Mnangagwa somersaults, returns to Robert Mugabe policies

ZIMBABWE’S mining industry has been gripped by fresh fears of capital flight after amendments contained in the Finance (No. 2) Bill empowered government to extend the scope of the sector reserved for indigenisation to all minerals.

When President Emmerson Mnangagwa’s administration came to power in 2017, preaching the ‘Zimbabwe is Open for Business’ campaign, one of its most immediate actions was to amend the Empowerment Act.

Changes restricted minerals reserved for indigenisation to only diamonds and platinum.

This meant that foreign investors interested targeting these minerals were restricted to a maximum of 49% shareholding.

Domestic investors or designated State institutions like the Minerals Marketing Corporation of Zimbabwe would control at least 51%.

But the Bill, which sailed through Parliament in mid-December, contained “a clause tucked away inconspicuously towards the end of the Bill that was not mentioned in the Bill’s explanatory memorandum”, which expanded the scope of the law to all minerals.

This is according to an analysis by Economic Governance Watch.

The amended Finance Bill now reads in part: “Section 3 (1) of the Indigenisation and Empowerment Act (Chapter 14:33) is amended…by the insertion after ‘extraction of’ ‘such mineral as may be prescribed by the Minister in consultation with the Minister for Mines and the Minister responsible for Finance”.

The Act is currently assigned to the Minister of Industry.

This means Mnangagwa’s administration has departed from previous undertakings pushing for reforms to hostile investment policies, which sparked an exodus of investors from 2010 when resource nationalism reached tipping point in Zimbabwe.

The private sector, including the Chamber of Mines of Zimbabwe, together with analysts, last week expressed fears of a return to the past, when hundreds of mines folded under serious capital inadequacies as investors stepped aside.

The industry generates about US$2 billion yearly and contributes 70% of export revenues.

Plans were already underway to transform the mining industry into a US$12 billion sector in the next two years.

But should investors stay away, this target will be difficult to achieve.

“It is worrying because of its potential effect on the economy and also because of the surreptitious way it was enacted,” said Economic Governance Watch, in a paper titled Mining Industry: Indigenisation Through the Back Door.

“The government had to ensure that a controlling interest in diamond and platinum mining businesses was held by the Zimbabwe Minerals Marketing Corporation, the Zimbabwe Consolidated Diamonds Company or the National Indigenisation and Economic Empowerment Fund. Diamond and platinum mining businesses could not merge or restructure unless a controlling interest in the new merged business was held by an appropriate designated entity; conversely, conglomerates or syndicates of such businesses could not de-merge or unbundle unless an appropriate designated entity held a controlling interest in all the resulting businesses. Now that it has been amended, Section 3 applies not only to diamond and platinum mining, but to businesses involved in extracting any minerals that the minister responsible for administering the Act may choose to prescribe by notice in the Gazette,” Economic Governance Watch said.

“The minister has not yet prescribed any minerals for the purpose of Section 3, so currently the Section is inoperative. But at any time she may decide to reserve particular sectors of the mining industry for indigenous miners, and she can give effect to that decision simply by consulting two colleagues – the Minister of Mines and Mining Development and the Minister of Finance and Economic Development – and publishing a short notice in the Government Gazette designating the particular minerals that are to be reserved. In fact, by virtue of section 21(2) (a) of the Interpretation Act, she could designate all minerals, thereby reserving the entire mining industry to indigenous control,” the paper noted.

The law empowers Industry minister Sekai Nzenza that at any time and warning notice, she publishes a short notice in the Government Gazette, which reserves all or part of the mining industry to indigenous people.

On Thursday, the Chamber of Mines said the amendment had created confusion in the mining industry.

When Mnangagwa’s government came to power following the 2017 coup, it promised wholesale changes to hostile investment laws and policies to make Zimbabwe an attractive investment destination.

The strategy was hailed as a turning point and one of the most important moves by the new administration.

But it appears government has decided to revert to the Mugabe era policies, which were replete with threats to businesses and uncertainties among investors.

Source – the standard