Chapter 3: An overview of indigenisation and economic empowerment
3.12 Impact of IEEP on Investment
3.12.1 Impact of indigenisation on the mining sector in Zimbabwe
The mining sector has been negatively affected by the structure, inconsistency and lack of clarity of the IEEP. Organisations understand the motives behind the economic empowerment plan and the need for transformation and restorative justice but have been left confused by how this process should be conducted. In a statement by Mary-Jane Morifi, for example, the then Executive Head of Corporate Affairs at Anglo Platinum, it was acknowledged that the company recognised “the need for black economic empowerment and sustainable development” and that because of its record in
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South Africa, it was ready to meet the “eventual requirements” of the indigenisation policy in Zimbabwe (The Herald, 2011: par 4).
The idea of economic empowerment was not new to Zimbabwe, having been first mooted after the country’s independence in 1980. This process was nevertheless not very effective as Zvoushe (2019:74) highlights that even after 10 years of independence, 80% of mining and industry still lay in the hands of foreign investment. Although the requirement for majority indigenous ownership in the mining sector appears to be the norm across Africa, the radical approach that was adopted by the Zimbabwean government in 2008 when MNCs were given strict directive to comply with the new law, was unexpected and has had long-lasting negative consequences. Saunders (2008:82) acknowledges that while the Chamber of Mines and local mining companies had been involved in the consultative process of the drafting of the indigenisation policy, they and other stakeholders such as the Government of South Africa and South African based MNCs were surprised by the Act.
The country had experienced a boom in the mining sector following the structural adjustment polices that the Mugabe regime had implemented in the 90s but what followed could not be expected.
According to Saunders (2008: 68), in the 90s, mining companies responded favourably to the liberalisation of investment regulations and Zimbabwe was well on its way to record yields in gold mining as well as new interest in coal, ferrochrome, and platinum. The table below shows some of the investments that were made in Zimbabwe during the 90s.
Table 3.4 Zimbabwe: Mining investment in the 1990s
Source: Saunders (2008: 69)
The years between 2000 and 2008 were, however, characterised as atrocious as economic and political instability engulfed Zimbabwe. The ruling party had embarked on radical and popularist measures to retain power beginning with the fast-track land reform programme and followed by the indigenisation drive, both which were used mainly for electioneering and political gain. This saw investor confidence plummet as the business community questioned the legality of these policies.
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The first few years following the enactment of the Indigenisation and Economic Empowerment Act (14 of 2007), saw mining output and investment decrease drastically with some analysts citing that the political and regulatory environment as not ideal for unfettered large-scale investments (Seccombe, 2020: par.2). In its annual budget review for 2016, the Government of Zimbabwe (2017:
16) admitted that though the mining sector was an important contributor of foreign exchange, its contribution to the fiscus had waned as illustrated below. Table 3.5 highlights the impact of the policy on mining activities in Zimbabwe in 2009 and the gradual increase thereafter.
Table 3.5 Mining sector revenue 2009-2016
Source: Government of Zimbabwe (2017: 16)
Analysts labelled 2009 as a poor year for mining, as the industry dealt with the confusion caused by the Indigenisation and Economic Empowerment Act (14 of 2007). The Chamber of Mines (Manhando, 2017) observed that outputs of nickel, chrome, gold, coal, and diamonds had all reached historic lows with analysts attributing it to the unstable operating environment. Mineral output increased in subsequent years as more dialogue between all parties involved began to bear fruit with regards to the detail and expectations of the government. Although the mining sector in Zimbabwe during the period 2009 to 2011 was characterised as “generally less hospitable by international standards” (Newfarmer & Pierola, 2015: 92), the years also coincided with the global resurgence of demand on minerals and this saw a significant rise in output.
144 Figure 3.1 Zimbabwe’s mineral exports 2001-2012 Source: Newfarmer & Pierola (2015:92)
The figure above (Figure 3.1) shows the country’s mineral exports and is used to illustrate the significant slump experienced in 2009 (post implementation of IEEP). It should, however, be noted that this low coincided with the global financial crisis of 2009 which affected commodities. Although outputs began to increase thereafter, the sector remained on tenterhooks as uncertainty and suspicion prevailed amidst the challenging social, economic and political climate. It was during this time that ZANU PF faced the strongest challenge to its rule since the early 80s and the party was aggressively fighting for its political survival in an environment that had seen a rise in unemployment, labour unrest and poverty. According to Zvoushe (2019:192), the situation was exacerbated by the militant stance taken by prominent individuals such as former Indigenisation Minister, Saviour Kasukuwere, who unreasonably and unrealistically anticipated a faster turnaround to indigenisation by foreign-owned companies. Debate around the structure and implementation (timeframes) of IEEP, which involved bodies such as Parliament and the Reserve Bank of Zimbabwe, meant that mining companies adopted a cautious “wait and see” approach. This is echoed by Nyathi (2016:109), who notes that investor interest was largely subdued during this period due to negative sentiments surrounding IEEP and general apprehension about the country's political trajectory.
