Zimbabwe's fantasies about mining investment shareholding

Jun 1, 2011

The concept of deliberate measures to ensure that locals benefit from foreign mining investments has largely been accepted across the world. What form this takes will vary and is subject to how each deal is negotiated between each investor and the local authority concerned.

So there is nothing particularly strange about Zimbabwe's 'indigenization efforts.' Several mining concerns have expressed their willingness to cooperate.

But very few things in Zimbabwe are easy or straightforward.
The government insists that it expects mining companies to give up 51% of their shareholding to locals. Being forced to up majority shareholding in one's enterprise would be enough to turn off any business person of any size anywhere. But the confusion over how this would be effected is even more alarming to present and prospective investors. It also worrying to many ordinary Zimbabweans who have long suffered from the ill-effects of  previous 'radical' economic measures.

Would the locals buy the 51% or would it be expropriated? Where would the money come from; government schemes or from the locals accessing private money? Is either realistic and how would it work exactly? 

The Zimbabwean chairman of mining concern Rio Tinto Zimbabwe, Tichaendepi Masaya, said foreign investors who had shown the “appetite and capacity” to invest in RioZim (subsiduary of an Australian-British company) withdrew from a proposed funding deal because of the rules. Local investors don’t “have the capacity to fund their aspirations while foreign investors remain uncertain” because of the legislation. 

The confusing indications over very basic questions like this has done nothing to restore confidence in the governments intentions or its ability to pull this off successfully. There has been talk of the government 'approving' locals from which the foreign investors can then choose partners, which sets off all sorts of obvious warning bells.

To the question of how easy it would be for locals to raise the large amounts of money required, often for years before earnings and then profits come, the responsible minister has been suggested that the mineral ores or the mining concession themselves might somehow be factored in as constituting the 51%, rather than cash. There are no prizes for guessing investors' feelings about all this. 

To the many perfectly reasonable questions and concerns that have been raised to seek clarity, the responsible minister has reacted in a way that has unfortunately become characteristic of the Zimbabwean government: with insults and ultimatums.

“Foreign-owned companies are very arrogant, especially mining firms. If they don’t want to give us 51 percent shareholding under the black empowerment regulations, they should quit now and go back to their countries," Empowerment minister Saviour Kasukuwere told a Confederation of Zimbabwe Industries (CZI) meeting.

“The Chinese and the Indians are waiting to come in. We are capable of running our businesses and the whites should never think that we will fail to run the businesses that we take over,” he said. “You can take us to court but you will never win.”
It is an attitude that doesn't bode well for the future. The many uncertainties should be of concern even to the Indian and Chinese investors the government seems to feel confident would come into to take the place of western companies. 

David Brown, CEO of Impala Platinum of South Africa, which owns 87% of Zimplats, had this to say:
“What we are opposed to is the 51 percent. We just don't believe a 51 percent equity stake adequately reflects the risk/reward equation and quite clearly will impact significantly on future expansions."

Perhaps only in tragic Zimbabwe would this not be obvious.


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