Key risks for mining firms to be aware of in Zimbabwe

01 March 2019

Zimbabwe Zimbabwe is emerging as an important mining centre within southern Africa. In particular, the country will rise in prominence as a producer of platinum, gold and diamonds. However a worsening security environment and government intervention threaten to disrupt the industry’s development over the next few years.

Security Environment 

Regime restraint has waned since President Emmerson Mnangagwa took office 15 months ago. As of January 2019, the state has suppressed numerous political demonstrations after fuel price hikes triggered protests across the country. 

The most affected areas are the capital, Harare, and the major urban centres of Bulawayo and Mutare. Key transport routes into and out of Harare, including the international airport, remain at risk of disruption.

Mining operations are unlikely to be directly affected by the protests. However, there is an increased risk of demonstrations disrupting head office operations in Harare.
Zimbabwe’s foreign exchange reserves currently stand at USD 0.43 billion. They are forecasted to grow marginally, to USD 0.45 billion in 2019.  On 14 January 2019, several people were killed and more than 200 were arrested during protests in Harare after the government increased petrol prices from a base of USD 1.24 a litre to USD 3.31 a litre.

Intermittent and spontaneous protests will continue in the near-term outlook.

Violent confrontations may occur between the youth wing of the ruling ZANU-PF party and the main opposition party, the Movement for Democratic Change (MDC-T).

This will present security challenges in Harare and Bulawayo.

There is an increased risk of injury to expatriates, damage to public property and closure of major transport routes.

Both domestic and international flights were suspended on 14 January 2019 due to political unrest.

Trading Environment

Real GDP is expected to expand by 3.1% in 2019 driven largely by the extractive sector.

The gold sector will see strong production growth from 1.04 million ounces in 2018 to 1.40 million ounces by 2027.

This will be the result of government support and rising global prices. However, mining firms are likely to be impacted by currency inconvertibility risks.

Zimbabwean local currency is presently issued in two forms, bond notes and electronic real time gross settlements (RTGSs). 

Officially, local currency is pegged 1:1 to the US dollar. In reality the local currency is worth far less and its value is depreciating. 

Zimbabwe’s foreign exchange reserves currently stand at USD 0.43 billion. They are forecasted to grow marginally, to USD 0.45 billion in 2019.  

One of the largest mining firms in Zimbabwe, RioZim, halted production at its three gold mines in February 2019 after the Reserve Bank of Zimbabwe failed to provide the foreign currency needed to resume operations.

Given the current foreign exchange shortages, there is an increased risk of disruption to the operations of multinational mining firms.

Investment Environment

Zimbabwe’s mining industry is highly fragmented with a large number of companies involved in the extraction of gold, diamonds, platinum, nickel and other precious metals.

The election of Mnangagwa is likely to be risk positive for investors given the hostile operating environment that characterised Zimbabwe over the last three decades.

The new administration has demonstrated its pragmatism by removing indigenous ownership requirements across the majority of business sectors. 

World Risk Review Map Zimbabwe Stats 2

However, the new administration will keep in place the 51% black ownership requirement for the platinum and diamond sectors

Government intervention will continue to remain a significant barrier to foreign direct investment (FDI). 

The ease of doing business in Zimbabwe is markedly reduced by a highly inefficient taxation system. 

Whilst corporate tax remains competitive at 25.75%, Zimbabwe retains one of the highest individual income tax rates in the region. 

The lengthy legal and regulatory processes for business registration and construction permits create inefficiencies in the business environment, incentivise rent-seeking in the bureaucracy and deter FDI. 

The judicial environment is undermined by regular police interference and Mnangagwa’s final appointment of the judiciary. 

Consequently, the operational risk of doing business in Zimbabwe remains amongst the highest in sub-Saharan Africa.

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

WRR Zimbabwe Article Stats

5 Key Takeaways

  • Zimbabwe is emerging as an important mining centre in southern Africa, creating numerous investment opportunities
  • Mining firms will be exposed to currency risks amid persistent foreign exchange shortages
  • Protests are likely to be frequent, affecting operations in key urban centres
  • The government has eased indigenous ownership requirements, although restrictions remain in platinum and diamond mining
  • Operational risks of doing business in Zimbabwe remain amongst the highest in sub-Saharan Africa.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Cambodia, Cameroon, Oman and Argentina all of which have been the subject of recent enquiries from JLT's client base.

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For further information, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)121 626 7837 or email