Improving Zimbabwe’s Business Climate

The EU Ambassador to Zimbabwe, Aldo Dell’Ariccia recently told a Common Market for Eastern and Southern Africa (COMESA) conference on Improving the Business Climate in Zimbabwe that an Interim Economic Partnership Agreement (IEPA) with the EU will come into effect this week. This will facilitate duty-free trade between Zimbabwe and the EU. A full Economic Partnership Agreement is being negotiated through an Eastern and Southern Africa grouping. Trade figures between the EU and Zimbabwe have doubled since 2009. In 2011 the value of this trade was US$ 870 million with a positive trade balance in Zimbabwe’s favour of US$ 276 million.

Other speakers at the conference included COMESA’s Director for Investment Promotion and Private Sector Development, Mr Thierry Mutombo Kalonje, who emphasised that Zimbabwe must create a conducive business environment to attract more foreign investment into both the country and into the regional trade group. He seems to have implied that continued poor international perceptions of Zimbabwe as an investment destination are affecting investment into its neighbours as well as itself. Mr Kalonje said that Zimbabwe has shown commitment to implement a COMESA roadmap towards improving the business environment in the region and that he expected the country to shortly implement further reforms to address the facilitation of business operations. It was, however, agreed that there is a need to speed up the process. An official from the International Finance Corporation (IFC), Cemile Hacibeyoglu, pointed out that Zimbabwe could learn a lot from the experience of countries such as Rwanda, Zambia and Mauritius which have inmproved their rankings in the World Bank Doing Business Indicators. Zimbabwe’s ranking in these indicators is very low, but many people actually doing business in Zimbabwe do feel that Zimbabwe is very under-rated in these rankings

News from the Mining Sector

The Chamber of Mines recently held its Annual General Meeting. The Chamber President, Winston Chitando, who is also the CEO of Mimosa Mining Co, one of the country’s three major platinum producers, criticised unfriendly Government policies, including substantial increases in mining fees and the indigenisation regulations, as having stifled growth in the mining sector. However he also said that there is an opportunity for the development of a world-class mineral development policy that will guide the formulation of legislation, fiscal measures and other interventions to help the continued recovery of the mining sector. The mining sector will be making submissions to the Government on this.

The Minister of Mines and Mining Development, Hon Obert Mpofu, told the meeting that amendments to the existing Mines and Minerals Act will shortly be published. These, he said, will be designed to promote investment and sustainable development in the sector.

The Chamber of Mines has also announced the formation of a sub-sector association, the Platinum Producers’ Association (PPA), which will be specifically looking at the question of beneficiation of platinum minerals in Zimbabwe, to add value inside the country. The question of a platinum refinery being established in Zimbabwe has been raised on a number of occasions but current production levels will have to be increased to make such a project viable. There is also a clear reluctance on the part of foreign investors in the platinum sector, such as Impala Platinum, to consider investing in such a project until outstanding indigenisation issues have been finally resolved.

The demand for beneficiation inside the country is in line with a current international trend of resource nationalism, with many countries, Indonesia being one of the latest, claiming that mineral resources are national assets which should provide maximum benefit to domestic economies through beneficiation, taxation, increased local ownership or similar means. Resource nationalism has popular appeal for populist politicians.

Hwange Colliery expects to earn US$ 5 million per month from the export of coking coal and intends to use contracted port terminal space in Maputo for these exports. The National Railways of Zimbabwe is now reported to be operating a daily train to Maputo to carry the coking coal from Hwange to the port.

Government has announced that three joint venture companies between foreign and local investors have been shortlisted to resume mining operations at the Kamativi tin and tanatalite mine in north-western Zimbabwe. Kamativi closed in the mid-1990s as a result of depressed world prices for tin.

Yet More on Indigenisation

A recent development in the on-going indigenisation saga has been a proposal by the Indigenisation Minister, Hon Saviour Kasukuwere, for a levy to raise funds to finance the purchase of shares in foreign-owned companies. How such a levy would work has not been made clear. The Indigenisation and Empowerment Act does make provision for the imposition of such levies, but they require the approval of the Minister of Finance, presently Hon Tendai Biti. Minister Biti clearly has no intention of doing anything about this, to the chagrin of Minister Kasukuwere, who has accused him of sabotaging the indigenisation drive. Minister Biti told a public policy group in the US, the Atlantic Centre, last month that the policy of acquiring 51% of foreign-owned businesses should be reviewed and that the best way to empower people at the present time is to expand the economy to create as many sectors as possible.

