Zimbabwe: Look East or Look Chinese?

25 October 2007

analysis

ZIMBABWE'S Look East policy, adopted by President Robert Mugabe after the West slapped his government with sanctions, has become a predominantly Chinese affair, with a number of high profile visits and memoranda of understanding having been made between the two countries since its proclamation in 2003.

But the country remains in a haemorrhage, with very little or nothing to show for its much-publicised romance with China.

In fact, indications are that the country's pariah status, dramatised by increasing reports of lawlessness, has created apprehension even among Zimbabwe's trusted friends from the East.

While President Mugabe was forced into adopting the Look East policy to spite the West, whose companies had slowed down investment into Zimbabwe, Chinese companies and those from the Far East have shown very little interest to investing in the country.

Under the policy, President Mugabe said bilateral and trade relations with China, Malaysia, Singapore, Vietnam, Japan, South Korea, India, Russia and other eastern countries would be promoted, with investors from these countries being given priority in setting up projects in the resources, manufacturing and power generation sectors.

While Zimbabwe's affection was being lavished on all Asian countries, it was its relationship with China that became the talking point.

But the results on the ground are disappointing, and the much-vaunted investment inflows from China have failed to go beyond rhetoric.

"It is a marriage inspired by China's penchant desire for cheap raw materials, and Zimbabwe's desperate need for unconditional aid to stop the economic recession," an economist told The Financial Gazette.

Trade deals with China, often announced at glittering ceremonies, have floundered.

State owned companies like China Aerotechnology Import and Export Corporation (CATIC) have entered into investment deals with the ZESA Holdings, for the refurbishment of power plants but they have not yet injected a single cent into the projects four years since signing the deals.

CATIC had promised in 2005 that it would invest US400 million in mining. So far, the promised investment remains a pledge.

With India, apart from the collapsed US$400 million deal to resurrect what was once southern Africa's largest integrated steelworks, Ziscosteel, the company has not made any meaningful investment in the country.

Instead, India's priorities had been on South Africa where last week, the Asian country said it aimed to treble, "even quadruple", bilateral trade to US$12 billion by 2012.

Trade between India and South Africa had been growing at about 30 percent per year and more collaboration has been earmarked for telecomms, infrastructure, media, health care and entertainment.

Analysts have questioned the commitment of Chinese investors in Zimbabwe, arguing that China's interests lied in making big investments in countries with huge oil reserves.

There is a high demand for energy in China following a boom in the automotive industries, mines, and car and aircraft assembly and industrial chemicals manufacturing plants.

Zimbabwe is land locked and could find herself chasing shadows, with Chinese investment inflows coming in trickles.

President Mugabe once sought a US$1 billion bailout from China last year but came back empty handed, according to reports.

However, China poured over US$1 billion in Angola, where it has expressed interest in starting a oil plant and refinery, and this year injected US$5 billion into the Democratic Republic of the Congo (DRC) to modernise its railway system. Apparently, the Chinese are eyeing mining rights in the DRC, and the railway infrastructure would give them good access in a country with a poor road network.

Sudan, another oil rich country, has been another significant beneficiary of Chinese benevolence.

But for Zimbabwe?

Apart from receiving Chinese textiles and other goods, in seven years, which have threatened its own textile industry, Zimbabwe has not benefited from China's appetite for resources that has pushed up demand and world prices.

China has also invested in Africa for food security, with the adverse effects of the rapid population growth becoming increasingly unsettling to the political leadership.

Zimbabwe, in that respect, has been unattractive to the Chinese because of its current food shortages, which have resulted in increased imports.

This could be another reason for China's hesitance to line up capital into the country, analysts say.

China has over 1,3 billion citizens.

They have been funding agriculture, and have become one of the biggest buyers of tobacco in Zimbabwe.

Zimbabwe has turned from a net export of food in Southern Africa to a perennial beggar.

While there could be growing political and economic ties between China and Zimbabwe, the benefits have been tilted in favour of China.

China has the capacity to buy the little unprocessed products still coming out of Zimbabwe's farms and mines at low prices, refine them and sell them as high value finished products.

About 13 000 tonnes of tobacco from Zimbabwe will enter the Chinese market this year.

Land and agrarian studies expert, Sam Moyo said foreign tobacco merchants, including the Chinese, were making up to 10 times more profit from tobacco purchased from Zimbabwe.

"Instead of getting the US$2,50 per kg that they were paid (this year), Zimbabwe's tobacco farmers can get more money by processing tobacco," Moyo told The Financial Gazette.

