VZCZCXRO8151
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0417/01 1391510
ZNR UUUUU ZZH
P 191510Z MAY 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 4508
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2286
RUEHAR/AMEMBASSY ACCRA 2839
RUEHDS/AMEMBASSY ADDIS ABABA 2958
RUEHBY/AMEMBASSY CANBERRA 2221
RUEHDK/AMEMBASSY DAKAR 2586
RUEHKM/AMEMBASSY KAMPALA 3006
RUEHNR/AMEMBASSY NAIROBI 5447
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 2130
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE

UNCLAS SECTION 01 OF 04 HARARE 000417 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR B. WALCH 
AF/EPS FOR ANN BREITER 
NSC FOR SENIOR AFRICA DIRECTOR M. GAVIN 
STATE PASS TO USAID FOR L.DOBBINS AND J. HARMON 
TREASURY FOR D. PETERS 
COMMERCE FOR ROBERT TELCHIN 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
 
E.O. 12958: N/A 
TAGS: EMIN ECON ETRD EINV PGOV ZI
SUBJECT: GOZ URGED TO 'GET POLICIES RIGHT' AT MINING 
CONFERENCE 
 
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SUMMARY 
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¶1. (SBU) Presenters at a mining conference organized by the 
Chamber of Mines of Zimbabwe in Harare on May 7, urged 
government to implement prudent policies to attract 
investment and restore the sector to its former position of 
contributing close to seven percent to gross domestic 
product. Speakers from the industry made a case for 
increasing indigenization gradually through the formation of 
joint ventures with foreign investors rather than through 
legislation.  The experiences of Tanzania and South Africa 
illustrated how good policies could contribute to the orderly 
development of the mining sector in Zimbabwe.  The examples 
also highlighted the importance of developing mutual trust 
between government and the private sector through increased 
consultation.  However, even under good policies, Zimbabwe's 
mining industry faces the immense constraint of electric 
power shortages.  END SUMMARY. 
 
--------------------------------- 
Significance of the Mining Sector 
--------------------------------- 
 
¶2. (U) At a mining conference organized by the Chamber of 
Mines of Zimbabwe on May 7, Alex Mhembere, Chief Executive 
Officer of Zimbabwe Platinum Mines Ltd ("Zimplats"), told 
delegates that Zimbabwe has over 60 exploitable minerals but 
currently produces only two-thirds of them.  According to 
figures from the Reserve Bank of Zimbabwe, mineral exports 
(excluding gold) amounted to US$684.7 million in 2008 and 
accounted for 49 percent of total export shipments of goods, 
down from US$838.6 million and 52 percent of total exports in 
¶2007.  Economic analyst John Robertson pointed out the 
importance of the mining sector beyond its contribution to 
the country's gross domestic product of about three percent, 
down from a high of about seven percent: Mines provde 
employment and offer contracts to suppliers, which in turn 
generates demand for locally produced goods and stimulates 
production.  Mhembere and Chamber of Mines Vice President 
Victor Gapare of GAT Investments Limited told the gathering 
that the multiplier effect of mining on the economy can be as 
high as tenfold.  Citing the example of the towns of Shamva 
and Shurugwi, Robertson also noted that mining companies had 
built towns in Zimbabwe and taken on responsibilities 
comparable to those of large town councils. 
 
--------------- 
The Lost Decade 
--------------- 
 
¶3. (U) Opening the conference, the Minister of Mines and 
Mining Development, Obert Mpofu, lamented the deterioration 
of a once vibrant sector.  He said Zimbabwe's excellent 
mineral endowment had the potential to drive economic 
recovery if the country could attract domestic and foreign 
investment.  Mhembere said that Zimbabwe had failed to 
Qinvestment.  Mhembere said that Zimbabwe had failed to 
capitalize on firm commodity prices between 1998 and 2008. 
He noted that out of a total of 88 operating mines in 1998 
only 20 were still open in 2008; of those, only three were 
operating at full capacity.  Illustrating the decline in 
output of a number of minerals during this ten-year period, 
 
HARARE 00000417  002 OF 004 
 
 
Mhembere pointed out that gold production fell from 25 MT to 
3.6 MT in 2008, and chrome production declined by more than 
half from 780,150 MT to 311,970 MT. Almost all the minerals 
he analyzed showed a similar declining output trend at a time 
when most commodity prices had been rising. 
 