The Prime Minister, Hon Morgan Tsvangirai, has also emphasised that Minister Kasukuwere has no power in terms of the Indigenisation and Empowerment Act to unilaterally nationalise private businesses.

The Indigenisation Issue Continues Unabated

Whatever anybody might wish, the indigenisation issue is not going away and is not going to go away. Today is Zimbabwe’s Independence Day and the theme decreed by President Mugabe for the day’s celebrations is “Indigenisation and Economic Empowerment for Economic Transformation”. It is an issue that will remain in the forefront of the political economy of Zimbabwe until after the next election has taken place. In the meantime it will continue to be a source of political rhetoric, political argument and investor uncertainty.

On 5 April the Minister for Indigenisation, Hon Saviour Kasukuwere, announced that Government was taking over 51% of the shares of all foreign-owned mining companies that had not yet submitted an acceptable indigenisation plan to his Ministry. He said that profits accruing to the 51% now belong to the Government and warned those companies involved that attempts to defraud the State would be prosecuted. He has no legal power to do this – neither the Indigenisation and Economic Empowerment Act or any related legislation gives him such power – and this was quickly pointed out by the Prime Minister, Hon Morgan Tsvangirai, as well as by the Minister of Finance, Hon Tendai Biti. Minister Biti emphasised that the Government of Zimbabwe has no policy of nationalisation and that what Minister Kasukuwere was attempting to do is unconstitutional and unlawful. He described Minister Kasukuwere as “running amok” and said that many ZANU(PF) ministers in the Cabinet are equally opposed to Minister Kasukuwere’s drive to forcibly take over foreign-owned mines. The Minister of Economic Planning and Investment Promotion, Hon Tapiwa Mashakada, described Minister Kasukuwere’s decision as “null and void”. He went on to say “I want to assure investors that Zimbabwe is open for business as government is not going to expropriate or nationalise their companies.

Minister Mashakada also noted that although over US$ 6 billion of investment projects were approved last year, none of them have yet been implemented because of the overtones of expropriation and nationalisation coming from Minister Kasukewere. He quite correctly said that “Investors want predictability and consistency.”

Minister Kasukuwere responded by saying that he would not take orders from Prime Minister Tsvangirai and in a moment of extreme purple prose described himself as “Hitler tenfold” in his desire to obtain justice for his people and recognition of their independence. German visitors to Zimbabwe at the time were not impressed.

The latest mining company to have its indigenisation plan approved is Anglo-American Platinum, the owner of Unki Mine.

Earlier this week Minister Kasukuwere told the Reuters Africa Investment Summit in Johannesburg that he expected all the transactions involving indigenisation of mines to be completed by the end of this month. He did not, however, give any indication of how shares offered to the Government would be paid for but he did suggest that private sector players are involved in raising funds for the purchase of the shares on offer. There has been an unconfirmed report that a consortium of indigenous businessmen is seeking to raise the necessary capital to purchase a controlling interest in Unki Mine. It has to be said that the likelihood of such funds being raised is low. It will be recalled that Zimplats offered 15% of its shares to a local consortium in 2003 – an offer that remained on the table but was never taken up as the local businessmen were unable to raise the purchase price of the shares – US$ 31 million at the time.

Indigenisation Disputes Continue

Minister Biti may have assured the Euromoney Investment Conference that there will be no indigenisation of foreign-owned banks. The following day the Minister of Inidgenisation, Hon Saviour Kasukuwere, made his opinion clear that foreign-onwed banks will be required to give majority owenership to indigenous Zimbabweans. There is now a direct conflict on this matter between Minister Kasukuwere on the one hand and Minister Biti and the Governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono, on the other hand.

Minister Kasukuwere has also now said that Government will not make any payment for the mineral resources owned by foreign-owned mining companies. He was quoted a saying, “We are converting mineral resources in the ground in exchange for equity in mines. Where we are going to have shareholding, we are not going to pay.” It is quite clear that the Zimplats saga is far from over. The CEO of Impala Platinum, David Brown, has made it clear that no shares in Zimplats will be transferred without payment.

