Zimbabwe: are things falling apart?

Years of misrule has decimated the Zimbabwean economy, and for President Emmerson Mnangagwa, the chickens have come home to roost, writes Leon Louw.

The more things change, the more they stay the same. This is the normal dejected response one gets from most Zimbabweans trying to eke out a living in a failed state. Surviving in one of the poorest countries in the world has become an uphill battle for a punch-drunk populace. When I wrote an article soon after President Mnangagwa and his generals took up the reins in late 2017, there was much optimism, and Mnangagwa proclaimed that his country was now ‘open for business’.

Parading his ardent nationalism, Mnangagwa treaded the world stage with his colourful Zimbabwe scarf, ready to do business with whoever was willing to take the risk of investing in what was once the pride of Africa. Many investors were over the moon and squashed into planes to Harare or waited for hours to cross the border at Beitbridge to peg their claims. Well, what the overly optimistic (including the author) forgot, was that Mnangagwa and his generals wrestled the throne away from dictator Robert Mugabe by means of a coup d'état, albeit one that the citizens of Zimbabwe gave credence to. Let’s also not forget that the same man who now rules, and his two right hand men, kept Mugabe in power for almost 40 years. But, in the end, “it’s the economy, stupid,” as James Carville so famously proclaimed in the early 90s. Because, no matter how hard Mnangagwa tries, Zimbabwe is slipping, and its roller coaster ride continues, at the peril of its people, business and investors. So, if things have fallen apart in Zimbabwe, it’s a fair question to ask whether it is still worth writing about. My answer would be yes, because despite its political and economic troubles, the country has some of the most resilient citizens in the world, and still provides ample opportunities for explorers, miners and brave investors.

A frustrating roller coaster

“It’s frustrating for all Zimbabweans,” said David Coltart, one of the founding members of the main opposition party in Zimbabwe, the Movement for Democratic Change (MDC), and someone who once served in the Mugabe-led cabinet. Coltart was the keynote speaker at a recent event organised by the Free Market Foundation in South Africa. “After independence in 1980 Zimbabwe was the second strongest economy in southern Africa and one of the strongest in Africa. It is now being reduced to a catastrophic state. Now we have a country with one of the weakest economies in the world,” said Coltart.

“The international press is tired of the Zimbabwe story, and I don’t think there is an understanding of the nature of what I term a threefold crisis in Zimbabwe: political, economic and humanitarian,” says Coltart.

“There was genuinely hope after the coup in 2017, but I felt the celebrations were premature. But the business sector in Harare was excited with the transfer of power from Mugabe to Mnangagwa. The international community, especially the UK, felt this heralded a change. Many were taken in by Mnangagwa’s rhetoric. But is Zimbabwe now open for business? I sincerely doubt it,” he says.

Currently Zimbabwe is going through yet another economic and currency crisis. When this article was written the Zimbabwean government had just announced that it would raise public servants’ salaries. According to finance minister, Mthuli Ncube, this was done to mitigate the consequences of inflation on people’s purchasing power. When the pay rise happened, it was the second increase in three months after a more than 29% increase in March. Earlier, in a much-critised move, the Zimbabwean government decided to do away with the use of all other currencies, including the US dollar, and reintroduce the Zimbabwean dollar by the end of the year. This inevitably resulted in a soaring inflation and raised fears of a return to the hyperinflationary period which sparked an economic crisis in the first place. In May this year, the inflation rate reached 97.85%, the highest level in ten years.

Electricity headaches

But spiralling inflation is not Mnangagwa’s worst headache. The country’s lights have literally gone off, which could be disastrous for a revived mining industry on which the president pinned his hopes to resuscitate the economy. Zimbabwe’s major sources of electricity are not keeping up with demand. The Kariba Dam hydroelectricity pump station, which provides Zimbabwe with 57% of its electricity, is struggling to run at maximum capacity and generate 358MW daily (which provides electricity to about 30 000 homes). The Kariba dam, on the border between Zimbabwe and Zambia, is at low levels due to a poor rainfall season last year and is currently producing only 34% of capacity. To make things worse, Hwange Colliery’s power station, the only coal powered station in Zimbabwe, is producing less as a result of old and deteriorating infrastructure. 

According to Moina Spooner, from The Conversation Africa, Zimbabwe produces 1100MW of power against a national demand of 1500MW. This leaves a supply gap of 400MW. The deficit is catered for by imports from Mozambique and South Africa.

“But payments for these imports aren’t easy to keep up with. For the past 10 years Zimbabwe has been going through a currency crisis caused by hyperinflation. This has severely eroded the power of local currency, leaving the Zimbabwe Electricity Supply Authority (ZESA) in a financial quagmire. They currently owe Eskom, South Africa’s power utility, over USD33-million,” says Spooner. In the meantime, the country reportedly made a payment of about USD10-million to Eskom.

“Because of these challenges, any drop in national production means the government has to ration electricity. ZESA recently started a load shedding plan to prevent the collapse of the country’s power grid,” says Spooner.

Other challenges

Rolland Kuchocha is a Zimbabwean currently working in South Africa, but still does a lot of business in Zimbabwe. Kuchocha recently formed a company in Zimbabwe called the Zimbabwe Mining Network. He says that, economically, the country is going through tremendous uncertainties, especially in terms of currency. “It is difficult to plan in the short term but some of the pain and uncertainties are a direct result of the necessary alignment of currency in use with the reality of the need to move pricing from the US dollar to local currency – to enable export growth among other issues. Hopefully with the recent regulations to price only in Zimbabwe dollars, the situation will get under some level of control,” says Kuchocha.

