From John Robertson

The Government Gazette Extraordinary published on Friday revises the indigenisation demands being placed on the mining industry. In essence, the changes are that:


(1) The disposal of 51% of the shares in mining companies to indigenous Zimbabweans will apply to all companies with a net asset value of more than one US dollar (US$1)

(2) The disposal of the shares to indigenous Zimbabweans must be completed by September 25 2011

(3) Affected companies must submit indigenisation plans by May 9 2011.

Previously, the indications were that companies with a net asset value of less than US$500 000 were exempt from the indigenisation legislation and that the disposal of the shares had to be accomplished within five years of the publication of the regulations.

The single-page publication is attached. Without referring to the earlier definitions of Indigenous Zimbabwean, this document adopts the phrase “designated entity” to describe the authorised recipients of the shares that companies must relinquish. The former definition, “Any person who, before the 18th of April 1980, was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such persons” is now replaced by these “designated entities”, which include:

(a) the National Indigenisation and Economic Empowerment Fund
(b) the Zimbabwe Mining Development Corporation
(c) any company formed by the Zimbabwe Mining Development Corporation
(d) a statutory wealth fund
(e) an employee share ownership scheme, or trust, or community share ownership scheme

Paragraph three refers to the valuation of asset values having to take into account the State’s sovereign ownership of the minerals, which requirement is clearly an attempt to reduce the amount that will have to be paid for the shares by the designated entities. However, no commitment is imposed on the designated entities to actually pay for the shares by September 25 or even to meet the bill for these by the end of the further three months that “on good cause” might be granted as an extension. Non-payment for what is being purchased would normally be considered very good cause for not parting with the asset, but it appears that government has no intention of offering the mining companies the right to cancel the sale of their shares on such grounds.

However, in most, if not all cases, the creation of shares that can be sold will involve the company in doubling the number of shares in issue and thus halving the nominal value of all existing shares. This is simply because the current shares are the property of the individuals who bought them and these individuals have no obligation to halve their own holdings. The simplest approach for each company might be to hold a special shareholders’ meeting at which they would have to seek the approval of all shareholders for a share split or a one-for-one rights issue. This would have to be accompanied by a request that the existing shareholders do not exercise their rights. The new shares thus created could then be offered to designated entities in exchange for the appropriate payment.

Finding the sums needed to pay for 51% of the mining industry will be quite a challenge. Not many of the mines are listed on the Zimbabwe Stock Exchange, so a market capitalisation calculation on the quoted shares adds up to a very small part of the answer. Allowing for the mines that are already in indigenous hands, half the value of the balance could easily come to more than a billion dollars. Apart from the proposed impractical indigenisation levy, nobody in government has offered a single suggestion on where a sum of that size that might be found, even if a further allowance is made to “account for the State’s sovereign ownership of the mineral”.

In respect of that sovereign ownership value, the State might be forced to accept the practical position that minerals under the ground have no value at all. Finding them, reaching them, extracting them and processing them for sale at prices that exceed all the costs involved is what mining is all about. Burdening the mining companies with huge theoretical costs for yet-to-be realised assets before the process starts is certain to ensure that the minerals remain locked in their buried ore-bodies. It won’t be long before people stop even trying to find them.

The publication of these new regulations is certain to lead to considerable debate and government can be expected to show increasing impatience with companies that appear to the authorities to be trying to undermine the indigenisation process. While the increasing antagonism and inevitable delays in resolving issues will certainly slow the levels of activity in the mining sector, the much more serious longer-term effect of these regulations will be the almost complete arrest of new mining investment inflows.

Even the Chinese investors, who appear to have been assured that the regulations will not apply to them, are likely to continue showing reluctance to commit funds. Part of the reason for this is the fact that the terms and conditions included in each of the Bilateral Investment Promotion and Protection Agreements include clauses that prohibit the Government of Zimbabwe from offering preferential terms to countries with which each BIPPA country might be competing.

I will do my best to keep you up to date with developments.

Kindest regards,

John

Zimbabwe gets heavy on indigenisation

Brendan Ryan Mon, 28 Mar 2011 17:36
[miningmx.com] -- SHARES in Impala Platinum (Implats) and Aquarius Platinum (Aquarius) fell sharply on Monday as investors took fright over the seriousness of the Zimbabwe government’s indigenisation demands.

