Source: Raiding of funds erodes confidence in Zim govt – The Zimbabwe Independent November 1, 2019
GOVERNMENT is shooting itself in the foot by failing to ensure investor confidence. It should take bold steps to restore good corporate governance, promote good business ethics and respect the rule of law if it is to succeed in reviving the ailing economy.
A telling scenario, in this respect — as reported by the Zimbabwe Independent last week — was the diversion of US$10 million from an escrow account for the Robert Mugabe International Airport expansion project, which saw Chinese financial institutions indefinitely suspending funding for three big infrastructural projects totalling US$1,324 billion. Although indications this week were that the Chinese have since lifted the suspension, the point remains that there has been a breach of trust.
The move is a terrible indictment on Zimbabwe’s commitment and sincerity to attract foreign investments and exposes President Emmerson Mnangagwa’s “Zimbabwe is open for business” mantra as a hollow slogan.
The fact that funds belonging to China — considered a strategic partner after relations were elevated from an all-weather friendship last year — can be raided sends shockwaves to would-be investors from the Asian country and indeed across the world.
It is a fact that the only tangible investment especially in infrastructural development in Zimbabwe, at the moment, is coming from China and it is unwise for anyone to rock the boat with the country’s only helpful friend.
Because of the political and economic situation in the country, most investors have chosen to adopt a wait-and-see approach and, as such, the government should up the ante and restore confidence.
The raiding of project coffers has strained relations and further complicated co-operation arrangements between the two countries. Chinese companies and financial institutions are unhappy with the country’s deteriorating political risk and policy inconsistencies.
The affected infrastructural projects are the US$1,1 billion Hwange Thermal Power Station units 7 and 8 refurbishment, US$153 million Robert Mugabe International Airport expansion and the US$71 million NetOne expansion project, which are at various stages of implementation. They were being bankrolled through various loan facilities secured from the China Eximbank and other financial institutions.
After seizing power in a military coup that toppled former president Robert Mugabe in November 2017, Mnangagwa pledged to restore investor confidence and declared that Zimbabwe was open for business.
However, almost two years after the new government took over, Zimbabwe’s sincerity remains questionable.The fact that the country attracted only US$470 million in foreign direct investment (FDI) in 2018, making it one of the least attractive investment destinations in the Southern African Development Community (Sadc), also points to the toxic environment that repels investors.
Other projects that have failed to take off under questionable circumstances include the US$400 million National Railways of Zimbabwe recapitalisation although the Diaspora Infrastructure Development Group (DIDG) and South African rail, ports and pipeline utility Transnet had provided term sheets to prove funding.
The deal was cancelled amid allegations that some ministers wanted to bring in their preferred partners, well after implementation had begun.
Analysts say raiding the escrow account was yet another reminder that property rights are still in danger.“This demonstrates a total disregard for property rights of the Chinese. The fact that government took that money generated a reaction from the Chinese. Government should therefore restore the bank balance so that the Chinese don’t feel they are being abused,” economist John Robertson said.
“The deception from government is very serious. We don’t deserve economic support when government acts like this.”He said Zimbabwe risks losing its most trusted economic partner in China.
Robertson said government’s failure to ensure foreign companies remit dividends and profits has also contributed to the erosion of confidence.
Steven Chan, a professor of world politics at the University of London, said government acted dishonestly, a move which could derail future investment.
“Any international investor or disburser of aid has to deal in recognised hard currency, as the project’s expenditure and buying power are projected in hard currency terms. Sudden conversion of budgeted and approved funds into unreliable currencies that cannot guarantee expenditure and buying power jeopardises the project. They also cannot be approved by the auditors of the investing or donating firm or country,” Chan said.
“I’m not sure Zimbabweans understand how strict international audit procedures are — even in China. The Chinese would look at this as a theft of project monies. It was totally the wrong decision on the part of the Zimbabwean government.”
Apart from the terminated projects, there are no other meaningful projects in the country as most multi-billion dollar deals which are opaque in nature have failed to take off.
Political analyst Ibbo Mandaza said the raiding of funds was evidence that the government had failed to reform.
“It demonstrates again that government is in a bind. It can’t reform. In fact, it lacks the capacity to reform. It is simple, therefore, that no one will invest. If the Chinese are acting that way, how about others?” Mandaza asked.
Losing its only trusted partner could be disastrous for the southern African country, battling to re-engage the international community amid growing criticism over human rights abuses and an imploding economy.
Besides, the three infrastructure projects under threat were the only significant projects operational in Zimbabwe following the collapse of multiple deals. It also sends bad signals, especially after the controversy around the NRZ project and the collapse of the Ziscosteel-Essar deal.
Just like the NRZ, Ziscosteel used to be a huge company, contributing immensely to the country’s economy. At its peak, it employed 4 000 people and produced one million tonnes of steel, some of which was exported.
Then, corruption and harsh economic factors severely crippled the steelmaker and, in 2008, it ceased operations.