“Any company doing business in Zimbabwe is keeping the regime alive.” So Zimbabwe’s opposition party, the Movement for Democratic Change, condemned Anglo American for planning to press ahead with a $400m investment in the country devastated by the misrule of Robert Mugabe.
MDC treasurer Roy Bennett said in June of the investment: “Anglo American is complicit with the regime, as whatever they’re doing in Zimbabwe has the endorsement of the regime.”
Bennett warned firms thinking of doing deals with Mugabe’s government that they would be “scrutinised and dealt with accordingly”, should the MDC ever take full executive power.
According to Bennett, no foreign company can survive in Zimbabwe without giving “patronage” to the Mugabe government that has terrorised its opponents. The MDC estimates that 100 of its supporters were killed, 5,000 abducted and 20,000 forced from their homes before the party’s leader, Morgan Tsvangirai, pulled out of an election run-off against Mugabe in June.
News that Anglo American, through its subsidiary Anglo Platinum, was putting a further $400m into the Unki platinum mine in Zimbabwe has turned the spotlight on other companies investing in the blood-soaked country.
On June 30, supermarket Tesco became the first UK company to announce that it would withdraw from Zimbabwe – just a week after saying it would be “irresponsible” to leave the country. The retailer said it would stop sourcing £1m worth of produce from Zimbabwe, “as long as the political crisis persists”.
The German government then persuaded Munich-based company Gieseke & Devrient, which had supplied banknote paper to the Reserve Bank of Zimbabwe for 45 years, to stop selling to the country. Following the papermaker’s exit, Vienna-based software company Jura JSP stepped in to help the Mugabe regime keep printing the money it needed to keep ahead of hyperinflation, despite the desperate revaluation of the Zimbabwe dollar in late July.
Yet foreign companies retain a major presence in Zimbabwe. UK banks Standard Chartered and Barclays, British American Tobacco and oil firm BP have all stayed in the country. US-based Chevron and Coca-Cola are there, as is Canadian shoe company Bata.
But the truly big players in Zimbabwe’s economy are South African. Nearly 20 of the top 40 shares on the Johannesburg Stock Exchange have Zimbabwean subsidiaries. Alongside Anglo American, other South African companies dominant in Zimbabwe include SABMiller, which has a stake in Zimbabwe Delta Breweries, and Old Mutual, the asset manager that remains invested in property and insurance in the country.
It is in mining where the South African presence is felt strongest. In 2007, mining accounted for half of Zimbabwe’s exports. Metallon Gold, which has moved aggressively into Mugabe’s Zimbabwe in recent years, produced more than half of the country’s gold from five operations in 2007. And Zimbabwe’s largest platinum producer, Zimplats, is 87% owned by South African miner Impala Platinum.
Given the vital role mining plays in supporting Zimbabwe’s economy, it is no wonder Anglo American has been criticised for keeping up its investments in the country.
The London-listed company defends its developing of the Unki mine, which it says fully complies with all existing laws on investing in Zimbabwe. Anglo American says it has a duty towards the 650 employees, their families and all those depending indirectly on the project, which the company has invested in since 2003. Anglo American has been in an investor in Zimbabwe for 60 years.
Anglo Platinum chief executive Neville Nicolau told analysts during a presentation in Johannesburg in late July that the Unki project was some two years from production. “We think there is a long-term growth position in Zimbabwe,” he said. “We don’t hang our future on any one political party but on the prospects of the country as a whole.” Anglo American has also made clear that if it pulled out of Zimbabwe, the Mugabe regime “would assume control of the project”.
Mining insiders in Zimbabwe fear that Mugabe is gradually transferring a range of mineral rights to Chinese companies – or to front companies run by political cronies in his Zanu-PF party, some of which have close ties to Chinese state-owned enterprises. In July, China joined Russia in blocking a UN security council resolution that would have imposed sanctions on Mugabe and his associates. And Chinese trade with Zimbabwe is increasing. The number of visitors from China to Zimbabwe has risen by more than 25% since 2002.
Few individual Chinese companies maintain a significant profile in Zimbabwe but their presence is felt and hated. A Bulawayo-based MDC supporter says: “We know who [the Chinese companies] are, how they benefited when Zanu-PF locked up MDC supporters and closed their businesses. When Mugabe is gone, China will have to do some explaining.”
Zimbabweans habitually refer to the cheap Chinese manufactured goods that Mugabe has allowed to flood uncontrolled into the country, and which have driven many Zimbabwean manufacturers out of business, as “zhing-zhong”. This loosely translates as “substandard”.
Beijing has offered helped to keep Mugabe in power. In 2005, China sold Mugabe’s regime riot control equipment and air force trainer jets for $200m. The tiles for Mugabe’s Harare palace were a goodwill donation from China.
