Ten Myths on in investing in Zimbabwe mining
The Zimbabwe investment environment has been coupled with a lot of issues ranging from mistrust between Government and investors (mostly foreign) emanating from transgressions of the past.
This comes out from how Government treated investors in the past particularly during the land reform programme and the consolidation of diamond operations in Manicaland. These actions therefore have been sending a negative signal to several investors. However some of these things are now myths considering efforts being made President Emmerson Mnangagwa and his new dispensation under the theme “Zimbabwe is open for Business.”
However there are 10 myths that have proven to be a challenge as Government works towards creating an all inclusive investment climate in the mining sector.
(1) The Indigenisation Policy
Zimbabwe in the past 10 years was running with the Indigenisation and Economic Empowerment policy which gave Zimbabweans the right to take over and control many foreign-owned companies in on a 51-49 percent ratio. This law has been a massive impediment to investment in mining considering the amount of capital required in mining only for an investor to wake up 49 percent share of that investment. The law has remained a challenge up until recently that Government decided to scrap the legislation and it now only applies to the diamond and platinum sectors.
So the scrapping of the legislation still has not sunk in most investors but the law is no longer in existence for multiple sectors but it still remains a myth that Zimbabwe has an existing repressive indigenisation law.
(2) Property rights violations
Coupled by how Government conducted the land reform which saw white farmers loosing property worth billions of dollars, the Zimbabwe investment climate was deemed toxic all over , and this attitude by investors also cascaded to the mining sector.
There is a general belief that Zimbabwe has no respect for property rights and all they need is the money from the investor and once that money is invested, immediately the respect for property rights vanishes as well.
The situation was also exacerbated by how Government grabbed Shabanie and Mashava Mines which belonged to local businessman Mutumwa Mawere. The situation was also made worse when Government lodged a hostile takeover of diamonds operations in Manicaland when it decided to be the sole miner in the area. A lot of mining companies mostly Russian and Chinese lost their operations.
(3) Difficulties in dividends repatriation
Most investors have been experiencing challenges in repatriating their dividends not just in the mining sector but in the wider economy in general.
To date arrears in dividends repatriation are running into billions and that fact has seen most investors seeing Zimbabwe as unattractive investment destination. Most companies have since engaged the RBZ in getting sovereign guarantees for their dividends to foreign shareholders. But the situation has since improved but it remains a misconception that repatriation of dividends is a challenges.
(4) Favouritism towards Chinese investors
There is a general misconception that investing in Zimbabwe, someone has to be Chinese. When Zimbabwe had a fallout with its Western counterparts, former President Robert Mugabe launched what was dubbed the Look East Policy. This saw an influx of Chinese companies invading the local mining sector mainly in chrome and diamonds. Chinese generally are aggressive in nature , and in this case they came in with massive investment which somehow sent a message that they were in Zimbabwe for business. The influx of Chinese therefore somehow painted a picture that maybe Government had a bias towards Chinese investors but that has not been the issue considering that China is the second largest economic super power that has since identified Africa as the new economic frontier, with Zimbabwe among the horizons. Therefore it remains a misconception that Zimbabwe favors Chinese but investment in mining in Zimbabwe remains open to any nationality.
(5) Mining investments only for foreigners
In addition there is also a general misconception that investing in mining in Zimbabwe remains something that can only be done by foreigners because of the huge capital demands. This misconception has seen many locals failing to venture into the multi-billion dollar industry out of fear.This therefore has seen many locals preferring to undertake small scale ventures. But in the fourth industrial revolution it is critical that locals are involved in the mining sector ,also on huge capital project. Mining should be for both local and foreign investors.
(6) Corruption as the only way to get mining rights
The resource curse is a paradoxical situation in which countries with an abundance of non-renewable natural resources experience economic stagnation and lack of development. And in most instances corruption because the order of the day.
Zimbabweans have become accustomed to announcements of “mega deals” over the years that never come to fruition. The opaque nature of the deals has been a breeding ground for corruption and looting.
The opaqueness of these deals has to a greater extent bred a misconception among investors that corruption is the order of the day and that for one to get mining rights has to pay a bribe.
(7) Zimbabwe labour laws draconian
Zimbabwe is open for business has become a common phrase in Zimbabwe. Events leading to the ushering in of the new dispensation in Zimbabwe has introduced these phrases.
There has been a positive vibe and commitment to invest in the country by big organisations. One of the major setbacks, thus being an impediment to quick investment into the country by investors, is the Zimbabwean labor laws.
The laws are rigid, restrictive to investment and they turn to be more favorable to the employees. This is an aspect that scares away many prospective investors.
Here, it is easy for an employer to acquire cheap labour, but it is not the case with the employers when they want to get rid of excess labour in their organisations.
Therefore there is a myth that labour laws in Zimbabwe are rigid but there are efforts being made at the moment by Government to adress issues around labour laws.
(8) Zimbabwe labour too expensive
There is a myth that Zimbabwe labour is too expensive and this has seen out Asian counterparts Chinese opting to bring everything including labour whenever they come to invest in Zimbabwe.
Zimbabwe’s ability to attract foreign investors is however being frustrated by high cost of labour. Comparing minimum wages, Zimbabwe has one of the highest labour costs in the region, second to South Africa.
Given that Zimbabwe’s productivity per unit of labour compared to other countries is low, it implies that labour costs are a major cost driver which affects the country’s competitiveness in the eyes of investors.
(9) Erratic power supply
There is still a misconception that Zimbabwe still faces erraric electicity supplies and high cost of power, a situation which has seen most investors shunning mining investment in Zimbabwe.
In terms of power supply, the country once faced an acute shortage of electricity that resulted in frequent power outages. This was a result of subdued power generation caused by inefficiencies in the running of thermal power stations, also associated with ageing equipment and outdated technology.
This development rendered commercial and industrial activities less competitive as companies resorted to more expensive alternative power sources such as diesel generators. But this is now a thing of the past and Zimbabwe right now has better electricity supply compared to South Africa following the commissioning of Kariba South Hydro extension.
(10) High taxes
Another misconception is that Zimbabwe has a rigid and painful tax regime. Zimbabwe’s tax regime is regarded as more costly and disadvantageous to businesses in relation to comparative countries, with the exception of Mozambique.
A medium-size business can expect to pay 35,3 percent of its commercial profit, which is about five percent higher than what a similar company would pay in South Africa (30,1 percent), twice as much as what would be expected for a similar company in Zambia (15,1 percent) and about 10 percent higher in Botswana at 25,4 percent.
This has proven to be an impediment to investment but government is currently working on relaxing the tax regime as it seeks to attract more investors across the whole investment front.
This article first appeared in the APRIL ISSUE of the Mining Zimbabwe Magazine