THINK ON IT by CHRIS CHENGA
Developing economy governments are conditioned to blame foreign enterprise when confronted by their local constituents.
Such is the nature of liberation political parties rallied in unity by colonial defiance. Large foreign enterprise tends to be perceived as colonial remnant. But, this is a big problem in the resources and extractives sector, particularly in Zimbabwe.
When former President Mugabe’s administration failed its own constituents in the diamond rush to the eastern region of the nation, there was no acknowledgement of government’s role in the nation being deprived of what was purported by Mugabe to be $15 billion.
Without admitting to the weak institutional controls and legislative illiteracy rampant in Mugabe’s administration, foreign enterprise was convenient scapegoat for the poor yields derived from the discovery of deposits.
Consequences of this bad practice reveal themselves today in the influence held by cartels that have no observable corporate identity, or that operate at the edge of public accountability.
Bona fide companies do not deal with unaccountable governments, let alone ones with a propensity to scapegoat poor social outcomes on foreign enterprise. In their capital raising and investor relations, bona fide companies are confined by stringent corporate governance guidelines and organisational culture that raises a lot of caution as to which jurisdictions to operate in.
They are averse to likely jurisdictions of botched operations and poor social outcomes; the kind of which inept governments will make haste to apportion them blame for.
Financiers of bona fide entities tend to be pension funds or investment trusts that have active stakeholders organised as unions, boards, or committees, to regularly scrutinise managerial decisions. In fact, many of these companies are on public capital markets like stock exchanges. Indeed then, there are many qualifying barriers before such entities find themselves in questionable jurisdictions.
Cartels on the other hand, have the competence to raise money that capitalises on the vices of compromised governments; vices such as kickbacks, extortive influence on public officials and institutions, and other underhand practices intolerable in the corporate governance guidelines of bona fide companies.
This is easier, and perhaps conventional, as financiers of cartels tend to be wealthy individuals or groupings of aggressive, in instances illegal, businessmen who would otherwise have their wealth in more stressful channels of money laundering, shadow banking systems, or investments that are exposed to expropriation if ever accounted for by competent governments.
Perhaps then, it would make sense that in most Zimbabwean mining interest of recent years, the representation is often skewed towards the latter demographic wealthy individuals with no track record in resources and extractives.
In September 2017, the last Industry Minister in Mugabe’s Cabinet, Mike Bimha, had the nation baffled when he announced a $2 billion deal for ZiscoSteel; oddly from a hospitality and retail estate tycoon with no mining interest under his portfolio. Of course, nothing came of it; the Chinese businessman never acknowledged such a bid.
But therein resides the core problem, and President Mnangagwa’s administration has to confront this legacy. Zimbabwe had become a jurisdiction of which bona fide mining enterprise is averse to. It had come to a point of accosting hospitality tycoons to literally take up idle mining assets.
Unfortunately, pressured to perform, Mnangagwa’s administration is off to a false start. Eager to signal “open for business”, and more importantly, keen to deliver on campaign promises, the current administration is hasty to announce mega-deals seeking the appreciation of impatient local constituents. There should be wiser navigation here.
The Mnangagwa administration has hosted a number of mining conferences, none more successful than the one in Harare at the end of February 2018 which saw more than 300 delegates fly into the country for a closer look.
However, of those delegates, none presently represent the top 50 mining enterprises in the world; not just by market value and global operations, but more importantly as ranked by best industry practices. This should be telling. Zimbabwe, though under a new administration, is yet to attract the best bona fide mining companies.
This is likely due to little conviction in the country’s pivot from the incompetent culture that ends at government scapegoating foreign enterprise for botched operations, deplorable social outcomes, or less than heralded yields from mining mega-deals.
Without addressing the vices that were in government during Mugabe’s incumbency, prematurely announcing mega-deals scares away investors, even those with bona fide intent but merely at MoU stage. There are many risk factors that this practice places in front of an unsuspecting investor. If confronted by extortive public officials, can the investor exit without being ridiculed shamefully by government?
If legally repatriating profits back to its domicile, will an investor be publicly accused by a regulatory illiterate government of transfer pricing, double charging management fees, or tax avoidance? If exploration eventually finds less than prospected deposits, will government be honest to its constituents that it pre-maturely raised hopes by emphasising estimates rather than eventual finds?
Mnangagwa’s administration has already overstepped in announcing mega deals, way before addressing the structural legacy matters that still have bona fide mining companies hesitant on Zimbabwe.
This eagerness to announce megadeals, coming across as desperation, gets bona fide mining companies querying that if outcomes are not satisfactory to the current administration and its constituents, who will be the scapegoat in such unfortunate circumstances?
The mining business is uncertain, and things do go wrong more often than not. That is why mining thrives in countries where competent government is firm on institutional controls and legislative literacy.
Since Mnangagwa’s inauguration, his administration has struggled to show effectual ability to enhance institutional controls or legislative literacy; let alone in a manner that shows that it can precisely reprimand foul play if ever it exists. Bona fide mining companies are not going to be available to such finger pointing.
