8 March 2018

Southern Africa: 'Scramble for Zimbabwe Is On'


The Chamber of Mines of Zimbabwe (CoMZ), in partnership with Mining Report, last week held the Zimbabwe Mining Investment Conference, the biggest business conference since a new government took over in November last year, promising reforms to attract investment inflows. The Financial Gazette's Senior Business Reporter, Shame Makoshori (SM), this week spoke to CoMZ chief executive officer, Isaac Kwesu (IK), on the sector's prospects.

SM: You struggled to attract investment into the mining industry before. Is it still the same today?

IK: We were struggling to get people to come to hear our Zimbabwean story, specifically on mining. This was notwithstanding the huge endowment of our mineral resources. For the past decade, it has been difficult, not just to attract capital, but to attract the attention of investors to speak to us. It has not been easy. But with minimum effort, it is now the opposite where investors, wherever we go, are looking for us.

SM: You mean investors are upbeat?

IK: It has to do with the mindset, which may have changed towards Zimbabwe. They are looking at what Zimbabwe has to offer. If we look at our mineral endowment, we have capacity, we have opportunities, and we can compete with any country when it comes to the resources industry. So we have to work on changing our policies to support the change of mindset by investors. We need to make sure that we walk the talk to match their expectations. This, for a long time, has been the missing link.

SM: Going through your brochures, we see that the mining industry requires $7 billion in fresh capital. Is there a possibility that the industry may, in the next decade, be swamped with cash, considering the interest from investors?

IK: Cash is what is going to come out of investment when we generate revenue. But the real issue is to match our resources with funding. Having a resource is one thing. We have to match it with funding to realise our dreams and aspirations. So, it is only through attracting capital that the mining industry can unlock the value in the minerals, then we can start talking about realising the benefit of our minerals. Otherwise we can spend decades talking about mineral endowment, while investors will be going to countries where there are less minerals. Capital is risky, and mobile. And you have to compete to attract that capital. We are operating in a competitive environment and it depends on what we do on our investment policies and legislation to attract investors.

SM: The problem with Zimbabwe has been that of transforming investor interest into actual projects. Was this conference not another talk show? Are you confident that this will translate into real foreign direct investment?

IK: As the head of the private sector, I think I have done my best to say this is what people are saying. Investors are inquiring about opportunities in Zimbabwe, which has not been happening for a decade. Turning an inquiry into an investment needs the involvement of the other side, which is government. The private sector cannot achieve this alone. Government has to come and showcase, not just what they have done, but what they are going to do. Mining is a long-term investment; it has a long-term gestation period. When they commit, they don't just commit for today because the environment is good; they even commit for many years to come ― 10, 30 or 40 years. So you need the guarantees and assurances about what the policies and legislative framework will look like going forward. And these answers will require government to also complement private investors. We are showing investors our full range of minerals. They have come to hear. They don't just want to hear, they want to ask questions because they now have a certain perception about the country. Before (last year), no one would come to ask you about anything. But they are now coming.

SM: Is it correct to say 96 percent of our mineral revenues are generated by five minerals?

IK: Gold and platinum account for nearly 70 percent. The concentration ratio is skewed towards two minerals. But we have lots of these minerals and we are going to realise value out of them through exploration and mine development so that the economic value becomes sensible. It is only when the economic value becomes sensible in terms of volumes and costs that investors can commit to such minerals. They are small today in terms of volumes, but the potential for some of these minerals is huge. If you take lithium and a few others, you can see that they have a huge upside. Asbestos used to be the largest contributor to our mineral wealth in the 1980s, but this has changed. These things change, but we want to make sure that we maintain the diversity in terms of value contribution, and also to reduce the risk of relying on one mineral, which is called the Dutch disease effect. If the price of that mineral crashes, then we have problems. Remember what Zambia experienced during the copper price slump? Copper was Zambia's dominant mineral.

SM: There was a full house at this conference. What are these investors generally looking for?

IK: Their focus is broader. They have heard a lot about Zimbabwe and for some of them, it is their first time to come here to see what Zimbabwe can offer. Others are doing their due diligence just to validate the information that they have heard about Zimbabwe. They have come to hear what government can say about the existence of specific mineral endowments. But it is diverse. Others are interested in mining, others are looking at downstream beneficiation, others are looking at upstream ― the inputs sectors. So when we look into the calibre of investors, we can say it is diverse.

SM: Where are they coming from?

IK: It is a blend. It is not only black and white. But if you look at the whites you can see that others are Europeans, others are Asians and others are coming from the West. So you can see that both the East and the West are looking for opportunities in Zimbabwe. You can see the Chinese, the Japanese; you can see a lot of Europeans and South Africans. You can also see a lot of the fund managers who have a role to facilitate the intermediation of capital. So, everyone across the value chain of our mining, as well as those in the financial service industry, including asset managers and stock exchanges, are present. The Johannesburg Stock Exchange is here.

SM: The general feeling seems to be that of optimism. But we still hear some pockets of concern. We heard the concerns of the chief executive officer of Liberation Mining (Victoria Tskhovrebov) that Zimbabwe is a tough country to do business in.

IK: What we are feeling is a mindset and perception change. What we are saying is that yes, there are a lot of things that should be done, and there are a lot of things that have already been done. But it takes a lot of effort to make investment commitments. There must be a demonstration by government for policy congruence, for clarity. We need these policies to be stable and predictable. Predictability is the most important factor of all. Investors need to know what will be happening going forward in terms of government policy predictability. Information availability is very critical at this stage.


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