Embassy claims Zimbabwe is hyping Chinese investment

The United States embassy said the government was hyping supposed dividends from its relationship with China, but even Beijing was getting disenchanted with Zimbabwe’s abysmal business environment and economic mismanagement.

It claimed that most of the promised Chinese investments had failed to materialise.

The only major industry in which the Chinese held sway was in tobacco where Chinese buyers consumed a third of national output.

Ed: The West is today complaining about Chinese investments in Zimbabwe, claiming that China had become another coloniser. The West seems to have been irked most by Chinese investment in diamond mining where the Chinese investor is already saying it is now the world’s largest diamond producer. The diamond mining sector especially in Marange has been under siege allegedly because of lack of transparency. It has even been claimed that companies operating in Marange are run by the military and are siphoning money to finance ZANU-PF in the next elections.

Full cable:

Viewing cable 06HARARE964, GOZ HYPING CHINA’S ROLE IN ZIMBABWE,S ECONOMY

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C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000964

SIPDIS

SIPDIS

AF/S FOR H.SERVIN-BAEZ

SENIOR AFRICA DIRECTOR C. COURVILLE

E.O. 12958: DECL: 07/25/2015

TAGS: PGOV PREL ECON ZI CH

SUBJECT: GOZ HYPING CHINA’S ROLE IN ZIMBABWE,S ECONOMY

Classified By: Charge d’affaires Michael Raynor under Section 1.4 b/d

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Summary

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¶1. (C) Despite GOZ attempts to hype supposed dividends from

its relationship with China including the June visit of Vice

President Joyce Mujuru to Beijing, business sector contacts

tell us that promised Chinese investments have largely failed

to materialize. The only major industry in which Chinese

investors appear to hold sway is in tobacco, where Chinese

buyers consume a third of national output, according to

industry contacts. Instead, Chinese investors, like many

others, appear to have become disenchanted with Zimbabwe’s

abysmal business environment and economic mismanagement. In

addition, a popular backlash against the perceived influx of

substandard Chinese products has emerged. End Summary.

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Desperately Seeking(Anyone

————————–

¶2. (C) Following up on President Robert Mugabe’s pilgrimage

to Beijing a year ago, Mujuru visited Beijing in early June

in an attempt to encourage investment and drum up support for

the GOZ’s latest economic turnaround plan. (N.B. Perhaps

showing the lopsided nature of this courtship, Chinese

Premier Wen sidestepped Zimbabwe on his seven African nation

tour also in June.) According to state-controlled media,

Mujuru signed two investment contracts with Chinese firms in

exchange for chrome sales from Zimbabwe’s parastatal Mining

Development Corporation (ZMDC). In a deal ostensibly valued

at US$1.3 billion, China National Machinery and Equipment

Import and Export Corporation reportedly agreed to develop

three thermal power stations in blackout-prone Zimbabwe.

Additionally, Star Communications of China reportedly inked a

US$60 million contract to provide radio and television

equipment to Zimbabwe’s state broadcaster.

¶3. (C) Mujuru’s state-media-grabbing visit coincided with

the visit of several relatively unremarkable Chinese

delegations that have received front-page coverage in the

GOZ’s papers. Portrayed as evidence of the success of the

GOZ’s “Look East” policy, the local media have hyped the

recent visits of a delegation seeking to establish more

“sister city” relationships, a team exploring potential

methane gas reserves in Matabeleland, and representatives of

the China Aero Technology Import and Export Company who

followed up on the sale of three MA60 passenger planes to Air

Zimbabwe last year.

¶4. (C) Opposition MP and pro-Senate faction of the MDC

foreign affairs secretary Moses Mzila Ndlovu told poloff on

June 22 that the GOZ’s emphasis on relatively small gestures

from China is an indication of how desperate for

international support ZANU-PF has become. Ndlovu said that

Mugabe had resorted to “political prostitution.” In the

absence of personal ties between GOZ and Chinese leaders, a

common liberation war history and anti-colonialist ideology

were the only binding ties. According to Ndlovu, the

Chinese, however, were increasingly looking for profitable

business deals, often putting them at loggerheads with the

hand-out seeking GOZ.

————————

Coming Back Empty Handed

————————

¶5. (C) Business sector contacts caution us that the deals

HARARE 00000964 002 OF 003

that Mujuru signed were merely MOUs and not actual business

contracts. As such, they were only the first of many steps

necessary before actual investment flowed into Zimbabwe.

Local economic commentator Eric Bloch told poloff on June 23

the GOZ was hyping the agreements in an effort to demonstrate

foreign confidence in the Zimbabwean economy and to show

dividends from the government’s latest economic revival

scheme. Bloch added that the Chinese were well aware of what

has happened to other foreign investors in Zimbabwe and are

seeking iron-clad, internationally arbitrated agreements to

prevent the GOZ from seizing assets.