Mugabe calls his pro-China policy Look East, suggesting that Zimbabweans should learn to cook Chinese food and to speak Mandarin. Beyond exempting Chinese imports from customs duties, Mugabe has given Chinese companies contracts to supply all public buses and provide the generators for Zimbabwe’s power company, which his brother-in-law, the appropriately named Reward Marufu, runs. For all this, Zimbabwe pays China mostly in kind – tobacco, mineral rights and mineral concentrates – as Mugabe’s government lacks foreign exchange because its own currency is worthless.
So should the miners leave, to deprive the regime of its critical foreign currency? “If we do, there are dozens of Mugabe’s cronies who with Chinese skills and money stand ready to take our mines,” says a senior miner at one platinum operation. A Zimbabwean colleague agrees, saying: “If the Chinese come, they will fire many people, pay the rest less and pay Mugabe money to do as they please.”
Apart from the first-hand experience with zhing-zhong, China’s reputation among Zimbabweans has also suffered from stories of its hard-line approach to labour, safety and environmental issues in the copper mines of neighbouring Zambia. Zambian unions blame one of the worst accidents in the country’s history, where 46 people were killed in a blast in April, on the negligence of the Chinese mine managers.
The problem in estimating the extent of the Chinese involvement in Zimbabwe’s mining industry is that barter has replaced commercial transactions, and police and army officers often cooperate with Zanu frontmen or middlemen in allowing mined minerals to be shipped overseas without any benefit to the Zimbabwean economy. Rumours abound in Zimbabwe of special deals granted by Mugabe to Chinese businesses allowing them to ship mineral concentrates and agricultural products out of the country in return for continued Chinese supplies of essential items to the regime: riot gear, small arms and ammunitions. The latter became particularly critical since Zimbabwe’s last munitions factory was forced to shut down in early 2008 because of a lack of spares and raw materials.
Residents of Mutare, on the Mozambique border, claim that large numbers of trucks go across the border unchecked – with the full knowledge of police and customs officials. The trucks are thought to carry minerals, such as chromite, the source of a key ingredient of stainless steel.
While the Chinese have been circumspect about their presence in the country, Mugabe has not. From 2005 he began rather publicly leasing a growing number of farms, seized from white farmers, to Chinese interests on a contract farming basis for what locals in the Marondera district describe as “peanuts”.
Tough it out
So what can foreign companies not wanting to succour the regime or abandon its people, and their operations, do? By being there, companies theoretically continue to support the regime through their tax payments, but with inflation running at millions of per cent, these are irrelevant, as they are paid in Zimbabwean currency. Under hyperinflation, the regime survives by printing money irrespective of its income.
Provided they can steer clear of being forced to provide direct support for Mugabe – foreign currency or otherwise – companies must ask themselves two questions. Can they continue to survive until a post-Mugabe political dispensation offers better opportunities? And does it make commercial sense to do so?
Moral qualms aside, some economists are beginning to suggest that the level of devastation wreaked upon Zimbabwe’s agricultural sector through farm seizures, the violence against individuals and the recent compulsory acquisition of the majority stakes in all important businesses by Mugabe’s regime may have put paid to a commercial reason to remain.
Zimbabwe-based economist John Robertson has pointed out that inflation is now the greatest threat to Mugabe’s rule. Its rise to above three million per cent is seen as the key reason why he and his henchmen finally agreed to talk with the opposition in South Africa in July.
Pressed by the looming inability to print more money, because of EU sanctions and a shortage of quality paper, Mugabe may finally have been forced to the negotiating table. But Robertson warns that even if a political settlement emerges from these talks, low trust and the punitively low official exchange rate of the Zimbabwe dollar will hamper the return from a remittance-based economy to a formal one.
If a deal is eventually struck between Mugabe and the opposition, the moral imperative for companies to leave the country could fall away. But at a more practical level, the reason for leaving could be the state of the economy, which has morphed into an informal system dominated by barter and shady deals. A thriving, officially illegal, cross border trade in remittances worth an estimated $1bn a year, from 3 million Zimbabweans working outside their country, has drip-fed a shadow economy and kept everyday life barely going. Half of all households, including many in the top income bracket, depend in some way on these remittances.
In Harare, in mid-July, paper to print the money was already running out, as the regime struggled to find the foreign currency to buy the right quality paper. The embattled Central Reserve Bank of Zimbabwe had capped daily withdrawals, but these were not enough to buy the bus ticket to get to the bank, or enough for a loaf of bread.
Another danger to Zimbabwe’s economy, should a political deal be struck, could be rising expectations. Imara SP Reid analyst Warwick Lucas argues that for companies to leave now “would destroy shareholder value”. Assets of some companies operating in Zimbabwe will be worth five times their present value after a political settlement, he predicts.
University of Zimbabwe economist Tony Hawkins warns that an initial rally in Zimbabwe-related assets such as property and shares could create unrealistic expectations over the pace of the recovery. For example, for Zimbabwe’s economy to recover to pre-2000 levels over the next five years, per capita income would have to grow at 15% a year. Hawkins argues that this is impossible given “the level of devastation” in the economy.
