From inside what used to be the commentary box, high above what is left of the sports field at Torwood Stadium, one can look across to the pile of rust that was once one of Africa’s largest steel factories.
The furnaces at Ziscosteel have long gone cold and silent and the red smoke no longer rises from the chimneys. At the steel mill itself, mean baboons fight for food right outside what used to be the HR department, as if to remind us of the greed that destroyed what used to be one of the country’s biggest employers.
The decayed conveyor belt running across the road and up the hill doesn’t really go anywhere anymore. A rust-caked shell where wild animals and desperate scrap scavengers roam, anyone can see that all that talk of reviving Zisco overnight is mere rhetoric.
So, why then is a Chinese real estate company, with no traceable experience in metals or resources, considering spending at least a billion dollars on this 75-year old steel plant, or whatever is left of it?
This week, the Government announced that it was negotiating a deal with R&F of China on the possible rehabilitation of Ziscosteel. According to Industry Minister Mike Bimha, the deal, if it goes through, would see investment of up to $2 billion.
“When all these phases have been completed, we are looking at an initial injection of over US$1 billion and probably it will come to US$2 billion as we proceed,” Bimha said on Monday.
Bimha was speaking after a meeting at State House between Zhang Li, co-chair of R&F, and President Robert Mugabe. According to Forbes, Zhang Li is worth $3.3 billion and his co-leader Li Sze Lim has a net worth of $3 billion. The company has a market value of close to $7 billion.
R&F is one of the largest real estate firms in China, and was once part of an exclusive group of the China’s largest developers, known as the “Five South China Tigers” for their aggressive business style in real estate. With 111 hotels, it has become the world’s biggest luxury hotel owner, according to one report.
In its financials posted last week, R&F reported $3 billion revenue in the first six months of the year, and has made recent multi-million-dollar property acquisitions in London and Australia, to add to the already vast portfolio it holds across the world.
With such an established name in real estate, owning properties managed by top brands such as Hyatt Hotels, acquiring and running a rusty old steel plant in Zimbabwe seems rather out of step. Even as China tightens controls on how its companies invest abroad, R&F is branching out, outside its core business, and Zimbabwe may be one of its first experiments.
The only other mention of R&F’s involvement in metals is a plan by the company, through its Hong Kong investment arm, to invest in a chrome mine in Angola. The company was failing to get money out of China to invest abroad, Zhang Li was quoted as saying.
“We applied for $1 billion worth of overseas investment quota to the state foreign exchange authority more than two months ago, but have not yet received approval,” Zhang told the South China Morning Post back in March.
There is no telling whether the company has now since been given the approvals to make the Zimbabwe Government’s mega deal hopes a reality.
Even more uncertain is what exactly it is that the Chinese company would be buying; the steel mill alone, or access to Zisco’s iron ore deposits? On the surface, it is hard to see what R&F would have found attractive about the aged plant. By Bimha’s own admission this week, Zisco is now obsolete.
“Much of what is there at Zisco won’t be used and their engineers have proved that probably it is about 15 to 20 percent of what is there that they will be able to use. Much of it is no longer in a state to be used,” Bimha said.
R&F would have to build an entirely new plant. The previous investor, Essar Africa, had originally planned to spend $750,000 on a one-million tonne plant. The company later announced it would instead build a 500,000 tonne steel plant for $650 million, and over two years. In comparison, Bimha this week said the proposed new deal would see a million tonnes produced “in the next 18 months” for at least $1 billion initially.
The timing is also curious. Back in China, the country is actually shutting down steel plants because there is too much capacity. In other words, China, the world’s largest producer and consumer of steel, has more steel than it knows what to do with. It can produce better quality steel, at lower cost. Why then would a Chinese firm go abroad to make more expensive steel?
What China is hungry for is iron ore. Large producers, such as Rio Tinto and BHP Billiton in Australia, are spending up to $10 billion to ramp up production and meet demand for ore in China, which imported a billion tonnes in 2016. Just this week, iron ore prices were touching four-month highs.
With new regulation against pollution, China is hungry not just for iron ore, but good quality ore. According to the Chamber of Mines, Zimbabwean ore has content of “40 percent and above”. An expert tells The Source that ore quality in Zimbabwe is as high as over 60 percent at Buchwa, which supplies Zisco. This week, ore with content of 62 percent was selling for close to $80 a metric tonne in China, a five-month high. Much of the ore sold on world markets is below 40 percent, the industry expert said.
By some estimates, Zimbabwe has vast ore reserves to last a thousand years of production.
The Chinese would have done their homework, and will be eyeing the ore more than the rust bucket that is the Zisco plant. This was the source of the conflict with Essar Africa that led to the collapse of the deal. The Government seemed not to know what it had signed for; had it sold just the plant or its vast ore assets?
At one point, Government agreed to cede 80 percent of the ore rights to Essar. This made Essar happy, but only until some within Government belatedly realised just how much they had given away. The deal was reversed, and Essar walked away, telling the Government to get itself in order.
“The investor had to take a break and say, ‘when you are ready, we will come back’,” Bimha said then. Essar never did come back.
It is not clear now what the Government plans to do differently. Bimha says they would want the new investor to “focus more on steel making”. But it is unlikely that R&F would agree to only make steel that would inevitably be more expensive than the steel made in its home country, where subsidies drove prices in 2015 to their lowest levels in a decade.
Zisco comes with a whole lot of baggage, beyond the debt that government has pledged to lump on the taxpayer. To revive Zisco, whoever runs it would also need other loss making firms that are linked to the company to work. Among these are coal producer Hwange, power supplier ZESA, and the National Railways of Zimbabwe. Zisco also needs Sable Chemicals, which supplies the oxygen for the plant. But Sable itself just as obsolete and in desperate need to be pulled out of the stone-age.
Besides, the world has moved on since Zisco’s heyday. The markets that once made Zisco great have all since moved on to new suppliers, and no local steel can compete on price with China. Zimbabwe now imports $400 million worth of steel each year, according to the central bank.
So, what does the Government do now? R&F will not spend a billion on just a plant that simply no longer exists, and Government itself is understandably reluctant to give away too many of Zimbabwe’s resources.
The Government has always negotiated badly with foreign investors, and this new interest by R&F, with its own lack of experience in the sector, presents a new test for Zimbabwean officials’ notoriously poor deal making skills.
Anderson Chiraya, an official in the Office of the President and Cabinet, earlier this year revealed why Government always fails when negotiating big deals: others bring their experts to the table, while Zimbabwe sends in politicians.
“During negotiating for such deals, some partners came with a barrage of lawyers, while on our part, there may be a minister and the permanent secretary only and if they do not understand, we get a raw deal,” Chiraya told a group of journalists in May. “Yet the other parties come with lawyers and people that are well versed.”
If this latest “mega deal” interest in Zimbabwean steel is to deliver something real for a change, something will have to change in the way Government negotiates deals on resources. Even in its desperation, Government has to make sure it carves out a deal that benefits Zimbabwe.
Until then, the pack of baboons will remain at Zisco’s HR office, the desperation of former workers will deepen, and the pile of rust that is Zisco will remain standing, a stark monument to the Government’s failure to act while it could. – Source
