business reporter

President Emmerson Mnangagwa is among at least 43 African leaders who have flown to Russia, hoping to take a bite out of that country’s growing commercial interest on the continent.

But he goes there without having solved any of the old gripes that have kept investors, including Russians, at bay; red tape and a cloudy, unstable economic environment. Russia’s trade with Africa almost tripled from US$6,6 billion in 2010 to US$18,9 billion last year, and, at the Russia-Africa Summit, which opened in Sochi on Wednesday, Vladimir Putin is laying out a plan to grow it further.

Over the first five months of 2019, Russia-Zimbabwe trade rose 9,5% year-on-year to US$18,5 million, according to data from the Russian government. Trade in 2018 stood at US$45,9 million, down 13,6% from the previous year.

Snubbed by the West, which he courted earlier in his presidency, Mnangagwa is hoping to convince Russia to expand its interests in Zimbabwe. But this would mean Zimbabwe stepping up to negotiate better than it previously has, and to make itself look attractive as an investment destination.

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So far, the Mnangagwa administration has failed on both accounts. Ahead of the summit, Putin has been clear on what Russia expects.

First, African leaders have to come to Sochi with a solid plan of what they really want.

“We expect that our African colleagues, representatives of the business community, will come to Sochi with a solid package of proposals aimed at enhancing bilateral relations, while heads of Africa’s regional organisations will share their ideas as to how we could jointly develop our multilateral co-operation.

We will consider these initiatives with great interest and decide what could be launched right away and what will require further elaboration,” Putin said in an interview with Russian news agency Tass.

Second, like any investor, Russia needs a stable, predictable environment.

“Both Russia and Russian companies have substantial resources. We hope that our partners, in turn, will create the necessary stable and predictable business environment and investment protection mechanisms and ensure favourable investment climate,” said Putin.

On both fronts — presenting specific projects to investors and providing a “predictable” environment — Zimbabwe has not delivered. As we have reported previously, an attempt to sell-off State mining assets failed because the government itself was unsure as to what it was selling.

One plan to cut the red tape, the Zimbabwe Investment Development Agency Bill, which would reduce the number of doors an investor needs to knock on to enter Zimbabwe, has been allowed to lapse in Parliament, a further sign of the lethargy on reforms under Mnangagwa’s government.

Mike Sango, Zimbabwe’s ambassador to Russia, admits that Russian companies have been frustrated by bureaucracy. A joint commission between the two countries, held earlier this year, has not yielded any concrete projects.

“During the Joint Commission we had companies that showed interest in investing in the country and presented projects in the area of energy and mining, but they are still waiting for the responses from our government.

“This is the challenge we have. I briefed the President about this and I hope that he is going to help us address this situation,” Sango said.

According to Sango, Russian investors’ response to Zimbabwe will be determined by the success of two key projects; a platinum venture in Darwendale and the Alrosa diamond investment.

“The success of the two mega projects is critical in attracting other Russian investors. Where big business succeeds, smaller players follow. But, if they fail, no other business will enter that market. It is, therefore, important that these two investors succeed, otherwise other businesses will shy away from the Zimbabwe market,” Sango said.

Below we look at some of the major Russian commercial interests in the country, and where they are on implementation. In January, Alrosa, the world’s largest diamond producer by output, announced that it was investing in a new operation in Zimbabwe.

Alrosa had first showed interest in Zimbabwe in 2014, but the company dropped its interest in investing two years later and let go of its exploration licences in the country. The company renewed its interest after talks with Mnangagwa, early into his term, where they got more assurances and concessions on ownership.

Alrosa’s CEO Sergey Ivanov flew to Harare in April 2018 and held meetings with business executives and Mnangagwa. A diamond policy, announced in December 2018, would allow Alrosa to be one of only four companies allowed to mine diamonds in Zimbabwe. Previously, Zimbabwe had banned all private companies from diamonds. In July, Alrosa signed an MoU with State-owned Zimbabwe Consolidated Diamond Company (ZCDC) for exploration and development.

Under that agreement, Alrosa got a 70% controlling stake in the development of greenfield projects, while ZCDC will control the remaining 30%. The split was a concession to Alrosa, as, under the diamond policy, the Zimbabwe government gets to hold 46% of all diamond mining in the country, while local investors own 5% of any new operations.

As part of the ZCDC deal, Alrosa released an initial US$12 million for exploration, which was supposed to start in August. Zimbabwe is desperate to reboot diamond production, which had fallen almost 75% over the past five years.

