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Murky backroom deals the new normal in Zimbabwe Add to ...

After a decade of political chaos, economic collapse and arbitrary land grabs, Zimbabwe really doesn’t need any more negative news to drive foreign investors away.

Yet amazingly, the Zimbabwe government is continuing to push forward on a controversial campaign to force every foreign-owned company to sell 51 per cent of its equity to black Zimbabweans.

The so-called “indigenization” campaign is causing havoc for foreign investors, who cannot be certain from week to week if they will continue to have permission to operate in Zimbabwe. Some have been threatened with an immediate suspension of their licenses, while others are being forced to negotiate murky backroom deals to stay alive.

Dozens of foreign-owned mining and banking companies are among the most vulnerable of the investors. Zimbabwe has significant mineral resources, providing 65 per cent of its export earnings. It is one of the world’s biggest platinum producers, and it also has gold and diamond mines. Rio Tinto, Anglo Platinum and Impala Platinum are among the major foreign miners in Zimbabwe.

The threats against the foreign mining companies seem reminiscent of a shakedown game: the investors are terrorized with the imminent risk of closure, they are hit with various deadlines and ultimatums, and then they are allowed to negotiate a deal to continue in business, presumably with a bigger share going to the government. There are no legal guidelines or formal laws to govern the negotiations, so anything goes.

Some reports say the threats are being orchestrated by a small cabal of politicians and military officers in the inner circle of President Robert Mugabe, the longtime autocratic leader of Zimbabwe, who needs new money for a planned election next year.

Even within the government, the indigenization drive has caused dissent. Prime Minister Morgan Tsvangirai, the former opposition leader who joined a coalition cabinet with Mr. Mugabe’s ruling party in 2009, complained recently that the confusion over the indigenization policy is damaging investor confidence and hurting job creation.

One of the first victims of the indigenization policy was Toronto-based Caledonia Mining Corp., which operates the Blanket gold mine, the most successful gold mine in Zimbabwe. On Aug. 19, the company confirmed that Zimbabwe’s Minister for Indigenization had requested the cancellation of Blanket’s operating license, on the grounds that Caledonia had failed to satisfy the government’s rules on indigenization. The company said it was seeking “urgent clarification” and was prepared to take legal action to defend itself.

Four days later, after an emergency meeting with the government, Caledonia announced that the government had agreed to suspend the cancellation of its operating license. The two sides agreed to conduct an independent assessment of the value of the Blanket mine, which would then lead to a revised plan for how Caledonia would comply with the indigenization policy. By the time of this announcement, however, the company had already lost 30 per cent of its share price within a week.

This week, a Caledonia executive confirmed that the assessment is continuing, without a fixed deadline for compliance. A face-to-face negotiation is likely to take place when the mine’s value has been assessed, he said.

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