With limited options available, mining companies began partially implementing their indigenisation plans starting with the simplest and most responsible options first. Zvoushe (2019:202) observed that CSOTs were considered low hanging fruit as mining companies such as Zimplats, Anglo, Falcon Gold and Caledonia were amongst the first businesses in the country to establish these initiatives.
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These CSOTs were viewed by mining companies as worthwhile and effective initiatives which would ensure that a significant number of citizens would actively participate in the economy whilst simultaneously protecting the environment around areas of operation (Nyathi, 2016:102). Zimplats, Unki and Mimosa established CSOTs in their respective areas of operation in 2011 and in 2012 Caledonia became the first mining company to comply with Indigenisation and Economic Empowerment Act (14 of 2007).
Companies were also forced to submit beneficiation plans as part of the economic empowerment drive. In line with IEEP, the government introduced regulations and interventions to push mining companies to establish refineries, smelters, catalytic converters and cutting and polishing plants, thereby, adding value to minerals mined in Zimbabwe. Although the policy of beneficiation is not unique to Zimbabwe, the manner in which it was imposed on mining companies was deemed problematic. Baissac et.al (2015:19) state that exports of unprocessed chrome ore were banned in 2011 with the government hoping to encourage the building of smelters in Zimbabwe. Similar actions were undertaken for unrefined gold and uncut diamonds, while President Mugabe's public announcements regarding his government's plans to prohibit the exportation of unprocessed platinum meant that mining companies involved in that area had to be alert and begin preparations in case the threat materialised.
In the Fraser Institute's 2012–13 survey of global mining, Zimbabwe ranked 91st least favourable investment destination out of 96 countries, down from 73rd the preceding year, “probably because the survey took place after the announcement of the indigenisation policy toward mining” (Newfarmer
& Pierola 2015:93). According to Shumba (2014:71) the political and economic instability that prevailed, partially due to the effects of policies such as IEEP, led to the shutting down of many manufacturing and mining businesses and the suspension of several mining projects. In 2015, Finance Minister Patrick Chinamasa conceded that between 2011 and 2014 almost 5 000 businesses in the country had collapsed, further harming an already battered economy (Baissac et.al, 2015:21).
The 2018 amendments brought about much relief to mining companies and investors as it meant that it was finally possible for 100% foreign owned shareholding in all mining operations besides platinum and diamond mining. Investor confidence improved as a consequence of the country's economic normalisation and strengthened market environment, attributed to President Mnangagwa's "open for business" agenda. The government appeared to be reprioritising the mining sector through the revision of the Indigenisation and Economic Empowerment Act (14 of 2007) with immediate investment interest coming from MNCs such as Karo Resources, a Cypriot mining company that pledged to invest $4.2 billion on a platinum mine in Mhondoro-Ngezi. Another major development was the granting of a platinum mining licence and five-year tax exemption to Russian- owned Great Dyke Investments. Other prospects included Lithium mining projects with the government receiving extensive interest in the ore due to the high global demand for electric car
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batteries. In this respect, the government reported interest from a number of mining MNCs including a US$1.4 billion enquiry from a “South African based company” (Stevens, 2019: par. 8).
In 2020, Winston Chitando, the Mines and Mining Development minister, boldly announced that the government had overcome the investment bottlenecks and had resolved issues of policy clarity and inconsistency and was ready to welcome foreign investors into the resource-rich country (Mathews, 2020: par.4). The minister also clarified that investors were able to remit their capital and dividends back to their home countries. Participants in the mining sector responded positively to these initiatives as interest in the business grew.
The 2018 amendments were also welcomed by mining companies that were already operating in Zimbabwe, with Caledonia Mining announcing that it had reached an agreement to repurchase the 15% shares that had been allocated to its indigenous partner Fremirio investments for US$16.66 million (Caledonia, 2019:15). RHA Tungsten Private also presented updated plans to the Ministry of Industry, Commerce and Enterprise Development for consideration and approval in November 2018.
The mining company had already ceded 51% ownership to the NIEEF, an agreement which the company described as “financially unviable”. RHA Tungsten therefore sought a reversal of this deal following the announcement that 100% foreign ownership was permitted (Cornish, 2018: par. 10).
