By Sternford Moyo, HARARE, November 17 (The Source) – Mining is in most cases a long term investment which demands huge capital outlays with benefits to be enjoyed many years after expenditure of money in exploration, surveys, infrastructure development and physical mining.
Any legal regime which does not take the economic reality of contemporary global investment imperatives into account will not succeed in helping Zimbabwe to reap the developmental benefits of its resources.
To achieve the developmental benefits, a number of measures which promote both investment and the interest of communities in which investment takes place are required.
Huge Capital Investments are required to improve infrastructure, including power and accessibility of mines and to purchase new equipment. Investments in technology and infrastructure will reduce cost, improve efficiencies and make the country globally competitive.
Some of the key issues are:
Create a simple legal regime
The Mines and Minerals Act Chapter 21:05 is a 1961 Statute. The world has moved considerably since then. It is an unreadable statute drafted with undue prolixity and there is considerable avoidable repetition in it.
Trying to improve it may turn out to be an exercise in futility. It may be easier to repeal it and start from a clean slate with a view to producing a clearer, shorter and investor friendly statute.
Attractive investment destination
Government should address reasons why its people and businesses desire to keep their money offshore. Where the reasons are legitimate, it should facilitate banking arrangements which will enable its people and businesses to access their money offshore. Where a business requires to maintain banking accounts outside in order to facilitate the raising of capital, it should facilitate that also.
Zimbabwe should address all the factors that add up to the high risk rating that the country suffers from. If Mauritius and the United Arab Emirates were able to turn themselves into capital havens, there is no reason why Zimbabwe should not be able to do so. The starting point is display in unequivocal respect for property rights.
Reducing resource nationalism rhetoric
Resource nationalism frightens investors. They have seen its impact in countries such as Venezuela. It adds nothing to the understanding of what is needed for Zimbabwe to leverage its minerals for growth and development. Its two main slogans are:
(i) The minerals of Zimbabwe are a heritage of all Zimbabweans and they must belong to State. Under the law of Zimbabwe, all minerals belong to the State. All that a miner acquires are mining rights. Consequently, this slogan is as empty as most slogans.
(ii) The State must take custody of all mineral resources and hold same for the benefit of all Zimbabweans.
The State already has custody of all minerals under the laws of Zimbabwe. It is the one that issues mining rights and mining permits. Again, this slogan is entirely empty.
Reducing operating costs
The cataclysmic changes in world metal prices and foreign exchange markets demand that Zimbabwe must intensify its focus on cost reduction and international competitiveness. Companies which create models which can survive the current fall in world mineral prices will become unassailably strong and sustainable businesses. However, sacrifices will have to be made.
Companies should try to use hedging instruments to protect themselves from price changes and changes that take place in foreign exchange markets. Mining is global. It is only by employing global strategies that the miners can compete on the global stage.
Government should respond to fall in mineral prices
Taxation policies will need to take into account the pressure on revenues emanating from the reduction in prices of minerals. Legislation will have to be crafted on the basis that investors should remain secure irrespective of volatility. One way to achieve this is to have stabilization agreements allowing for renegotiation in the event of any adverse change in circumstances or allowing for a frozen regime of taxes.
Concessions will need to be guaranteed on a long-term basis. The 30 year period introduced by the Mozambican government and tax holidays to allow for pay back on initial investments before it sought to increase its revenues is an example of what needs to be done to attract investment into the mining sector.
Rules based legal regime
A rules based legal regime which curtails the discretionary latitude of the government is imperative. A rules based regime will help to reduce corruption, cronyism and the burden of bureaucracy in the processing of permits and granting and retention of mineral rights.
Zimbabwe must ensure that the minister acts on the advice of an independent statutory body whose function shall be to look at the technical and economic benefits of project proposals without any political or partisan considerations;
It must ensure that all settlement of disputes is done in a manner consistent with the International Convention for the Settlement of Investment Disputes (ICSID) and must provide, as an appendix to the legislation, for a standard mining development agreement and enjoin both the investors and the government to act in accordance with it.
Zimbabwe should also provide for easily marketable, transferable and mortgageable mining rights. Such a regime will increase the attractiveness of the Zimbabwe mining sector to investors and enhance the ability of investors in the mining sector to access both local and international finance. Where the approval of the minister or government is required to alienate mining rights, the use of the rights as security to raise capital becomes substantially reduced.
Define and confine the role of the State
The law should define and confine the role of the State to that of a regulator and creator of an enabling environment for mining investment. As a country, we should respect the customary distinction between operators and regulators.
Furthermore, to promote mining development, the State should provide geological data and information.
Government should maintain a laboratory, and have a library of information necessary to enable it to assist potential investors into the mining sector.
It also needs to ensure that information contained in reports submitted by holders of mining rights is adequately protected from disclosure without the consent of the mining companies submitting them.
The mining development agreement or model investment contract for mining ventures should be strictly informed by the need to balance the interests of investors and those of the communities where extraction takes place.
To ensure security of tenure, all provisions in the Act threatening the tenure of mining companies which adhere to the provisions of the Act and the mining development agreement, should be repealed.
Government should have strict provisions relating to protection of the environment. Environmental protection is now a constitutional right of all Zimbabweans.
The country also needs undergo a philosophical shift from thinking in terms of sustaining resources to thinking of sustainable benefits. Resources are by their nature not sustainable. Only benefits can be sustained.
Zimbabwe’s rules and regulations must ensure that investors do not lose control of their investments and must have elaborate statutory provisions to minimize corruption, tax abuses and illicit financial flows.
Lastly, the government needs to control the activities of artisanal miners to eliminate environmental hazards, health hazards, safety hazards and lack of accountability in respect of taxes.
Sternford Moyo is the chairman and senior partner at Scanlen & Holderness, a premier law firm in Zimbabwe.