Why India and China continue to invest into Zimbabwe.
JOHANNESBURG, SOUTH AFRICA – The Zimbabwean economy has shown impressive GDP growth figures over the last three years, averaging at 7.1% between 2009 and 2012. For the period 2012 to 2017, growth is expected to average at 4.7% as the growth in mining production stabilizes. Such positive growth rates should serves as an incentive for foreign direct investment (FDI) flows into any country and in Zimbabwe FDI increased more than eightfold between 2008 and 2012, from $51.6 million to $450 million.
However, these figures could have been much higher. As the Zimbabwean Investment Authority’s chief executive Richard Mbaiwa explained at this year’s Zimbabwean Investment Conference in Johannesburg, Zimbabwe had over $6 billion worth of approvals for foreign direct investment in 2011, but only $387 million in actual investment. This is not surprising for a country rife with political uncertainty. With an estimated debt of $10.7 billion, or 113% of GDP, and unemployment rates fluctuating between 70% and 80%, investors are reluctant to rush into Zimbabwe just yet
The Zimbabwean government has put together a medium-term growth plan (MTP) that ambitiously aims to attract foreign direct investment of 25% of GDP by 2015. The MTP requires a total investment of $9.2 billion if the country is to emerge as an economic force to be reckoned with. Key to this new strategy will be the development of the mining industry: a sector that currently accounts for almost 50% of total exports and is a major source of FDI. The MTP aims to change the sector from predominantly exporting raw materials to exporting beneficiated products. To this end, it is no secret that the country is targeting investors from Asia to bring technology, experience and capital to the table in exchange for access to Zimbabwe’s vast mineral wealth.
The Zimbabwean government has been pulling out all the stops in strengthening ties with its Eastern allies. In February the Chinese Commerce Minister, Chen Deming signed no less than four agreements with the Zimbabwean government, including a $10 million interest-free loan for equipment purchases. In March Zimbabwe’s vice president Joice Mujru appealed to Indian diamond cutting and polishing companies at the India-Africa Project Partnership Summit to bring their expertise to Zimbabwe, a country that holds an estimated 25% of the world’s diamond reserves. India has shown its support for the Zimbabwean mining industry last year when the government sought certification from the Kimberley Process Certification Scheme for its Chiadzwa diamonds.
In the Zimbabwean mining industry, key partnerships have already become prominent, accounting for some of the largest activities in the country. The joint venture between China’s Anhui Foreign Economic Construction Company and the Zimbabwean Mining Development Corporation forms Anjin Investments, one of the biggest diamond companies in the world, recovering an average of 234,749.92 carats per month and making this Sino-Zimbabwean partnership indispensable. The Indian multinational Essar also acquired 60% of government owned Ziscosteel and 80% of Buchwa Iron Mining in a controversial $750 million deal that was finalized this year. Apart from the funds committed to reviving the steel plant, Essar has also agreed to contribute $240 million towards settling foreign debt and another $170 million to settle local debt. The Indian multinational has also voiced its commitment to create value through the beneficiation of iron ore that is owned by Ziscosteel. Such is the importance of the Essar deal to the economy that when bureaucratic lags hindered the process, it was escalated and finalized through the office of the president himself. Although investments from Asia has declined slightly this year in due to a global capital shortage and careful spending, the trend for investment from Asia into Zimbabwe is set to continue.
However much Asia needs access to the country’s resources, one cannot discount Zimbabwe’s history with India and China that contributes to this trend. Zimbabwe’s good relations with China dates back from the time of its liberation struggle prior to its independence in 1980. This relationship has turned out to be one of Zimbabwe’s greatest investments as China continues to operate with trade surpluses and needs Zimbabwe’s mineral resources to foster its own growth. It is no surprise that Zimbabwe is leading the continent when it comes to the integration of the Confucius Institute into local universities to promote the learning of the Chinese language and culture. Zimbabwe has rather openly shunned the West in 2000 when it adopted its land reform program and again in 2003 when it initiated its “Look East Policy”, giving priority to eastern investors. Though not as prominent as it relationship with China, India and Zimbabwe also has a long history of affable relations and have shared similar views on most international issues over the decades. Trade between Zimbabwe and India has doubled over the last four years and the latest Essar deal represents the largest single foreign investment in Zimbabwe. At a time where funding in the global mining arena is scarce, it makes sense for Zimbabwe to foster its relationship with the East especially with China and India, the giants of the developing world.