Parent company Premier African Minerals’ executive chairman and Chief Executive Officer declared the company’s commitment to Zimbabwe in light of these changes and stated that “we are however happy for some of the financial gains generated through RHA to remain within the country for the upliftment of its economy and its people, but a commercial and viable agreement is required with NIEEF to ensure a long-term future for RHA” (Cornish, 2018: par. 11).
The confidence that was slowly gaining momentum was however shattered by the 2020 amendments which some mining observers described as regressive and contrary to the “open for business” mantra first declared by President Mnangagwa following the removal of Mugabe. At the time of writing this study, no other mineral had been designated under the revised law. This could however change at any stage as the revision included a clause which assigned the Minister of Industry, Commerce and Enterprise Development authority, after consultation with the Minister of Mines and Mining Development and the Minister of Finance and Economic Development, to gazette which minerals were to be reserved.
In light of these changes and resultant uncertainty, there is renewed fear that the government’s decision could ignite an exodus of investors not only in the mining industry but also in other sectors.
Not only has the policy inconsistency proven to be problematic to investment confidence but the unprocedural manner in which these revisions have been made has affected the trust investors had developed in the post Mugabe Zimbabwe. The highest priority for the government remains clarifying the guidelines and the scope of the programme as well as reassuring investors of consistency and transparency in policy formulation and implementation.
147 3.13 Conclusion
Indigenisation and economic empowerment is described as a purposeful affirmative action intended to offer indigenous citizens of a country the opportunity to participate in and benefit from economic activities from which they had previously been excluded. Its purpose is to redress historical injustice and establish social equality for all members of society, particularly those who were formerly disenfranchised and marginalised who in this case were the majority Black Zimbabweans.
This chapter explored the fundamentals that drive social justice and affirmative action by discussing the theories most applicable to indigenisation and economic empowerment. These theories point to a need for countries that have experienced oppression and marginalisation to undertake transformative actions aimed at attaining social and restorative justice. The actions taken by governments continue to be a significant component in every country's desire to improve its citizens' well-being, achieve self-determination, and attain economic growth. In order for economic empowerment to be meaningful and successful, the state needs to guarantee stability and transparency in the implementation of the policy. When these are observed, investors are more comfortable with the process. Empowerment of this nature is a process and not an event and, as such, takes time and effort to achieve the expected transformational objectives.
The chapter also provided examples of economic empowerment policies that have been implemented in South Africa and Malaysia before honing down to IEEP in Zimbabwe. In South Africa, the government took an all-inclusive approach to economic empowerment that has seen the involvement of all stakeholders in the formulation and implementation of socioeconomic affirmative action, national development, and poverty eradication. Although not perfect, this policy has been heralded as a beacon of broad based economic empowerment on the continent. This example was also examined because the MNCs presented for this study are based in South Africa, therefore an understanding of their home commitments offers insight for better analysis for this research. The Malaysian approach, on the other hand, is similar to the Zimbabwean model in that foreign ownership is regulated. The approach is considered the best recognised case of systematic economic empowerment and has offered a template for most countries in the world. The ceding of shares in MNCs operating in Malaysia is also an important reason for its inclusion here as redistributive justice was also critical in Zimbabwe.
The discussion also looked at the background of Zimbabwe; focusing on pre-independence inequality as a precursor to understanding the objectives of the policy, the legislative framework as well as the impact on investment with special attention to the mining sector. The discussion helped to evaluate the rationale and content of IEEP in Zimbabwe and investigate the impact it has had on investment in the country. Proponents of the indigenisation law underestimate the difficulty of driving the areas of production towards a focused economic direction that has the possibility of their purpose
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towards profit maximisation. In essence, in any society, there may exist difficulties in driving all players to adhere to the expectations of a transformational agenda.
Though IEEP leaves much to be desired due to ambiguous content, a lack of clarity and accountability, inconsistent execution and political bias, it remains an essential mechanism for Zimbabwe's path to claiming social justice and economic empowerment. The policy's rationale is noble and demands the cooperation of all stakeholders for it to accomplish its expected goals.
Economic empowerment is meant to be rooted in the ideals of social justice, development and long- term sustainability and as such needs to be depoliticised and made less elitist.
Regardless of the debate around IEEP, it is important to understand its transformative foundation as it continues to be an essential instrument to undertake in the pursuit of a development agenda. In this respect, this examination of IEEP in Zimbabwe sets the tone for analysis of Anglo American Platinum and Impala Platinum’s CSR strategy in the country. From this basis, research on the two MNCs investment strategy and CSR approach is simplified when seen from the context given in this chapter.
The next chapter will detail the research methodology followed in trying to fulfil the research objectives. It explains the approach used, the qualitative research process as well as the case study approach.
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