Zisco deal is ‘steel’ of the decade
No one can dispute the necessity of unlocking the value in Zimbabwe’s iron ore and coking coal reserves, whether through revival of Zisco or through greenfield investment(s).
THE revelation that a Chinese firm recently signed an agreement with Government to revive Ziscosteel is a major boost to Zimbabwe’s industrialisation drive. Hopefully, this time both parties are serious and honest enough to see the deal go through. This is, of course, after the US$750 million debacle of a transaction involving Essar Africa Holdings Limited a few years ago.
Quite comforting is the fact that the investor, R&F of China, is wealthy and credible enough to deliver on its promises.
No one can dispute the necessity of unlocking the value in Zimbabwe’s iron ore and coking coal reserves, whether through revival of Zisco or through greenfield investment(s).
Following the failure of the Essar deal to take off, Zisco incurred operating expenses of more than US$400 million, mainly in wages.
It is also reported that the company’s debt levels ballooned due to interest and penalties on outstanding debts.
This makes the balance sheet of what was once Southern Africa’s biggest steelmaker quite unappealing at face value.
A significant amount of the US$2 billion from R&F Company will be chewed by debts before the plant starts running in the next 18 months.
But Zisco’s role in Zimbabwe’s industrialisation and economic turnaround cannot be contested. The giant sits at the heart of the country’s industrialisation ecosystem.
Its revival will have a significant impact on upstream and downstream industries. The construction, real estate, engineering, mining and manufacturing sectors are set to benefit significantly from Zisco.
Importantly, benefits from Zisco would be more visible in preservation and generation of the foreign currency and employment creation.
For too long, the country has been importing steel to meet local industry requirements, which puts pressure on scarce foreign currency resources.
At its peak in the 1990s, Zisco employed more than 5 000 people, and its revival will bring relief to residents of the nearby municipalities of Redcliff and Kwekwe.
More importantly, the revival of Zisco dovetails with the mooted US$400 million investment in the National Railways of Zimbabwe by the Diaspora Infrastructure Development Group/Transnet.
The investment in electricity, with the construction of Kariba South, Batoka and Hwange projects by Sino Hydro, as well as several renewable energy projects — all expected to add about 2 000MW to the national grid would support the power intensive venture of reviving Zisco.
The void left by Zisco’s demise was also felt keenly by chrome and coal miners.
Due to volatile global economic conditions and softening of commodity prices, chrome producers, notably Zimasco, experienced viability challenges.
Small-scale producers were similarly affected as they are getting unviable prices from Applebridge, which was set up by Government to buy the product from them.
This group of miners is pushing for a price of US$120 per tonne instead of US$85 per tonne they are getting from the off-taker. Buyers from the Far East are offering even less, paying between US$40 and US$70 per tonne.
As such, the return of Ziscosteel would be important for the off-take of chrome at reasonable prices locally for manufacturing of stainless steel.
Hwange Colliery, which is reeling under a US$352 million debt, will benefit from supply of coking coal — a major input in the manufacture of steel — to Zisco.
It is important to note that the revival of Zisco comes at a time the steel market is firming, alongside a pick-up in global economic activity.
Metal prices will be supported by an increase in construction, engineering and infrastructure development, all of which are key issues not only for Zimbabwe and Southern Africa, but for the world at large.
Clearly, the investment in the steel industry has broad macro-economic benefits for any country that has the right mix of resources.
This then is a call for the involvement of all Government officials to ensure that the R&F deal goes through in the quickest possible time.
A repeat of what happened with the Essar transaction cannot be tolerated.