The Covid-19 crisis is wreaking havoc worldwide, as months of shutdown severely affect both supply and demand sides of economies.
By Methembeni Moyo
According to a Washington Post article, the world’s biggest economy, the United States lost 20.5 million jobs in April with the unemployment rate now at a staggering 14.7%, the worst since the Great Depression era. South Africa, Zimbabwe’s most important trading partner, and Africa’s biggest economy is forecasting that it could contract by more than 6% this year. If the Covid-19 crisis can have such dire effects on developed economies, one can only wonder the effect it has had and will continue having on Zimbabwe’s already fragile economy.
Many countries are looking into different fiscal strategies and policies to mitigate the economic effects of the Covid-19 crisis. South Africa for example recently announced a R500 billion, (about US$27billion) economic support package to combat the negative effects of COVID-19 on its economy. Some of the economic support package will be raised from its internal state coffers while other funds will be sourced from international finance institutions such as the World Bank and the International Monetary Fund, (IMF). Zimbabwe, on the other hand, does not have the fiscal policy flexibility, borrowing power nor the balance sheet to implement such measures. In the context of such economic devastation and the need for extensive economic stimulation and protection, what can Zimbabwe do to resuscitate its economy post-Covid-19?
Mining policy reform – a low hanging fruit
Mining is an essential foreign currency earner for Zimbabwe. It is no surprise that mining companies were allowed to operate even during the strict lockdown. Mining revenue is absolutely vital to Zimbabwe’s economy. However, the mining sector is grossly underinvested.
Zimbabwe’s geological potential is world-renowned. It has a variety of base metals, precious metals, precious stones, and recently, even potential for oil and gas. In addition, Zimbabwe’s internal security is stable in comparison to other resource-rich nations. The Southern African country has a highly educated workforce that is not unionised and hungry to work. Zimbabwe has a dedicated mining tertiary institution, the Zimbabwe School of Mines, and other universities that churn out skilled graduates yearly. Furthermore, Zimbabwe is serviced by good infrastructure, and markets are accessible by road through ports in South Africa and Mozambique. Yet Zimbabwe’s most important industry perpetually underperforms. Zimbabwe’s mining laws and investment policies are just not attractive, and one might argue they are a deterrent to mining investment. Drastically reforming Zimbabwe’s mining policy, therefore, is the low hanging fruit that must be plucked to resuscitate Zimbabwe’s devastated economy post-Covid-19. If Zimbabwe could emphatically and sincerely reform its mining laws, mining investors would flock to Zimbabwe. A mining boom could be on the horizon, and world-class mining operations such as Unki, Zimplats, and Mimosa would be the norm and not the exception. This leads us to the questions of what are the challenges faced and the reforms needed?
Challenges and required reforms
The policy challenges facing Zimbabwe’s mining industry are numerous. The most topical are exchange control policies. The uncertainty of exchange control laws, the requirement to sell some foreign currency to the central bank, and the difficulties in repatriating foreign currency earnings deter large scale mining investment and even to an extent local medium and small scale mining investment. Zimbabwe’s mining laws are balkanised and
outdated. We do not have a modern mining code that brings together under a single code the most important aspects of mining that must be covered by a mining code such as exchange control, royalties, local content and procurement requirements, export, beneficiation, and fiscal incentives.
The most significant challenge is policy uncertainty. Mining projects have a long gestation. Mining projects may take up to as long as 10 to 20 years to develop from exploration to discovery and full production. Mining investors accordingly need to be assured that the fiscal laws that govern the mining project will remain stable for most of the life of mine otherwise it would be impossible to attract the type of capital required to develop large operations.
Accordingly, Zimbabwe needs a modern mining code, that gives investors long-term security and fiscal certainty.
The Zimbabwe Investment Development Agency Act – a step in the right direction
The recently enacted Zimbabwe Development Agency Act, (ZIDA Act) which incorporates under a single umbrella the Zimbabwe Special Economic Zones Authority, the Zimbabwe Investment Authority and the Joint Ventures Unit which regulates PPPs, is certainly a step in the right direction. Although specific regulations to the ZIDA Act have yet to be promulgated, the ZIDA Act provides some important investor protections and incentives, such as protection from arbitrary expropriation, the facilitation of the ease of doing business and the applicability of some fiscal and non-fiscal investor incentives to some projects. The ZIDA Act is evidence that the government is capable of crafting much needed modern investor-friendly laws and should apply the processes, principles, and political will that went into the crafting of the ZIDA Act to the much-needed reform of Zimbabwe’s mining laws.
Conclusion
Despite its much-touted mineral prowess, Zimbabwe’s mining industry remains somewhat dormant. Future prospects are not promising either. The momentum gained from the coming of a new administration late in 2017, the repeal of the indigenisation laws (51% local ownership), and the promise of “Zimbabwe is open for business mantra” has waned. Mining investors have begun to look elsewhere for mining opportunities, in places such as West Africa where modern mining codes and competitive investment policies are fuelling a mining boom.
Zimbabwe policymakers have to understand that mining investors have a choice if policies are not conducive, investors will go where policies make sense. Zimbabwe’s rocks are phenomenal yet its mining laws do not match its immense geological potential. In a post-Covid-19 world, no country can afford to continue in business as usual mode. Brave and drastic measures will be required to revive economies devastated by the pandemic. Zimbabwe does not have the financial capacity to stimulate economic growth nor can it borrow more money while it is struggling with the debts it already has. Zimbabwe does, however, have great mining potential. All that is needed is emphatic
policy reform. In the short-term, the liberalisation and stabilisation of exchange control laws could stop the bleeding. In the mid, to long-term, a modern overhaul of Zimbabwe’s mining laws could be unavoidable.
Zimbabwe’s economic fortunes are inextricably linked to its mining industry. Reforming the mining industry will be quintessential to resuscitating the economy post-Covid-19.
About the Author:
Methembeni Moyo is a lawyer focussed on facilitating investment into Zimbabwe, particularly in mining. He is based in Johannesburg and can be reached at
[email protected]