----------------------------------- 
Poor Policy Environment to Blame... 
----------------------------------- 
 
¶4. (U) In Mhembere's view, poor government policies were at 
the heart of the precipitous decline in the mining sector. 
As a result of the policy failures, very little exploration 
had been carried out over the past ten years, which would 
further negatively affect production "not long from now." 
Mhembere quoted the Fraser Institute Survey of Mining 
Companies for 2008/2009 which ranked Zimbabwe last in the 
world with 2.4 points out of a possible 100 in the area of 
investment environment in the mining sector. 
 
¶5. (SBU) The immediate past president of the Chamber of Mines 
Jack Murehwa criticized the introduction of the 
Indigenization Act, which seeks to compel companies to sell 
51 percent of their shareholdings to black Zimbabweans.  He 
called the Act regressive and said it frightened away 
potential investors.  He criticized the extension of the Act 
to the mining sector through the proposed amendment to the 
Mines and Minerals Act, arguing that no indigenous Zimbabwean 
could raise sufficient capital to purchase a 51 percent 
shareholding in a significant mining company given the highly 
capital-intensive nature of the industry.  Paul Chimbodza, 
Chairman and Chief Executive Officer of Geo-Associates 
Private Limited, concurred, noting that inconsistent and 
wrongheaded government policies had failed to stimulate 
investment. 
 
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... And Electricity Shortages, Too 
---------------------------------- 
 
¶6. (U) Wayne Waterworth, Managing Director of Falcon Gold 
Limited, pointed out the negative effect of electric power 
shortages in the past years on the performance of the sector. 
 Power outages had disrupted production and led to flooding 
of some mines.  Earnest Muchayi, Managing Director of 
Zimbabwe Electricity Transmission and Distribution Company, a 
subsidiary of the Zimbabwe Electricity Supply Authority 
(ZESA), told the conference that even with the mining sector 
operating at very low capacity, Zimbabwe could not generate 
sufficient power to satisfy demand.  He attributed the 
problem to a number of constraints faced by ZESA such as old 
equipment, unreliable coal supply, inadequate working 
capital, loss of skills, and power cable theft. 
 
------------------------------------- 
What Chance for Increased Investment? 
------------------------------------- 
Q------------------------------------- 
 
¶7. (SBU) Niels Kristensen, Managing Director of Murowa 
Diamonds, described to delegates the four-stage investment 
cycle in mining and attendant risks.  He stated that the 
payback time for a typical mining project could be as long as 
five to seven years. Both Mhembere and Kristensen made the 
 
HARARE 00000417  003 OF 004 
 
 
point that no investor would commit money to a project that, 
in addition to being subject to unclear and vacillating 
policies, did not have the assurance of property rights, as 
was the case in Zimbabwe today. In their view, Zimbabwe's 
investment climate was characterized by high technical, 
marketing, and political risks that would continue to drive 
away foreign investors. 
 
¶8. (SBU) Emmanuel Jengo, Chief Executive Officer of the 
Tanzania Chamber of Minerals and Energy gave an eye-opening 
account of the Tanzanian mining experience from the colonial 
period of very low investment through independence, 
&Ujamaa,8 and the post-1990 era of pro-market reforms. 
Jengo's message was that pro-market reforms had helped boost 
investment in Tanzania's mining sector, particularly in gold 
mining where production had risen from practically nothing to 
the current level of 50 MT/year. He emphasized the "power of 
implementing correct policies" on private sector development 
in mining, and the importance of developing trust between the 
private sector and government. 
 