Great Dyke Investments (GDI), a joint venture between Russian and Zimbabwean investors, plans to develop a mine near Darwendale, expected to produce 860 000 ounces of platinum and gold at peak.

The project’s first phase is expected to cost US$500 million, targeting annual output of 280 000 ounces of platinum group metals and gold. Afreximbank is the mandated lead arranger on the project, a mandate that covers both debt financing and the equity raising to fund Phase 1 of the project. On Tuesday, GDI announced that the target financial close date for the transaction is March 31, 2020.

The project has not been without controversy. At inception, the military had interests in the project, through a company called Pen East Mining, a partnership with ZCDC. The Russian share was held through Vi Holdings, which includes state-controlled industrial conglomerate Rostec Corporation. In May, Bloomberg reported that a Zimbabwe army investment vehicle’s shareholding in the project was putting off potential financiers.

But Mnangagwa said the military had been bought out by a private company, now identified as Kuda Tagwirei’s Landela Mining Ventures, which now owns 50% of the mining venture.
DTZ-Ozgeo and the ‘mafia’

Initially, Alrosa will develop the Chimanimani claims that were previously held by DTZ-Ozgeo, another Russian joint venture. The story of how DTZ-Ozgeo lost the claims, now held by ZCDC, reflects the fears Russians still have over their assets. DTZ-Ozgeo was a joint-venture between the Development Trust of Zimbabwe and Russian firm Econedra. It was one of the diamond miners booted out of diamond mining in 2016 when the government of Robert Mugabe nationalised the diamond fields.

In 2018, appearing before a parliamentary committee, DTZ Ozgeo managing director Victor Kusyla recounted how, in 2016, former Mines minister Walter Chidakwa and his then permanent secretary Francis Gudyanga sent in an armed police unit to take over the operation “mafia style”.

Chemplex: Russian target

Russian billionaire Dmitry Mazepin has, for over a year, been trying to take over Chemplex, the State-owned chemicals and fertiliser company that owns Zimbabwe’s sole phosphate mine.
Through his company Uralchem, the world’s second-largest manufacturer of ammonium nitrate, Mazepin controls a lucrative share of the global fertiliser market.

In 2013, Mazepin bought an interest in Uralkali, the world’s largest miner of potash, which is used in the manufacture of fertiliser. Uralkali is worth $15 billion. In 2018, the government announced that Chemplex, a unit of the Industrial Development Corporation, was one of the companies to be sold off under the privatisation plan.

Mazepin is one of the bidders, but, more than a year after he first showed interest during a visit to Zimbabwe in February 2018, the deal has not happened. In January this year, Mazepin said he would not accept any deal that gives him a minority interest in Chemplex.

“Well of course I don’t think we’ll agree to less than 50/50…we will not be simple minority shareholders there,” Mazepin said then.

— newZWire

In Russia this week, Mnangagwa held another meeting with Mazepin. Chemplex owns half of the Zimbabwe Fertiliser Company, 36% of Sable Chemicals and wholly owns ZimPhos, the only producer of phosphatic fertiliser raw materials in the country. ZimPhos in turn owns Dorowa Minerals, the country’s sole phosphate mine, which is also a major target for Mazepin.

Mazepin is one of Russia’s richest businessmen. According to Forbes, his net worth is $3,2 billion, although various Russian media value him at up to $7,7 billion. Forbes places him in the Top 100 of richest Russians. Mazepin has links to Russia’s top lenders, such as Sberbank, VTB and Renaissance Capital. VTB and RenCap have previously done business in Zimbabwe.

Liberation Mining: ‘Down from the middle’

Liberation Mining, which is partly Russian-owned, has had trouble getting its Lubimbi coal project in Matabeleland North off the ground due to high costs and red tape. Liberation Mining is controlled by Russian businessman Alexander Isaev, co-owner of VostokCoal, one of Russia’s big coal miners.

The company’s MD, Victor Tskhovrebov, has publicly expressed his frustration over red tape and the currency crisis. At a packed mining investment conference in February last year, he got Zimbabwean bureaucrats shifting uncomfortably in their seats when he warned prospective investors, then still excited about Zimbabwe’s prospects, to prepare for bureaucracy and inefficiency. Tskhovrebov has ranked Zimbabwe “slightly down from the middle” on the list of the countries in which his company is invested, in terms of attractiveness. Liberation says it has the potential to haul 15 million tonnes of coal over five years, but for Zimbabwe’s bureaucracy, forex shortages and the collapsed rail system.

— newZWire