down an infringement on property rights

Diamond mines shut-down an infringement on property rights

GOVERNMENT’S trampling on property rights and Zimbabwe’s viability as a suitable investment destination has been brought sharply into focus by last week’s abrupt shutting down of diamond mining operations of nine companies in Chiadzwa by the Mines minister Walter Chidhakwa over disputes on his corporate consolidation process.

By Hazel Ndebele

The ill-advised move came at a time the government is desperately trying to convince the international community and potential investors that it is ready for business, as the country continues to get of low foreign direct investment (FDI). Over the years, the government has introduced controversial populist policies such as the chaotic land reform programme as well as the damaging indigenisation laws that have resulted in investors staying away from the country.

Last week’s closure of diamond companies over differences on the consolidation process which government is pushing, is widely seen as a clear infringement on property rights.

Government wants all diamond mining companies to be merged into one entity, the Zimbabwe Consolidation Diamond Corporation (ZCDC). Authorities claim this will help plug leakages, enhance transparency in the sector, while also improving efficiency.

Government wants a 50% shareholding in ZCDC without injecting capital.

While some may feel sorry for Chidhakwa, who has been applauded for trying to clean up the diamond mining sector by bringing transparency and accountability, his approach has so far been chaotic.

Since diamond companies began exploiting the precious mineral in Chiadzwa, Zimbabweans have called for transparency but have largely been ignored by their government and mining companies amid allegations of corruption and massive looting.

However, the move to unilaterally and abruptly stop mining operations only serves to embolden critics who argue Zimbabwe is not a good investment destination partly because of the lack of respect for property rights and the rule of law.

Property rights and the rule of law issues have been topical in Zimbabwe since 2000 when the government embarked on a violent and chaotic land reform programme.

The land grabs have continued up to now, 16 years after the programme began, damaging the country’s reputation in the process.

It remains one of the most a serious obstacles to FDI, which has been extremely low in comparison to other countries in the region.

According to the United Nations Conference on Trade and Development World Investment Report 2015, Zimbabwe’s 2014 FDI inflows of US$545 million paled in comparison to neighbouring countries in the Sadc region such as Mozambique, which received US$4,9 billion.

South Africa (US$5,7 billion) and Zambia (US$2,4 billion) were also way ahead of Zimbabwe.
That China, which the Zimbabwean government regards as an all-weather friend, this week highlighted the need for the country to respect property rights should be a warning that the world is watching.

The Chinese seldom criticise Zimbabwe, but voiced concern largely because of their interests in diamond mining. The Chinese have interests in Anjin and Jinan, which were also forcibly shut down.

“We hope that the Zimbabwean side would earnestly safeguard the legitimate rights of the Chinese companies and employees, according to the local laws and the agreement on the encouragement and reciprocal protection of investments between China and Zimbabwe,” Chinese ambassador to Zimbabwe Huang Ping said this week. Chidhakwa in October last year announced that Marange diamond miners’ operating licences had expired giving government an advantage to arm-twist mining firms to agree to plans for consolidation of the sector.

However, miners raised valid questions on the consolidation process. They wanted an explanation on how government intended to acquire a 50% stake in ZCDC and what method and evaluation standard was used to arrive at the shareholding figure.

The miners argued that government, unlike other investors, had not contributed capital or equipment in the mining operations. Like the recently indigenisation programme, where government seeks to control 51% of shares through State entities, there was no justifiable evaluation in coming up with the government’s proposed shareholding, other than that the state owns all minerals. The order to seize operations came after the government, through General Notice 34 of 2016 A, published in the government gazette of February 19, compulsorily acquired 15 farms as part of the land reform programme. The land grabs, alongside the seizure by of a farm belonging to white Zimbabwean farmer, Phillip Rankin, by a British based doctor, Sylvester Nyatsuro, received worldwide coverage, besmirching the image of the country while bringing property rights issues into focus. Rankin bought the farm unlike many other famers who inherited land from their forefathers.

Respect for property rights is one of the major areas highlighted by the International Monetary Fund under the Staff-Monitored Programme with Zimbabwe. Economic analyst Prosper Chitambara said the government’s approach was wrong as it gave the impression it was violating property rights.

“The seizure of mining claims by government discourages investment and unsettles potential investors who are watching from afar that the same could be done to them and increases cost of doing business,” he said.

“To some extent there is some violation of property rights although if you look at other countries they are also consolidate in critical mining areas, probably the approach used in those countries and the one used in this country is where the difference is.”

Another economist John Robertson said it was counter productive that the government was continuing to violate property rights.

He said government needed clear corporate structures before allowing diamond miners to invest and mine in the country.

“Most companies especially the Chinese companies thought the “special arrangements” they had with certain government officials, army and police would last longer and they got exemptions from usual requirements,” said Robertson.

“Government had no corporate structures, labour restriction laws, and the Chinese were exempted from paying tax, moreover the indiginisation law does not apply to them.”

Robertson said it is too late for government to demand transparency now as they cultivated the culture of corruption and impurity resulting in the looting of diamonds.

“Change is indeed necessary but it is rather too late because diamonds are gone and yet the ordinary Zimbabwean did not benefit,” he said.

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