Eddie Cross's Website

Self Destruction

We have had the Commonwealth games on TV all this past week. It would appear that Australia has again shown itself to be capable of hosting these large events and the athletes have put on a great show for the rest of us. Just this time Zimbabwe is not there - another example of our growing political and diplomatic isolation. Botswana and all our other neighbors were there and added to the color and ceremony of the occasion. South Africa made quite an impact.

It is sad when we see global events like this where our own sportsmen and women could compete and show the world what we are made of and we are denied the privilege because our government is an international polecat. Kirsty Coventry was in Harare this weekend at a national swimming gala - signing autographs for the kids participating - she almost certainly would have made gold in Australia.

It does not stop there - only two sectors of the Zimbabwe economy seem to have survived Zanu PF - the mining and financial services sectors. In the mining industry once you have made an investment in a hole in the ground, you are locked in - nothing much you can do about it except keep on digging or close it down to come back later at huge expense or simply walk away.

An Australian firm saw the massive potential of the platinum reserves in Zimbabwe (we have a very large proportion of global reserves along the Great Dyke) and sunk US$600 million into a hole near Chegutu. They built a complete town of houses for staff and a huge processing complex, roads were opened up and hundreds of staff recruited. Three years later - they walked away and a small group of local investors bought the whole bang shoot for a small payment - taking over what debts remained.

Anglo American - one of the largest mining companies in the world and at one stage holding nearly half of all the counters on the stock market, has quietly disinvested over the past 15 years. At one stage they were into everything - chrome, steel, coal, nickel and a wide swathe of industry and agro industrial firms. Now they operate out of a house in Harare and have a handful of investments and retain only their platinum mining assets - still in their embryonic state. They sold everything else - to whoever would buy the assets for a reasonable price.

The South African mining giant Implats eventually bought the Chegutu operation from our local investors (who made a fortune on the deal) and announced a massive investment programme. Another South African mining company (a company with black empowerment links) bought into the gold industry. Now they are all wondering why they did such a dumb thing - Zanu PF has moved to do what they have done to all other sectors, get involved and destroy what is there.

After years of deliberation the Ministry of Mines made it known they were going to take a 25 per cent stake in all major mining companies - without compensation. In addition the same companies had to sell another 26 per cent on the never never to either the State or a local black empowerment group (read Zanu PF company in effect). Thus at one stroke they take over a controlling interest in all major mining companies. This goes well beyond anything being done in South Africa and it violates clear, solid legal agreements entered into with companies prior to their entry to the industry - especially in the platinum sector.

The industry has reacted with fury. At a meeting this week with the Minister they spelled out what would happen - they would freeze all new investment and all major maintenance. Output would start to decline in a short while and thereafter would decline rapidly with mine closures being inevitable. They also pointed out that as the principle stakeholder - the State or its local partners would have to find the resources for any major investment and if these involved hard currency, they would find it very difficult to do so.

The other sector that has survived (battered and bruised, but still operating) is the financial services industry. We have a good national network of banks and other financial institutions that are basically well run and sound. Now the state has imposed huge statutory reserve requirements on the remaining commercial banks - six have gone to the wall in the past 4 years. But to compound the problem, the new reserves have to be paid to the Reserve Bank in US dollars!

In addition the overnight accommodation rates have been raised to the inflation rate (nearly 800 per cent), so that if a bank needs some help to cover its obligations (a normal money market operation) it has to pay a punitive rate to the Reserve Bank for the facility. The smaller banks - all owned and operated by local investors, will all struggle with these new requirements. Already money is moving out of these institutions into those that are perceived as being "safe". Money is also moving back into the stock market where returns are still good and the funds secure (for a while - but stay out of mining counters for a bit).

With agriculture and tourism down to 20 or 30 per cent of what they were 5 years ago, industry down to about 40 per cent, the action taken this past two weeks will undermine what is left of the economy. As it is, most informed observers are predicting a further decline in national economic output this year - the 7th consecutive year of negative growth.

A local colleague of mine now estimates inflation at 3000 per cent per annum - and rising. Certainly this week the increase in prices has been scary. In this environment, if you do not watch what you are doing very carefully, you simply go bust. One thing that we do know is that Zanu PF and the collection of clowns that run the country, simply do not know what to do - from the evidence of their action in the past week, they are now committed to a process of self-destruction. Well, as far as I am concerned, it cannot come soon enough.

Thank you to all of you who sent funds to us in time for the Congress - we were able to help quite significantly. Now we are into the next phase - action on the streets to bring about change and we will need lots of support - if you are outside the country there is only one way you can help - send some money. Every dollar helps. If you want a receipt or to direct your funds to a particular activity or group - just let us know by these means.

Eddie Cross
Bulawayo, 24th March 2006.