Zimbabwe Debt to China
The relations between Beijing and Harare, mainly defined by party-to-party ties between the Communist Party of China and Zanu PF, need to be reset at higher national strategic and economic levels. The two countries now have to go beyond relations of convenience based on history and sentimentality to ties of strategic importance guided by geo-political, economic and security imperatives.[1]
Background
If the relationship with China is to genuinely help Zimbabwe, it must lead to concrete agricultural development, industrialisation, technical assistance, job creation, and technology transfer through investment in manufacturing industries, not just extraction. In other words, Zimbabwe must carefully examine China’s model in Africa to engage with it honestly and strategically. Without a strategy, Zimbabwe will just be a reservoir of extraction of natural resources and a dumping ground for cheap Chinese goods. That exploitative model will not help Zimbabwe develop.
The global political economy of resource extraction, the emergence of resource nationalism and socially inclusive national development programmes are also key. Without this and a proper engagement strategy, Zimbabwe, like many other developing countries, could find itself reeling from the resource curse, the paradox of plenty, in which an abundance of resources is characterised by lack of economic development and poverty.
China and Zimbabwe should build a national strategy regarding the other, upgrading their relationship from one that is party-to-party to one that is national, while aligning their foreign policy objectives for mutual benefit in a global context. This does not mean Zimbabwe should drift away from the West to become a Chinese satellite state, but that it engages pragmatically in its own national interest.
Loans to Zimbabwe by China between 2000-2018
Chinese investments have entered some the sectors which were shunned by western donors because of risk, lack of information, or concerns about corruption. Chinese aid and investment projects are less vulnerable to corruption because they are usually tied to the purchase of goods and services from Chinese firms, thus limiting the amount of cash that African governments can directly access. Much Chinese financial “aid” and investment creates an obligation for African countries to favour Chinese service providers for infrastructure construction and other contracts. For instance, 70% of infrastructure construction and other contracts are awarded to approved, mostly state-owned, Chinese companies and the rest handed to local firms, many of which are also in joint ventures with Chinese groups. Many [of these] projects have been undertaken with imported Chinese labour. Indeed, projects backed by concessional loans are mostly required to be executed by Chinese contractors, often selected through a non-competitive negotiation process.
China frequently provides low-interest loans to nations who rely on commodities, such as oil or mineral resources, as collateral. Such commodity backed loans were previously a feature of European, American and Japanese assistance, but in recent years they have been dropped given the evidence that such aid reduces its effectiveness. Most of the Chinese investments have been accused of violation of environmental and labour standards. Chinese have less experience with green policies and strong unions at home hence their investments if unchecked have a large probability of being environmentally unfriendly. Cases of violation of international labour and environmental standards have been recorded in the mining sector projects in DRC, Angola, Zambia and recently at Hwange National Park in Zimbabwe.
| SECTOR | PROJECT | CONTRACTOR |
|---|---|---|
| Health | Mahusekwa Hospital - US$6 million Chinese aid to Zimbabwe | China's Nantong Construction Group Co. Ltd |
| In 2011 US$100 million medical loan | ||
| Water | In 2011 Upgrading of Morton Jeffrey water treatment plant: China Exim Bank provided US$144 million loan | China Mechanical Engineering Corporation |
| Harare City Council sewerage treatment plants upgrade - US$237 million | Sino Hydro | |
| In 2018, Harare City Council signed US$868 million loan from China for water and sanitation projects. Land is used as collateral security | China Machinery and Equipment Corporation | |
| Transport | Robert Gabriel Mugabe International Airport expansion project. China Exim Bank provided the US$153 million loan facility | Jiangsu International of China |
| Victoria Falls Airport refurbishment funded by US$150 million China Exim Bank loan | China Jiangsu International Group | |
| Beitbridge-Harare-Chirundu dualisation project cost US$2.7 billion | Anhui Foreign Economic Construction Group Limited (Afecc) | |
| Communication | National Broad Band Project, US$98 million loan facility from China Exim Bank | Huawei |
| In 2011 NetOne Received US$60 million, a further US$290 million in 2014 and US$71 million loan in 2018 for 4G and LTE from China Exim Bank for base stations upgrading. | ||
| Super computer centre at the University of Zimbabwe at a cost of US$5 million zero interest loan | ||
| Power | Hwange Thermal Power station US$1.2 billion China loan (China Exim Bank). Generating capacity will increase by 600MW | Sino Hydro |
| Kariba South Hydro expansion US$20 million China loan (China Exim Bank). Generating capacity to increase by 300MW | Sino Hydro | |
| Buildings | National Defence College constructed at a cost of US$100 million loan facility from Chinese Government | Chinese company Anhui Foreign Economic Construction Group |
| New Parliament Building Chinese government grant of US$97 million |
Aspects of Chinese Investments in Zimbabwe
The bulk of lending is through direct project finance loans with either fully commercial or concessionary terms. For instance, China offered Zimbabwe a grant worth US$320 million for Kariba South expansion. This came with 5 years grace period, 20 years maturity and an interest rate of 2 percent. This applies to most projects in which China is involved in Zimbabwe such as the Victoria Falls (US$150 million).
However, an analysis of most of these projects or Chinese investments in Zimbabwe highlights the following few aspects:
- Firstly, low interest rates from Chinese sources of lending compared to the multilateral and traditional bilateral creditors. Therefore, this permits significant investment into projects designed to promote economic growth and development.
- Secondly, Chinese loans and investments in Zimbabwe are characterised by lack of transparency which makes it impossible to have a clear account of the implications of this borrowing for the public finances. Loans that have been given to parastatals and local government have been marred with scandals which then indicate that the loans may not be productively used. Debt sustainability analysis is made difficult due to lack of comprehensive information on loans and their conditions. Given the high level of corruption in Zimbabwe such loans may be diverted for personal gain.
- Thirdly, there are questions on whether Zimbabwe is getting the value for money from its engagement with China as the process from loan contraction, procurement and implementation in most cases involve Chinese institutions. This means funds in most
cases are transferred from Chinese investors to Chinese contractors which in turn impact on competitiveness and significance on job creation.[2]