As the general election in Zimbabwe, anticipated to be held in 2013 at the latest, draws nearer, the level of rhetoric on the subject of indigenisation can be expected to increase. It is, after all, a major part of the policy platform of ZANU(PF). What does remain to be seen is how far Minister Kasukuwere will go with the limited legal powers that he has to enforce his threats. There is also the question of the Bilateral Investment Protection and Promotion Agreement (BIPPA) between South Africa and Zimbabwe – how will this be used to protect major South African investments in Zimbabwe? While Ministers Biti and Mashakada emphasise the positive aspects of Zimbabwe as an investment destination, the on-going disputes over indigenisation will only work against their efforts.

Euromoney Zimbabwe Investment Conference 2012

The second annual Euromoney Zimbabwe Investment Conference was held in Harare on 21 and 22 March. The first morning of the conference was taken up by speeches from Ministers. The Minister of Finance, Hon Tendai Biti, announced that Government had finalised a debt retirement/settlement strategy for presentation to international creditors. He also announced that Government is looking for an investor/technical partner for Air Zimbabwe. Government wishes to retain a 26% shareholding in the airline but will allow a technical partner to take a majority shareholding.

The Minister of State Enterprises and Parastatals, Hon Gorden Moyo, said that Government is moving ahead with plans for the commercialisation and/or privatision of state enterprises and parastatals. Public/private partnerships are open for discussion and, according to the Minister, a policy framework is in place.

Minister Biti addressed the thorny issue of indigenisation and said that a 51% majority shareholding by indigenous Zimbabweans in businesses is stated in the Act to be an objective. He described it as an aspiration. It is a general message and is not cast in stone. He made it clear that, in his opinion, there is no question of indigenising foreign-owned banks. He also emphasised that Government will not unilaterally seize or take over any foreign investment.

The Minister for Economic Planning and Investment Promotion, Hon Tapiwa Mashakada, placed emphasis on Zimbabwe’s economic growth rate, which is targeted in the Government’s Medium Term Plan to average 7% per annum over the next 5 years. He referred to Zimbabwe’s diversified economy, its undervalued assets and its strategic geographic location. Government’s target is to raise annual investment levels from the current level of 4% of GDP to over 25% by 2015.

Key areas of discussion during the conference included the financial sector, financing investment and the need for investment in Zimbabwe’s infrastructure. Topics covered included the need for development of a market for bonds in Zimbabwe, the creations of links between the Zimbabwe Stock Exchange and regional and international markets and exchanges, and the involvement of development financial institutions in financing infrastructure development in Zimbabwe. For example, the Development Bank of South Africa is currently involved in providing finance for the development of the road from Mutare to Plumtree through Harare and is looking at the financial requirements for the Beit Bridge-Chirundu highway (the Northern Corridor).

The general impression given at the Conference was that there is an increasing level of interest among international investors in investment opportunities in Zimbabwe. Zimbabwe is increasingly seen as both a viable long-term investment destination and a key part of the southern Africa region. However, emphasis was still placed on investors’ needs for policy consistency and predictability, about which concerns remain for Zimbabwe. Although they were not specifically mentioned – in fact the topics almost seemed to be avoided – investors clearly retain concerns about indigenisation rhetoric and political uncertainty in Zimbabwe, particularly with regard to forthcoming elections.

Zimplats – What Exactly Happened?

Last Tuesday was the deadline set by the Indigenisation Minister, Hon Saviour Kasukuwere, for Impala Platinum to agree to hand over 29,5% of its shares in Zimplats to the National Indigenisation and Economic Empowerment Board (NIEEB) in terms of Zimbabwe’s indigenisation legislation. But what exactly did happen? It is interesting to follow local press coverage of the issue over the last week.

On Tuesday 13 March NewsDay reported that Implats was expected to cede a 29,5% stake in Zimplats to the Government. The report repeated the Minister’s insistence that Government would not pay for the shares and that Government wuld not hesitate to nationalise those companies that do not comply with the law.

The following day the paper carried a brief report that Minister Kasukuwere and Implats had issued a joint statement that the new Zimplats indigenisation plan presented to the minister meets the minimum requirements of the Act and is acceptable in principle to the Government of Zimbabwe. Other reports mentioned that the plan made provision for 10% of the shares to be held by a community trust, 10% by employees and 31% would be transferred to the NIEEB. However the shares for the NIEEB would have to be paid for and a technical committee would be established to work out the details of the share transfer, including the valuation of the shares.

