We have heard a lot about mega business deals involving foreign companies and countries but very few have materialised and become a reality on the ground. The one exception being the Plumtree to Mutare road rehabilitation project which is nearing completion and was funded by the Development Bank of Southern Africa in South Africa.
by Eddie Cross
The Essar deal signed in 2010 between the Government and Essar, a major Indian based steel company, to rehabilitate Zisco steel at Redcliff and then to open an iron ore mine at Chivu at an estimated cost of US$10 billion, has not fared so well.
Since signature, the deal has been on and off for five years and still shows little sign of coming to fruition.
Add to this short list the Russian and Chinese deals involving platinum resources and the reconstruction of the road from Beitbridge to Chirundu and there is very little to show for years of talks and grand gestures. The Sino Steel takeover of Zimasco in KweKwe is in trouble and the company is laying off staff and cutting back on production.
Zambia and Mozambique have both been much more successful in attracting international investors for mega projects and these, unlike Zimbabwe, have mostly been implemented.
Extend the comparison to East Africa and it quickly becomes apparent that they are also well down the track while Ethiopia is now attracting attention and is able to fund a number of major projects which are changing their economic outlook.
The rapid rise of the economies of the “Tiger” States in the Far East clearly show the importance of tapping into the vast pool of liquid resources that has become available in recent years. Some estimates put this at US$100 trillion. The problem for those who control these funds is to find secure investments where they can recover their capital and make a margin over time. In many cases they are actually paying institutions to hold their funds because there are so few opportunities.
Zimbabwe is obviously doing something wrong. As the Chinese would put it, our cat is not catching mice. This is despite the fact that we have a hard working, reasonably educated population, have huge natural resources and are strategically located for access to regional markets. The question we must ask ourselves is what are we doing that is so wrong?
A good friend of mine, did a deal with an American company and he told me that the most critical part of the negotiations was the fact that the investors were impressed with the local management and were also persuaded that the Zimbabwean business persons they were dealing with had confidence.
A major potential investor told a visiting delegation from Zimbabwe in his country, “Why should we invest in Zimbabwe when Zimbabweans are fleeing the country and taking their own money out?” It is a good question and deserves an answer. If you bring a potential investor to Zimbabwe, within minutes of their arrival that will be speaking to Zimbabweans who will express anything but confidence in the future of the country and this would start with the taxi driver at the airport.
You can always find an investor for a project that has a manageable risk profile, offers a quick turnaround for the capital resources needed and a high return. Corruption is almost always involved and in the end little is created in the country and no value added, in fact the opposite — whatever was produced will be priced at well above world markets and the margins inflated. The CEO of a Swedish company — a major multinational, told me that he enjoyed working in corrupt countries with leftist governments because they could always get a high margin on such sales and control the deals because they controlled the payments to local “facilitators” who added nothing to the deal, but influence for money. Real private sector deals seldom offer such features.
I have had an association with the footwear industry for many years and was astonished to learn the other day that the largest footwear company in Africa was in Ethiopia and was owned by a woman who had done a deal with Italy (design and production knowhow and market access) and China (funding and equipment).
Our own industry used to produce 21 million pairs of shoes annually and is now down to less than 10% of that with thousands of skilled, hard working staff now unemployed.
Instead of building on what we once had, we are destroying our own industries with our policies. Why should anyone invest where such conditions exist?
But let’s try to list what might make a difference.
The first thing to do is to end our political and economic isolation — fix our international relationships with everyone. If China and Myanmar can do it, we certainly can and in very short order.
Secondly, we need to reduce the cost of bridging our imports and exports. This requires a detailed examination of every element — rail and road charges, border delays and costs, Port charges and shipping services.
Thirdly, we have to deal with corruption and rent-seeking by local officials and people with political influence.
I have heard of ministers demanding a bribe for a simple meeting, Permanent Secretaries demanding payment for a signature on a document. Officials demanding bribes for import permits and anything else that needs official sanction. We need to follow the Chinese example, haul a leader out of a meeting in public and have him jailed or executed for corruption.
Fourthly we have to restore the rule of law and the independence of the Judiciary at all levels. Property rights and protection is critical and where they are violated in the national interest, compensation that is fair and reasonable must be paid immediately.
Finally, we need to recognise the right of an investor to control and manage his or her investment as they see fit.
If we are going to insist on local participation it must be in the normally accepted sense – local investors being able to buy into quoted companies or to negotiate entry with owners at an agreed price. No investor is going to put their money into any venture where they do not control the major aspects of the business or have no control over risk.
These articles are coordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society (ZES) email firstname.lastname@example.org +263 772 382 852.
Eddie Cross is an economist and a Member of Parliament for Bulawayo South (MDC-T).