Fears the economy will collapse owing to tight liquidity conditions heightened this week amid indications President Robert Mugabe’s government last week ordered diamond mining companies to deposit sorted and valued diamonds with the Reserve Bank of Zimbabwe (RBZ) to securitise a loan government it has structured with an offshore financier.
A letter to diamond mining companies dated April 28 from Mines secretary Francis Gudyanga, seen by the Zimbabwe Independent, shows government is desperate to access offshore funding and ease the liquidity crunch gripping the country.
Reads the letter: “The Zimbabwe government is engaging strategic financiers to assist the government with funding.
You are therefore requested to prepare parcels of all your currently produced diamonds which must be sorted and evaluated with the involvement of the Minerals Marketing Corporation of Zimbabwe (MMCZ) in the usual manner by Wednesday 30 April 2014.
“The parcels will be deposited with the Reserve bank of Zimbabwe and used to securitise a government loan.”
Gudyanga said payment for the parcels would be made soon after they were deposited.
Without giving information on how the diamond miners would be paid, he wrote: “the details of the processes will be discussed shortly.”
However, diamond mines are worried government might not pay them for the diamonds.
This lends credence to comments by Chinese Ambassador to Zimbabwe Lin Lin who this week told delegates to a Southern African Political Economy Series Trust (Sapes Trust)-organised international conference on Zimbabwe that Harare and Beijing were locked in discussions on the provision of a financial package to fund Zim-Asset that would see government “securitising” its national resources.
Zimbabwe is in desperate need of liquidity to stimulate the country’s faltering economy. Government needs at least US$10 billion for its ambitious Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim-Asset), an economic
blueprint covering 2013 to 2018, unveiled after disputed elections last year by the Zanu PF government.
The Chinese envoy said the country was ready to provide lines of credit, but Zimbabwe would need to“securitise” the loan using its vast mineral resources.
While it seems government is immediately securitising its diamonds, informed sources said China is looking at gold and chrome as well.
Even after government puts up an acceptable collateral for the loan believed to be above one billion United States dollars, the country is also under pressure to repay all outstanding loans to the Chinese government, sources said.
“My government is committed to give our support to Zimbabwe’s economic recovery,” Lin reportedly said. “What I can say now is that the two sides are carrying out discussions on lines of credit provided by Chinese financial institutions as proposed by the Zimbabwean side using your minerals as kind of security. We are looking forward to reach a kind of an agreement on that issue and I hope sometime this year.”
With Zimbabwe’s checkered investment policies, analysts believe this could be the only feasible option to attract liquidity, but many fear this is tantamount to mortgaging the country’s resources to the Chinese.
Traditional sources of liquidity such as exports and Foreign Direct Investment have all but dried up.
Industry is operating on obsolete equipment and is not competitive and cannot export meaningfully, while government’s indigenisation policy has not helped the situation.
In line with the Indigenisation Act, foreign investors are supposed to dispose controlling stakes in business to indigenous Zimbabweans.
Although Mugabe and his Zanu PF government have toned down on their indigenisation mantra in recent months, analysts don’t believe the shift in policy will help attract the much needed investment in the short-term.
The Chinese diplomat also defended his Premier Li Keqiang’s decision to omit Zimbabwe from his itinerary on his four nation tour of Africa, saying this did not mean that relations between the two countries were not sound.