While some in the international community may well make emergency funds available to Zimbabwe in the wake of a political settlement, the continuation of even a small number of Mugabe’s allies in positions of power, coupled with the inexperience of the MDC in governing, will make Zimbabweans, especially skilled workers with good jobs elsewhere, wary of returning. By regional standards, Zimbabweans tend to be exceptionally well educated, and many have found a new life in neighbouring countries. Those returning would be the ones who did not.
All of this makes for what looks like a long and difficult road to economic recovery for Zimbabwe. Indeed, it could be so long that it may make simple economic sense for some of the existing foreign businesses to sell out. At present, certainly, no one is thinking of investing.
South African sugar producer Tongaat Hulett says that, in the current situation, its strategy for its two subsidiaries is to manage the operations on a basis that ensures that the infrastructure and skills base is maintained.
Shoprite, the South African retailer, has stopped importing goods for its supermarkets in Zimbabwe, because it cannot access foreign exchange to pay for them. Instead, it sources what it can from local suppliers. A Shoprite spokesman says: “We have not yet written off our investment but we haven’t budgeted for next year.”
China, which has persisted in selling weapons and tools of repression to Mugabe, must know that the day of reckoning is coming, since the 84-year-old tyrant cannot rule indefinitely. But for the moment, perhaps the chrome, platinum, tobacco and other natural resources that Beijing can source from Zimbabwe’s desperate regime at rock-bottom rates are too good to pass up in the midst of a global commodities boom where capacity constraints are creating genuine scarcities.
If Mugabe’s misrule has really damaged Zimbabwe’s economy beyond medium-term repair, China could always opportunistically pick up the pieces from those companies that do decide to sell out. After all, a responsible, honest business can no longer function in such an informal barter economy no matter who comes after Mugabe.
Any company wanting a reason to give up on Zimbabwe, morally and commercially, need have looked no further than the behaviour of the political negotiators from MDC and Zanu-PF who, after agreeing to meet in a South African hotel for talks to resolve their country’s political crisis, suspended them to move to another, “more appropriate” venue. The reason? The venue where the talks began had no minibars in the rooms.
London-listed Camec’s $100m loan to Mugabe
Central African Mining and Exploration (Camec), the London Aim-listed mining company, is expanding quickly in Zimbabwe after acquiring two mining concessions, formerly owned by Anglo Platinum, from Zimbabwe’s state mining company. As part of the deal, signed in April, Camec arranged to lend $100m to the state-owned Zimbabwe Mineral Development Corporation, to help it fulfil “contractual obligations” to the Mugabe government.
On April 11, Camec announced that it had acquired two sets of claims, which were formerly part of Anglo Platinum’s Unki platinum mining concession by taking over a company called Lefever Investments, registered in the British Virgin Islands.
Lefever owned 60% of a Zimbabwean company, Todal Mining, with the remaining 40% being held by the Mineral Development Corporation, which is controlled by Mugabe and is one of the state-owned entities targeted by smart sanctions.
Camec said it had paid $5m in cash and issued shares worth $236m to buy Lefever. But it also put up a $100m loan, “to enable Lefever to comply with its contractual obligations to the Government of the Republic of Zimbabwe”.
Pushed on what “contractual obligations” Lefever might have had to the Zimbabwe government, Andrew Groves, Camec managing director, said: “The $100m loan provided was used to pay off Zimbabwe’s external creditors.” His comment came after he had announced the company’s first quarter results.
Roy Bennett, MDC treasurer-general, said on July 21 that should the MDC get into power in Zimbabwe, “any deal done under the kind of circumstances surrounding the Camec acquisition of those mineral rights will not be honoured and will be undone”.
Groves has responded defiantly, saying: “Assuming the MDC gets into power then let them try. That deal was done in accordance with all the laws of Zimbabwe … [The MDC] will find the deal very difficult to undo and we will take the issue to international arbitration if necessary. This kind of thing was tried on us before in DRC.”
Camec’s results statement for the first quarter of 2008 states that work had already started on the site of the Zimbabwean mine. It added: “Todal has negotiated the right to export platinum from Zimbabwe and has also secured agreement to allow it to expatriate the profits generated by its mining operations in the country.”
The episode shows the pressure Mugabe’s government is putting on foreign companies, long-established in Zimbabwe, to appease the regime. Sources in the Zimbabwean mining industry suggest that Anglo American was forced to surrender part of the Unki project because of Mugabe’s indigenisation policy, which rules that all foreign companies in Zimbabwe should soon be at least 51% black Zimbabwean-owned. Visits from members of Mugabe’s secret service, the Central Intelligence Organisation, to the homes of individual Anglo American executives in Zimbabwe are also said to have “sped up” events.
In response, Anglo American says negotiations and discussions between itself and the Zimbabwe government had been taking place for two years, resulting in the cession of the claims in April this year.
But it seems that a cash-strapped Mugabe regime, needing money to bankroll its ongoing repression and the election campaign, pushed Anglo American to hand over the concessions.
Write to Markus Reichardt, South Africa writer at email@example.com,
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