Zimbabwe – whose economy appeared to be hurtling towards collapse due to a crippling shortage of foreign currency and funding to support key economic programmes – is poised to receive investments and lines of credit from China worthy billions of dollars on the back of improved confidence ushered in by the country’s new political dispensation.
Finance and Economic Planning Deputy Minister Terrence Mukupe told Business Weekly yesterday that the world’s second largest economy was now prepared to facilitate lines of credit and investments.
This comes after China had literally shut the door on Zimbabwe amid concerns over direction it was taking under the previous administration led by former President Mugabe.
Following the economic malaise of the last two decades, Zimbabwe is currently grappling a fierce foreign currency squeeze, due to weak economic performance dramatised by low industrial productivity, low exports and FDI, perennial and bulging current account and budget deficits, and dilapidated infrastructure, among others.
Mr Mukupe said the oriental economic giant – an $11,2 trillion economy – was no longer keen to extend funding support nor facilitate investments into Zimbabwe over plunging confidence, policy inconsistency and continued default on old loan facilities.
He said while the previous administration was never going to publicly admit it, China was not going to extend further support to Zimbabwe.
This, he contends, had stalled several multi-million dollar deals signed between China and Zimbabwe back in 2014 during the visit of former President Mugabe, and several high ranking Government officials.
In 2014 Zimbabwe and China inked nine landmark agreements, which would have seen the Asian tiger providing financial support for the much-needed economic enablers in critical sectors that included energy, roads, national railway network, telecommunications, agriculture and tourism, to support the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimAsset).
ZimAsset is a five-year economic blueprint whose life ends next year. And this week, Chinamasa signed two master loan agreements with the China Export and Import Bank and the China Export and Credit Insurance Corporation in 2014, in a demonstration of its renewed confidence and willingness to resume financial support.
The agreements provided securitisation framework for infrastructural and productive sectors. The signed agreements provide a securitisation framework under which projects in infrastructure and productive sectors can be funded.
The agreements with the China Exim Bank put into place a framework under which Zimbabwe could secure funding for projects in the productive and infrastructural sectors on a case by case basis.
China Exim Bank would provide funding.
The agreement with the China Export and Credit Insurance Corporation was also providing securitisation framework for infrastructure and productive sector projects that could be funded by both the State and non-State financial institutions.
The projects would be anchored on securitisation. Only viable projects were expected to attract funding.
Another agreement on economic and technical cooperation on provision of emergency food donation by China to Zimbabwe, and a concessionary loan agreement for the NetOne Network Expansion Phase Two project, was also signed.
Another agreement was on behalf of Government on mutual exemption of visa requirements for holders of diplomatic and service passports.
From a tourism perspective, Zimbabwe and China signed an agreement on cooperation whose implementation is expected to result in an increase of revenues from Chinese visitors to Zimbabwe.
However, Mr Mukupe said there now was fresh impetus for economic turnaround as the Chinese had re-opened lines of credit for Zimbabwe as a sign of confidence in the new political leadership.
Mukupe added that relations with the United States of America and Europe were bound to improve, as President Mnangagwa had pronounced himself clearly that Zimbabwe was keen to engage with everyone in the global community to end years of isolation, especially by Western countries over some of the country’s policies including Land Reform.
“We are happy there is now room for dialogue even with the United States government, and a British Minister also came into the country.
“The Chinese straight away have started opening lines of credit, which they had closed. Many people did not see that the Chinese had stopped giving us any money. Although the previous Government would not tell us, they had shut their doors on Zimbabwe,” he said at an Econometer Global Capital currency dialogue.
“Nothing was happening on most mega deals signed in 2014, for instance the $1,5 billion 300MW Hwange Power Station expansion project. Nothing was going on because there was clear direction of where the country was going. There was no confidence in the administration; there was policy inconsistency and we had defaulted on loans extended to us.
“But now, with this new dispensation (in place) there is confidence that what it says is exactly what it will do,” said Mukupe. He added there was more cooperation from other lenders such as the Afreximbank to support the leather value chain, and cotton-to-clothing value chains.
But Mr Mukupe said there were still some sticky issues that needed to be addressed to achieve total transformation of the economy such as the Zimbabwe Democracy and Economic Recovery Act (Zidera) of 2001.
Zidera has hindered growth and impacted on chances of attracting more FDI due to the sour relations with most international funders.
He said such challenges were cascading to the banking sector, which is now contending with massive cash shortages since early last year.
Government is now seized with resolving the cash shortages bedeviling the economy, although Mr Mukupe would not specify when a solution would be found to enable the public to access cash from banks on demand.
Said Mr Mukupe: “No one at this point can put a time limit to when exactly depositors can walk into a bank and get as much as $500 but we have been working on solutions to address that.
“But things will not be 100 percent perfect until we have Zidera gone, only until it is gone can we have complete turnaround and of the economy and be able to get any amount you want from the bank.”
Discussants at the meeting agreed Zimbabwe needs to increase production of export goods to generate more foreign currency.