Both groups have significant investments in Zimbabwe’s fledgling platinum sector, where Implats has just committed to spend $450m on the Phase 2 expansion of its Zimplats operations.
The two have been in discussions with the Zimbabwean authorities for the past two years over the proposed indigenisation requirements.
The belief until now was that a “reasonable” outcome was likely, which would reduce the official demand for a 51% controlling indigenous equity stake to the 26% level ruling in South Africa.

That may have changed on March 25, when a notice was gazetted stating every mining company had to “submit an indigenisation implementation plan complying with this notice within 45 days of the date of publication of this notice”.

The real kicker was in the final clause, which specified the way in which the value of the shares or other interests to be acquired by the indigenous partner would be calculated.

According to the notice, this valuation would take into account “the state’s sovereign ownership of the minerals or minerals exploited or proposed to be exploited by the non-indigenous mining business concerned”.

That raises the spectre of nationalisation of assets and the issue of compensation for companies already operating in the country and paying royalties to the government on ground to which they had been granted mining rights.

According to a platinum analyst: "You can interpret that clause any number of ways, but it’s serious. The platinum boys are engaging with the Zimbabwe government as a matter of urgency.”

Implats CEO David Brown told Miningmx: "From our point of view, we don’t see a material impact at this point in time and we remain in discussions and negotiations with the Zimbabwe government.

“Our understanding is that the 51% indigenisation requirement will be made up through a number of elements. These will include our investments in the country’s infrastructure and recognition of the mining ground that we gave back to the Zimbabwean government to secure title to the ground we now hold. “

A statement by Aquarius said that its Zimbabean subsidiary - Mimosa – “is engaged in discussions with the relevant authorities in order to establish a position that will be compliant with the act and beneficial to stakeholders”.

The writer owns shares in Implats and Aquarius.

Bennett, party at odds over investment in Zimbabwe

Old Mutual’s Zimbabwean subsidiary receives support for its investment in Zimbabwe from the main MDC-T opposition party.
SURE KAMHUNGA
Published: 2011/03/29 07:26:56 AM

OLD Mutual ’s Zimbabwean subsidiary yesterday received unlikely support for its investment in Zimbabwe from the main MDC-T (Movement for Democratic Change) opposition party.
This is after the party distanced itself from calls by one of its senior members, Roy Bennett, who wants the insurer to disinvest from two companies he says represent the face of alleged repression taking place in the embattled country.
Mr Bennett, who is in self- imposed exile in SA, has mounted a campaign to force Old Mutual to cut its ties with Zimbabwe Newspapers (Zimpapers) and Mbada Diamonds.
The two firms are directly owned by the state. Old Mutual has an indirect stake in Mbada Diamonds of 1,5% via its stake in New Reclamation Group. It also owns about 18% of Zimpapers.
Mr Bennett last week accused Old Mutual in Cape Town of investing in companies that are associated with the former Zimbabwe ruling Zanu (PF) party.

This is despite the fact that MDC-T is a partner with Zanu (PF) in the same government that he is critical of . The other partner is a smaller splinter party formed by disgruntled members from the original MDC party.

Mr Bennett wants Old Mutual to disinvest from the two firms, particularly "its blood-stained investment" in the diamond mine. The mine has been at the centre of controversy over allegations of rights abuses of villagers near the mine in eastern Zimbabwe. But the global diamond trade watchdog, the Kimberley Process , has given Zimbabwe the green light to export Chiadzwa diamonds.

Mr Bennett says some of the newspapers owned by Zimpapers are "spewing hate speech".

A spokesman for Mr Bennett’s party, Nelson Chamisa, yesterday said the public spat between Old Mutual and Mr Bennett did not represent the party’s official position. "That is Bennett’s view, not the position of the party," said Mr Chamisa, who is also minister of information and communications technology.
Mr Bennett was unavailable for comment at the time of going to press. With Dumisani Muleya
kamhungas@bdfm.co,za

RSS Feed Nephew of Zimbabwe's President Mugabe in Move to Take Over Mobile Provider

Sources said President Mugabe’s nephew, Leo Mugabe, has approached the president and asked him to issue a new Telecel license to his group, the Zimbabwe Wealth Creation and Empowerment Council. That’s an umbrella for the Affirmative Action Group, the Indigenous Business Women’s Organization, the National Miners Association, the Zimbabwe War Veterans Association and several other organizations.

