, pub-3787448768440954, DIRECT, f08c47fec0942fa0 [google-translator]

Should government set a minimum investment threshold for foreign investors?

By Features Reporter – Friday 3 July 2020

ANALYSIS – HARARE (Mining Index) – THE raging battle for gold mining claims amongst Artisanal and Small-scale Miners (ASM) and foreign small-scale miners has got miners and analysts querying, whether local miners should continue pursuing ownership of mining claims, amid accusations of corruption at the allocating authorities.

Small-scale miners bemoan corruption in the mining sector, which now seems to favour foreign nationals, in granting of mining licenses.

Local miners claim foreign miners get their paperwork easily processed, as they can afford to pay bribes in USD, to fast-track applications for mining concessions.

The Ministry of Mines and Mining Development Bindura office once revealed they were sitting on a two-year backlog of unprocessed mining claims.

Foreign nationals have over the past decade flocked into the country, applying for gold licenses to undertake small-scale mining, a scenario that has consequently increased competition with local miners.

Hence, the ASM sector is advocating for government to prohibit the participation of foreign nationals in small-scale mining, urging the enactment of laws that only allow foreign investments in mining for larger mining projects, for their investment to be meaningful.

Local miners are of the view that foreign nationals must bring in lucrative investments of not less than 10 million USD if they want to be considered serious investors.

Besides, they must bring in new technologies for exploration, mining and in turn train and capacitate local people.

In most cases, such foreigners, pretending to be investors are merely opportunists trying their luck, who bring nothing as they start scouting for resources after they have been awarded mining concessions.

For the mining sector to grow, foreign investors must compete with big mining companies such as Zimplats, RioZim, Bindura Nickel Corporation (BNC), and Mimosa among others.

Below are sentiments shared by local Zimbabwean miners on why the government should set a minimum investment threshold for foreign investors;

“Small Mining Claims should indeed be preserved for Small-Scale workers, but bear in mind that some small-scale claims may be part of a Larger Mineralisation occurrence, which might require significant Capital Expenditure (CAPEX) to develop and bring them up to production. In my view, the best approach would be to encourage Joint Ventures, for Projects below 50 hectares, that is, five claims for precious metals and two blocks for base metals where possible. The reason why I suggest taking that route is because a lot of ground is being sterilized, lying dormant or being held for speculative purposes. If you note the number of undeveloped claims for sale and forfeited claims at the Ministry of Mines Offices, you will observe a trend. Some locals peg claims and do not develop them, they only pay Mine Inspection fees to keep hold of them, hence the ‘use it or lose it’ policy. There are blocks with known mineralisation that are reserved but aren’t being developed into producing mines. Those prospects could be developed by fully funded prospectors, but they are overvalued by holders and the prices they demand in order to sell to any prospective buyer may result in an impasse so the resources remain dormant. You can look at the case of Caledonia Mining Corporation and its quest to acquire more resources for expansion purposes. The best way forward is to seek a win-win scenario or trade-off, where Local small scale miners and foreign multinationals coexist and cooperate.”

Five years ago, I attended a dinner organised by the Angolan embassy in Zimbabwe where business people were invited to discuss opportunities in that country. They were clear to point out that the minimum investment for foreign investors was US$1 million and anyone with lesser dreams was not invited to invest in that country. Almost 100 percent of attendees left well-fed, but empty handed.

“We are not by any chance short of local entrepreneurs who can do small enterprises. As such, we must ring-fence these in some sectors for locals first and then only allow foreigners to come in and do medium to large scale. Any foreigner coming in to join the indigenous sector/small enterprise must face strict business terms with strict or discouraging share structure plans that are kind of a prohibition. Something similar to 51/49 percent must kick in. Business terms from operating small businesses must be different from those in the medium to large-scale projects. Small enterprise minimums must be commensurate with or guided by how much a small venture needs to be given such a project must have a certain amount of assets and employees. Be that as it may, it then becomes difficult to give an amount per venture to say this is the minimum. As a country, we must set rules and minimums favouring locals.”

 “It’s a delicate balancing act. But we need Foreign Direct Investment; how do you balance the two? We also cannot accept the current model where we are just casual labourers. We might need a hybrid solution where local consortia have a stake by way of shareholding and also a portion goes to the staff. We are between a rock and a hard surface. As it stands we are giving up our inheritance to foreigners for menial jobs.”

 “These so-called investors are corrupt. They come into our country and charge us for our local resources. That is theft. Once Chinese company was awarded a government contract and surprisingly, they purported to have imported quarry stone and pit sand, items they had sourced locally. We need to be careful with these people.”

While some are calling on the government to set a minimum investment for foreign nationals wishing to venture into mining, some say there is need to first address economic fundamentals to iron out economic imbalances hindering bigger investment opportunities into the country.

Inconsistency in government policy has been viewed as a deterrent factor in attracting foreign direct investment from international blue-chip companies.

“I think we need to gauge Zimbabwe’s attractiveness as an investment destination to foreign investors first. Let us take a look at foreign investor’s sentiment towards Zimbabwe as an investment destination in light of recent developments; the suspension of trade on the Zimbabwe Stock Exchange (ZSE), dwindling foreign direct investment and the uncertainty over our currency/its value and the investors’ ability to repatriate dividends and security of their capital,” said one mining analyst.

Analysts say setting capital thresholds in this environment where the government keeps making disruptive interventions and introducing new statutes and regulations which affect the exchange rate and value of potential investors’ portfolio and direct investment further restrict investment inflows.

“As we speak, foreign investors in listed companies are now uncertain about the value of their investments. It wouldn’t be surprising to see a huge sell-off in shares by foreign investors when the ZSE reopens because the blunder by the government to suspend trade based on unconfirmed suspicions on speculative trade has increased the perceived risk perception of Zimbabwe as an investment destination,”

“Gazetting further minimum entry level of investment thresholds will only compound to the problem of Zimbabwe’s high-risk low return, non/sub-investment grade perception. Any Investor takes a look at trade on the national bourse, ZSE, as an indicative barometer of economic activity. Although there may be bubbles at times, listed securities are regarded as the most transparent, well-regulated and best-managed companies and possible investments in any country. When government does not hesitate to suspend trade in blue-chip companies it speaks volumes of their disregard for preserving shareholder value,” he said. ENDS// 

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