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Cohesive policies can boost investor sentiment

WARREN BEECH Mining and mineral exports contribute significantly to Zimbabwe’s GDP, but Zimbabwe’s mining industry falls far short of what it can contribute to growth and development

CONSISTENT INCOME Zimbabwe also has a vast quantity of “safe haven” minerals, such as gold and diamonds, which are a constant source of revenue generation

Photo by Bloomberg

9th September 2022

By: Cameron Mackay

Creamer Media Senior Online Writer

     

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While mining and mineral exports contribute significantly to Zimbabwe’s gross domestic product, the industry falls short of its potential to contribute to the country’s growth and development.

In the latest investment perception survey of mining companies, released by independent think tank the Fraser Institute, Zimbabwe was ranked the least attractive jurisdiction.

Law firm Beech Veltman CEO Warren Beech states that constant uncertainty regarding the legal framework of Zimbabwe’s mining industry, coupled with its unstable economy and political instability, has demoted the country to the least attractive mining destination.

“This position is unlikely to change until there are tangible economic, political and legal reforms that renew investor confidence in the country. While Zimbabwe has vast reserves of minerals that are in demand, the outlook for the mining and natural resources sector is not positive unless there are urgent legislative reforms, a hard stance is taken against corruption and criminal activities, and there is a general overhaul of the paper-based cadastre system.”

Zimbabwe, similar to many African countries, faces challenges in terms of infrastructure constraints in the energy, water, rail and road sectors. These constraints can be addressed only by adopting a holistic approach, implementing coherent policy and increasing inclusivity by involving all stakeholders including industrial sectors aside from mining, Beech argues.

Further, he emphasises that there are concerns regarding policy certainty and a regulatory framework that accommodates ease of doing business.

“Despite several Africa jurisdictions being ranked low on the Fraser Institute indices, investment is still taking place as minerals in these countries are in demand, and some investors are prepared to take the risk. Zimbabwe’s mineral reserves should attract investors with a higher risk tolerance. In the Democratic Republic of Congo, for example, where there are similar constraints, investment continues.”

Beech points out that Zimbabwe is one of the most naturally rich countries globally in terms of its diversity in minerals and natural resources. Zimbabwe has more than 40 different minerals, as well as some of the world’s largest deposits of key minerals such as platinum and nickel.

“The renewable-energy transition has resulted in an increased demand for critical minerals such as copper, nickel, aluminium, chromium, zinc and platinum-group metals. Zimbabwe has an abundance in most, if not all, of these critical minerals and if it implements the right reforms across the board, it could benefit substantially from these vast mineral resources.”

Zimbabwe also has a vast quantity of “safe haven” minerals, such as gold and diamonds, which are a constant source of revenue generation.

Challenges

Beech highlights three challenges for the country’s mining sector, including an unstable regulatory environment, political challenges facilitating corruption, and financial instability.

“The mining and mineral laws in Zimbabwe are outdated and require urgent reform. There have been several initiatives by nongovernmental bodies in Zimbabwe, including the legal fraternity, supported by global entities, in an attempt to overhaul Zimbabwe’s policies and mining laws, without significant progress.”

Where changes have been achieved, this has been the result of criticism and international pressure. This pressure has resulted in certain laws, such as the Indigenisation Laws that require 51% ownership to be held by black Zimbabweans, being reversed, comments Beech.

He points out that the Mines and Mining Amendment Bill is expected to be debated before Parliament shortly and is expected to result in widescale changes in the industry.

These changes would be beneficial if they provide investors with much-needed confidence, and benefit Zimbabweans who are living in poverty, he states.

“While the Mines and Mining Amendment Bill may be a welcome change to the regulatory environment, Zimbabwe has large-scale challenges with political intervention, as well as political instability.

“Additionally, ongoing corruption and the army’s control of informal gold and diamond mines will not help to create an investor-friendly environment.”

Beech stresses that the country’s economy and government are publicly criticised as being unstable, owing to ineffectual policies implemented by the Zimbabwe African National Union–Patriotic Front regime.

This includes using proclamations to change the law on a whim, and the role of the central bank in manipulating the country’s foreign currency trading, which deters potential foreign direct investment.

It has also been reported that miners are likely to face increased royalties in the future, as well as changes in the tax regime to maximise revenue for the fiscus.

“Increased taxation of mining companies to fund exorbitant government spending does not provide the investor confidence that the country desperately needs,” he concludes.

Edited by Nadine James
Features Deputy Editor

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