Sources informed on the situation said Leo Mugabe claims that this group has a right to purchase a majority stake in Telecel Zimbabwe as agreed when the company was set up. At present, Telecel Globe of Egypt holds a 60 percent stake.

Ousted Telecel Chairwoman Jane Mutasa told Parliament today that Telecel is operating without a license and many top Telecel officials, including James Makamba, another former chairman, are based outside Zimbabwe at present.

Telecel Chief Commercial Officer Anwar Soussa said the provider is doing business as usual despite the wrangle. “I cannot say anything about Telecel shares but in terms of conducting business, we are operating and exploring more opportunities,” he said.

Economic commentator Walter Mbongolwane said Leo Mugabe is trying to seize Telecel from its rightful owners through manipulation of Zimbabwe's indigenization laws.

“We are waiting to see what will happen to this company which is being targeted by indigenous groups that are fully aware of the huge benefits of a telecommunications entity in the mobile phone sector,” Mbongolwane told reporter Gibbs Dube.

Inflation falls in February

17/03/2011 00:00:00
by Reuters

ZIMBABWE’S annual inflation slowed to 3 percent in February from 3.3 percent in January, the National Statistical Agency said on Wednesday.

Monthly inflation dropped to 0.5 percent from 0.9 percent previously.

Finance Minister Tendai Biti said early this month inflation would end 2011 at 4.5 percent year-on-year and reiterated that the economy would grow as much as 9.3 percent.

Zimbabwe’s economy was battered by hyper-inflation which reached 500 billion percent in 2008. The price index has since dropped to single digits following the adoption of multi-currencies in 2009.
Inflation quickened to 3.3 percent year-on-year in January.
Biti said growth this year would be driven by agriculture and mining.

"We have a bumper crop this year and I believe that in terms of maize production we will be second only to South Africa in the region.”

Zimbabwe investment conference allays fears

By Southern Times Writer 14-03-2011 E-mail this article to a friend

Note: Your e-mail address is used only to let the recipient know who sent the e-mail and in case of transmission error. Neither your address nor the recipients's address will be used for any other purpose.

Harare - THE Zimbabwe Investment Conference held in Harare last week helped dispel misconceptions that foreign investors had about Zimbabwe, with strong emphasis on the need for the country to effectively communicate its policies to attract foreign direct investment.

At the end of the conference delegates felt progress had been made in correcting misconceptions and in highlighting main issues of concern to investors.

The meeting established indigenisation, political developments and policy predictability as major concerns investors wanted a clear position on. The conference was co-hosted by Euromoney Conferences and the Government of Zimbabwe.

The two-day event, which ended in Harare on Wednesday, was attended by over 300 local and foreign delegates, demonstrating the level of investor interest in Zimbabwe as a leading emerging market in Africa.

German Ambassador to Zimbabwe Mr Albrecht Conze said the conference managed to clarify issues that had been of concern over the past year.

He said the issue that raised most misconceptions was centered on indigenisation and economic empowerment.

European investors and their media perceived the indigenisation drive as an initiative which could result in the incarceration of non-compliant firms.

The conference has gone a long way in clarifying issues that were of concern that have been around for a year now. It has been over a year since regulations on implementing indigenisation were gazetted and I can tell you on very blunt terms how they were received by foreign investors.

'You don't give us 51 percent otherwise you go to jail! That was the message that was not intended, but otherwise arrived at. But I think everybody has come a long way now. Thirteen (sectoral) committees were set up and are now due to present their results to the Government.

He said the Government should articulate its position well and indicate that in special cases, such as in the Essar-Zisco deal, it was ready to negotiate.

Ambassador Conze said issues such as community ownership schemes, empowerment credits and sovereign wealth fund that were not part of the original indigenisation regulations needed to be explained.

'I think the Government is now able to present its position much better, but they must also communicate to the foreign investor what it is and only then can someone like me tell German investors the conditions and risks.

