22 August 2014

Zimbabwe: Essar Africa Holdings Hopes Fade

In March 2011 the Zimbabwean government signed a US$750 million deal with Indian firm Essar Africa Holdings (Essar) in which the foreign investor agreed to takeover and resume operations at defunct state owned Ziscosteel.

The deal brought hope for industry as one of the country's strategic assets, the steel plant, was expected to resume operations and provide the economy with raw material for a number of key infrastructure projects and boost foreign currency earnings through exports.

Apart from the strategic importance of the steel company, Zisco employed 5 000 people at its peak who could have helped stimulate economic activity with their monthly salaries.

But more than three years later, hope is slowly fading as the deal is yet to be finalised due to a number of sticking issues including control of iron ore deposits at Mwanesi ranch in Chivu.

Analysts say lack of consistency on the part of government and extensive interference have delayed full consummation, signifying lack of state commitment to resume operations at the steel firm.

The deal was first signed in August 2011 giving Essar 54% control of the new company, NewZim Steel.

As part of the deal, Essar was also awarded 80% ownership of the mining wing of the business, NewZim Minerals, with government holding the remaining 20%.

Last week, Ziscosteel CEO Arnold Gowo told parliament's portfolio committee on industry and commerce that management had been left to find its way out of the woods, receiving only US$400 000 to date from the two investors at a time salary arrears alone run into hundreds of millions.

Gowo said local arrears stood at US$204 million as at 31 March 2014 comprising US$110 million in employee related liabilities and the balance being pension fund deficits. Foreign liabilities are valued around US$200 million.

Economist John Robertson said government was its own biggest enemy as it continues meddling in private businesses directly and creating confusion with investors.

He said Essar could have lost interest due to the confusion created by government.

"It is very difficult to make any sense of this transaction, but one needs to understand that any attempts made by Essar to make things move have been disturbed by government," Robertson said.

"Government itself has slowed down the process by interfering with transactions and negotiated agreements."

The economist said government's approach creates confusion to Essar and international investors.

"Essar is obviously now confused because government keeps revising the agreement and if government were to leave the whole thing it would work," he said.

Apart from the confusion, the deal has been shrouded in secrecy after government last year mandated the Office of the President and Cabinet to supervise implementation of the deal.

Robertson said this brings a lot of questions to investors. This week, state media quoted Industry and Commerce minister Mike Bimha saying work towards restarting Ziscosteel was ongoing and government had played its part to clear sticking issues with the foreign investor.

He, however, said communication has since been restricted only to government and Essar as the shareholders and not management.

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