Simon Allison: The new Zimbabwean dollar that isn’t

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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.

China in the Indigenization Trap

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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.

Rich Links: Gas Revenues in Tanzania

  • “With the gas industry expected to be the largest player in Tanzania’s economy, the Tanzanian government could face substantial losses if they do not act to curb bad policies and practices.  Here are three major issues Tanzania needs to tackle in order to ensure they capitalize on upcoming gas revenues:”

  • “Mining prospectors will be able to apply for licences online and get feedback within 90 days, according to new amendments to the Mining Bill.”

  • “By the evidence of South Sudan’s budget, presented to parliament in late June, the country’s finance ministry has lost its mind.”

  • The Norwegian Ambassador to Ghana, Mrs. Hege Hertzberg, has urged the Ghana government to use the oil resource to transform the country’s economy from import dependent, to become a leading exporter on the African continent.

  • “Built by a consortium led by British company Globeleq, the 138 megawatt (MW) wind farm is one of Africa’s biggest – larger than the 120 MW Ashegoda windfarm that was unveiled by Ethiopia in October 2013, though not as big as the Tarfaya wind farm in south-western Morocco, which started producing energy in April and will eventually generate up to 300 MW of electricity.”

  • “Some neighbouring countries are less upbeat about the project. Citing two treaties, dating from 1929 and 1959, Egypt claims a historic right over the Nile. It fears that the dam will restrict the flow of water. […] “These treaties are now obsolete. We are entitled to build the dam,” says Alemayehu Tegenu, Ethiopia’s minister of water, energy and irrigation. “For a long time we derived no benefit from our river.”

  • “Unfortunately, Tullow could not repeat its African success story in Ethiopia. […] Sources told The Reporter that executives of Tullow decided to suspend drilling operation in Ethiopia. “They will pull out their drilling crew out of Ethiopia. They will take out their core staff to other projects in other countries and lay off the rest of the staff in their Ethiopia office.”

  • “Zimbabwe’s cotton industry will remain under pressure as international lint prices continue to wane with China’s imports expected to decline in the 2014/2015 season as the Asian nation shifts to domestic cotton for national reserves.”

  • “The duration of license now depends on the size and nature of mineral deposits, as well as the size of investment to be injected in a concession. This will be shown through a feasibility study conducted by the investor.”

Rich Links: Copper in Zambia, Gold in Darfur and more

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

Other stuff

  • 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

Rich Links: Diamonds, Oil and Charcoal

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