Press commentary in Zimbabwe, up to today, has suggested that Implats has merely handed over the shares. However matters became clearer on Friday 16 March with a report in the Daily News that the 31% shareholding would be made available to the NIEEB for a cash purchase, but only after Zimplats has been compensated for reserves containing 51 million ounces of platinum it returned to the Zimbabwe Government in 2006 in exchange for empowerment credits. At the time these reserves were valued at US$ 153 million. Based on Zimplats market capitalisation the total cost to the Zimbabwe Government would be in the region of US$ 500 million.

NewsDay on the same day quoted the CEO of Implats, David Brown, as saying “If they don’t come up with the cash the stake will not be transferred.” It quoted the 31% shareholding as being worth US$ 372 million on current market capitalisation of Zimplats.

The following day, NewsDay carried a report in which it was stated that the Bilateral Investment Protection and Promotion Agreement (BIPPA) between Zimbabwe and South Africa would require the Zimbabwe Government to pay fair value for the shares, and that fair value, taking into account the net present value of the Zimplats Phase 2 expansion, planned future investment and the value of existing platinum reserves, would be well in excess of their market value.

The conclusion in the press is that the Zimbabwe Government will have to pay somewhere in excess of US$ 500 million for the offered shareholding in Zimplats. Two things are clear – Implats is not simply going to hand over a major stake in Zimplats, and will never do so, and the Zimbabwe Government is not likely to have either the ability or the desire to pay the equivalent of some 5 – 6% of GDP simply to take control of one platinum mine.

This matter may be some way from a final conclusion. The Minister may yet return to the fray and demand some other financial arrangement for payment for the shares. But in the meantime he has agreed to the above arrangement. It may be significant that in the past few days his focus has moved from the mining sector to talking about indigenisation of foreign-owned banks in Zimbabwe, a matter on which he is strongly opposed by the both the Minister of Finance and the Governor of the Reserve Bank. And Implats remains firmly in control of Zimplats.

High Noon at Zimplats

Tuesday is the deadline that the Indigenisation Minister, Hon Saviour Kasukuwere, has given Impala Platinum in South Africa to surrender 29,5% of the shares in Zimplats. On 7 March the minister claimed that Impala had made an “irrevocable offer” to hand over the shares, but this was subsequently denied by Impala. Seeing as the minister has also said that the Zimbabwe Government will not pay for the shares, it would seem unlikely that Impala would just hand over some US$ 300 million worth of shares simply at the minister’s demand.

The Impala Platinum board of directors was due to meet on 9 March to discuss the matter. No comment has been forthcoming.

Zimplats indigenisation plan has been reported to be to give a 10% shareholding to local communities, 5% to a staff share trust, 6,5% to the proposed Sovereign Wealth Fund and the balance of 29,5% – making a total of 51% – to be retained as empowerment credits in terms of an agreement made with the Zimbabwe Government in 2006, by which Zimplats released to the Government US$ 153 million of platinum reserves for which it had mining claims. This has been rejected by the minister who has said that the 2006 agreement is not considered to be binding in this case.

The minister has threatened to use “enforcement measures” if Impala does not comply with the demand to cede the shares. This is the big question – what enforcement measures will the minister use? He does not have any powers under the indigenisation legislation to effectively nationalise the company. One possibility could be to use the same legislation under which the Zimbabwe Government some years ago took over the shareholding of Shabanie Mashaba Mines from a Zimbabwean businessman, Mutumwa Mawere. I do not have the details to hand, but I recall that the grounds on which the Government took over SMM were that Mr Mawere was alleged to have illegally externalised a large sum of money and to have engaged in corrupt practices.

Where the minister may face some difficulty is that press reports are suggesting that he and the Minister of Mines, Hon Obert Mpofu, differ over his actions against Zimplats. Also to bear in mind are the statements I have previously mentioned made by the South African Department of Trade and Industry that Impala’s interests in Zimplats are protected by a Bilateral Investment Protection and Promotion Agreement between the two countries. Minister Kasukuwere is rather on his own in this matter but that does not necessarily mean that he will back down from this confrontation. It seems unlikely that Impala will either. Let us see what happens on Tuesday.

