Nationalization of the Zimbabwe Mining Sector: Another Blunder by the Mugabe Regime?

Zimbabwean Minister Saviour Kasukuwere recently announced a government plan to partially nationalize the country’s mining sector. The announcement came after accusations by the minister that foreign companies had all but plundered the country’s resource wealth and left little for ordinary Zimbabwean citizens.

On a certain level, this seems like a practical decision. Kasukuwere is right in demanding that more money from the mines reach the Zimbabwean people. However, the country’s experience in “land reform” 10 years ago should serve as a precautionary tale before any decision is made.

In 2000, the Zimbabwean government seized 110,000 square km of land from white farmers and “redistributed” them to black farmers. Most of this land, particularly the parcels located in good farming areas, ended up in the hands of members of President Mugabe’s political party, the ZANU-PF, or in the hands of loyal army officials. Everyone else was given inferior farming land, if any at all. Following this infamous “reform,” the Zimbabwean economy tanked. Agricultural production growth fell from 3 percent in 2000 to -3 percent in just three years; net foreign direct investment inflows made a sharp decline, from $435 million in 1998 to essentially zero in 2001; and exports dropped from $2.1 billion to $1.3 billion in roughly the same time frame. The economy never fully recovered from this. For the rest of the decade, macroeconomic data showed a gloomy picture. Between 2000 and 2009, real GDP and GDP per capita growth averaged around -6 percent; the industrial production growth rate averaged -8.5 percent; and net foreign direct investments averaged a paltry $35 million a year.

Zimbabwe’s decade of economic downturn followed a pattern laid by other despotic regimes that have nationalized private investments. In Uganda, for instance, the industrial sector collapsed and foreign direct investment bottomed out following the nationalization program in 1972. Similarly, in Argentina, the nationalization of the former British and French railway companies, as well as other foreign businesses, served as the basis for the Argentine economic crisis of the 1950s.

Furthermore, if Zimbabwe’s current plan is to redistribute income and increase revenues for the state, the government need not nationalize private firms to achieve these outcomes. Instead it should urge the foreign firms to enlist their companies on the Zimbabwe stock exchange; renegotiate its contracts with the mining companies; and, most importantly, should improve its institutional capacity. At present, Zimbabwe is ranked among the most corrupt countries in the world; and given this level of corruption; those who are well positioned politically are most likely to benefit from the nationalization effort, while the poorest and neediest aren’t likely to be helped at all. Worse still, given the mining industry’s prominence in Zimbabwe’s economy, disruptions to the sector could plunge the already fragile country into an economic depression. Although Kasukuwere’s plan for partial nationalization, possibly being implemented on March 18, might stem from good intentions, the majority of the country won’t likely benefit from this plan.