Give many options that allow all to participate

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Government is still thinking about a formula that marries two desired principles in the exploitation of mineral resources: First that Zimbabwe is open for business and wishes to attract investors, and secondly that Zimbabweans should be able to buy into mining ventures.

The old Indigenisation and Empowerment Act had a very crude formula of 51 percent local ownership, something that, even if the foreign investor was agreeable, would usually be impossible to fulfil as there is simply very little capital in Zimbabwe available for investment. Claiming a free share on the basis of granting a mining licence was totally unattractive, even when dressed up as the Zimbabwean share being the resource.

Now debate is switching to more sophisticated systems, such as local listings on the Zimbabwe Stock Exchange.

It should be remembered that the State, now that Zimbabwe has followed the lead of many other countries with mineral resources and has reintroduced royalties, directly benefits as soon as a mine starts producing. Under a royalty system a small tax is charged on actual output rather than relying on a much larger tax on the net profits. As with VAT, and customs and excise duties, royalties being a tax on the gross revenue are simple to calculate and collect. So long as a rate fair to all is charged, or at least a rate similar to that in countries competing for investment, it benefits both parties. For a start, administrative costs to both taxman and taxpayer are cut when neither needs to fill a tower block with lawyers and chartered accountants arguing with a similar expensive group over very complex accounts.

Mining companies are still supposed to pay company tax on profits, but most mineral exporters find miners usually manage to produce accounts that show little or no profit. Despite continual upgrades in accountancy standards, it is still easier for a large multinational to make the bulk of its profits legally appear in a jurisdiction with the lowest tax load than for a taxman to plug these legal holes. This is why Australia, who led the battle over transfer pricing then switched to lead the re-imposition of royalties in countries with State-owned mineral rights.

Royalties thus fulfil the desire to get a direct benefit from a non-renewable resource. At the same time Zimbabwe benefits with the creation of new jobs and the transfer of new skills.
But there is still a sense that Zimbabweans individually or through a pension or an equity fund should be able to share in the ownership of the mine, hence the proposal to make a local listing compulsory with an agreed percentage of shares in the Zimbabwean subsidiary sold to Zimbabweans. As some capital items, from bricks for workers’ housing to wages for the gangs that dig the hole, are a local cost using some local funds should not be a brake on development.

This was in fact frequently done during the colonial era when most big mining companies, led by Anglo American, operating in “Rhodesia” would list locally and sell a modest minority of shares to local interests. This gave them a small extra source of capital, allowed them to attract high calibre local staff through a share scheme, and gave them a local identity, which had an extra benefit of giving them an indisputable right to enter any national debate as “one of us”.

These are arguments that no doubt led the Government to look at making a local listing compulsory, a possible concept that now is likely to be withdrawn so as not to impose barriers to investment. Some global mining investors run their business as an effective single operation and do not need diluted ownership of locally incorporated subsidiaries. Often they have good reasons.

But there are other ways of having both a single concern spanning continents under a single executive management and allowing Zimbabweans with capital to participate. It should be possible for a multinational investor to acquire a secondary listing on the Zimbabwe Stock Exchange and float a small, and in most cases it would be a very small, percentage of its shares through this exchange. In other words Zimbabweans would acquire a tiny stake in the parent company, not a larger stake in the local subsidiary.

The Reserve Bank of Zimbabwe might twitch slightly over more fungible shares on the ZSE, but we have had these for some years and we have coped rather well.

For the foreign investor the premium that such shares attract will not only cover the relatively modest costs of a secondary listing, but also provide some useful additional change to be added to the capital account of the local subsidiary.

We would imagine that there are several other ways of allowing Zimbabweans to participate. Our advice to the Government would be to explore and list all possibilities and let investors choose a way he can raise some additional capital from Zimbabweans and become entrenched as “one of us”. We are not suggesting free shares, nor do we want a rentier mentality, where a handful of Zimbabweans make money by signing their name.

This is why various options for floating shares on the ZSE are the obvious and best solutions, keeping everything in the open and quite transparent.

As with many matters that touch investment, we should lay down principles rather than set solutions in concrete. All investments have a price as well as a benefit. We need to keep the price down and the benefits, for both parties, up. So we have environmental concerns, labour concerns, town planning concerns and the like. For all of these as well as participation concerns we should draw up lists of options, with just about all the paperwork prepared in advance to keep things simple for the investors, invite them to choose one option on each list and then process the papers very quickly.

And if investors come up with a new neat idea that answers our concerns, then we must thank them and add it to the relevant list. We believe we can be very open to business, attractive to investors, follow simple procedures in a “one-shop” investment centre, be open and transparent, but not end up living in total poverty in a desert. That means we keep our eyes on the objective, and simply use tactics that work.

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