The Arcadia Lithium project, a flagship of Australian Stock Exchange (ASX) listed Prospect Resources Ltd has had its application for Special Economic Zone (SEZ) approved by the Zimbabwe Special Economic Zone Authority (ZIMSEZA). A SEZ is an area given special regulations and incentives. Zimbabwe uses SEZs to achieve a number of goals including attracting investment, driving economic growth, value addition, employment creation and other objectives. The licence to Arcadia Lithium, which is renewable, is valid for 10 years.
“SEZ status at Arcadia provides Prospect with an extensive list of benefits that include tax relief and exemptions and the ability to hold and operate foreign currency accounts, as well as exemptions and reductions of costs and trade barriers associated with the import of raw materials and capital goods through to the export of concentrates,” says Prospect Resources in an ASX Announcement. The operating environment without the SEZ status seems difficult and uncertain. This could be the reason why many investors are taking their time to set up shop in the country.
Specific SEZ incentives
To fully understand what this means for Prospect Resources, let us look at specific incentives that come with the SEZ status. Firstly, in terms of corporate tax, Prospect Resources should pay 25% but with this arrangement, they will not pay anything for the first 5 years. They will then pay 15% thereafter. For Non-Residents Withholding Taxes, they are exempted on dividends, inter-company remittances, royalties (payments for offshore software and other subscription services) and fees for imported services. The normal standard without the SEZ status is 15%.
Prospect Resources will also enjoy duty free importation or 100% rebate with regards to customs duty on raw materials and capital equipment. They are also exempted from the requirement to obtain permits for the import and export of goods in and out of Zimbabwe. As if that is not enough, Prospect Resources can also operate a foreign currency account with any banking institution within the SEZ or outside Zimbabwe. Normally, they would be required to bank onshore with a registered domestic bank.
According to Prospect Resources Managing Director Sam Hosack, “SEZ status at Arcadia is a substantial milestone for the Company as it demonstrates the Zimbabwean Government’s commitment to attract foreign investment, the Project’s significance within Zimbabwe and the opportunity that Arcadia presents to all stakeholders.” Foreign currency challenges tend to scare away investors because of the fear they may not be able to pay dividends to shareholders and pay for other obligations which require foreign currency. Without these impediments, Prospect Resources can do business in a sustainable, efficient and profitable way.
With the ground-breaking ceremony done late last year, this SEZ milestone will certainly speed things up for Prospect Resources. Some might argue that Zimbabwe is losing out a lot by giving such concessions but the fact is that we are desperate for investment and government will do whatever it takes to get it. At least employment will be created for the ordinary Zimbabwean. Maybe the mega deals are coming to life now.