The Sunday Mail
Last week, The Sunday Mail spoke to former World Bank representative in Zimbabwe Dr Nginya Mungai Lenneiye about his perspective on two fundamental questions tied to the review of the indigenisation policy. Below are the perspectives. On what people are hoping will be achieved through the review of the indigenisation policy I would say the main expectation is that a review will create conditions for more Zimbabweans (locally and in the Diaspora) to increase their investments in the economy, and this will, in turn, increase the confidence of foreigners (regional and international) in the economy so that more investments are made to create jobs and increase both personal and national wealth.
Specifically, the expectations on the review are that there will be: Policy clarity from Government through legislative amendment of the relevant Acts,
Operational clarity through Regulations produced to go with the amended Act, Implementation predictability through defined institutions (in the Regulations) to deal with investments; and
Enforcement clarity by way of transparency in application of contract law by the courts and other State institutions.
Government will need to secure the requisite expertise in the areas of mining, taxation, marketing, revenue management, auditing, accounting, etc, when preparing the Legislative Framework.
On the review not constituting policy and legislation replacement
The main change I see from the current discussions is on the inclusion of agriculture/land in the discussion as a natural resource (together with minerals). I think this is a major policy initiative as land issues had not been explicitly covered in the current Act. On mining, the model being proposed by Government is not new to the extractive industries and most oil agreements are structured as production sharing contracts (PSCs).
The application of PSCs outside the oil sector is relatively new to “mining” which tends to be governed by country-wide fiscal regimes or mine development agreements. There are nevertheless a number of similarities between oil, gas and mining from the perspective of sharing returns, and mining companies elsewhere have generally not expressed opposition to the type of fiscal regime implied by PSCs.
The current national debate has so far failed to distinguish between PSCs, standard mining fiscal regimes, and indigenisation policies. Points to note:
1. From inception, Indigenisation has been understood as a Government goal to be attained as society changes and the economy grows. Much of the debate presented as alternatives to indigenisation can be characterised as differences in strategies to attain indigenisation rather than as replacements to the goal.
In this context, the goal of indigenising the economy can be compared to the goal of political independence — where differences over strategies (passive resistance, labour strikes, mass protests, armed struggle, negotiations, etc) could not be characterised as change in the goal of one man one vote. Models of equity, ownership, supply chain management, PSCs, royalties, etc describe different strategies for sharing revenue/production rather than as a replacement to the goal of economic indigenisation where a rebalancing of revenue sharing between investors and the population is desired.
2. PSCs are not an “alternative” to indigenisation — the PSC is better characterised as a modification of the existing fiscal regime as applied to natural resources.
3. Under PSCs, payments to Government are made not only through a royalty (in some cases) but also through the “sharing” of production (where the State can market its own share).
4. PSCs are similar to taxes on resources: they allow for recovery of initial capital investment and a fair return to the private investor before the “sharing” takes place (which can be fixed or on a sliding scale and can be linked to profitability or cumulative rate of return).
5. Were Zimbabwe to go ahead with PSCs, transitional arrangements from the current regime would be needed to address two types of investments:
(i) New ones where it will be relatively easy to implement because agreements will be reached before investments commence; and
(ii) Existing ones where each case would need to be negotiated individually to make an allocation for historical costs and returns to private investors.
6. PSCs are more readily applicable to a sector where the returns are high such as in oil and gas.
In the other mining areas, the State usually needs to develop the capacity for administering the PSCs (including marketing of their share of production).
Where the returns are small (and the State’s share of production equally small), the administrative costs may be greater than the potential benefits.
