Search

 

Cablegate: Zimbabwe Mining On the Mend

VZCZCXRO0444
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0947/01 3421334
ZNR UUUUU ZZH
P 081334Z DEC 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 5197
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 3199
RUEHDS/AMEMBASSY ADDIS ABABA 3308
RUEHBY/AMEMBASSY CANBERRA 2569
RUEHDK/AMEMBASSY DAKAR 2938
RUEHKM/AMEMBASSY KAMPALA 3356
RUEHRL/AMEMBASSY BERLIN 1735
RUEHNR/AMEMBASSY NAIROBI 5804
RUEHGV/USMISSION GENEVA 2481
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 HARARE 000947

SIPDIS

AF/S FOR B.WALCH
DRL FOR N.WILETT
ADDIS ABABA FOR USAU
STATE PASS TO USAID FOR J.HARMON AND L.DOBBINS
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR M.GAVIN

E.O. 12958: N/A
TAGS: EMIN ECON PGOV ZI
SUBJECT: ZIMBABWE MINING ON THE MEND

1. SUMMARY: Zimbabwe's mining sector is showing signs of recovery,
with growth this year of about 2 percent after a decade of steep
decline. Mining could grow by as much as 20 percent in 2010. But
investment in exploration has been minimal over the past decade, so
recovery of the industry is unlikely to be sustained. Among the
obstacles to investment are proposed amendments to the Mines and
Minerals Act that would force investors to sell a majority
shareholding to black Zimbabweans. Mining in Zimbabwe will have a
chance to reach its potential only when the Government of Zimbabwe
(GOZ) recognizes that this highly capital-intensive industry is
entirely dependent on foreign investment to expand. END SUMMARY.

--------------
Mining Matters
--------------

2. At its peak in 1995, the mining sector accounted for 7 percent of
Zimbabwe's gross domestic product (GDP) and 50 percent of export
earnings. Mines employed around 60,000 people directly. Steep
decline in output between 1999 and 2008 saw the sector's
contribution to GDP fall to just 4 percent as mining contracted even
more rapidly than the rest of the economy, while employment declined
to around 35,000 people. Mining remains a major user of
electricity, accounting for between 35 and 40 percent of total
electricity consumed in Zimbabwe.


3. As the economy collapsed following the chaotic land reforms that
started in 2000, so did mining output. According to the Chamber of
Mines of Zimbabwe, between 2004 and 2008 most mining houses had
stopped production, concentrating instead on care and maintenance
activities. In addition to the poor operating environment at home,
characterized by onerous foreign-exchange rules and power outages,
in recent years most metal prices declined internationally due to a
fall in demand caused by the global financial crisis that started in
2007. Only diamond and platinum mines operated at full capacity
during this period, primarily because of special arrangements with
the Zimbabwean authorities that allowed them to retain export
receipts rather than surrender them to the Reserve Bank of Zimbabwe
at an unattractive official exchange rate.

----------------------
Green Shoots Appearing
----------------------

4. Between January and October 2009, however, activity in the mining
sector improved, with most mines being rehabilitated. In his recent
budget speech, Finance Minister Tendai Biti reported that mining
output is expected to grow 2 percent in 2009. Experts at the
Chamber of Mines believe output could grow a further 20 percent or
more in 2010.

5. The main reasons for recovery are a rebound in mineral prices
internationally, the dollarization of the Zimbabwean economy, and
liberalization of gold marketing in March 2009. Statistics from the
Chamber of Mines show that gold output for the year reached 3.14
tons by October 2009, compared to 3.50 tons recorded for the whole
of 2008. Gold output is estimated to reach 4.5 tons by year's end.
Qof 2008. Gold output is estimated to reach 4.5 tons by year's end.
According to the Chamber of Mines, only the base-metals sector is
still operating on a care and maintenance basis, largely due to a
shortage of capital reserves. The mines need both working capital
and fixed capital expenditures to be fully operational, but
shareholders are unwilling to plough in new capital because of
continuing uncertainty in the operating environment.

