HARARE (Business Day) -- Just when people were thinking that reason - something which had escaped from the Zimbabwean government - was beginning to return to the country, the lunatic bolted out of the asylum.
Government pulled a shocker this week with an unexpected proposal to take over mines on arbitrary terms - with 25% shareholding grabbed for free! Authorities said government would acquire 51% in foreign-owned mining companies that produce platinum and diamonds. They said 25% equity would be expropriated without paying a cent, and the remainder would be purchased over five years.
Under the proposed ownership structure, government and indigenous companies will also take 51% of gold and emerald mines. In other minerals, Zimbabwean companies will secure half of the shareholdings.
The transfers will take place over seven years, with 20% taken within two years, 40% in five years. The 50% target will be achieved in seven years. New mines will be required to have government or local ownership from the start.
Affected companies and other stakeholders have immediately voiced their opposition to the proposal. South Africa mining houses such as Anglo Platinum [JSE:ANANP], the Implats Group [JSE:IMPO], Metallon, Mmakau Mining and Shaft Sinkers, as well as other foreign mining companies like the British-based Rio Tinto [NYSE:RTP; LSE:RIO], will be the most affected.
Implats has an 86% stake in Zimplats [ASX:ZIM], its Australian Stock Exchange-listed Zimbabwean subsidiary. Metallon, owned by Mzi Khumalo, owns the largest gold mines in Zimbabwe, while Mmakau, headed by South Africa's Transport Minister Jeff Radebe's wife Bridgette, and Shaft Sinkers own Eureka Gold Mine.
Zimbabwe has a lot of minerals along the Great Dyke belt. It has gold, base metals such as nickel and chrome, platinum group of metals, energy minerals including coal, industrial minerals such as lithium, tantalite and graphite, diamonds, coal-bed methane, and small quantities of uranium.
The country also has other natural resources. However, its population is currently languishing in poverty due to a man-made economic disaster.
Analysts say the proposed mining legislation will only make the situation worse. They say it will inflict irreparable damage on the mining sector already reeling from effects of the prevailing economic crisis.
The plan, reminiscent of Zimbabwe's chaotic land seizures, could destroy mining, one of the few remaining functioning sectors of the economy.
Independent consultant John Robertson said the new legislation was "economic sabotage". He said it would keep new investors at bay and hurt those who had already put money into a number of companies, while reducing prospects of economic recovery.
As a result, he said, Zimbabwe's foreign currency crisis and shortages of fuel, power, productions inputs and basic commodities would continue. "It's going to be a demolition job on the economy by government and will leave this economy in ruins," he said.
The decision will also magnify Zimbabwe's political risk, especially as it comes against a background of unrelenting land invasions by state agents and other violations of property rights.
The recent 17th amendment of the constitution - which strips the courts of jurisdiction on land seizures and legalises nationalisation of acquired land - underlines Zimbabwe's sovereign risk as an investment destination.
Ironically, the government's point man on the economy, Reserve Bank governor Gideon Gono, said in January that there would be no economic recovery and new investment unless there are "investor-friendly policies and protection of property rights."
The International Monetary Fund, where Gono is trying to secure balance of payments, will refuse to bail out the country under these conditions.
Effective policy formulation and implementation has collapsed because government has at least two camps battling for political influence.
Gono and other reformers such as Finance Minister Herbert Murerwa are battling with President Robert Mugabe's diehards, including ruling party Zanu (PF) spokesman Nathan Shamuyarira and other political dinosaurs, to introduce economic reforms. The reformers want a paradigm shift on economic policy but are being thwarted by Mugabe's adherents.
The policy paralysis has weakened the bureaucracy and created a major leadership vacuum which allows for opportunistic measures like the new mining laws. This dysfunction in the system is now a millstone around the neck of Zimbabwe's economy.
Dumisani Muleya is Harare correspondent and Zimbabwe Independent news editor.
