Millions of Zimbabweans are struggling to survive on incomes far below the Poverty Datum Line, and a great proportion of those millions afflicted by pronounced malnutrition, inability to fund essential healthcare and education for their children, and other basic prerequisites of life. Factories and other enterprises are downsizing and, in many instances, closing operations, with consequential increasing unemployment and intensifying poverty.
The prerequisites of a meaningful halt to economic downturn, and of significant real growth, are manifold. They include, first and foremost, that Zimbabwe attain large-scale investment into its considerable economic potential. However, very few in Zimbabwe have the resources to fund the much-needed investment and, therefore, foreign investment is an absolute requirement. But the volume of foreign investment required will not be forthcoming unless Zimbabwe is perceived as a safe and desirable investment destination. The foreign investor will not invest unless he is satisfied that the investment will be safe and secure, will generate acceptable investment returns, and can be readily realised if and when there is a desire to dispose of it.
Providing the investors with credible assurances of security and yields required that government controls be minimal. Investors expect the investment environment to be one wherein democracy reigns supreme; there is comprehensive respect for human rights and justice, and for property rights. They also seek an investment regime wherein taxation is fair and reasonable.
Zimbabwe also critically needs considerable inflows of funding into the presently financially emaciated banking sector, but foreign financiers will not make resources available in the absence of the same factors as are the criteria sought and applied by investors. In addition, investors and financiers alike are devoid of confidence in Zimbabwe as an acceptable investment and funding destination unless it is in good standing and harmonious relationships with the international community.
Over and above these, and divers other considerations, the foreign investor seeks expectations of investment yields which are equal to, or greater than, those which can be anticipated from alternative investment. One of the key areas wherein Zimbabwe can meet those investor expectations is the mining sector. Zimbabwe has a vast wealth of relatively minimally exploited minerals and precious stones in high demand internationally. These include, amongst others, gold, diamonds, platinum, nickel, chrome, lithium, methane gas, and coal. So great are the unexploited or only partially exploited mineral resources that mining could readily be a major catalyst for the much needed, and hankered for, economic recovery.
However, government is apparently determined not to have mining as the catalyst for the economic recovery anxiously sought by almost all Zimbabweans. Despite more than nine months of intensive representations by the mining sector, government has yet to modify the oppressive and destructive requirements of Indigenisation and Economic Empowerment legislation. That legislation prescribes that, within five years, not less than 51% of equity in each and every mine (as well as other enterprises) must be held by Zimbabweans. What investor anywhere in the world other than the irrational and the insane will invest the required, usually very considerable, capital into the development and operations of a mine, and provide required technology, in order to be a minority, without any control to protect the investment and assure a sound return thereon?
Concurrently with placing the immense investment hurdle of restricting foreign investors to minority status, many are demanding nationalisation of mines, in whole or in part. The foolhardiness of that demand, over and above being yet another deterrent to investors, was lucidly highlighted last week in South Africa where similar foolhardy demands are being made. The president of the South African Chamber of Mines, Sipho Nkosi, disclosed that South African tax revenues would have diminished by R67 billion last year if the mines were nationalised, to the prejudice of government, taxpayers and the populace. He said: “It is worth pointing out to the advocates of nationalisation that mining is a universally tough business and not an easy route to the accumulation of immense wealth”.
His comments were reinforced by Anglo American CEO Cynthia Carroll, who said: “Nationalisation simply does not work. It hinders the development of private mining industry. It harms industrial growth and industrial competitiveness and it restricts social and economic transformation.”
But Zimbabwe’s government clearly feels that forced indigenisation, or pursuit of partial nationalisation, does not suffice to destroy the mining industry thereby intensifying the already horrendous economic circumstances of Zimbabwe. Compounding those catastrophic intents, government is firmly determined to intensify the taxation of the mining sector. It proposes to increase the rate of income tax payable by mining companies from 15%-25%, arguing that they should pay at the same rate as applies to other companies. Concurrently, it is proposed to reduce very markedly the allowances, for tax purposes, on the inevitably great capital expenditures necessarily incurred by the mining sectors.
Government is also threatening to increase the rate of royalties payable by the miners. At the same time, rural district councils, emulating central government, are going berserk in the increases of taxes and levies that they are demanding of mines, those increases in many instances being many thousands per cent greater.
There are also other factors which have a negative impact upon the mining sector. Amongst these factors, a key element is the ongoing inability of the Zimbabwe Electricity Supply Authority (Zesa) to meet the mines energy needs. Not only does Zesa fail to meet those needs, but it is unable even to provide the mines with authoritative schedules as to when they will be subject to load shedding. As a result, to an ever increasing extent, mines have to acquire their own energy generation equipment, and the government’s response is to diminish the capital expenditure allowances accorded the mines.
Instead of feeding the goose to strengthen it and ensure that it yields more golden eggs, government seems determined to pluck it endlessly, until it withers and dies.
By Eric Bloch