This means, out of about US$40 million that the economy would generate from the 13 000 tonnes, Chinese merchants would generate at least US$400 million.

Official statistics indicate that Zimbabwe suffered a US$189 million trade deficit against China during the first half of 2007.

The country managed to export US$16 million worth of goods out of the US$205 million worth of trade conducted during the period.

This indicates another weakness of the "look-east" policy.

The friendship has been characterised by the influx of Chinese flea markets in Zimbabwe's cities and towns.

These small shops employ at most three people.

This is in contrast to South African and British mining projects that have been opened since 2000, for example, which have given jobs to thousands of people.

Analysts say Zimbabwe requires foreign investment policies not targeted at specific international markets.

The danger about Chinese investment is that it is targeted at growing its own manufacturing sector.

Chinese companies want to produce for the local market from China, doing very little to expand Zimbabwe's economy.

The Chinese embassy in Harare sees the trade between the two countries differently.

The office says there had been positive growth in business between Harare and Beijing since 2003.

"The bilateral trade has been on steady growth and economic cooperation is deepening and expanding," China's Yuan Nansheng said.

"The trade volume reached US$270 million in 2006. China has become a major trading partner to Zimbabwe, second only to South Africa. China is also the largest investor in incremental investment in Zimbabwe," he said.

Despite the criticism, Zimbabwe's government officials see a model in China

To them, China remains a role model for Zimbabwe's economic development.

Women's Affairs and Rural Development Minister Oppa Muchinguri last week said if "an impoverished country like China" could rise to the point of becoming the third largest economy in the world, nothing could stop Zimbabwe from doing the same.

Chinese President Hu Jintao in February avoided a visit to Zimbabwe during his Africa tour that saw him visiting South Africa, Mozambique, Zambia and Namibia, in what analysts saw as a clear indication of the Chinese perception of Zimbabwe.

Beijing denies this was a snub.

ground are disappointing, and the much-vaunted investment inflows from China have failed to go beyond rhetoric.

"It is a marriage inspired by China's penchant for cheap raw materials, and Zimbabwe's desperate need for unconditional aid to stop the economic recession," an economist told The Financial Gazette.

Trade deals with China, often announced at glittering ceremonies, have floundered.

State owned companies such as China Aerotechnology Import and Export Corporation (CATIC) have entered into investment deals with ZESA Holdings, for the refurbishment of power plants but they have not injected a single cent into the projects four years after signing the deals.

CATIC had promised in 2005 that it would invest US400 million in mining. So far, the promised investment remains a pledge.

With India, apart from the collapsed US$400 million deal to resurrect what was once southern Africa's largest integrated steelworks, Ziscosteel, the country has not made any meaningful investment in Zimbabwe.

Instead, India's priorities had been on South Africa where, last week, the Asian country said it aimed to treble, "even quadruple", bilateral trade to US$12 billion by 2012.

Trade between India and South Africa has been growing at about 30 percent per year and more collaboration has been earmarked for telecomms, infrastructure, media, health care and entertainment.

Analysts have questioned the commitment of Chinese investors in Zimbabwe, arguing that China's interests lied in making big investments in countries with huge oil reserves.

There is a high demand for energy in China following a boom in the automotive industries, mines, and car and aircraft assembly and industrial chemicals manufacturing plants.

Zimbabwe is landlocked and could find herself chasing shadows, with Chinese investment inflows coming in trickles.

President Mugabe once sought a US$1 billion bailout from China last year but came back empty handed, according to reports.

However, China poured over US$1 billion in Angola, where it has expressed interest in starting an oil plant and refinery, and this year injected US$5 billion into the Democratic Republic of the Congo (DRC) to modernise its railway system. Apparently, the Chinese are eyeing mining rights in the DRC, and the railway infrastructure would give them good access in a country with a poor road network.

Sudan, another oil rich country, has been another significant beneficiary of Chinese benevolence.

But for Zimbabwe?

China has also invested in Africa for food security, with the adverse effects of the rapid population growth becoming increasingly unsettling to the political leadership.

Zimbabwe, in that respect, has been unattractive to the Chinese because of its current food shortages, which have resulted in increased imports.

This could be another reason for China's hesitance to line up capital into the country, analysts say.

China has over 1,3 billion citizens.

They have been funding agriculture, and have become one of the biggest buyers of tobacco in Zimbabwe.

Zimbabwe has turned from a net exporter of food in Southern Africa to a perennial beggar.