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Mugabe nationalizes mines: Unlocking an industry or spurning trade partners?

Zimbabwean President Robert Mugabe announced diamond mining in the country would become a state monopoly. At risk is an increasingly important relationship with China. 

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    Zimbabwe's President Robert Mugabe addresses supporters gathered to celebrate his 92nd birthday in Masvingo Feb. 27, 2016. Mr. Mugabe recently announced diamond mines in the country will be put under government control.
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Zimbabwean President Robert Mugabe is set to nationalize the country’s diamond mines.

The 92-year-old leader declared Thursday that the Zimbabwean mines currently in operation would be taken over by the state. The news comes a week after the government ordered all mining companies in the country to halt work because they had not renewed their licenses.

President Mugabe alleged that the foreign mining companies were stealing billions from Zimbabwe. By running a state monopoly on mining, the country could control an industry with the potential to double its gross domestic product (GDP), according to estimates.

Recommended: Policing 'blood' diamonds: the watchdog Kimberley Process explained

“Lots of smuggling and swindling has taken place and the companies that have been mining, I want to say robbed us of our wealth,” Mr Mugabe said to state broadcaster ZBC TV. “That is why we decided that this area should be a monopoly area and only the state should be able to do the mining in that area.”

During a two-hour interview with ZBC TV, Mugabe revealed that Zimbabwe had earned around $2 billion from the diamond mining operations. He estimated in total those operations are earning around $15 billion. No timeframe was included.

For a country with an annual GDP of around $14 billion, a state-run industry capable of generating $15 billion could be a major windfall. Zimbabwe was the eighth-largest diamond producer in the world in 2014, according to Kimberly Process, a diamond industry group. Although production fell during 2015 to 420,000 carats from 660,000, according to Bloomberg.

Despite the potential for billions in earning, the move also risks alienating foreign investors.

One of the mining companies facing closure if Mugabe’s plan for a state monopoly succeeds is Anjin Investments. The Chinese-run company has challenged Mugabe’s order in court, according to Reuters. Whether the monopoly will impact Chinese-Zimbabwean relations is not yet known.

China is Zimbabwe’s largest trading partner. Added to the trade deals, Zimbabwe also agreed to adopt the Chinese yuan as its national currency after China canceled millions in debts. China is the biggest market for diamonds after the US, according to Bloomberg.

So far, Mugabe has downplayed the possibility the state seizure will complicate relations with China.

“I don’t think it has affected any of our relations at all,” Mugabe told ZBC. “I told President Xi Jinping that we were not getting much from the company, and we didn’t like it anymore in this country.”

Past efforts to spur the economy by Mugabe have been heavily criticized. In 2000, the president seized farmland from hundreds of white farmers to redistribute it – a move that was credited for having disastrous effects on Zimbabwe's agriculture industry. At the time, commercial farming provided 40 percent of the country's export earnings, according to The Guardian.

The seizure also made foreign investors wary, which could mitigate damage to the mining industry.

"I suspect this won't really have broad implications across the industry because Zimbabwe is a known, risky jurisdiction to operate in," said John Turner, head of the mining group Fasken Martineau, a law firm that works with miners in Africa, to Reuters. 

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