He hits the nail on the head:
The last time Zimbabwe was in this kind of position, it did something few economists would recommend: it simply printed more money, with disastrous consequences. The sudden, poorly-managed influx of Zimbabwean dollars into the economy was the direct cause of the economy-wrecking, poverty-inducing, development-stunting hyperinflation that followed. Surely, surely, Zimbabwe would not go down this route again, no matter how severe the cash crunch?
Sure they will.
I think most people will agree that this latest move is just another symptom of the mismanagement that Zimbabwe has experienced at the hands of President Mugabe and his cronies. But I’d be interested in better reporting on the politics behind this step.
Zimbabwe will introduce so-called “bond-notes”. These look deceptively like paper currency and coins, but actually are bonds, secured by a $200 million loan by the African Import Export Bank. In theory, the bearer could therefore go to the bank and/or government and ask for the bond to be exchanged into U.S. currency. But in practice, one can doubt that this would actually work. No one (who isn’t forced to) will recognize these for their nominal worth, especially not outside Zimbabwe, rendering them quite useless to ease the country’s trade and hard currency deficit.
In the best case, they will trade at a discounted value, leading to higher costs for importers. In the worst case, they will tempt the government into a new round of money printing, only this time with the added bonus of skyrocketing debt.
So who came up with this idea and how was the AfrImEx Bank convinced to back the scheme? How will the distribution mechanism work and who is guaranteeing a transparent process (my guess: nobody). Will there be any accountability? And as this is clearly a stopgap measure at best, where are Zimbabwe’s fundamental economic reforms, which have to be linked to a reform of the political system to be effective? I’m not sure that we will get any satisfactory answers to these questions any time soon.
From Brooking’s Africa in Focus blog:
Zimbabwe clamped down with the enforcement of its controversial indigenization law—requiring foreign companies with assets of more than $500,000 to transfer or sell a 51 percent stake to indigenous Zimbabweans this month. The deadline of April 1 had been set earlier in March in accordance with the controversial 2008 indigenization law requiring foreign companies to submit plans for such indigenization or face the risk of closure. […]
According to Chinese statistics, China has been the largest foreign investor in Zimbabwe for years, with total FDI of more than $600 million in 2013. Among all African destinations for Chinese investment, Zimbabwe has ranked among top three in the past three years.According to official Chinese media, currently there are more than 10,000 Chinese nationals living and working in Zimbabwe. Many Chinese companies in Zimbabwe are actively engaged in contractor services, including telecommunications, irrigation, power, and construction. […]
Chinese investment in the diamond mining industry seems to have taken the worst hit. Indeed, the indigenization of diamond mining industry has been interpreted by Chinese analysts as the government’s “nationalization” of the diamond mines. The two Chinese diamond companies, Anjin and Jinan, began their mining operations in Marange in 2012, reportedly with the Zimbabwean partner holding 51 percent of the share. Nevertheless, the Zimbabwean government ordered forced evictions of the companies in February, unless they become a part of the Zimbabwe Consolidated Diamond Company (ZCDC). The ZCDC, founded in 2015, is believed to be the government’s puppet to consolidate the ownership of diamond mines. Anjin has filed a law suit at the Zimbabwean Supreme Court to dispute the government’s decision.
Very interesting look at China’s competing interests (political vs. economical) and perspectives in Zimbabwe, as well as a broader discussion of the indigenization policy of Zimbabwe’s government.
As always, the best reads from around the ‘net:
Zambian copper project results in many disputes
An excellent article looks at the many controversies surrounding the Sentinel copper project in Zambia. Owner First Quantum Minerals is embroiled in land disputes, competing interpretation of mining and compensation law, as well as a governmental approach swaying between support and condemnation. Think Africa Press
A rare look at illegal oil refineries in Nigeria
The British Guardian provides insights into illegal refineries in the Niger Delta, where stolen crude oil is converted into Diesel under incredibly dangerous conditions for workers, communities and environment (including video). The Guardian
Detailed look at the future of East African oil
Many issues and challenges mentioned in this piece will sound familiar to observers of the East African oil business, but the article offers a nice and in-depth summary. Voice of America
Angola ends tax exemption of oil companies
The government has gazetted a law that applies consumption tax rates ranging from 5 to 10 per cent on activities of companies working in the oil sector. These were so far completely exempt from the tax that reaches rates of up to 30 per cent on luxury goods. This is Africa | Mining Review
Gold and violence in Darfur
A look at how government-supported gold mining activities contribute to increasing violence and a change of conflict dynamics in Darfur. The Guardian
- Study forecasts continuing stagnation of the South African mining sector: African Mining Brief
- The European Parliament has accepted a new Fishery treaty with Mauritania: Jeune Afrique
- Uganda is looking to import Coal from Mozambique to develop local iron ore reserves: AllAfrica/New Vision
- The European Union has lifted sanctions against Zimbabwe, allowing for diamond exports from its controversial Marange mine to resume: Mining Review
- Thousands of people demonstrated against French mining giant Areva in the town of Arli, Niger: Jeune Afrique
- Mozambique plans to finish its new natural gas legislation at the end of this year: Mining Review
- Namibia plans to start exporting large quantities of cattle on the hoof to neighbour Angola: AllAfrica/New Era
Diamonds from Zimbabwe return to European markets
According to a Zimbabwean newspaper, the European Union has begun the process of delisting the Zimbabwe Mining Development Corporation (ZMDC) from the E.U. sanctions list. That would allow the ZMDC, a state-owned enterprise, to sell diamonds from the controversial Marange mine in the E.U. Main proponent of the lifting of the sanction was Belgium, which also hosts the biggest market for diamonds in the E.U. AllAfrica
Blockage of Libyan oil harbours continues
Militias continue to block most oil exports in Libya, reports the German tageszeitung. These militias want to strengthen their position in negotiations with the government about regional autonomy and religious questions. Libya depends heavily on oil for its export earnings. taz
United Nations want Gulf states to crack down on Somali charcoal smuggling
The U.N. has urged the governments of the countries in the Arabic Gulf, especially the United Arab Emirates, to respect a U.N. embargo on the export of charcoal from Somalia. The charcoal trade is one of the main sources of income for Al Shabaab, an Islamist militia fighting against the U.N. supported government in Somalia. Its main trading partners are traders from the UAE. Shabelle Media
African governments are pushing for better resource deals with China
China finds it harder to impose its own terms for resource deals in Africa. African governments are keen on setting the rules for infrastructure development and environmental protection. New York Times
Son of Liberia’s president steps down from national oil company
Ellen Johnson Sirleaf was widely criticised for putting her son into a powerful position, heading the national oil company. Now he stepped down, citing the recently achieved completion of the sector reform process, with which his work would be complete. Baobab