Zimbabwe: Trust breaks down

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DESPERATE for revenue for its dwindling state coffers, the Zimbabwean government has turned on privately owned diamond mining companies in Marange, in the east of the country. It wants to force them to consolidate their mining operations under a single state-owned entity, the Zimbabwe Consolidated Diamond Co.

The Marange field is one of the largest diamond projects in the world, but its output has declined in recent years.

The move has faced strong resistance from the six diamond mining firms which have been operating in Marange since the discovery of diamonds in 2008. The firms are Anjin Investments, Diamond Mining Co, Jinan Mining, Kusena Diamonds, Marange Resources and Mbada Diamonds.

The companies have approached the courts to challenge the government’s unilateral cancellation of their mining licences.

More significant, however, is that the cancellation of licences last month by mines & mining development minister Walter Chidhakwa has renewed investor fears about Zimbabwe’s lack of respect for property rights.

The country’s appeal as an investment destination was dealt a blow by the 51% indigenisation law, which hands over a controlling stake in foreign-owned firms to indigenous Zimbabweans.

China, through Anjin Investments, is heavily invested in Zimbabwe’s diamond mining industry and the attempt to nationalise the mines will test political relations between Harare and Beijing. President Robert Mugabe has relied on handouts from Beijing to help keep Zimbabwe’s economy afloat. Turning it around would require as much as US$27bn, according to the ruling party’s economic revival blueprint.

It is unclear what caused the government to cancel the mining licences, an action which has fed into discourse about the policy dissonance which continues to plague the current administration. Chidhakwa says the companies were in breach of the terms of their permits and had operated for years without authorisation.

“It has come to our attention that the joint venture companies have been operating illegally, as the permits which had been granted expired and were not renewed over the last four to five years.”

Chidhakwa says all the companies that operate in the Marange area are affected. “The secretary of mines is empowered to cancel the special grant for various reasons, including the economic interests of Zimbabwe,” he says.

An industry source who had intimate knowledge of the consolidation plans before they were announced says Chidhakwa is also concerned about “his legacy”. He wants to be able to leave the mining ministry with a reputation for cleaning up an industry that is otherwise shrouded in secrecy.

Reserve Bank of Zimbabwe governor John Mangudya is the latest senior government official to have spoken out on the lack of transparency in mining. He is critical of the minuscule revenue inflows from the diamond sector. In his monetary policy announcement last month, Mangudya said revenue from diamond mining would improve now that government had created a state-owned entity.

But the mining firms are unlikely to accept the government’s directive to leave Marange and halt operations. They maintain that it is the job of the state, through its mining arm, the Zimbabwe Mining Development Corp, to renew the licences.

Last week Mugabe waded into the affair for the first time and seemed to suggest that the government’s real motive was to contain the problem of gem smuggling.

“Lots of smuggling and swindling has taken place and the companies that have been mining, I want to say, robbed us of our wealth. That is why we decided that this area should be a monopoly area and only the state should be able to do the mining in that area,” Mugabe said. “You cannot trust a private company in that area. We should have learnt from the experiences of countries like Botswana, Angola and Namibia. We might go partner with a leading diamond company, one already well-established.”

Mining is the second biggest source of foreign exchange for Zimbabwe — after tourism. However, diamond production fell to 420,000 carats in the first five months of 2015 from 660,000 carats during the same period in 2014.

The country at one time boasted that it held 25% of the world’s diamond resources and could realise an annual turnover of $10bn from diamond sales. Official figures indicate that the state has earned just $2bn since 2008 from an industry which generates over $15bn in annual turnover.

The Zimbabwe National Chamber of Commerce says the removal of the companies from Marange would help the country make a fresh start.-Financial mail

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