ZMDC: Planning to fail

IF there is one frustrating thing about the manner in which the country’s affairs are being run, it is the Zimbabwe government’s penchant for pressing the self-destructive button as well as its downright arrogance of going against sound advice.

Whereas basic economics would dictate that the quickest way out of the current liquidity crisis is to mobilise, cap in hand, fresh investment inflows, our approach, if one can call it that, has been to scare away the same.
Government has been making a lot of noise through its hostile indigenisation plan, targeting foreign-owned companies and the ructions in the inclusive government, which have worked against its investment case.
The mining sector, which boasts of vast mineral wealth, has been rattled by this noise.
Daniel Broby, the chief financial officer for Silk Invest – an investment fund with US$150 million earmarked for frontier markets – summed up the feeling among foreign investors with regard to Zimbabwe’s mining sector.
He had this to say: “The mining sector is one that we want to avoid. I appreciate that Zimbabwe has immense resources, but there is just too much political noise around the sector for us. I get the impression that many Zimbabweans confuse the notion of ‘proven reserves’ with that of ‘shareholder value’. They are not the same thing and that distorts what the expected returns will be for investors.
“That said, I do think the sector will attract the capital it requires and certainly production is not improving. From our perspective, however, we can make more bang for our buck elsewhere.”
At its peak in 1986, the mining sector contributed about seven percent to Gross Domestic Product (GDP). But in 2008, its mineral shipments amounted to US$676 million, representing about 51 percent of total export shipments or 3,8 percent of GDP.
Zimbabwe has also been trailing behind the rest of the world in terms of mineral exploration and development and has lost out on major commodity booms enjoyed elsewhere between 1998 and 2009 due to its investor unfriendly policies.
Now, to make matters worse, the powers-that-be are now entrusting a failed State-run institution – the Zimbabwe Mining Development Corporation (ZMDC) – with the herculean task of reviving major mines; nurturing greenfield diamond mining projects in Chiadzwa, Manicaland, through joint ventures and playing a pivotal role in indigenising the mining industry.
One of the onerous tasks thrust on ZMDC’s lap is to revive Shabanie and Mashava Mines, which has been under the administration of Arafas Gwaradzimba since 2004 when the asbestos mines were expropriated from businessman, Mutumwa Mawere, under the guise of attempting to reconstruct them. An estimated US$200 million – about three times the size of the government’s wage bill – is required to re-open the mines so that they can, once again, start to produce 180?000 tonnes of asbestos fiber per year and save Zvishavane from becoming a ghost town.
ZMDC has also been roped into forced partnerships with Sino-Zimbabwe, Mbada Diamonds, Marange Resources, Pure Diamonds and Anjin – the four companies that have so far been given the green light to scour the controversial Chiadzwa diamond fields for the gemstones.
And being one of the designated entities authorised to receive shares to be relinquished by foreign-owned mining companies, ZDMC is poised to play an even bigger role in the country’s mining affairs.
The question worth asking is: Can ZMDC, loaded with all these responsibilities, be able to pull its weight?
Officials in the Mines Ministry – in particular Deputy Mines Minister, Gift Chimanikire – in their wisdom or lack of it, believe the corporation is up to the task. Unfortunately, ZMDC’s track record thus far does not corroborate their optimism.
Established in 1984 to develop government interests in the resource sector, ZMDC has largely failed to fulfill its mandate due to a combination of factors, among them poor funding, skills flight, unviable international prices and red tape.
Only a shell is what remains of a once vibrant corporation following a spate of closures and disposals of some of its strategic business units (SBUs).
From a cluster of operations which included Mhangura Copper Mines (MCM), Lomagundi Smelting and Mining, Messina Trading Development Corporation, Kamativi Tin Mine, Elvington Gold Mine, Sabi Gold Mine, Lynx Mine and Mhangura Copper Refinery, the parastatal is now left with only two operational mines.
Two of its biggest operations, Kamativi and MCM were shut down in 1994 and 2001 respectively, leaving the Kamativi and Mhangura communities devastated.
With more desperate cases requiring funding, it does not need a rocket scientist to postulate that ZMDC is being set to fail. For now, all government funding would be dedicated towards diffusing the threat of a strike in the civil service, rescuing Air Zimbabwe and other critical parastatals from collapse and making food available in the wake of food shortages in some parts of the country.
Central bank governor, Gideon Gono, once remarked that ZMDC was practicing what he preferred to call “mechanised panning” in Chiadzwa. By illustrating the parastatal’s rudimentary mining methods, Gono was trying to highlight the sorry state of affairs not only at ZMDC, but at nearly all the State-run institutions. Poor funding has been the biggest impediment preventing government from fully utilising the country’s huge resource base, hence, the present irony whereby Zimbabwe remains poor despite it being endowed with vast mineral wealth, good soils and climatic conditions and a highly educated populace.
With the government moving into full gear to seize majority shareholding in mining companies through its controversial indigenisation policy, not much in terms of foreign direct investment will flow into the mining sector, which means the situation in the resource sector is likely to deteriorate further until sanity prevails in government.
Why the government continues to pursue the twin objectives of running companies while at the same time being the catalysts for a conducive operating environment is baffling. One would have expected the government to revert back to its privatisation success story of the 1990s to allow the private sector more prominence in the running of the country’s economy, but alas, it is still determined to lumber itself with more commercial interests despite it being clear that it does not have the capacity to operate them viably.
In the end, it is the taxpayer who will continue to pay through the nose to sustain these loss-making entities through subsidies and jaw-dropping perks for their top executives who are usually appendages of top politicians.
It is about time the government should promote and reward entrepreneurship by withdrawing to its core business of providing basic services such as education and health to the public and leave business in the hands of capable entrepreneurs or institutions like what it did with Dairibord, now DZL; AICO, formerly the Cotton Company; ZimRe and the Commercial Bank of Zimbabwe, now CBZ Holdings.
CBZ is among the privatised institutions that have demonstrated what enterprises can achieve once they are freed from government meddling: The bank has not only grown to become the second largest bank in Zimbabwe by share of deposits but, along the way, it has made strategic acquisitions by adding Datvest, now CBZ Asset Management and Beverley Building Society, now CBZ Building Society to its portfolio.
Whereas in the past, these institutions would have relied on subsidies from government, they are now ranked among Treasury’s cash cows through the payment of taxes and dividends.
The way to go is for government not to create monoliths out of sickling institutions such as ZMDC, but to allow the private sector to seize opportunities arising in the business sector with the powers-that-be restricting themselves to the role of the referee.
Given ZMDC’s uninspiring track record, our fear is that the government is surely planning to fail by pursuing the current model.

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