Mining companies voting with their pockets

'WHOSE minerals are they anyway?'; is a question not unique to Zimbabwe.
It is often said that God made minerals and hid them and it is our job is to find them. The tragedy is that mankind has not found a mechanism to manufacture minerals and, therefore, the depletion of nature’s deposit and the sharing of benefits between host countries/communities necessarily becomes a contested issue.
Those who have been endowed with black liquid gold in the form of oil have used the resource successfully to drive their development agenda.
The role of the state in leveraging natural resources for developmental needs is well documented and yet the move by the government of Zimbabwe to acquire 51% of all minerals assets has generated controversy both in the domestic market and internationally.
Zimbabwe like many African countries is well endowed with diverse minerals. I had the privilege of working in the Oil, Gas & Mining Division of the International Finance Corporation before moving to South Africa in 1995 where my responsibilities included the financing of mining projects in Africa. What was striking at most of the mining conferences that I attended discussing opportunities in Africa was the absence of African (black) players in the sector.
In fact, Africa was largely represented by international mining houses and government representatives who complemented Africa’s resource endowment while ignoring the human capital resident in the continent but alienated from the resource sector. Those who have attended the Mining Indaba in Cape Town will confirm my observation. The situation is not different in South Africa where the geology is still owned under an apartheid structure where blacks are excluded from the value stream of God’s endowment prompting the government to put in place a legal framework to encourage the assimilation of blacks as participants in the shareholding of mining companies.
The absence of serious black players in the mining industry is evident in Africa notwithstanding the resource endowment given by God. However, there is no consensus on how best to connect blacks with their minerals. Some believe that the state should be the custodian of this resource and you will find Robert Mugabe’s philosophy being consistent on the question of land and minerals. Others believe that capital and expertise should drive the resource exploitation and beneficiation agenda with social responsibility programs for the affected communities while the fiscal regime should take care of the rest. It is clear that the government of Zimbabwe does not trust blacks in the private sector to be custodians of any national treasure.
When I read the news about the Impala platinum deal and how Zimbabwe was short changed to take an equity stake in an undefined resource while Zimplats maintains 100% control of the defined reserves, I couldn’t help but laugh about how hollow the policy of equity participation is. It seems that the government is quite happy taking an effective 36% stake in Zimplats’ un-delineated resource that will require exploration capital to establish minable reserves. What we are not told is under what a framework does a Head of State meet mining companies to cut deals?
If for example, it was Mawere cutting such deals, what would the people of Zimbabwe say? Corruption! They will shout in unison. Or would they understand that in a failed state, the Head of State is ultimately the personal custodian of the national mineral heritage and any deal he cuts is in the national interest?
If black Zimbabwean investors do not have access to their own Head of State and Impala has unfettered access, what does this say about how far Zimbabwe has traveled in the quest for national sovereignty? While black business is disabled in Zimbabwe, multinational corporations are being enabled by Mugabe? Is this not ironic particularly given political rhetoric about sovereignty?
It is important to understand the mindset that supports the proposition that black investors should not be trusted in their continent. The liberation struggle project was premised on a capitalist state in which the individual and not the state is the centre and driver of change. The right to vote was one and the political architecture was defined on the basis that the majority shall govern. However, those who took the baton of power in many cases ran away with it crowding out the majority in the nation building enterprise. They liberators patented the struggle and could not accommodate any other centre of power. Could it be that the ideology that has informed post independent Zimbabwean economic policies is a socialist/communist one where the state under the control of the liberators becomes a person that represents all former oppressed people?
The founding fathers of Zimbabwe took a decision at independence to use borrowed funds for education and social investments while at the same time not focusing on job creation. Any genius would have recognized that the system was not sustainable and hence the need for ESAP in the late 1980s. The choices made at independence, and not the land reform, may have a lot to do with Zimbabwe’s problems. However, it is easy to blame it on sanctions and the land reform program.
They say if you do not know where you are going any road takes you there.
I am not sure whether at independence, our founding fathers took the time to determine the destination of Zimbabwe and locate our contemporary problems and solutions appropriately.
