Zim in a $195m dilemma

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… White former famers want their pound of flesh

Bernard Mpofu

The government’s efforts to resolve long-standing disputes over the land reform programme suffered a major setback last week after a World Bank-affiliated international appeals court – the International Centre for Settlement of Investment Disputes (ICSID) -dismissed Zimbabwe’s application to annul an award granted to a white former commercial farmer by the court.

The ICSID, based in Washington DC, USA, is an international arbitration institution established in 1966 for legal dispute resolution and conciliation between international investors. It is part of, and funded by, the World Bank Group.

In July 2015, the ICSID awarded the Bernhard von Pezold family the return of their property in Manicaland plus their full legal costs and interest, or alternatively the Zimbabwean government should pay the family US$195m in damages.

The court ordered Zimbabwe to return the property in 90 days or face the alternative consequence. The property, where Zimbabwe Stock Exchange listed Border Timbers, was based in Manicaland Province where it had vast timber plantations all over the province.

But Zimbabwe refused to return the property. Instead, in October 2015, the government sought the annulment of the award. But last week (on 21 November to be precise), the ICSID annulment committee, hearing Zimbabwe’s application, dismissed it in its entirety and ordered the country to pay $195m in damages plus the costs of the proceedings.

Zimbabwe had argued that the original tribunal had denied it the right to be heard and was partial as evidenced by its conduct at the oral hearing. What is more: the president of the tribunal was also the chair of the World Bank Sanctions Board which had imposed economic sanctions on Zimbabwe in 2001 on account of the land reform programme.

But the ICSID tribunal, sitting on the last stage of the appeal route for Zimbabwe, was not impressed by Zimbabwe’s arguments and threw out the appeal, which means the cash-strapped country will have to find US195m to pay the von Pezolds or face international opprobrium, particularly from the World Bank Group, which is a group Zimbabwe, under the Second Republic, does not want to offend. And here lies Zimbabwe’s dilemma.

In total, over 4,000 white Zimbabweans who were descendants of settlers from the UK, Australia, Belgium, Germany and the Netherlands lost vast tracts of land when former President Robert Mugabe’s government embarked on an agrarian reform in 2000 to address colonial injustices.

The programme angered the UK and its allies in Europe, USA, Canada, Australia and New Zealand who, on account of kith and kin politics, imposed economic and political sanctions on Zimbabwe which led, in the main, to an implosion of the country’s economy by 2008.

In the process of the programme, some Bilateral Investment Promotion and Protection Agreements (BIPPA) were violated by Zimbabwe. Together, the 4,000 former white farmers say they want $9b as compensation from the Zimbabwean government.

In last week’s budget announced by Finance Minister Prof Mthuli Ncube, the government set aside $53m as part of the compensation to the former white farmers.

Thus the damages awarded to the von Pezolds threaten to upset the government’s momentum. In the first place, the award is among the highest ever given by the ICSID tribunal and represents about 80 percent of the damages claimed by the von Pezolds, which is a very high ratio for an ICSID arbitration.

In its award, the tribunal found that Zimbabwe had breached the bilateral investment treaties that it had reached with Germany and Switzerland when it expropriated the von Pezold’s property in 2005, and also treated the von Pezold unfairly and inequitably in regard to their foreign exchange earnings.

In celebrating the ruling, the Von Pezolds’ lawyers, Steptoe of the US, claimed thatZimbabwe was already in breach of its obligations under international law in not paying the full compensation due under the award, and that this breach has continued even after President Mnangagwa became president in November 2017.

“During the annulment phase of the arbitration proceedings,” the lawyers said, “Zimbabwe had stated that it would honour the award if its application to annul the award failed. That application has now failed.

“In order for Zimbabwe to show its commitment to the rule of law, and willingness to engage with the international community, the von Pezolds call upon Zimbabwe to immediately honour the award per its obligations and promises.”

Last week Finance minister Mthuli Ncube said the Treasury had budgeted $53m to compensate evicted farmers, adding that the government was seeking more financial support abroad to resolve the issue.

“Whilst work on the extent of government’s obligations is still to be finalised, the resources required to compensate and put closure to this important issue is obviously beyond the capacity of the Budget to finance,” Ncube said during his 2019 National Budget presentation.

“In this regard, [the] government is engaging international financial institutions and other stakeholders in exploring various sustainable options for mobilising the requisite compensation resources. Given the limited fiscal space, the 2019 Budget makes provision of $53m for payment of compensation to former farmers, to show commitment to this obligation.”

But the von Pezold lawyers, already smelling blood, are going for the kill. “There is a stark contrast on the one hand between the manner in which Zimbabwe has treated foreign investors whose property it has expropriated,” the lawyers said, “and on the other hand the often-repeated promise of President Mnangagwa that ‘Zimbabwe is open for business’. Foreign investors will not return to Zimbabwe if it does not honour its international obligations.”

That sounds like a call to foreign investors to shun Zimbabwe if it does not pay up the $195m to the von Pezolds.