Mortgaging minerals govt’s short-term survival strategy
THE current assault on the mining sector manifested by the threats of nationalisation and mortgaging of minerals is likely to undermine one of Zimbabwe’s few remaining vi
brant economic sectors.
Remarks last week by central bank governor Gideon Gono that “the country will continue to leverage minerals” poses a renewed threat to the mining sector, coming on the back of ominous statements by government officials and President Robert Mugabe.
Few people took Transport and Communications minister Chris Mushohwe’s statement earlier in the year seriously when he hinted that government would “take over mines as it did with the land”.
Analysts say remarks by Gono are another way of saying Zimbabwe will mortgage minerals for economic essentials such as foreign currency that are in critical short supply.
Gono said government would continue to use minerals including those still embedded underground as security to get lines of credit to meet pressing needs.
“Zimbabwe has over 40 minerals and we should leverage these minerals, even if they are still in the ground, to get value,” Gono said at the signing of a US$50 million fuel deal with French bank, BNP Paribas.
The deal -with the French is the first with a major European institution in many years, with Bindura Nickel Corporation providing part of its product as collateral.
This raised alarm that government could mortgage mineral resources to secure lines of credit to prolong its stay in power.
A similar deal with Malaysians involving Hwange power station raised national outrage a few years ago.
Government has of late been flaunting the country’s platinum and touting unverified uranium reserves as bargaining chips for economic aid and investment.
The plan, analysts say, is to get a short-term rescue package to save the economy from its current gridlock.
Such deals, they say, signal that Zimbabwe is now completely isolated from the international community both politically and economically.
The fuel-for-nickel deal comes barely three months after the government announced plans to take over a 51% stake in mines.
The decision has triggered speculation that mining companies, fearful of the security of their assets, could be buying their way out of the proposed takeovers by pledging their minerals as security for government’s credits.
Bindura said it had participated in the deal as part of its service to the country and good citizenry — a statement that analysts say was a thinly-veiled admission that the company had succumbed to pressure.
There are now fears that other mining companies could follow suit as part of strategic positioning ahead of implementation of the proposed law.
Analysts say mortgaging minerals illustrates that government has run out of ideas to save the sinking economy that has been hemorrhaging for the past seven years due to government’s populist policies.
“We are yet to see how that will happen but from the look of things, they want to get instant value even from areas that have been prospected and claims,” said an economist with a local financial institution.
After failing to get the anticipated aid from politically-friendly countries like China or Russia, Zimbabwe is now planning to pawn its minerals to get lines of credit.
The Russians and Chinese are reported to have been keen to enter Zimbabwe’s mining sector although their concerns over the country’s international risk profile are similar to those of other investors.
While other countries have in the past swapped their commodities in advance to fund current expenditure, the bid by Zimbabwe is borne out of desperation to save an economy hurtling towards collapse.
But analysts warn that such deals are short-term measures that will not save the economy unless there are broader economic reforms underpinned by a change in the political mindset of the nation’s leaders. On a broader scale, the scheme amply demonstrates that international financial organisations have lost faith in Zimbabwe’s creditworthiness.
It is a serious indictment of Mugabe who has in the past said Zimbabwe did not need assistance from Western countries.
Since the fall-out with the West, Zimbabwe has not received any significant lines of credit from Western institutions. It has been cut off from the International Monetary Fund (IMF), one of its major sources of credit before the crisis started six years ago over anarchic land reforms.
Eager to be seen to be doing something about the economic crisis, Mugabe seems to have turned to using minerals as collateral, which economists say threatens a sector that contributes 4% to national wealth.
Mining has been the only industry that has witnessed growth in the past six years.
Although Mugabe has tried to allay fears of the land invasion-style takeovers, control and leverage, as Gono said, will include even minerals that have not been mined.
An economist with a local commercial bank said government was desperate, hence its bid to “sell fish still in the river”.
Political commentator Takura Zhangazha said bartering minerals was an indication that the ailing economy was now an albatross round the government’s neck as it battles to undo the impact of its damaging policies.
“It’s a sign of failure. It’s coming out clear that the economic problems have boxed this regime into a corner,” Zhangazha said.
“But they will soon realise that mortgaging state resources is not only a short-term measure but also a destructive one.”
He said while the deal might bring fuel for a few days, the root causes of the country’s problems would remain.
“It’s politics that has caused this international isolation. Unless the political crisis is resolved, the economy will continue to bleed and we will hop from one short-term deal to another,” said Zhangazha.
Apart from the short-term nature of the deals, it will also not translate into sustained foreign currency inflows.
Zimbabwe has over the past six years systematically destroyed its foreign currency generating sectors like agriculture, manufacturing and tourism. Foreign currency income has shrunk from a high of about US$3 billion to about US$1,8 million in the same period.
Agricultural production has slumped on the back of reduced tobacco and horticulture output owing mainly to the allocation of land to cronies without an inkling of commercial farming.
The production of tobacco, a prime foreign currency-generating crop, has plunged from a peak of about 200 million kg in 2000 to about 50 million kg expected this year.
Price controls imposed by government ostensibly to “protect the poor consumers” have constricted expansion in the manufacturing sector.
A long-term solution to these problems, analysts say, does not lie in pawning away national assets but a complete revival of the key sectors.
The problem though is that government has not been able to address key issues crucial to the revival of the sector.
Economist John Robertson said government could come up with many such deals but it would not ensure investment unless there was stability and property rights were secured.
“They need to restore property rights, correct governance issues and stability to revive these sectors,” Robertson said.
Government is however still to guarantee security of tenure in the agriculture sector. The land reform that Mugabe declared ended in August 2002 has continued to this day with fresh farm invasions and new offer letters in the Lowveld.
Robertson said there was a danger Zimbabwe could end up tying itself to expensive lines of credit out of desperation. The mortgaging of state assets is not a new practice in Zimbabwe.
The Zanu-PF government has in the past entered such deals with Libya as part of its efforts to secure fuel. As part of that deal, the Libyans got a stake in CBZ and the Rainbow Tourism Group.