The inability to accept the market system with its imperfections as an efficient mechanism for allocating resources may also explain Zimbabwe’s problems. One is not clear what the precise deal Impala cut to be confident that profits will be realized in an economy that does not allow its citizens to sell foreign currency at market rates while those in power have access to it at a distorted rate only to collect rents using the black market. Could it be that Impala was guaranteed a special exchange rate regime that could only be concluded by the Head of State? While individuals like Makamba, Mushore, Makoni, Nyemba etc are being harassed for externalization, Impala is immune from the same regime. How is this possible? Why not have the same deals for everyone? If the Zimbabwean environment is unfavorable for business, why is it that no multinational has been targeted for externalization?
While the rest of the country is waiting for a rainy day, Impala’s finance director David Brown said he was optimistic that talks between his company and the government will result in the state taking 30 percent in his company and not 51 percent. Why is he so optimistic when other Zimbabweans are anxious about tomorrow? Brown is reported to have told South Africa’s Mining Weekly last week that Impala, the world’s second-largest platinum-miner, has had discussions with President Mugabe regarding the draft and, through the Zimbabwe Chamber of Mines, is continuing to negotiate with government over the issue.
“We are optimistic that our negotiations will be successful. Impala Platinum hopes to convince the government to reduce the 51 percent to 30 percent, which would be comparable to South Africa’s black economic-empowerment (BEE) policy’s 26 percent, though also vastly different in that the 26 percent in South Africa is held by the private sector and not the state.
“We would be comfortable with those levels,” says Brown, emphasizing the importance of awareness that, at this stage, the proposed legislation is still in draft form and has yet to be promulgated.
He also commented on Zimbabwe’s worsening economic crisis, saying inflation rates are too high and that mining in Zimbabwe is already problematic.
“But one cannot choose where to mine; we mine where the resources are and, therefore, cannot just leave the country and operate elsewhere.”
But what happens if what is in the draft becomes law?
“If the government decides to go ahead with 51 percent then it means that any expansion projects would be impossible and it would really be difficult to operate,” Brown conceded.
He added that there had to be a balance between debt and equity and companies must be able to raise appropriate levels of debt, but it would be difficult to sustain that balance with the government owning 51 percent of mining companies’ shares. Brown reported that Impala Platinum was currently in the process of forming ideas and believes it can put together and submit a solid proposal to the Zimbabwe Chamber of Mines.
“I am pleased that the Zimbabwean government has taken the proposal process seriously and is listening to what we have to say,” said Brown. The company is also engaging with government to ensure that the exchange rate is reasonable and that a greater degree of certainty is created for mining companies. Brown says Impala would be disappointed if President Mugabe decided to go ahead with the proposed draft considering the fact that Impala has contributed significantly towards Zimbabwe’s economic development.
“We’ve also provided infrastructure such as roads, telecommunications and clinics, which have benefited a number of people. We are not just extracting the resources — we are also giving back to the community. Operating in Zimbabwe is tough but the country has a good mineral resource base and companies which want to operate there have to find a way to make it work,” he added. Impala Platinum currently has two assets in Zimbabwe; it owns 87 percent of Zimplats and 50 percent of Mimosa, a partnership with Aquarius Platinum."
The jury is out about the implications of companies like Impala, Rio Tinto cutting deals while the rest of the country has a raw deal. To what extent will change come if the country is reduced to deal making? It is not clear whether miners live in a different world or have to endure the same suffering that most Zimbabweans are going through. While most Zimbabweans are afraid that they may wake up in prison for committing a crime induced by bad policies, multinational corporations are busy making profits. Is it conceivable that profits are highest when an economy is dysfunctional? What role does Gideon Gono play in choosing the winners in a failed state? To the extent that mining companies take a long term view of their investments, why are they not interested in investing in a good and transparent environment where they do not have to cut deals that nationals would not be allowed to cut with a Head of State?
While other political players are busy exploring transitional government structures, new constitutions and free and fair elections, mining companies are voting with their pockets. What does this suggest about the politics of Zimbabwe where mining houses have discounted the threats of change in search of profits and entrenching their economic stake in Zimbabwe while its citizens are externalized by a combination of bag governance and corruption.