------------------------------- 
Indigenization Lobby Speaks Out 
------------------------------- 
 
¶9. (U) A number of small organiations that lobby for 
indigenous rights were represented at the conference and 
expressed support from the floor for the proposed 
indigenization amendment to the Mines and Minerals Act. Supa 
Mandiwanzira, the President of the Affirmative Action Group 
(AAG), for example, accused managers of locally-based mining 
conglomerates of being fronts for foreign owners.  In reply, 
Paul Chimbodza noted that 60 percent of the mining claims in 
Zimbabwe were, in fact, in Zimbabwean hands.  Chimbodza 
voiced concern that the amended Act would be used to empower 
only a few highly-connected individuals, as had been the case 
in fast-track land reform. 
 
¶10. (U) On May 14, the Indigenous Business Women's 
Organization (IBWO) echoed Mandiwanza's sentiments at a 
meeting attended by economic specialist.  IBWO 
representatives called on the government to "give" them 51 
percent of shares in mining companies.  Rising to IBWO's 
support at the meeting Saviour Kasukuwere, Minister of Youth 
Development, Indigenization and Empowerment, promised to push 
for the proposed controversial changes to the Mines and 
Minerals Act. 
 
¶11. (U) Most vexing to the majority of delegates at the 
Chamber of Mines conference was the prospect of being forced 
to sell company assets to meet indigenization requirements. 
They argued that policy should focus instead on creating 
opportunities for individuals to start their own businesses, 
thus widening the country's economic base.  Joel Mungoshi of 
Mvelaphanda Resources Ltd of South Africa told delegates that 
QMvelaphanda Resources Ltd of South Africa told delegates that 
the best option for empowerment and indigenization was for 
government to encourage indigenous Zimbabweans to enter joint 
ventures with foreign investors rather than set empowerment 
thresholds.  He described how Mvelaphanda Resources had 
evolved from a minerals extraction company to become a 
manufacturer of catalytic converters for cars with the help 
of German investment underpinned by an enabling environment 
created by government. 
 
HARARE 00000417  004 OF 004 
 
 
 
----------- 
Way Forward 
----------- 
 
¶12. (U) Mhembere stated that for the mining sector to 
contribute effectively to Zimbabwe's economic recovery the 
investment climate had to be improved by putting in place 
attractive mining laws buttressed by a supportive regulatory 
framework and consistent monetary and fiscal policies.  On 
mining legislation, Murehwa and Chimbodza suggested the 
removal of empowerment limits from the proposed amendment 
bill to the Mines and Minerals Act.  Murehwa also said 
government's role should be reduced to encouraging business 
deals between interested parties rather than setting 
indigenization thresholds. 
 
¶13. (U) The problem of generating sufficient electricity for 
the industry remains one of the most difficult constraints 
confronting the sector. Muchayi emphasized the need for 
industry to pay economic tariffs, but it was not clear 
whether this step would resolve ZESA's operational 
deficiencies, including the problems of indebtedness to 
regional utilities, obsolete equipment at most of ZESA's 
power stations, plus disruptions in transmission and 
distribution.  It was clear to the delegates that, good 
policies or bad, without adequate power the mining sector 
would continue to operate well below its full potential. 
 
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COMMENT 
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¶14. (SBU) Although the mining sector could be a major 
contributor to Zimbabwe's economic recovery by generating 
employment, taxes, and foreign exchange, the poor and 
uncertain policy environment under ZANU-PF Mines Minister 
Mpofu and the country-wide power shortages present onerous 
constraints.  Moreover, the proposed amendments to the Mines 
and Minerals Act with respect to indigenization, while 
popular with affirmative action groups, constitute an attack 
on property rights that will continue to inhibit investment 
in existing mines and scare away new investors.  At a time 
when the private mining sector could be leading economic 
recovery, Zimbabwe risks more years of missed opportunities 
in this potential pillar of the economy.  END COMMENT. 
 
MCGEE