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Resource nationalism revisited

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With revenue flows to Treasury dwindling, and threatening service delivery, job creation, social harmony and, of course, political careers, resource nationalism has taken root as a potential source of increasing revenue flows.

Report by Tapiwa Nyandoro

A case can be given of Angola,  which has a law designed to ensure that the mineral-rich country benefits from its non-renewable resources. The law, deemed harsh by diamond industry analysts, does not allow a foreign mining company to control an Angolan operation in spite of taking all the commercial risk.

Typically, it requires the mining companies to get only a maximum of 40% shareholding in a mining venture. Another 40% is ceded to a state-owned mining company, ENDIAMA, and the final 20% or so ceded to a private indigenous-owned Angolan company chosen by government.
This last point is a worrying one as it gives rise to patronage and corruption. Who makes the choice: the permanent secretary, as should be the case, or the minister? A better solution would be to distribute 10% of the shares to employees and auction the balance publicly in the domestic market, allowing pension funds and other mutual funds as well as well-heeled locals to participate.

The poor too should join in the fray via unit trusts. The proceeds of such an auction would ideally go into the capital expenditure budget for the mine and recouped prior to sharing of the dividends along the shareholding lines.

Even with the suggested modifications, the law has some drawbacks. Ministerial intervention puts off the most ethical of companies, who are strict on corporate governance.

Cutting deals exposes them to huge fines in their own countries where legislation has been passed against bribing government officials in foreign countries.

The law, therefore, may, in fact, keep premium, honest and cheaper capital out of Angola because of the loophole that allows government to choose a local private partner.

The second drawback is when the commodity sought by the foreign investor is available elsewhere on less onerous terms. The driving force behind De Beers in 2007 to 2008 in pursuing the prospecting of diamonds in Angola, despite the harsh financial regime, was the rapidly growing demand, then, of rough diamonds and the fact that Angola was reckoned to be the most prospective country in the world for finding a major new diamond mine. The law, therefore, dissuades investment where such criteria are missing.

These are thus the drawbacks of resource nationalism.

Mining is generally capital-intensive, and even prospecting budgets can run into hundreds of millions of dollars, money that the Ministry of Mines can only dream of at the present moment.

The question that we need to ask here in Zimbabwe is: Are we on the right course? Do the laws limit ministerial intervention and allow permanent secretaries to do their job?

But a worrying trend has been the involvement of (bickering) ministers in the forefront of deals and pushing back the permanent secretaries.

More worrying is the fact that the new draft constitution that should have sought to protect the tenure of office of permanent secretaries does in fact seek to undermine them. The draft constitution needed to address issues of role clarity among ministries and between ministers and permanent secretaries.

Zimbabwe’s indigenisation law calls for a 51% local shareholding. The South African trade delegation which came to Harare recently, said the implementation of the policy was ill-timed as it scares away investors.

Indeed, its implementation in a rather small market that is at the same time opening up its markets to its Sadc grouping is contradictory as regards the manufacturing sector.

Its retrospective implementation in mining smacks of arm-twisting and lawlessness, contradicting the country’s Medium Term Plan which calls for the rule of law and respect of property rights.

The South Africans were concerned that local partners would not have the money to fund their 51% shareholding. And indeed the Indigenisation ministry, though invited to pay for its stake in Zimplats, went quiet afterwards.

The minister, in a recent interview, is quoted as having said the former American ambassador was not unhappy about indigenisation, but the lack of clarity and consistency in the law.

The Angolan approach, which effectively turns the capitalisation amount into a loan, may provide a solution acceptable to investors.
It may be a way too of capitalising the government-owned prospecting company and the Zimbabwe Mining Development Corporation off balance sheet.

In a way it resembles some Islamic banking practices, where no interest is charged, but proceeds from the venture are shared. Regardless of the source of funds however, transparency, clarity of the law and role clarity in government is required.

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