April 27, 2011 -
PRLog -- Indigenization and Empowerment Act suspended for now In a dramatic policy U-turn, the Zimbabwean government has now stated that its controversial Indigenization and Empowerment Act - which originally called for a 51% stake in all mining companies (with assets over US$500,000) to be divested to indigenous Zimbabwean groups within a five-year period - has been suspended until the local economy recovers. A December 2010 report on Zimbabwe's NewsDay website quoted Industry and Commerce Minister Welshman Ncube as saying that 'until such a time when the economy recovers and rebuilds capacity, it's not possible for every sector to achieve 51% (minimum indigenisation equity)'. The move appears to have come as a surprise to most observers of the Zimbabwean political scene, as the 51% stake had been a key part of official government policy in recent years. However, it does now greatly improve the operating environment for foreign mining companies looking to enter Zimbabwe, as it paves the way for them to take majority stakes in indigenous operations. Certainly, it had appeared as though the policy had already been transgressed in November 2010, when the Zimbabwe government agreed to sell a 54% stake in the Zimbabwe Iron and Steel Company (Zisco)
to Essar Holdings, a Mauritius-based subsidiary of India's Essar Group. The final price for the purchase has yet to be set, according to the government-owned Herald newspaper, with the final price to be announced (and the sale completed) during mid-December. However, it is understood that Essar will pay the US$240mn that Zisco currently owes to Germany's KDW state development bank. Deputy Minister for Industry and Commerce Mike Bimha was quoted by local media as saying that Essar will hold 54% of Ziscosteel, with the government retaining 36% and the remaining 10% to be sold off to local private investors. Now, it seems likely the government will be looking to sell majority stakes in at least 10 more parastatal companies (including Agribank and the National Oil Company of Zimbabwe) to foreign investors over the coming months. BMI believes that the move to suspend the Indigenization and Empowerment Act is a positive step by the government, as it will allow for the injection of much-needed foreign capital to recapitalise the mining sector. Indeed, we hope that the temporary move can become permanent, allowing foreign investors to maintain majority stakes in Zimbabwean mining assets, even as the economic and political situation improves in the country. We have already seen steps by Harare to water down the blanket 51% majority stake aspiration for all economic sectors and believe that flexibility should be shown moving forward in what is the 'correct' level of indigenous ownership for the mining sector. As ever, we will monitor the situation on the ground and report on developments as they occur. Royalties set to increase As part of his 2011 Budget statement, finance minister Tendai Biti has stated that royalties on Zimbabwean diamonds are to increase to 15%, from 10%. At the same time, royalties on gold sales will rise to 4.5% (from 4%) and on platinum sales to 5% (from 4%). The move comes as the Zimbabwean government seeks a greater share of the nation's mineral wealth. Country Overview The geology of Zimbabwe is very richly endowed with deposits of chrome, gold, nickel and platinum, among other minerals. The country's gold reserves are among the largest in Africa, while it hosts the second-
largest platinum reserves in the world. Another segment that has caught the attention of miners in Zimbabwe is diamonds, following the discovery of a number of significant kimberlites. Industry Forecast Zimbabwe's mining sector experienced a traumatic series of years over the past decade. However, there are reasons for guarded optimism as we enter 2011. Investment is returning to the sector, following the establishment of a national unity government in 2009. The liberalisation of the gold sector in the same year was a further positive. Consequently, we believe the scene is set for a period of strong growth for the Zimbabwean mining sector, although we would stress that this remains dependent on a continuation of the relative political stability that has endured across 2010.
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