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Proposed mining reforms could permanently stall FD
Jeffrey Gogo, The Herald (Zimbabwe)
March 09, 2006

http://www.herald.co.zw/inside.aspx?sectid=617&cat=8&livedate=3/9/2006

ECONOMIC experts say the proposed reforms in the mining industry are disastrous to the Zimbabwe economy, and could permanently stall the badly needed foreign direct investment (FDI).

Last week, Mines Minister Ambassador Amos Midzi proposed to amend the Mines and Minerals Bill, which if approved would cut foreign ownership of mines by 51 percent. Of the remainder, 25 percent would be donated to Government and 26 percent paid for over a seven-year period.

But the proposals have sparked fierce debate within the industry, as foreign-owned mining groups plan to lobby Government to discard the proposed amendments.

Economists interviewed by the Herald Business this week feel the planned reforms could spell doom for the economy, and cast a shadow on the ongoing economic recovery programme.

"This is another nightmare for our economy," remarked accountant and economic commentator Dr Eric Bloch.

"It is a major deterrent to any future investment by any foreign (or even domestic) investors in the Zimbabwe economy.

"What the proposed mining laws do is to switch off investors, not just from mining but from all sectors of the economy. By all standards, this would be the worst thing we could do for a recovering economy because it certainly kills investor confidence in the country," he said.

Said a Harare economist who did not want to be named: "This is a disastrous decision, which is likely to have the same ripple effect the agriculture reforms of 2000 had on the economy.

"If Government is going to take a quarter of the mines for free, and pay the other 25 percent in a period of nearly a decade, and then expect to get investment from external investors, then we are certainly joking as a country."

In the absence of balance of payments support, FDI and a vibrant export sector, the country has found the going a little steep in recent years. Among the key economic indicators that need attention are high inflation, now running at 613 percent for January, currency depreciation and declining foreign currency inflows.

In 2004, the Government withdrew a controversial draft law that would have compelled mining companies to sell up to 49 percent of their shares to black Zimbabweans following an outcry from the industry, and promised to consult with the sector on a new draft.

The mining industry went on to propose that local investors access 25 percent shareholding in foreign-owned mines over a period of 10 years.

Inevitably, comparisons have been made with reference to neighbouring South Africa, where reforms are proceeding at a much slower pace. Although the SA mining industry is still predominantly white-controlled, emphasis is being placed on stimulating black empowerment.

As a result, several black or union-owned firms are now beginning to play an important role in the industry. This is particularly the case following amendments to the Minerals Bill in 1998 that encourage the involvement of previously disadvantaged communities in South Africa's mineral resources. Although the reforms have not been exhaustive, Anglo American's unbundling of JCI, a gold mining conglomerate, was seen as the first step in black empowerment.

However, this failed to take off and, as a result, JCI has been turned into a shadow of its former self, with just a handful of gold property holdings and investments.

Mvelaphanda, with ANC stalwart and former Gauteng prime minister Tokyo Sexwale at the helm, has become one of South Africa's most successful empowerment resource companies. To date it has acquired interests in developing platinum, energy and diamond resources.

African Rainbow Minerals, a company formed in 1997 by magnate Patrice Motsepe, acquired several shafts from AngloGolds Vaal Reefs. ARM are also jointly developing a platinum mine with Anglo Platinum as well as entering a joint venture with Harmony Gold to exploit several Free State assets acquired from AngloGold.

Unlike most countries, private individuals own most of South Africa's mineral rights (typically farmers and large mining companies who have mineral right options).

In late 2000, the draft Minerals Development Bill was released for public comment. The Bill (based on a 1998 White Paper on Minerals and Mining Policy) ushered in a new era of mineral and mining law in South Africa.

The core objectives of this Bill were to redress past racial discrimination and ensure that historically disadvantaged persons participate meaningfully in the mining industry. Over and above this, international law recognises the right of states to exercise full and permanent sovereignty over their natural resources. But what is critical is to understand the economics of a given country, and to distinguish between good and retrogressive legislation.

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