Harare banks on Beijing bailout

Source: Harare banks on Beijing bailout – The Zimbabwe Independent September 28, 2018

PRESIDENT Emmerson Mnangagwa’s administration sees China as the brightest hopes in its quest for a critical US$2 billion bailout package to ease the country’s crippling liquidity crunch and cash crisis. Official sources say Harare will once again resuscitate negotiations after hitting a brick wall during meetings held on the sidelines of the Forum on China-Africa Co-operation (Focac) summit in Beijing at the beginning of the month.

Owen Gagare

A Chinese embassy official confirmed that embassy officials would meet Finance minister Mthuli Ncube “after 7 October” to discuss future loans and the bottlenecks which have prevented Beijing from advancing more loans.

The meeting will lay the groundwork for more discussions.

Finance ministry and Reserve Bank of Zimbabwe officials have for some time been negotiating for a loan from the Industrial and Commercial Bank of China (ICBC) and the Export-Import Bank of China, but a breakthrough has been slow in coming because the Chinese remain worried about Harare’s ability to repay loans.
The major bottleneck during Mnangagwa’s visit was the failure by Zimbabwean officials to demonstrate capacity and willingness to settle arrears from previous loans.
Zimbabwe has arrears of about US$300 million from previous Chinese loans.

The Chinese are, however, optimistic that Ncube will be able to come up with bankable plans as well as devise a payment strategy to unlock new lines of credit from the Asian giant.

“The Finance minister is in New York. When he comes back, we will meet with him and we can have a discussion on these issues. We hope that we will achieve some progress on the issue of the loans and we have to do it step-by-step. We won’t force the Zimbabwean government to pay it now, but we will have a detailed and frank discussion about it,” said a Chinese embassy official.

“We hope that the Zimbabwean government will pay back the loans. This will clear all the obstacles for more future funding. Thereafter, we hope they will come up with bankable projects that will enable Zimbabwe to get more loans and be able to repay. Now we have US$60 billion for Africa and we hope the Zimbabwean government clears arrears so that the country can also benefit from that facility.

“We are looking forward to a good discussion with the Finance minister. The Finance minister is a very good professional with good connections and he knows how the economy works. We hope he could help reverse the trend.”

The official said China wanted to help Zimbabwe as demonstrated by the availing of funds for the Kariba South Extension project, Hwange thermal power station project, Robert Mugabe International Airport and the Victoria Falls International Airport despite Harare’s failure to repay previous loans.

The funds were unlocked during Mnangagwa’s visit in April.

The initial agreement for the Hwange Power Station deal was signed in August 2014 when former president Robert Mugabe visited the world’s second largest economy.
However, insurance firm Sinosure refused to guarantee loans from Chinese banks to Zimbabwean companies, including a loan meant for the expansion of the power station because of the government’s failure to repay arrears.

The impasse has persisted because Zimbabwe still owes US$160 million to China Exim Bank and Sinosure.

Special agreements were, however, made on the Hwange thermal project and the Robert Mugabe International Airport, and the Victoria Falls International Airport in line with the elevation of relations from all-weather friends to strategic partners.

China also extended a US$500 million loan for the Kariba South Extension programme.

“We cannot forget the fact that in April when President Mnangagwa visited China we made special arrangements and although they have not paid back the loans, we still made special arrangements for them to get loans for those special projects. But those are special favours; you cannot expect every time to have special arrangements. We have to follow the rules of the markets,” said the official.

“What should be done is that if you secure loans, you put them to good use such as invest in infrastructure and you develop the economy. If you borrow loans and you squander the money on consumption, and you have no projects and the economy does not develop, that is terrible. Good investments will mean that you are able to repay the loans.”

Zimbabwe is desperate for funds and has for some time also been engaging British multinational bank Standard Chartered Plc and other institutions to help raise US$1,8 billion to clear arrears to multi-lateral institutions under the Lima Plan, to enable the country to secure US$2 billion in fresh funding.

This followed the presentation of an arrears clearance plan to its creditors in Lima, Peru, in 2015, which was anchored on several financial sector and structural reforms, that have largely not been implemented.