More on Indigenisation and the Mining Sector

The Minister for Indigenisation, Hon Saviour Kasukuwere, has continued to apply pressure on the platinum mining sector to indigenise their operations in Zimbabwe. He has demanded that Impala Platinum (Implats) shiould surrender to the Zimbabwe Government its shareholding in Mimosa Mining, where it is in joint ownership with Aquarius Platinum, another South African mining company. He has also demanded that Implats should transfer 29,5% of its shareholding in Zimplats to the National Indigenisation and Economic Empowerment Fund within 14 days. Failure to do so would result in “enforcement mechanisms” being activated. He has also written to Anglo-American Platinum in South Africa requiring it to conform with indigenisation requirements for its Unki Mine in Zimbabwe as a matter of urgency.

As I have said before, the indigenisation legislation in Zimbabwe does not in fact give the Minister any power to seize shareholdings or withdraw operating licences for failure by a foreign-owned company to submit an acceptable indigenisation plan or to comply with demands such as those being made. This is becoming a very high-stakes game of poker, with one question being, is the Minister bluffing or will he resort to unilateral action that could be challenged in international courts?

At last, however, it seems that the South African Government is taking a direct interest in what are direct threats against major South African companies. The Director-General of the South African Department of Trade and Industry, Lionel October, said last week that the country’s Department of International Relations and Co-operation is involved in negotiations with the Zimbabwe Government to ensure that South African investments in Zimbabwe are protected in terms of a Bilateral Trade and Investment Treaty between the two countries that was ratified last year. He said that “The bilateral agreement is law. That is sacrosanct and we have been given the undertaking that it will be upheld.”

What happens next remains to be seen. Is it significant (or merely bold) that another South African company, African Rainbow Minerals (ARM), which is controlled by South African entrepreneur Patrice Motsepe, has announced its intention to look into possible investments in the platinum mining sector in Zimbabwe?

The Indigenisation Saga Continues

One thing is certain – the issue of indigenisation in Zimbabwe is not going to go away soon. Whether an election takes place in 2012 or 2013, the indigenisation policy is central to ZANU(PF)’s election strategy. What will happen after an election remains to be seen – for now indigenisation will remain a central factor in the Zimbabwean business and economic environment.

Recently emphasis has been placed in the mining sector on ceding 10% shareholdings to community share ownership trust schemes. All three major platinum producers – Zimplats, Unki and Mimosa – have now taken this step which, however, is seen by the Minister as being merely the first phase in achieving total compliance with the full indigenisation requirement for a 51% indigenous shareholding. There is a lot of negotiating still to be done – at the cost of senior management time and the expense of productivity and expansion.

Caledonia Mining Corporation (listed on the Toronto Stock Exchange), the parent of Blanket Mine, one of Zimbabwe’s more significant gold producers, has also clashed recently with Minister Kasukuwere. CMC CEO Stefan Hayden was quoted as suggesting that the indigenisation policy was an “electoral card” being played by ZANU(PF) and that the company would seek to drag out negotiations on the issue. Minister Kasukuwere threatened that the Government would take over Blanket Mine for what CMC had paid for it. The result was a press statement from CMC stating that the company remains committed to negotiations over indigenisation, to arrive at a mutually agreeable indigenisation plan and denying that Mr Hayden had made any of the statements attributed to him.

Another gold mining company, New Dawn Mining Corporation, which is also quoted on the Toronto Stock Exchange and which owns several mining operations in Zimbabwe, including Casmyn Mining Zimbabwe, Falcon Gold and Olympus Mines, while announcing increased revenue and income in the year ended September 2011, also reported that its share price was now well below fair value, having dropped from around C$ 1,60 in late 2010 to just over C$ 1,05 in late December 2011. The CEO, Ian Saunders, ascribed the fall in the share price to uncertainty surrounding the implementation of the indigenisation regulations. As part of its indigenisation plan the company is considering a secondary listing on the Zimbabwe Stock Exchange and the establishment of employee share onwership schemes and community trusts.

The Deputy Prime Minister, Arthur Mutambara, has said that all mining companies should have their primary listing on the Zimbabwe Stock Exchange as part of the indigenisation drive. This cannot be seen as policy at this stage, merely the viewpoint of an individual member of the Government.

The indigenisation focus remains very strongly on the mining sector, although pressure continues to be exerted on the two major foreign-owned banks in Zimbabwe, Barclays and Standard Chartered.

As an indication of the helplessness of the PM Morgan Tsvangirai’s party, the MDC, in this whole affair, the PM told Parliament on 15 December that the indigenisation policy had been turned into political rhetoric that scared away investors and caused unemployment. No change in the policy can be expected.