'I will be able to say in spite of these risks you can be able to come and invest. I need to be enabled together with my European colleagues as well to propose Zimbabwe as a foreign investment destination,' he said.

He said Zimbabwe had been out of the African investment context for a decade and needed to put special effort to rebuild the lost investor confidence.

'That is why Zimbabwe has special obligation to show to the outside world that conditions are now ripe for investment,' said Ambassador Conze.

Dwelling more on empowerment as opposed to indigenisation would help the country achieve much, he said.
Europe reportedly already had a position on how they felt the country could deal with its US$7,1 billion debt to the Paris Club lenders.

Commenting on the same issue Euromoney Conferences director Mr Christopher Garnet said the event had succeeded in achieving its objective.

'The two principal things that Zimbabwe needed to take away from this conference are the need to address the question of the debt, that is, negotiate together and restructure together. Secondly, it needed to be transparent with local and international investors and ensure certainty,' he said.

He added the Government needed to ensure clarity on the indigenisation law, equal treatment in application of the equity law and ensure that its laws and policies were consistent and predictable.

'Investors hate unpredictability,' he said.

Mr Garnet said there was misunderstanding on what had been achieved in Zimbabwe in terms regenerating the economy considering certain media houses in Britain were still talking about hyperinflation in Zimbabwe.

These sentiments were shared by Lord Paul Boateng, non-executive director of Aegis Advisory, a global risk management and mitigation firm and former British Member of Parliament and Minister of Health and Social Services.

He said there were a lot of negative information on Zimbabwe among investors, which formed misconceptions that needed to be corrected urgently.

'It is these misconceptions, formed due to lack of correct information, that we need to get out there and correct,' said the Aegis Advisory non-executive director.

Invictus Investment Management managing director Mr Ritesh Anand said Zimbabwe needed to create investor-friendly conditions to attract foreign investment.

There was need for practical action to create the right conditions as touting about potential things such as good climate were not good enough.

'Zimbabwe has tremendous potential. It has potential to become a US$100 billion economy, but do the investors feel confident?' said Mr Anand.

In interjection, Indigenisation Minister Saviour Kasukuwere said some of the investors' concerns were unfounded, considering Zimbabwe was probably one of the safest investment destinations on the African continent.

'If you are investing in a country where the people do not articulate their needs then that country is not the right place for investment,' he said.

Indigenisation and economic empowerment regulations compel foreign firms with a net asset value of above US$500 000 to sell at least 51 percent to locals.

Minister Kasukuwere explained that all empowerment transactions would be carried on a commercial basis where the equity value would be fully paid for.

He stressed that the EU and the US needed to lift their economic embargo which was suffocating business..

Finance Minister Tendai Biti and Economic Planning and Investment Promotion Minister Tapiwa Mashakada said Zimbabwe was ready for FDI and would abide by international rules to build a genuinely free market and modern economy.

From John Robertson

Reserve Bank of Zimbabwe’s claims


Zimbabwe seems to stumble from one self-inflicted crisis to another, led by politicians who demand the right to be taken seriously. In the continuing debates outside the country, the behaviour of these politicians has generated lots of sympathy for Zimbabwe’s long-suffering population, but it has qualified the country’s leaders for nothing but ridicule.

Some of the ridicule has come from deeply flawed official interpretations of events, mostly characterised by demands that the results achieved be defined as resounding successes. These claimed successes are accepted by the few who argue that the destruction of most of the country’s productive capacity was intentional.

This tiny fraction of the population claims that Zanu PF can achieve its absolute control mission only by breaking down the physical and financial structures built since the country was colonised. Their view seems to be that success can be permitted to survive only if the people who brought it about are supporters of the party. And although the party does not publicly admit to supporting this thinking, it repeatedly demands respect for its “sovereign right” to confer impunity upon those commissioned to purge the country of political opponents.

The inevitable and massive human rights violations that were soon being documented led directly to restrictions being imposed from abroad on senior Zimbabwean officials who were identified as participants or promoters of these crimes. Zanu PF was quick to claim that sanctions applied to such important people were sanctions against the whole nation. In its repeated and increasingly impassioned calls for the restrictions to be lifted, in effect it has been asking that the international community should also grant impunity to Zimbabweans accused of crimes against humanity.