“There was a lot of investor interest soon after the change of leadership in November 2017, with clear jostling to view what had been closed for decades. This year, the pace has been slower. Perhaps only real investors have remained out of the initial surge where many could have been looking for easy picks. In the platinum sector, for example, there might also be a sense that the mines should not flood the market with the white metal. So, we are unlikely to see more players and projects, above what we have currently (in various stages of development) joining,” says Kuchocha. 

The mining industry in Zimbabwe is unique. Besides platinum, coal and coalbed methane, which are best mined by major mining companies, the rest of the minerals lends itself to be exploited by junior companies and small-scale miners. It is reported that there are over half a million small scale or artisanal gold miners active in the country. The small-scale miners are informal. Kuchocha says that such mining is probably good for wealth distribution, but it is not safe, and the health of workers and the environment are detrimentally affected. Reports of rivers being polluted and rising fatalities in especially gold mines are on the increase.

According to Kuchocha, the challenges in Zimbabwe are many. “It has become difficult to repatriate foreign currency, but this has been the situation for the past decade,” he says. He adds that all the same exports have been on the rise in recent times, signifying that it is not all doom and gloom, and this means that some investors still see the upward potential of the country.

Zimbabwe has a reasonable road network that covers the entire country, but the state of the roads is, according to Kuchocha, not good but is currently under concerted maintenance. “Of real concern though, are the rail and power supply,” he says.

Supplier woes

According to Cameron Mackenzie, who works for Manganese Crushtech Systems, a company based in Bulawayo, Zimbabwe, the current situation is very concerning. “The multi-currency system worked well, but now, with its removal, we are faced with challenges when making foreign payments and to ensure we have adequate cover. Moreover, Mackenzie says that support and sourcing additional spares have now become a big challenge.  

Mackenzie has worked for the likes of Samuel Osborn Engineering, Svedala, Metso and Nimr and Chapman, and offers technical support and spares support for the past four and a half years for Manganese Crushtech Systems. The company offers full spares support to all major equipment brands in Zimbabwe, including Telsmith, Nordberg and Sandvik.

“Pricing and availability of essential spares are now a big problem for the producers. Spares supply from specific suppliers that we have relationships and accounts with have been compromised, and there is no certainty regarding payments and continued business,” says Mackenzie.

Operating in Zimbabwe has become extremely constrained and Mackenzie expects short term production losses will be encountered. “Only those operations that are able to access alternative foreign currency account (FCA) funds will be able to maintain productivity. Relationships with external suppliers have to be the only way forward, while the local supplier who has worked to ensure they remain competitive, will have to reconsider what to do. The questions are: do we engage with foreign suppliers to ensure that we have product for sale? How are we going to ensure payments are guaranteed?

Light at the end of the tunnel?

Despite the seemingly endless obstacles, there are companies currently developing new projects and several expansions are underway, which is an indication that there still is at least some faith in the Zimbabwean story.

Manganese Crushtech Systems is currently working on a project to supply spares support to the Eureka gold mine, which has been closed for almost two decades, and looks set to become one of the biggest gold mines in Zimbabwe. Furthermore, Mackenzie says that a Waste Dump retreatment project is being considered at Bikita Minerals.

Kuchocha says that there are several projects in the pipeline for development but these have not necessarily advanced to development stage. Great Dyke Investments, a company with Russian roots, is carrying out exploration and development work north of Harare in the Darweendale area of the Great Dyke. This project is reported to have a budget of about

USD4-billion. Karo Mining, through their subsidiary, Karo Platinum, is working on resource definition studies on their project north of Zimplats’s Ngezi mine. They plan an open cast and underground mine of 14.4 million tonnes per annum (Mtpa) run-of-mine ore.

“In general, progress on the platinum front has been good. The Great Dyke is fairly well-explored, and one needs only to select the prospective area along it upon which to pitch the tent. Global Investments, a company with Chinese roots, also have a concession but are not active,” says Kuchocha.

He further adds that it seems that more companies are getting involved in the diamond sector. Vast Resources has recently concluded a shareholder agreement, paving the way for investment into the Heritage Diamond Concession in the eastern part of the country. Another company in the eastern highlands, Anjin, who was prevented by government to mine before, has reportedly won a court case to go back to its concession, and is in the process of mobilising equipment to start mining. These two companies join the two main companies; Murowa Diamonds, a private company and the Zimbabwe Consolidated Diamond Company ZCDC, a state-owned company. Unsurprisingly the latter is poorly capitalised and hopes to attract private-sector partners in order to make investment meaningful. Alrosa is also in the process of negotiating its way into establishing a diamond exploration company.

Prospect Resources’s Arcadia Lithium Project, located east of Harare has been quietly progressing. Production will commence later this year. The status of Premier African Minerals’s Zulu Lithium project, about 80km north-east of Bulawayo is unclear as the drilling contract could not be concluded due to lack of agreement on pricing structure with the drilling contractor.

According to Kuchocha the government has done much to encourage investment in mining, however, he adds that it has not been enough. “They have good intentions, but until these intentions are written into law, investors may not be fully persuaded. It is good that the government encourages investment, however, they should avoid the temptation of turning it into a public relations spectacle. We need to focus on building capacities and geological information needs to be available and accessible,” he says.

Zimbabwe offers vast opportunities for junior mining companies. Kuchocha says that small gold mines are dotted throughout the country. “These mines can be upgraded to medium-scale mines with a bit more investment. On the energy front, coal and coalbed methane mines can still be established at a large scale. The vast coal resources must be made use of now because technological advancement may render such commodities worthless in the future,” says Kuchocha.

Leon Louw is a specialist in African affairs and mining. For more about doing business in Africa, mining and mining operations in Africa, and the political risk of operating in Africa, contact Leon or follow him on Twitter, Linkedin and Facebook.