22 January 2013

Zimbabwe: Fund Set Up for Sharing Wealth

THE National Indigenisation and Economic Empowerment Fund has created a platform for equitable distribution of resources to all Zimbabweans, analysts have said. While the fund was established mainly to warehouse shares for future acquisitions by black Zimbabweans, its function has been expanded to achieve broad-based empowerment through the provision of some financing mechanisms to the economy.

The fund will, among other functions, be responsible for national projects such as financing infrastructure projects, budgetary support, provision of concessionary loans to industry and funding for the informal sector, as well as critical social programmes.

With assets now above US$1,5 billion and anticipated to grow to US$2 billion by June this year, NIEEF is expected to benefit provinces with little or no mineral resources in the medium term. This will result in accelerated rural development and job creation in communities around the country.

The fund will allow economic development through leveraging on minerals, a finite resource, under the ambit of NIEEF, largely supported by resource companies, although non-resource foreign-owned companies are also ceding shares to the fund. Currently, resource companies constitute the biggest chunk of the NIEEF.

NIEEF holds 31 percent shareholding in Zimplats. Government also concluded multimillion-dollar transactions with Blanket Mine where it now holds a 16 percent stake, Pretoria Portland Cement (9,7 percent), Unki Mine (31 percent) and Mimosa (31 percent.)

All the deals were funded through vendor financing arrangements, which meant that the fund would forego dividends until it pays off the debt. This means that the benefits will not accrue in the short term.

But the prospects are brighter for companies that have ceded shares to NIEEF. PPC Zimbabwe plans to double its annual output to one million through investing US$200 million in building a new cement processing plant in Mashonaland Central. Anglo American, the world's biggest platinum producer, says it is planning a new mine in Shurugwi.

Amplats subsidiary Unki Mine's chief financial officer Mr Colin Chibafa said the new mine would cost US$400 million and has the potential of doubling output from Zimbabwe. Unki said it was expecting to produce about 65 000 ounces of platinum last year.

Zimplats's US$461 million phase two expansion would be completed in the next two years.

It said the second phase of an expansion project expected to significantly boost Zimplats' annual output to 270 000 ounces had been slowed down "as a result of the recently implemented capital preservation measures", media reports say, citing their source as Implats chief executive Mr Terrence Goodlace.

Zimplats would also begin considering building a platinum refinery in the country, once the combined domestic production of platinum reaches about 500 000 ounces a year. Blanket Mine intends to make a further US$37 million investment over the next four years.

With such bright prospects, the dividends would be certain, some economic analysts said. But they implored the need to enhance accounting monitoring systems to avoid the possibility of under-declaration of dividends through transfer pricing.

"That is the fundamental objective of the fund," said economist and indigenisation proponent Mr Gift Mugano, in an interview.

"If we look at distribution of resources, you will find that there is imbalance in terms of resource availability. But with NIEEF, every Zimbabwean will benefit from the country's resources. It addresses the imbalances of resource distribution where people in Masvingo, with very little mineral resources, would benefit from platinum mined in the Midlands or where people in Midlands will benefit from diamonds extracted in Manicaland."

Some mining companies in Manicaland, Midlands, Matabeleland and Mashonaland Central provinces had so far pledged US$110 million to communities they are operating in as seed capital for initial community projects.

Anglo American's local unit, Unki Mine donated US$10 million for developmental projects in Shurugwi, while Mimosa donated the same amount for Zvishavane community.

Youth Development, Indigenisation and Economic Empowerment Minister Savior Kasukuwere said last week NIEEF would help consolidate the indigenisation policy through providing capital for new business largely owned by Zimbabweans.

Some countries with natural resources have created vehicles similar to NIEEF, known as Sovereign Wealth Fund.

These include Norway (US$656,2 billion), UAE (US$627 billion), Saudi Arabia (US$532,8 billion), Russia (US$149,7 billion), Botswana (UUS$6,9 billion) and Nigeria (US$1 billion).

The Sovereign Wealth Funds for the countries above are anchored on oil, except Botswana, which is using diamonds and other minerals.

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