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Mixed messages and wishful thinking

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EVER since the Zimbabwe government published its plans to localise majority ownership of the country’s mines, mixed messages have dominated the debate over investment and growth.

Report  by Tony Hawkins

Last week was no different, with the Finance minster Tendai Biti and miner Amplats making positive noises about investment which seem rather optimistic, to put it mildly.

Presenting his 2013 budget last week, Biti quoted a World Bank study on the mining industry in Zimbabwe, and predicted a five-fold increase in gold production by 2018, along the tripling of ferrochrome output, increases of 72% in diamonds, 50% in platinum and a nine-fold surge in coal production. According to the Bank study this, allied with expansion in the iron ore and nickel sectors, will cost over $9.6bn in fresh investment – or 85% of Zimbabwe’s current GDP.

Shortly after Biti’s presentation, South African platinum mining group Amplats, which earlier this month agreed to sell 51% of the shares in its Unki platinum mine to Zimbabwe investors in compliance with the country’s Indigenisation and Economic Empowerment law, revealed that it was considering a $400m investment in a second platinum mine in Zimbabwe.

Colin Chibafa, chief financial officer of Amplats Zimbabwe, said: “We are expanding various options to expand production, including building a new mine that could cost up to $400m and which could possibly double production from the 2012 level of 65 000 ounces.”

This comment ranks high on the mixed message index, coming just weeks after Amplats sold control of its existing mine property, Unki, to Zimbabwean investors. “Selling” is something of a misnomer since Angloplat shareholders, despite facing intense pressure from falling output and industrial unrest in South Africa and weak metal prices internationally, will ultimately finance the purchase.

Ten per cent of the shares will go to the Unki workforce, 10% to a community trust, 10% to local unnamed investors and the balance of 21% to the government’s National Indigenisation and Economic Empowerment Board. Since none of these “buyers” can pay, Amplats is to provide a 10-year loan which will be repaid from dividends earned by Unki.

It comes as a surprise then that Amplats should be seriously considering a major new investment in Zimbabwe at a time when it will still be trying — with no certainty — to get its money for the Unki sale and when Amplats top management is undertaking a review of its strategy. It is also difficult to understand why Amplats shareholders should be willing to invest a further $400m in Zimbabwe, providing 100% of the capital, to get 49% of the profit.

The idea that the mooted investment is a way of growing output outside South Africa and its mining problems also takes a leap of faith. Cross-border contagion is as likely in southern Africa as in the eurozone. Why should Zimbabwe escape the kind of labour unrest that has crippled South Africa mineral production given that poverty and unemployment levels are far higher?

On the government side, the deep divide on investment policy is once again illustrated in the latest public spat between Biti and Indigenisation minister Saviour Kasukuwere.

In his budget speech Biti called for changes to the indigenisation law to foster foreign investment. Kasukuwere was quick to respond, insisting that the Act would not be changed. Since some companies have already complied, he said, it would be unfair to penalise them by allowing newcomers and those who are resisting the law, to enjoy more favourable terms.
In light of this background, the target of almost $10bn in new mining sector investment alone over the next five years looks hugely optimistic.

It is certainly not an impossible dream, since a change of government in Harare and the revival of the commodity price super cycle might just create the conditions for such an investment boom. But on current trends, that seems unlikely.-FT.com

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