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Chinese investment will dominate Zimbabwe’s economic policy as President Mugabe’s new government finds itself short of friends in the West
President Robert Mugabe’s government has announced that it will be putting even more business the way of its Asian trading partners. This is after refusals by the United States and the European Union to lift the ongoing sanctions on the Zimbabwe African National Union-Patriotic Front (ZANU-PF) government.
‘Because the doors have been closed by those who used to be our traditional partners, we have to intensify new economic relationships and friendships,’ Finance Minister Patrick Chinamasa explained. ‘That means every country that is friendly to Zimbabwe, including China.’ The urgent financial pressure faced by the ZANU-PF government means that Zimbabwe will have to depend on sectors that could attract quick investment, such as agriculture and mining, he said.
The China-Zimbabwe relationship has retained its strength, at least at the rhetorical level. China’s Foreign Minister Wang Yi met President Mugabe at the United Nations General Assembly in New York in September. There, he extolled Mugabe’s virtues as a great leader of Africa’s liberation era and a friend to the people of China.
Due to the strong relationship between Beijing and Harare, the government had allowed a team of Chinese election monitors to observe the 31 July national polls. The Beijing government sent an observer mission led by Liu Guijin, the former envoy on African affairs. The observer mission described the election as credible, orderly and peaceful. Some local observers, however, disagreed and the opposition Movement for Democratic Change refused to accept the results.
Trade with China has risen steadily, but investment has been slower. In late September, China’s Ambassador to Zimbabwe, Lin Lin, revealed that trade levels in January to May this year had reached US$716 million, representing a rise of 34.3% over the same time period in 2012. However, such trade could go the way of investment after Finance Minister Chinamasa suggested on 23 September that the government stop traders from importing cheap goods from abroad in order to strengthen domestic industries.
Zimbabwe’s previous ‘Look East’ policy yielded meagre results as Chinese investment lagged during the country’s indigenisation drive (AAC Vol 2 No 2). However, the government is already talking up a series of proposed Chinese deals as indications that Zimbabwe is able to attract the same breathtakingly large-scale investments as Nigeria, Tanzania and Mozambique.
A slate of new ventures
With little fanfare, the state-run Herald newspaper reported on 11 September that the government had signed a number of investment deals with major Chinese investors in the energy, petrochemicals and vehicle-assembly sectors. The Herald claimed that the talks were a result of a visit by a government delegation, but the projects are in fact to be carried out by private companies.
The first deal announced was the construction of two 350-megawatt electricity plants by the private, opaque China International Fund and its Singaporean partner, OKP Group. So far, China International Fund and its partner China Sonangol have yet to follow through on any of the major investments trumpeted several years ago (AAC Vol 3 No 1, China Sonangol targets Harare's gold and oil, and Vol 4 No 6, Sino-Zimbabwe in the Marange diamond fields).
The second investment announced was a project with an estimated value of $10 billion: Baoda Petroleum Corporation will build a petroleum refinery and petrochemicals plant that will produce fertiliser for the agricultural sector. There was no mention of who might supply the finance. Zimbabwe has no known oil reserves, a small domestic fuel market and crude oil would have to be transported to landlocked Zimbabwe by road, rail or water. The costs would be extremely high and making big profits would be a challenge.
Other projects include investments in housing, railways, roads, a car assembly plant and a water pipeline from the Zambezi River to Bulawayo, Zimbabwe’s second-largest city. The one common element among all these investments is that details about finance and completion time are lacking.
Zimbabwe’s financial problems have slowed other Chinese developments. In 2012, the Zimbabwe Power Company signed a contract with China’s Sinohydro to add 300MW of capacity to the national grid from the Kariba South Hydropower Station. However, China Export-Import Bank would not release the $400 mn. needed until the government paid off an old $27 mn. debt in March.
Work finally began in June. In the same month, the Energy Ministry announced that the government was in negotiations with Chinese banks for the $1.2 bn. needed to rehabilitate and upgrade the Hwange Thermal Power Station. China Machinery Engineering Corporation is due to carry out the work.
Other major projects have not progressed beyond expressions of interest. In September 2012, a delegation from the Guangdong Bureau of Coal Geology looked into the possibility of building a 1,200MW coal-fired plant at a cost of $3.5 bn. – an amount equal to the total revenue in Finance Minister Tendai Biti’s 2012 national budget forecast. In May 2013, Energy Minister Elton Mangoma said that China Railway International and China International Fund had signed a memorandum of understanding for the construction of a 1,000MW coal-fired power plants.
Despite the political worries related to foreign control of land could trigger, one Chinese provincial government, that of Anhui province, has grand designs on some 500,000 hectares of Zimbabwean land. That project is being handled by the Ministry of Defence, as Chinese investors opt to work with Zimbabwe’s securocrats rather than its civilian leaders. That is part of a legacy of the previous power-sharing government, when ZANU-PF kept important projects away from ministries where the MDC had control and influence.
Anhui Provincial State Farms Group will work with the Defence Ministry on one of Zimbabwe’s largest agricultural projects, which could cover 5,000 square kilometres or more than 1% of the country’s land mass. The Anhui- Zimbabwean Agricultural Cooperative Programme began cultivating 5,000 ha. in late 2010 and moved onto its second phase of 50,000 ha. in October 2012. It is growing corn, soybeans, tobacco and wheat, and investing in a processing plant, construction equipment factory and transportation company. Another company, Anhui Foreign Economic Construction Group, owns a stake in the Anjin diamond mining company. AFECG has also worked with the military and built the National Defence College in Harare (AAC Vol 4 No 9, Polish to a shine).
As ties strengthen with China, India could lose out. India has its own huge diamond cutting and polishing centres, while Zimbabwe is looking to set up its own. The Minerals Marketing Corporation of Zimbabwe said in August that it is working with companies from China and the United Arab Emirates on plans to develop a local diamond hub to support the Marange diamond fields.
In early September, Industry and Commerce Minister Mike Bimha said that decisions on the planned Essar purchase, which began in 2011, would be accelerated so that the committee reviewing the agreement can hand down its final decisions. Ministers in the previous government disagreed about whether India’s Essar should get mining rights in addition to ownership of the Ziscosteel plant.
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