¶6. (C) Tongai Muzenda, the commercial director of

ferrochrome-maker Zimbabwe Alloys, told poloff on June 22

that the recent chrome-backed MOUs signed by Mujuru were

largely smoke and mirrors. ZMDC owned only 10 percent of the

chrome fields in Zimbabwe and was not currently producing any

of the mineral. Investors from China, the world’s fastest

growing market for chrome, already operated one small chrome

mine and basic processing plant in Mashonaland West.

Muzenda, however, assessed that there was little new acreage

for the GOZ to offer the Chinese, since the two largest

chrome producers are indigenous firms and as such not subject

to proposed legislation that would nationalize foreign mining

companies.

¶7. (C) Alluding to the generalities of the ZMDC deal,

economic analyst John Robertson told poloff on June 21 that

this was the case for most of Zimbabwe’s “contracts” with

China. Recounting nine deals supposedly agreed to a year

ago, such as refurbishment of the railway, steel, and coal

parastatals, Robertson noted that none of the projects had

yet commenced. In fact, deals with the national steel

company and in the platinum industry that the Chinese had

been eying have gone to investors from Russia and India.

(N.B. Based on limited conversations with government

officials and coverage in the state media, the GOZ appears to

have shifted its hopes for support to these two countries.)

Perhaps the only major deal to materialize is Sino-Cement,

but Bloch noted that builders were essentially boycotting the

company’s overpriced and poor quality cement.

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Tobacco Provides Only Vice

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¶8. (C) In contrast to other sectors, Zimbabwe Tobacco

Association President Andrew Ferreira told poloff on June 21

that China has become the dominant foreign actor in the

tobacco industry, purchasing roughly one-third of Zimbabwe’s

national output. (N.B. Official Chinese trade data for 2005

show that tobacco accounted for 81 percent of its imports

from Zimbabwe.) According to Ferreira, Chinese smokers have

a preference for Zimbabwe tobacco despite declining quality

in recent years.

¶9. (C) Ferreira told poloff that Chinese buyers were eager

to guarantee their future access to Zimbabwean tobacco.

Accordingly, two Chinese companies have entered into

contracts with tobacco farmers in an effort to circumvent the

more volatile auction floors. Ferreira also said that the

GOZ had allocated Chinese investors two tobacco farms in

Mashonaland West, but could not provide additional details.

Ultimately, he said, Chinese buyers hoped that Zimbabwe would

revive output to about 180 million kilograms, as compared to

the current output of circa 50 million kilograms.

Recognizing that the lack of reliable power supplies is one

of the chief obstacles to that goal, Ferreira said the

Chinese had put pressure on the parastatal power company to

guarantee a supply to their contract farmers.

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Honeymoon Coming to an End

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¶10. (C) Robertson said that the Chinese had become

disenchanted with the GOZ’s failure to repay loans and to

make payment on capital equipment, and with the ham-handed

manner in which the bilateral relationship had been handled.

This was especially true in light of the large-scale payments

made to the IMF over the past year. (N.B. Exemplifying this,

an independent newspaper reported in May that six Chinese

firms had abandoned projects in Zimbabwe due to non-payment.)

Chinese visitors were often embarrassed by the intense

state-controlled media coverage and the GOZ’s penchant for

announcing deals before they were formally agreed upon.

Robertson noted that this put Chinese investors in the

awkward position of either accepting an ill-conceived

proposal or backing away from high-profile “contracts.”

¶11. (C) Smaller-scale Chinese merchants have also begun to

lose interest in Zimbabwe, according to several of our retail

industry contacts. Robertson explained that many Chinese

merchants flocked to Zimbabwe under the easy immigration

procedures of the GOZ’s “Look East” policy and brought with

them the one allowed shipping container of duty-free

merchandize, which they then sold at a substantial profit.

The initial attraction, however, quickly wore off, according

to Robertson, as sales dropped in line with the country’s

dwindling purchasing power. Like their local competitors,

many Chinese merchants have since closed shop due to the

economic hardships.

¶12. (C) Moreover, the flood of sub-standard Chinese consumer

products, or “zhing-zhong” as it is derisively called, has

sparked popular resentment against the Chinese, according to

several of our contacts. Japanese diplomats tell us that

they are often on the receiving end of criminal attacks and

derogatory comments from Zimbabweans who mistake them for

Chinese. The resentment has even spread to Bulawayo, where

civic leader Gordon Moyo told poloff on June 23 that despite

the city’s relatively small Chinese population the locals

were was increasingly xenophobic. Bulawayo Mayor Japhet

Ndabeni Ncube on June 23 added that locals often blamed the

business-savvy Chinese for creating and taking advantage of

Zimbabwe’s economic woes.

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Comment

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¶13. (C) Chinese investors )like those from other countries

– are eying Zimbabwe’s natural abundance and economic

potential with desire. However, in contradiction to the

state-controlled media, Chinese investors are not flocking to

Zimbabwe as they are to other parts of Africa. Despite the

talk of shared ideology and comradeship, the Chinese appear

to have made the business assessment that venturing into

Zimbabwe is simply very risky and not likely to be

profitable. To this end, China joins the likes of Libya,

Malaysia, and Iran in the growing list of the GOZ’s

disillusioned suitors.

RAYNOR

(31 VIEWS)