Zim must not sign away mineral wealth

via Zim must not sign away mineral wealth – The Zimbabwe Independent. 20 June 2014 by  Sarah Logan

June 20, 2014 in Opinion

IN January 2013 Zimbabwe’s national account held a mere US$217. Since the general elections held last year in July won by Zanu PF the country’s economy shows signs of decline.

Industrial activity has largely decreased and foreign direct investment has virtually dried up.

Loans from China have kept the government afloat for the last three years, but with the country’s rising external debt, even China is wary of extending further unsecured credit to Zimbabwe. Unable to borrow from anyone else (due to its appalling credit record), the cash-strapped government is currently negotiating a comprehensive financial rescue package with China, valued at an estimated US$10 billion.

However, before China extends further loans to Zimbabwe, the Chinese government insists Zimbabwe provides security for the loan. Securing the loan would ensure that China has a way of recovering some of the loan value even if Zimbabwe defaults on repayments.

China’s caution is at least partly due to the fact that Zimbabwe intends to spend the loan on recurrent government expenses, primarily civil servants’ wages. Spending money on salaries will not generate any interest or other return on investment.

Consequently, China realises that there is little chance Zimbabwe will be able to repay the loan once the money is spent.

But what can Zimbabwe offer China as collateral? Beyond the country’s mineral wealth, there is little of financial value in Zimbabwe. It should not be surprising, therefore, that the government intends to use the country’s gold and diamonds to secure the Chinese loan.

While the details of the rescue are yet to be revealed, it is clear that an agreement has been reached between the two countries.

While reaching a deal with China appears to be a promising short-term solution to vast economic woes, Zimbabwe’s economy will likely face a series of problems as the rescue unfolds.

Presumably, the RBZ would pay companies for the minerals and then use the minerals as collateral for the loan. However, it remains unclear whether mining companies will receive full market value for their minerals under this arrangement. It is also unclear how the RBZ will pay for the minerals, although using a portion of the loan funds seems the most likely option.

The problem extends further; the government needs to consolidate its hold over the country’s diamond sector in order to ensure that this policy is fully complied with.

Consequently, government has indicated that only one of the seven mining companies currently at Marange will be allowed to continue operating.

The licences of the other companies are likely to be revoked and their operations closed. Although it is unconfirmed, probably one company allowed to remain operating will be Mbada Diamonds, which has a concession in Zimbabwe’s Marange diamond fields.

Closing off the diamond sector to other investors will discourage foreign direct investment, which will negatively impact the economy.

It will also hamper transparency efforts, making it easier for senior government officials to pillage Zimbabwe’s natural resource revenues.

The Chinese government has defended its request to secure the loan with Zimbabwe’s minerals, stating that such a move is “in accordance with rules and regulations when granting any loan”.

However, despite China’s attempts to normalise the arrangement, there is no clear precedent where minerals in their raw form, or the proceeds of mineral sales, have been used to underwrite a government loan in this manner.

Although the US$10 billion bailout amount is relatively negligible for China, the lending arrangement means that China now has a vested interest in the performance of Zimbabwe’s economy. Consequently, China also has a growing interest in how Zimbabwe’s business and investment environment is governed, and has begun to publicly express concern over some of government’s economic policies.

Recently, Han Bing, the outgoing Chinese Embassy Economic and Commercial Counsellor, spoke out against the government’s frequent investment policy changes.

Han noted Zimbabwe’s lack of policy consistency was spooking investors and harming business operations in the country. Importantly, since the value of the proposed collateralised minerals is only a fraction of the loan amount, China now needs a healthy Zimbabwean economy if the loan is to be repaid in full.

Government’s short-term vision could result in the country’s natural resources being rapidly depleted and signed away. By spending the loaned money on today’s consumption, Zimbabwe is missing important opportunities to use its precious resource wealth to fund investments that offer lasting benefits.

Investing instead in education, health, and infrastructure would boost the economy in the long-term and would improve Zimbabweans’ standard of living. By extracting Zimbabwe’s mineral wealth today and failing to invest in development that would offer future benefits, government is denying future generations the opportunity to share in the country’s mineral wealth.

It is very likely that the actions of the current Zimbabwean government will leave the country deep in debt, financially crippling Zimbabwe for generations to come.

Rather than sign the nation’s minerals away to China, government should stabilise and improve Zimbabwe’s business and investment environment.

Instead of scaring investors away government should create an environment that encourages investment and industrial activity in the country.

It is only through developing all sectors of the economy that Zimbabwe will successfully generate employment opportunities and achieve sustainable economic growth.

Furthermore, it is vital that government adopts a long-term perspective when making policy decisions. It needs to consider investments that will yield the greatest returns for Zimbabwe in the coming decades, as well as today.

Developing an environment conducive to doing business, and investing in a healthier and more educated population is crucial to Zimbabwe’s economic recovery. Adopting a long-term approach will ensure that future generations inherit the benefits of today’s investment, rather than an underdeveloped and debt-ridden country.

Sarah Logan is a Zimbabwean human rights lawyer currently completing an MPA at Columbia University’s School of International and Public Affairs. This article was first published by the World Policy Journal.



  • comment-avatar

    The opposition must make it clear that the present zanu regime is illegal as it rigged the election and that any loans or financial contracts made by it will not be honored by a future government

  • comment-avatar

    Its looks like Mugabe will turn out to be a worse (or better) colonizer than Cecil John Rhodes. Mugabe’s economic illiteracy will result in future generations being indebted to China and others. Economic freedom and independence is further away than ever.

    • comment-avatar
      Uncle 8 years ago

      The Minerals are miningless when pple are suffering like that ,i would suport the idea its better we be attached to china than the evil west

  • comment-avatar
    Angela Wigmore 8 years ago

    These plutocrats are interested only in themselves.They don’t care if Zimbabwe is given away to China because it likely wont happen in their lifetime and, even if it does, they already have their ill-gotten gains stashed away elsewhere.

  • comment-avatar
    nyoni 8 years ago

    It is with deep regret that I must inform all my Zimbabwean people that our country is being sold under our noses by an illegal regime. Where other countries are limiting Chinese investment due to their disregard for other countries rules , we are being hoodwinked into believing they are a god send to us. PLEASE GOD DELIVER US FROM THIS EVIL.

  • comment-avatar
    jobolinko 8 years ago

    Is this what it means when he says ZIMBABWE WILL NEVER BE A COLONY AGAIN