Every item on Zimbabwe’s long list of difficulties since 1997 is now being blamed on the countries that denied travel visas to these officials, or stopped them from drawing money from bank accounts opened in these countries.

While such claims are absurdly fictitious, the difficulties are real enough. But they can all be linked directly to odious policy decisions, and despite these clear linkages, the policy decisions are still being vigorously defended.

In remaining determined to stick with ideas that caused severe losses, the party protests that nobody is entitled to challenge its right to make such choices. However, its defence of bad ideas partly accounts for the unwillingness of international financial organisations to extend further loans. It is not in the mandate of these institutions to make up for huge losses caused by destructive ideas that are still being followed.

However, even if they wanted to offer tangible help, they couldn’t. These institutions have rules, all of which are well known to Zimbabwe’s authorities. One of these is that further loans may not be granted to borrowers who are in default in their repayments of previous loans. Knowing this, but deliberately misinforming the population that world development institutions are applying sanctions to shorten the lives of Zimbabwe’s poorest is simply and disgracefully dishonest.

Banks to return SA coins

Monday, 28 February 2011 20:18

Herald Reporters

LOCAL banks are set to return R8 million worth of coins to South Africa that they have been holding onto since last year because retailers have resisted buying them to ease change shortages that consumers have long complained about.

President of the Bankers Association of Zimbabwe Mr John Mushayavanhu yesterday said they had been sitting on the coins for nearly eight months now.

A shortage of rand and US coins in circulation means people often spend more than they intend to in shops so that their bills can become round figures.

Shops also give out credit notes indicating how much change customers are owed, but these are only redeemable in the specific branches where they are given.

The Consumer Council of Zimbabwe has said this has contributed to the high cost of living in Zimbabwe as people spend more than they want to.

Banks had sought to ease the problem by buying coins in South Africa, which they offered retailers at prevailing rand-US dollar exchange rates, but the latter appear not to be interested.

Said Mr Mushayavanhu: "We have already received app-roval from the South African Central Bank and we will be returning the coins anytime now."

Mr Denford Mberi of the Retailers Association of Zimbabwe is on record as saying the banks were trying to profit from the coins by selling them higher than the exchange rate.

Many Harare retailers have maintained an artificial rand-US coins exchange rate of 10:1.

This means R5 is equivalent to 50 US cents.

The actual rate would have R5 at around 71 USc as the South African currency has long since gained on the greenback.

Oddly, Harare's informal traders apply more realistic rates and even commuter omnibus operators have tried to give people value for their money in coin terms by charging a normal trip at R4 or 50 USc.

Street vendors also have coins and these are easily changing hands, a development that has stoked people's fury as to why formal establishments cannot give them a fair deal as well.

Harare retailers have failed to explain why they can apply the prevailing rate quite easily on notes, but not on smaller denominations and for change purposes.

AfroFood Julius Nyerere Way branch said they only applied prevailing rates to amounts of R50 or more, but would not explain why this was so.

TM Mbuya Nehanda Street, OK Robson Manyika and Spar Joina City also had no reason as to why they undervalued South African coins.

Some of these retailers have branches in Bulawayo where similar problems are not being experienced.

Mr Mberi referred all questions to a Mr Ndebele at Truworths' headquarters in Harare, who was not available for comment.

Finance Minister Tendai Biti has for months said Zimbabwe will soon get US coins, but these have not been seen.

People have also questioned why the finance minister is prepared to bring in coins from across the Atlantic Ocean when the South African option is readily available much closer home.

The public has called for legislation to be put in place to force retailers to be fair.

"The Government must make it illegal for this daylight profiteering which these shops are practising.

"They are forcing us to buy useless things like sweets and if you add up all the money that people are forced to use, you will find that they have extra sales of over US$100 in each shop a day," railed Mr Cosmas Dumba of Warren Park who had been forced to take lollipops as change after buying a cough mixture in OK First Street.

The situation is much better in Bulawayo where the actual exchange rate is applied.

For instance, kombis in Bulawayo generally charge R3 per trip and coins are readily available as change in just almost every shop.