The Sunday Mail
Financial markets are waiting with bated breath for the outcome of a visit by Government officials to China, which is believed to have the political disposition and economic stamina to provide a crucial helping hand to the local economy.
Industry is in an unenviable shape and the Zim-Asset economic blueprint, which is supposed to guide the economy through to 2018, needs substantial funding to transform the economy from stability to growth.
With senior Government officials in Beijing, there are expectations that major deals that might significantly reverse the current misfortunes will be inked.
However, there is concern that the country might not get a direct cash injection as China’s investments around the world usually see Beijing more interested in infrastructure and mining deals than in handing over hard currency.
One senior Government official has said China “is not Father Christmas” and Zimbabwe should be practical and realistic in its engagements with Beijing.
A study by researchers at the Centre of African Studies at South Africa’s Stellenbosch University on China’s role on development of African infrastructure cautions that Beijing often contracts its own companies — usually state enterprises — to implement agreed projects, and that more than half of project materials must be supplied by Chinese companies.
By the end of 2006 it was estimated that 800 Chinese companies were active in Africa, with most operations concentrated in construction, infrastructure and minerals.
“Infrastructure projects undertaken by Chinese companies are often financed by soft loans from the Chinese government, on the condition that they are carried out by Chinese companies. This is in line with the ‘go out’ strategy — driven by the Chinese government to promote the internationalisation of Chinese companies.
“Chinese government concessional loans are disbursed by China Eximbank, currently one of the largest such institutions in the world. According to World Bank estimates, China Exim has disbursed over US$12,5 billion for large-scale infrastructural projects in Sub-Saharan African alone although China Eximbank’s official reported figures are much less.
“More than 80 percent of these in terms of value were to resource-rich African countries, such as Angola, Nigeria, Zimbabwe and Sudan,” reads the report.
It adds: “According to the China Eximbank’s concessional loan requirements, Chinese contractors must be awarded the infrastructure contract financed by the loan. Furthermore, in principle no less than 50 percent of the contract’s procurement in terms of equipments, materials, technology or services must come from China.”
But experts say China is a safe bet for Zimbabwe, especially at a time when Western multilateral lenders are reluctant to support Harare.
The Zimbabwe Democracy and Economic Recovery Act (Zidera) signed into law by the George W. Bush US administration in 2001 forbids institutions in which Washington has an interest from assisting Harare.
The US holds more than US$42 billion in Special Drawing Rights with the IMF and has more than 16,8 percent of the total votes within the institution, making it very influential. The US also holds sway over the World Bank and other financial institutions.
With Zimbabwe’s official external debt at more than US$10 billion (54 percent of GDP), the private sector has not been accessing cheap financing, resulting in many companies being plagued by high interest charges.
China’s fund’s are concessionary but they come with conditionalities that are tied to Beijing’s economic interests.
Need for Special Economic Zones
Zimbabwe’s former top envoy to China, Ambassador Christopher Mutsvangwa, told The Sunday Mail Business last week that Zimbabwe needs to create Special Economic Zones, among other interventions, to promote FDI, especially by Chinese companies as a direct cash injection was unlikely.
“People must unlearn this ‘Father Christmas’ mentality that China will inject cash into this economy. We must remember that it is hard-earned money from the Chinese that the government will be investing. How would they justify a cash investment into Zimbabwe — we are not their colony . . .
“There is generally lack of investment education in Government. What we currently need are special economic zones that encourage private investors to set up factories. This has been done successfully in Shenzhen near Hong Kong.
“Also, there are generally two ways that Zimbabwe can benefit: through loans that are tied to projects in which case the investor expects a significant return, or through investments by private companies.
“So, the litmus test is in whether China, which has the largest stock of outbound investment, will make investments onto the local market,” explained Ambassador Mutsvangwa.
Shenzhen, a city in the South of Guangdong Province located in the north of Hong Kong’s Special Administrative Region, is considered the most successful SEZ.
As a result, the region has received significant FDI.
Thinking infrastructure and trade
Government estimates that Zimbabwe needs more than US$18 billion to revive its rail, road, air, water and telecommunications infrastructure.
There are key infrastructure projects already underway.
The US$320 million Kariba South expansion being undertaken by Sino Hydro has begun, and the US$100 million rehabilitation of Harare water works is also progressing well.
But there is scope for more projects.
In the Zanu-PF 2013 election manifesto, which largely fed into Zim-Asset, Government spells out grand schemes to capacitate Agribank — focused on agriculture — and the Infrastructure Development Bank of Zimbabwe so that their potential to underwrite major projects is enhanced.
News from Beijing will therefore have a major impact on the local financial market, which is under siege from the prevailing negative market sentiment.
Encouragingly, trade between Zimbabwe and China has been growing since the beginning of the year.
From January to May, Zimbabwe exported more than US$672 million worth of goods to China and imported wares worth US$118 million.
On the overall, bilateral trade volume between Zimbabwe and China from January to September of 2013 topped US$915 million, which is a 30 percent increase from 2012.
China, however, is a shrewd dealer.
Last year, Beijing is believed to have turned down a US$5 billion bailout deal with Venezuela’s president Nicolas Maduro.
President Maduro offered Chinese companies CNPC, Sinopec, CITIC and others huge new contracts to develop Faja heavy-oilfields and a gold mine in the hope of getting a bailout in September 2013. He was to be disappointed.
Media reports said this was because a prior US$20 billion oil loan had been abused.