6. All three major producers of chrome -- ZIMASCO, Zim Alloys, and
Maranatha -- have made significant progress toward reviving
production. Zim Alloys has managed to inject capital from a South
African investor, while ZIMASCO succeded in bringing four out of
six furnaces into production, with a fifth expected to start
production in April 2010.


HARARE 00000947 002 OF 002


------------------------------
Low Investment Limits Recovery
------------------------------

7. There have been significant new investments over the past two
decades. The most notable of these are: Zimbabwe Platinum Mines
(Zimplats), established by Delta Gold Limited; Anglo Platinum's Unki
Mine; the Mimosa Mine set up jointly by Aquarius and Impala of South
Africa; and Rio Zim's Murowa Diamonds. Industry experts say there
would have been even greater investment had the economic and
political environment been favorable.

8. The main factor that discourages mining investment is the
Indigenization Act, which compels foreign companies to sell 51
percent of their shareholding to black Zimbabweans, even if black
Zimbabwean investors lack the means to purchase shares. More than
one mining executive has told us of failed efforts to raise
financing due to market participants' fears of the Indigenization
Act.

9. One consequence of the lack of recent investment is the absence
of minerals exploration for the past decade. Industry experts
expect a gap in output in the short term due to the lack of
exploration work. Zimbabwe will require huge mining investments
just to restore mineral output to its 1997 level. But indigenous
investors do not have the wherewithal to finance this level of
activity.

---------------------------------
New Tax Regime Will Stifle Growth
---------------------------------

10. Historically, Zimbabwe's fiscal environment has been liberal,
with corporate tax at just 15 percent. With a number of concessions
given to miners such as the initial special allowance and favorable
capital depreciation allowances, the effective rate of tax fell
drastically to around 7 percent per annum. But since 2003, when
miners started paying royalties at varying rates from 1 percent for
coal to as high as 10 percent for diamonds, along with a 3 percent
levy on wages, the effective tax rate rose to 45 percent, according
to the Chamber of Mines. Even more confiscatory were requirements
to surrender hard currency earnings. Finance Minster Biti's
proposed 2010 budget will raise royalties to from 3 percent to 3.5
percent for most minerals. Some observers expect the higher royalty
payments will further discourage investment.

-------
COMMENT
-------

11. As in other sectors of the economy, the main problems in mining
are political. The Indigenization Act, as it stands now, makes any
large new mining venture an impossible proposition. At a minimum,
the GOZ will need to make special provisions for indigenization in
mining to clear the way for the needed large infusion of foreign
capital. But even if the Indigenization Act were modified, there
would still be enough uncertainty about the direction of GOZ policy
in the medium term to make mining in Zimbabwe relatively
unattractive for new players. END COMMENT.

RAY

© Scoop Media

 
 
 
World Headlines

 

OECD: COVID-19 Crisis Puts Migration And Progress On Integration At Risk, Says

Watch the live webcast of the press conference Migration flows have increased over the past decade and some progress has been made to improve the integration of immigrants in the host countries. But some of these gains may be erased by the COVID-19 pandemic ... More>>


Pacific Media Watch: How Pacific Environmental Defenders Are Coping With The Covid Pandemic

SPECIAL REPORT: By Sri Krishnamurthi of Pacific Media Watch Pacific Climate Warriors - creative action to trigger better responses to climate crisis. Image: ... More>>

Reporters Without Borders: Julian Assange’s Extradition Hearing Marred By Barriers To Open Justice

After monitoring four weeks of evidence in the US extradition proceedings against Wikileaks publisher Julian Assange, Reporters Without Borders (RSF) reiterates concern regarding the targeting of Assange for his contributions to journalism, and calls ... More>>

OHCHR: Stranded Migrants Need Safe And Dignified Return – UN Migrant Workers Committee

The UN Committee on Migrant Workers has today called on governments to take immediate action to address the inhumane conditions of migrant workers who are stranded in detention camps and ensure they can have an orderly, safe and dignified return to ... More>>