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Is Zim’s 50 pc shareholding quest in diamond mines a boon or bane?

16 november 2009

The birth of an inclusive government in Zimbabwe, which saw President Robert Mugabe working with his long time political foe, Morgan Tsvangirai, who is now the Prime Minister, brought a lot of relief to the troubled but mineral-rich southern African country.

After some few weeks into the government, Tsvangirai told the world that Harare was planning to amend the mining bill, which was approved by the then cabinet in 2006, but never incorporated into law.

If the bill had been passed through, foreign companies would not have been allowed to hold more than 49 percent of a business and were supposed to sell any stake above that to Zimbabweans.

The minerals that had been affected included gold, diamonds and platinum.

 “We are reviewing it (the mining bill). The new coalition government hopes to agree on a new local ownership level that is comfortable for investors, but still beneficial to the minerals-rich nation,” said Tsvangirai.

Mines and Mining Development Minister Obert Mpofu recently told a mining conference in South Africa that the review of the bill would seek to strike a balance between attracting investors and indigenisation.

“Whatever we do should not discourage investment and not compromise indigenisation,” he was quoted as saying.

“I can't comment on whether we will remove the 51 percent requirement or not, there is a consultation process on this by all key stakeholders.”

Mpofu said the review would also include views from others in the region such as South Africa, which has adopted the black economic empowerment (BEE) to include blacks in the mainstream economy after years of exclusion under apartheid rule that ended in 1994.

South Africa, the biggest producer of precious metals, adopted BEE legislation four years ago compelling mining companies to sell 15 percent of their assets to black investors by 2009 and 26 percent by 2014.

Mpofu argued that Zimbabwe had launched a review of all mining contracts, saying it would introduce a "use it or lose it" policy, to allow investors to take advantage of unused mineral resources.

"We are contemplating introducing that kind of measure, which is aimed at those who have been sitting on mineral deposits for a long time without exploiting them," Mpofu said.

However, some analysts questioned if the Zimbabwean government was genuine in its commitment to setting up an enabling environment that would attract the much needed foreign direct investment in the mining industry, which has the potential to pull out the country from the economic quagmire it is currently stuck in.

The questioning came after Mpofu announced recently that Zimbabwe still wanted at least a 50 percent shareholding in the mining of precious minerals such as diamonds to fully benefit from the country’s natural resources.

He said consultations with relevant stakeholders had already started on the contents of the bill.

"With diamonds, we want 50-50 percent shareholding in joint ventures with investor(s) that is not negotiable," Mpofu said.

Zimbabwean diamonds make up a small percentage, about 0.4 percent of the global diamond trade, according to the World Diamond Council.

So far this year, Zimbabwe has earned about USD20 million from the sale of diamonds, a fraction of the estimated USD8.5 billion of diamonds produced each year by African countries, which account for more than half the global trade.

Murowa mine in central Zimbabwe, majority owned by Rio Tinto, is the country’s largest diamond mine, while the privately run River Ranch mine is the second.

Zimbabwe also has poorly secured diamond fields in Marange where it deployed troops to control illegal mining.

A Kimberly Process review team that visited Zimbabwe’s diamond mines in July has since called for the immediate demilitarisation of the Marange fields and measures to stop smuggling, while the World Diamond Council said the country should implement the Kimberly Process recommendations or risk suspension.

Though it appears as if the model for the diamond sector would be different from those governing gold or platinum mines, it is rather a mystery as to how this would be administered under the same legislation.

Perhaps, a suggestion made by a member of the House of Assembly Pearson Mungofa that there was need to have separate legislation governing precious minerals like diamonds, emeralds, platinum and gold should be taken seriously.

Concerns raised by the Zimbabwean government on the need to benefit fully from its natural resources to some extend are valid.

It is quite clear that Zimbabwe is trying to emulate models set in Namibia and Angola.

In Namibia, the government entered into a 50:50 Joint Venture with De Beers to establish the country’s leading diamond miner, Namdeb, while in Angola (the fifth-largest producer of diamonds by value in the world) companies that wish to explore for diamonds in the country have to do so in partnership with state-owned mining firm Endiama.

Moreover, their ownership in any diamond mine is limited to 40 percent.

However, the question is, will the Zimbabwean government successfully attract investors in the country’s diamond industry, if it places such onerous obligations on its potential investors, yet its neighbor, Botswana, which is regarded as the world leading diamond producer by value, let alone the best mining investment destination in Africa, is not imposing such stringent conditions?

It is certainly important for Zimbabwe to come up with legislations that benefit the country as well as attract investors, who naturally put their resources in an environment that brings best returns.

Whether this 50:50 initiative is the best way to go, it would be measured by the level of response potential investors would show in the country’s diamonds.

Zimbabwe should ensure that a conducive investment climate is created, given that the country had become notorious for violating property rights.

No serious investor would want to settle in such a country.

Mathew Nyaungwa, Rough&Polished from Namibia