Zimbabwean President Robert Mugabe recently appointed his nephew, Patrick Zhuwawo, as the country’s new empowerment minister.
He is the third person to occupy the hot seat since September 2013.
Zhuwawo has wasted no time in his new portfolio, as he made several pronouncements over the past few weeks, pointing to a revived drive to ensure compliance with the law.
Zimbabwe enacted the empowerment law in 2007 (although some reports say 2008) to compel all foreign-owned entities (especially miners) to surrender at least 51% of the stake to locals, but the law was facing resistance and had been blamed for low foreign direct investment.
The new minister said the empowerment law would not be changed.
He took aim at government officials who made announcements suggesting that the law would be amended to attract the much needed foreign direct investments.
“We heard some top politicians saying we will re-look at indigenisation. This means they are saying my-self and all of you should go home and sit,” Zhuwawo said on 30 September.
“…those who are saying so are those who joined the party through the back door and waivers. They should not be over excited when their tummies are full.”
Local media interpreted his ranting as an attack on finance minister Patrick Chinamasa who is now viewed in the Western capitals as a reformist.
The finance minister had told fellow ministers last month that there was need for Harare to re-engage the West.
“If we ignore that reality, we will not go anywhere, we just go in a vicious circle. We must engage, we have to engage, if we don’t we are shutting all avenues for development,” he said.
This, at the time, attracted the ire of the sharp-tongued minister of war veterans Christopher Mutsvanga who indirectly criticised Chinamasa saying there were some ministers in the cabinet who still held the mentality that “the white man is superior”.
“They have the mentality that whatever comes from America is number one; whatever comes from [the] British is first. That’s a wrong mentality…,” he was quoted as saying by New Zimbabwe.com.
Mutsvangwa further accused Chinamasa of trying to topple Mugabe by working with the International Monetary Fund (IMF).
One would not be dismissed as highly imaginative by concluding that Zhuwawo shared the same sentiments with Mutsvangwa given his aforesaid statements and the fact that he had since ordered ministers not to comment on the empowerment issue as it was his domain.
Taxed to dry
Also to show that he was the man in charge, he recently announced that foreign-owned companies in Zimbabwe may have to pay 10% of their gross revenue to promote local control of foreign firms.
He said the 10% applied to firms that were not in compliance and this would rise to 12,5% in the second year.
“This is a recommendation from technocrats within the ministry. In fact, it is a provision in the law which we just want to implement and make operational,” he told journalists on 6 October.
“According to the law, there are discounts that are offered to companies that indigenise. For example, if you indigenise 100%, you will get 100% discount and if you indigenise 40%, you will get a discount equivalent to that.”
“If it was me, I would just indigenise and stay away from the problem of paying the empowerment levy. It doesn’t make business sense to pay the empowerment levy when you have an option to indigenize.”
Zhuwawo would not say when the new levy would come into effect but said he would seek support for his proposals from parliament.
President Mugabe's ruling ZANU-PF party have an overwhelming majority in parliament.
Some of the companies that could be affected by the new tax include the world's top two platinum producers, Anglo American Platinum and Impala Platinum Holdings.
Between a rock and a hard place
Apart from the pressure to indigenise, mining firms are now facing crippling power shortages threatening to lower their output.
Harare recently ordered all mining companies and other big industries to reduce their electricity consumption levels by 25% in light (excuse the pun) of the current power shortages affecting the whole country.
“Noting that there are some large users of power such as Mimosa, Unki, Zimplats, Zimasco, Zim Alloys, Afrochine, and others, these are to be asked by ZETDC (Zimbabwe Electricity Transmission and Distribution Company) to drop load by up to 25% on the basis of existing contracts,” Energy and Power Development minister Samuel Undenge was quoted as saying.
“It would be up to these large power users to decide on which areas of their operations to load-shed. This is expected to yield 25 megawatts.”
The heightened shortage of electricity coupled with the renewed vigour to implement the empowerment law as opposed to softening it, would no doubt exacerbate the country’s economic decline.
No meaning investments had been percolating though with the country said to have received $1 billion investment applications last year.
Just over half the value translated into real investment, according to the Zimbabwe Investment Authority (ZIA).
ZIA chairperson Nigel Chanakira said last July that the level of actual and proposed investment in 2014 indicated the need to double the efforts.
“Our applications totalled $1 billion in 2014. For a start, we are still nowhere near the $5,6 billion we require every year in terms of foreign direct investment,” he said.
Chinamasa also said in his 2015 budget statement that foreign investment had a significant and positive impact on market liquidity.
“These have, however, remained subdued due to the perceived country risk,” he said.
“For the first ten months of 2014, the country received foreign direct investment amounting $146.6 million compared to $311.3 million during the same period in 2013.”
Mining was Zimbabwe’s biggest source of foreign exchange for Zimbabwe, which has the world’s largest platinum reserves after South Africa.
The country was also one of the largest diamond producers in the world in terms of volume, but that had since changed as output had been on a downward trajectory.
Data released by the diamond watchdog, Kimberley Process, showed that Zimbabwe’s output dipped by 56 percent to $238.6 million in 2014 while its volume plunged 55 percent to 4.771 million carats.
Harare claimed that Marange, which was the biggest source of alluvial diamonds, had dried up and the miners were now looking at conglomerates, which however demands heavy machinery and investment.
Efforts were also in place to consolidate diamond mining in the country.
Rio Tinto, which controlled a 78 percent stake in Murowa Diamonds had since exited the country following reports of its resistance to the amalgamation of diamond mines as well as the empowerment law.
With diamond output dwindling, the focus had been on platinum given the huge deposits in the country.
However, platinum output had also been on the decline and this was further worsened by the closure of Zimplats’ Bimha Mine.
With power shortages increasing coupled with weak platinum prices, there was no doubt that things were not looking good at all.
The miners would have to generate their own power, as much as the country was making efforts to boost power by 2018.
That said, Zimbabwe would have to rethink its empowerment laws as much as they are necessary to help the previously disadvantaged natives.
It should strike a balance, that is attract investments and at the same time empower its people.
For now it’s safe to conclude that the empowerment law and power shortages were the two major challenges facing the mining industry, which should be leading the country’s economic recovery.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
