Rio Tinto exit a wakeup call to govt

via Rio Tinto exit a wakeup call to govt – NewsDay Zimbabwe June 29, 2015

THE decision by global mining giant Rio Tinto Plc to exit Zimbabwe deflates President Robert Mugabe’s mantra that everyone is desperate to land a hand on the country’s natural resources despite the toxic economic policies his government has been pursuing.

Rio Tinto, one of the biggest mining conglomerates in the world, has been operating in Zimbabwe for the past 60 years and contributed significantly to the growth of the economy before Mugabe pressed the self-destruct baton.

On Friday, the company announced the sale of its diamond and coal assets to RZ Murowa Holdings, marking its withdrawal from Zimbabwe.

Rio Tinto used to own 78% of the Murowa diamond mine and 50% of the Sengwa coal fields that have remained undeveloped for decades because of the uncertain economic environment in the country.

The Australian multinational has not stated its reasons for exiting Zimbabwe beyond the statement that it “believes that the future of these assets can be best managed by entities with existing interests in Zimbabwe”.

However, it is likely that the company was spooked by the new government policy to nationalise all diamond mining companies including Murowa.

The nationalisation of diamond mines would certainly not sit well with investors given the Zanu PF government’s track record in the management of the economy.

Murowa churns out 300 000 carats of diamonds annually and there is no doubt that it was among Rio Tinto’s most treasured assets. The decision to abandon the project says a lot about Zimbabwe’s investment climate.

The Sengwa coal fields also have vast potential with an estimated 1,3 billion tonnes of the yet to be tapped resource.
Plans to build a 2 000 megawatt thermal power station have been on the cards for some time.

Zimbabwe’s mining sector is a victim of opaque and inconsistent government policies, which makes it an unpopular destination for foreign investors and it is not surprising that Rio Tinto decided to throw in the towel.

Another mining giant Essar Africa Holdings of India are learning it the hard way after securing the $750 million deal to revive the defunct Ziscosteel.

The deal sealed in March 2011 saw Ziscosteel being unbundled into two companies – NewZim Steel and NewZim Mineral – but is yet to be consummated four years later due to haggling over iron ore deposits. Essar became a victim of political infighting in government and already a lot of time has been lost. Former Ziscosteel workers have gone for years without salaries and Redcliff is turning into a ghost town because of the collapse of the steel giant.

The economy has been prejudiced as downstream companies collapsed because their survival depended on production at Ziscosteel. The Midlands province bears testimony to that dereliction of duty by the government.

Strategic national institutions such as the National Railways of Zimbabwe that were dependent on a functional Ziscosteel may never recover and Zimbabwe would have to continue to import steel because of the way the Essar deal is being mishandled.
However, more importantly it is the negative signals that such developments as the Rio Tinto pullout and Essar bungling that should worry Zimbabweans.

Essar and Rio Tinto are not small-time investors and their perceptions about the investment climate can make or break the economy. The Rio Tinto exit should naturally trigger some self-introspection in the government and consequently a relook at policies that continue to retard development and scare away investors.