via Zimbabwe, China: what’s the deal? 27 August 2014
PRESIDENT Robert Mugabe is currently in China on a week-long state visit, amid mounting economic woes back home.
With Zimbabwe’s economy showing serious signs of strain amid a liquidity crunch, company closures, diminishing government revenues and a sharp decline in foreign investment, Mugabe’s visit heightened expectations that the southern African state would seek a rescue package from China, its most important economic partner following Harare’s fall-out with its traditional Western sources of investment and development assistance.
State media have heralded the signing of several deals between Beijing and Harare, mostly in the area of infrastructure development, but details remain sketchy and the little information that has come out of China remains, well, mandarin to most.
The Source has tried to piece the details together and the picture which emerges is largely one of infrastructure deals – especially on power projects – that have long been in the making but are struggling to reach financial closure, as well as commitments to fund project feasibility studies.
The following are some of the major points to come out of Mugabe’s ongoing visit to China, drawn from various sources but mostly state media reports:
Ahead of Mugabe’s visit, media reports had speculated on China giving Zimbabwe a cash loan ranging from $4 billion to $10 billion to shore up its parlous finances.
“No country sets aside a lump sum payment for no specific projects. Projects must demonstrate their ability to pay for themselves. You will not come to China to ask for money to invest in a project that won’t pay for itself. That would not make economic sense,” Chinamasa said.
Mugabe’s spokesman George Charamba also told the Sunday Mail: “Those expecting us to bring billions don’t know the strategic direction of Zimbabwe.”
And, almost as if to douse expectations while quietly reminding all that Beijing has already done a lot in Zimbabwe, Chinese ambassador to Zimbabwe Lin Lin also wrote an op-ed in The Herald last Friday, detailing China’s economic assistance to Zimbabwe over the years. Lin Lin listed $1 billion in preferential, concessionary and commercial loans, over $600 million investment last year alone and $100 million official development aid over the past three years, among other Chinese interventions in the economy.
• Say s-e-c-u-r-i-t-i-s-a-t-i-o-n
Raging along with speculation over “the Chinese bailout” has been debate about what collateral Zimbabwe could provide to secure the loan. On May 6, a senior Chinese embassy economic attaché Han Bing told The Source China would only consider extending a loan to Zimbabwe if it was secured by mineral proceeds.
This gave rise to fears that Zimbabwe would “mortgage” its mineral wealth. Even the then World Bank country representative was moved to caution Zimbabwe against “mortgaging” its mineral wealth and future prospects for short-term gain. Chinamasa, however, ruled out using Zimbabwe’s underground resources to secure loans.
On Monday, Chinamasa signed a “securitisation framework” with the China Export and Credit Insurance Corporation (Sinosure) for the various projects for which government is seeking funding.
This is meant to ring-fence all future borrowings by Zimbabwean entities, Chinamasa added. Zimbabwe already owes China about $700 million, according to Treasury data.
As far as securitsation goes, much seems to have been lost in translation. Or technicalities. Or semantics. Providing security for a loan is not nearly the same as securitising the loan, although one can understand how confusion might arise around the two concepts.
But Chinamasa says what’s under consideration here is the provision of security against loans, which he proposes to do using government cash-flows from mine taxes and royalties, as well as dividends from its mining interests.
“Our securitisation, which we have already agreed, is not to mortgage our minerals but to set aside a portion of cash flows that arise when we are exploiting our mineral resources, whether diamond and gold,” Chinamasa told The Herald.
“As you know, companies which are exploiting our diamonds, gold, are liable to taxation, royalty, depletion fees and other aspects of taxation and basically the framework which we have agreed is that from those taxes, I can set aside a portion of those cash flows towards servicing any loans that I secure to fund various projects.”
Chinamasa told the privately-owned Zimbabwe Mail that he had signed a Master Loan Scheme on Monday, which is a framework within which any viable projects Zimbabwe might come up with would be funded. He added that Zimbabwe had put forward infrastructure projects to be funded under this structure.
• The $2 billion integrated Gwayi energy and water projects. China Africa Sunlight Energy company, which is run by a consortium of Chinese investors and Oldstone Investments, a Zimbabwean outfit fronted by Secretary for Defence Martin Rushwaya, is a project that could see the construction of a 600MW thermal plant, development of a 2,4 million tonne per year coal mine and the erection of a 240 milometre, 400kv Gwayi-Insukamini transmission line, linking up the planned plant and Insukamini.
• This would also entail the completion of the $121 million Gwayi-Shangani dam. Under the deal, the Chinese will provide $54 million towards the completion of the Gwayi-Shangani dam, including a $10 million loan available immediately to keep construction activity going until December. The government hopes to complete the dam in 2016.The Gwayi energy project is not new and, according to various officials, some work has already begun. What the Monday agreement does is, according to Isaac Chihuri, China Africa Sunlight Energy executive secretary, is to catapult the project into the civil works stage. “People are already on the ground and civil works will start now that the deal has been signed,” Chihuri told The Herald.
• Operationalisation of the 300MW Kariba South power plant expansion. Reports elsewhere now put the project cost at $589 million, up from the original $355 million.
• Funding for the Hwange thermal plant expansion, to add 600MW to its installed capacity of 920MW, following government’s revocation of the tender awarded to CAMEC, in favour of SinoHydro, ostensibly because the former failed to raise the requisite funding.
• A concessionary $218 million loan for the NetOne network expansion project. This is a final agreement has been signed after the project was approved by the Chinese government earlier this year. The final agreement now paves way for the network expansion project, to be undertaken by Huawei.
• A $98 million loan for state-owned fixed lined telecommunications firm TelOne, with government taking over TelOne’s $359 million debt.
Several agreements for the commissioning of feasibility studies were also signed, including studies into:
• Coal exploration and 600MW thermal station in Sibugwe, Binga.
• Digitalisation of Zimbabwe’s broadcasting system ahead of the June 2015 International Telecommunications Union (ITU) deadline, to be conducted in conjunction with Huawei.
• Harare-Mutare rail link. A curious one, considering there has been a functional rail line since 1898.
• Creating of an Alaska-Sherwood transmission line and
• A cement factory in Mberengwa.