President Emmerson Mnangagwa’s administration is frantically negotiating a critical US$2 billion bailout package with a top Chinese bank, the Industrial and Commercial Bank of China (ICBC), and other financial institutions in a desperate bid to ease the country’s crippling liquidity crisis ahead of make-or-break elections on July 30, the Zimbabwe Independent can report.
Well-placed sources said this week top government officials have been holding talks with senior executives of Chinese banks and government to get a US$2 billion facility since Mnangagwa’s visit to Beijing in April.
This followed the stalling on the Lima process to pay US$1,8 billion arrears to international financial institutions before securing US$2 billion in fresh funding.
Chinese President Xi Jinping and Mnangagwa agreed to establish “a comprehensive strategic partnership of cooperation” between the two countries, although Harare failed to secure US$1,5 billion liquidity support at the time due to the problems over Zimbabwe’s US$160 million arears to China Exim Bank and China Export Credit Insurance Corporation (Sinosure), a state-funded entity which provides export credit.
“Talks are currently underway between Zimbabwean and Chinese authorities, as well as banks on a liquidity bailout,” a senior Zimbabwean financial executive said.
“The negotiations mainly with a big Chinese commercial bank have been going on since Mnangagwa’s visit to Beijing in April. Remember Zimbabwe wanted US$1,5 billion during that trip, but it didn’t get the money because of Sinosure and arrears issues.”
The Chinese have been saying for any new projects which need more loans from their side, they would consider Zimbabwe’s ability to repay. Chinese banks and even insurance companies have their own terms for providing or giving guarantees for lines of credit, so this has been delaying issues, a source said.
Zimbabwe’s total external debt overhang is officially estimated at close to US$12 billion, with close to US$200 million of the Chinese loans falling due this year alone.
“Zimbabwe has been looking at various options, including at the Bank of China and China Exim Bank, but they are currently focussed on a bailout deal with ICBC,” a source said. “A team of officials from the Ministry of Finance and Reserve Bank of Zimbabwe is engaged with Chinese and bank officials on the issue. Afrexim (African Export Import Bank) is also involved in the deal.”
Afrexim is expected to provide a guarantee to ICBC for the US$2 billion loan on behalf of Zimbabwe, which is the third largest shareholder in the continental lender after Nigeria and Egypt.
During Mnangagwa’s visit, a solution was suggested on arrears through debt cancellation and closure on Sinosure issues, while talks about the bailout were given new impetus because of that.
Mnangagwa, however, managed to get infrastructure funding. He got US$1 billion for the expansion of Hwange Thermal Power Station’s units 7 and 8; US$153 million for the Robert Gabriel Mugabe International Airport; US$71 for NetOne and the usual US$20 million given to visiting African leaders to use at their own discretion.
Zimbabwe desperately needs new funding to address the chronic liquidity crunch and cash crisis buffeting the economy. Hard currency shortages have seen the premium for the American dollar scaling close to 100% in recent weeks (US$1=1,80 RTGS at one point) against electronic bank and mobile transfers, particularly fuelled by the worsening foreign currency scarcity.
Inflows of funds from tobacco and gold receipts into the parallel market have also boosted the black market and attendant exchange rate volatility and distortions, as well as arbitrage. Tobacco and gold merchants are paid by government 70% in hard currency and 30% in RTGS (real time gross settlement); an electronic payment system. The Reserve Bank of Zimbabwe has reviewed upwards from 5% to 12,5% the export incentive scheme for tobacco growers for the 2018 marketing season. The 12,5% is paid in bond notes directly into tobacco growers’ bank accounts on a monthly basis upon submission of tobacco sales data to the central bank by the Tobacco Industry and Marketing Board.
For the six months up to June, gold receipts were US$715 million, while tobacco exports reached US$184,3 million. Upon receiving the money, tobacco and gold dealers usually go to offload their hard currency on the black market to capitalise on money-spinning arbitrage opportunities. This fuels the underground or shadow economy and its associated currency market. Although government has considered looking for a bailout from financial institutions such as the Bank of China and Exim Bank of China, sources in the market said ICBC — the world’s largest bank with total assets amounting to US$3,5 trillion ahead of JP Morgan and Deutsche Bank — has been their main hope.
This comes amid rising fears in government the liquidity crisis could damage Mnangagwa’s electoral prospects in the critical elections. Latest opinion polls show Mnangagwa’s main rival, MDC Alliance leader Nelson Chamisa’s momentum has dramatically surged to within 3% — almost inside the margin of error — closer to him, with 20% of voters undecided; suggesting a neck-and-neck race and potential photo finish. China, an emerging economic powerhouse, has been at the forefront of rescuing Zimbabwe, a country battling to shaking off pariah state image after years of isolation under former president Robert Mugabe’s disastrous rule.
Zimbabwe has turned to the Asian giant for political, financial and military support resulting in heightened levels of cooperation between the two countries in recent years after more than a decade of isolation from the West.
Trade between China and Zimbabwe grew to US$1,24 billion last year, double the figure in just four years. China has been Zimbabwe’s top foreign investor for several years.
In 2013, Chinese investment to Zimbabwe topped US$600 million, making Zimbabwe one of the top destinations to receive Chinese investment that year.
Beijing has over the years doled out more than US$700 million in loans and grants to Harare and in exchange Harare has guaranteed unbridled access to its minerals resources and infrastructure projects.
Chinese companies have also largely enjoyed unfettered access to undertake lucrative energy and infrastructure projects in the country. This year alone, more than US$2 billion in tenders has been awarded to Chinese.