THE surprise move by major gold producer Metallon Corporation to sue the government over its failure to pay for gold deliveries commensurately has brought into sharp focus the country’s continued foreign currency crisis and hostile investment climate.
By Kudzai Kuwaza
This is in stark contrast to repeated claims by President Emmerson Mnangagwa that Zimbabwe is open for business.
Metallon Corporation, a leading local gold mining concern owned by South African business tycoon Mzi Khumalo, said the government is failing to pay US$82 million in gold proceeds. The gold miner is suing for US$132 million which includes lack of profit and interest.
“We have started legal proceedings against the Reserve Bank of Zimbabwe particularly against the governor, Dr John Mangudya demanding specific performance. We are doing this because we feel the treatment we have received from the concerned authorities has been driven by corruption and a sense of impunity, for which we believe there is no end in sight,” the gold miner said in a statement dated May 16 2019.
“Metallon has been forced to put its mines on care and maintenance because of the unsustainable costs of running them without proper compensation for its proceeds from the government of Zimbabwe. Where payments were received, they would only amount to a third of the total owed. Between 2016 and 2019, Metallon lost US$82 million and Metallon is claiming for US$132 million for the lack of profit and procurement including interest.”
This comes as government has been accused of backtracking on the NRZ recapitalisation deal by South African rail, port and pipeline company Transnet and Diaspora Infrastructure Development Group.
Transport minister Joel Biggie Matiza told parliament last week that the South African-based consortium has failed to mobilise the US$400 million required to recapitalise the defunct NRZ. Ironically, Matiza was furnished with indicative bank term sheets totalling close to US$1 billion.
There are allegations that Matiza and senior NRZ managers are trying to sabotage the deal in a ploy to bring in Chinese investors through the back door.
The government’s penchant to shoot itself in the foot by spooking investors was further demonstrated when China Eximbank verbally rebuked it for converting funds that were held in an escrow account to securitise an earlier loan being converted to local currency which could scuttle the country’s access to the US$1 billion loan facility from China Eximbank for Hwange Power Station expansion.
This could disrupt the Hwange units 7 and 8 expansion programme at a time the country is gripped by a debilitating power deficit as evidenced by the countrywide load-shedding exercise which has had devastating effects on industry.
The developments above are in stark contrast to claims by government that Zimbabwe is open for business.
Zimbabwe is battling a deepening economic crisis characterised by a debilitating liquidity crunch, foreign currency shortage, increasing year-on-year inflation which has shot up to 75,86% and a crippling power deficit which has resulted in massive load-shedding.
The negative perception brought about by the killing of civilians by soldiers during recent protests and the clampdown on the opposition and civil society has also negated the country’s investment prospects.
Economist John Robertson said government needs to put its house in order if it to attract the much-needed investment.
“The government feels that they can demand trust. You do not demand trust, you earn it,” Robertson said. “The government is not governed by doing the right thing; they are governed by what they can get away with. We are not yet open for business.”
Zimbabwe’s rankings on indices that measure the country’s suitability for business paints a grim picture.
Despite increased talk about ease of doing business reforms as part of its open for business mantra, the country ranks 155 among 190 economies on the World Bank Ease of Doing Business rankings.
The index ranks countries against each other based on how the regulatory environment is conducive to business operations as well as protections of property rights. Economies with a high rank (1 to 20) have simpler and friendlier regulations for businesses.
The country does not fare much better when it comes to corruption which remains rampant in government. Zimbabwe is the 160th least corrupt nation out of 175 countries, according to the 2018 Corruption Perceptions Index reported by Transparency International.
The index ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s rank indicates its position relative to the other countries and territories in the index.
The indices combined with recent developments shows that the ushering in of the new government has not improved the country’s investment prospects, according to economist Godfrey Kanyenze.
“If you look at the recent indices, they suggest a slight improvement but not anything to be excited about,” Kanyenze said.
“By the look of things, we are going back to 2008 when you look at the inflationary environment, where prices change overnight and when the government continues to flip flop. It feels as if the leopard has not changed its spots. We are not open for business.”
Mnangagwa is treading on familiar ground when it comes to the failure to match rhetoric with action on the ground and repelling investment.
His predecessor Robert Mugabe was also instrumental in discouraging investment. Despite opening the new ZimSteel company amid much pomp and fanfare in 2011, which was the rehabilitation of the defunct Ziscosteel, the project under the Mugabe government never took off due to political bickering dashing the hopes of thousands of workers who had hoped to earn a living from the revived project.
Like Mnangagwa, Mugabe waxed lyrical about improving ease of doing business, even introducing the one-stop shop concept under the Zimbabwe Investment Authority to reduce red tape in 2010. However, the concept has failed to materialise as investors continue to be frustrated by bureaucratic sloth, nine years later.
The failure by government to put in place substantive measures to encourage investment is an all-too-familiar story according to business consultant Simon Kayereka.
“This shows that nothing has changed. When you sign agreements and then turn around and say something else, it stinks of corruption,” Kayereka said.
“This is a repetition of what has always happened. This is not being open for business.”