Law in Zimbabwe still needs reform to attract mining investment

Since the long-awaited regime change that saw Zimbabwe’s dictator Robert Mugabe deposed in November 2017, great emphasis has been placed on the potential for development in Zimbabwe’s mining sector and how, if the sector were revived, it could help repair the country’s struggling economy.

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Author: Ian Coles, Head of Global Africa and Mining Practices: Mayer Brown LLP

The current climate of the mining sector is a favourable one, and this attitude was reflected at the Zimbabwe Mining Investment Conference held in Harare on 27-28 February.

The conference, with its impressive number of attendees, was a positive signal of international confidence in the sector’s potential. During the two days in Harare, the sector’s need to secure hard cash from investors to revitalise the struggling industry was a central topic of discussion.

As a result of years of stagnated funding, Zimbabwe’s exploration activity now falls behind the modernised approaches used by other mining nations. Attendees highlighted that access to this much needed funding would only be made possible through:

  • government support in the form of mining initiatives
  • implementing radical changes to mining regulations.

Despite the suggested solutions to the sector’s difficulties, a number of concerns were raised by those already working out Zimbabwe. In particular, concern was raised around the difficulty in navigating government bureaucracy.

One particular company used the example of how they had to contend with an overwhelming 35 Acts of Parliament, 45 Statutory Instruments and 15 Ministries to have their requests processed.

A suggested solution to this issue was the centralisation of these overlapping departments to ensure there was a single point of contact within government to deal with the regulation of mining.

A few of the panellists representing the government countered that changes to bureaucratic system were already happening, however some of these changes had not been reviewed since the new government came to power, so there is still plenty of room for improvement.

The representatives also announced a new system of taxes connected to mining organisations.

Beneficiation for instance – a system of tax which has been markedly unpopular, particularly for those who process offshore – is to be overhauled and replaced by a new system by January 2019.

A new royalty system is also set to be introduced with the aim of encouraging on-shore beneficiation.

Taxation is a significant issue for Zimbabwe’s mining sector to tackle, and the country would be wise to look to other mining authorities as a gauge of how best to retain a competitive edge.

Attention was also drawn to the outdated principle mining law that was first introduced in 1960. There have been plenty of attempts at reforming the law, but to date none of these attempts have been successful.

Any future changes to the law are of great importance, as they will hopefully settle any differences between surface right and mining right holders.

Ministers in attendance were self-assured that such amends would be implemented in the coming months, and that any procurement reforms would also be rolled out imminently.

In closing the discussion of reforms, ministers also reported that the unpopular indigenisation plans would be reduced and would only apply to producers of platinum group metals and diamonds.

An area that seemed a little neglected at the conference was the issue of holding foreign currency earnings offshore. This was surprising considering the established need for foreign investment in Zimbabwe’s mining sector.

In order to invest, foreign businesses need to feel comfortable that their assets will not be restricted by local liabilities. Nearly two thirds of all foreign currency in Zimbabwe comes from mining exports.

To illustrate the issue; only $300 million of offshore investments entered the mining industry in Zimbabwe in 2017, compared to $2 billion in neighbouring Mozambique, and over $1 billion in neighbouring Zambia.

In essence, despite the undeniably positive mood in Harare, the issues the industry faces remain serious and only when commitment to institutional change is witnessed can foreign powers be expected to invest.

However, I remain hopeful that this change will come sooner rather than later. Zimbabwe has much to offer, and as one speaker in Harare observed Zimbabwe is too rich to be poor. Government action as proof of their commitment to reform will certainly be welcomed by potential investors.

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