HomeLocal NewsZim digs $2,7bn fiscal hole

Zim digs $2,7bn fiscal hole

THE US$2,7 billion Beitbridge–Chirundu road construction project will plunge Zimbabwe into a deep financial hole from which it could take decades to come out due to its endless cost escalations and unaffordability, it has emerged.

By Hazel Ndebele

Information obtained this week from construction experts, financial analysts and transport engineers indicates the project is not viable given the economic crisis which Zimbabwe is currently going through.

Zimbabwe operates on a paltry US$4 billion annual national budget. At least 96% of the total revenues under the budget go to the wage bill and other recurrent expenditure, while only 4% remains for capital projects.

Even a government-commissioned report seen by the Zimbabwe Independent, titled The Transport Master Plan, which looked at a holistic picture of the transport sector, reveals that although the project is economically desirable, it is however uneconomic and unaffordable.

“Public-private partnerships (PPPs) road sub-sector projects in Zimbabwe at the present time are inhibited by the low volume of traffic, even on the major highway like the Harare-Beitbridge Road, whose average traffic is around 1 000 vehicles per day, making the roads unviable on a self-financing basis, although they may be economically viable,” reads the document.

“Alternative investment strategies include the transfer of some of the commercial or demand risk to government, either through availability payment mechanism, equity injection or other similar arrangements, which may not be feasible under the prevailing economic environment.”

The cost of the construction of the 897 kilometre stretch will gobble up US$2,7 billion which is equivalent to 67,5% of the country’s annual budget. Financial analysts have expressed grave concern over the continued escalation of the costs of the dualisation of the road.

In 2003, the cost of dualising the highway which links the country’s busiest ports of entry was pegged at US$833 million, before it went up to US$1 billion, US$1,2 billion, US$2 billion, US$2,5 billion and now US$2,7 billion.

Insiders say this raises eyebrows and concerns from taxpayers and stakeholders who fear the project is being inflated to accommodate government officials – including ministers’ personal financial interests – and their cronies. The project is riddled with reports of cronyism, bribery and kickbacks – systematic and grand corruption.

Interestingly, the completed 820km Plumtree-Mutare Highway cost US$251 000 per kilometre to construct, at total cost of US$206 million, which is just a fraction Beitbridge-Chirundu project. Construction experts said the Beitbridge-Chirundu project is extortionately overpriced despite the fact that it would be dualised.

Experts also told the Independent dualisation of the road does not make economic sense when traffic is very low as compared to 15 years ago when the road used to be the corridor for regional trade with African countries since Zimbabwe was still a thriving gateway to the region.

“Traffic on the road has deteriorated over the years because of Zimbabwe’s economic problems. The highway used to facilitate the movement of millions of people and goods with billions between southern Africa and central and east Africa, while also facilitating regional trade,” a trade expert said.

The increased volumes of traffic at the Beira, Maputo, Dar es Salaam and Walvis Bay ports have disadvantaged Zimbabwe because the volume of goods which used to come through the Beitbridge-Chirundu road from Durban has sharply declined.

Moreover, the banning of imported second-hand cars from being driven on the South African roads has made people use other ports in the southern African region, cutting off Zimbabwe.

As if the current cost escalation was not enough, Transport minister Joram Gumbo in September said although the estimated cost of upgrade the Beitbridge-Chirundu highway had reached US$2,7 billion, the amount could still increase, driven by interest charges paid to project financiers.

Gumbo said government had estimated the project cost based on surveying and sampling of soils along the road. No proper feasibility study was done. He said the road would be divided into eight segments to speed up the dualisation process, although construction experts view this approach as a murky scheme to award tenders and contracts to the politically connected even if most of them have no technical and financial capacity as well as expertise to do the job.

Companies which were awarded the tender for dualisation of the road include Austrian construction firm, Geiger (Pvt) Ltd, which specialises in military equipment and not construction. Chinese company, China Harbour Engineering Company (Chec), which was blacklisted by the World Bank for fraud and corruption, is also involved.

Chec, a subsidiary of China Communications Construction Company (CCCC) Limited, has courted controversy in Uganda and several other countries for shady deals. CCCC was blacklisted by the World Bank over fraudulent practices by its predecessor company China Road and Bridge Corporation in 2009. The debarment will only end next year. Despite the corrupt history of its parent company, Chec was still awarded the massive project by government. The names of local companies and their directors involved in the project have so far remained secretive, amid reports that politicians and their cronies are part of the project through corrupt means.

Experts say while is economically desirable it is unaffordable and unsustainable in the current economic conditions.

“Given the amounts generated by Zimbabwe National Roads Administration (Zinara) from tolling fees, it would take up to 100 years to pay back without taking into account the interest fees of the loan, maintenance and labour costs,” one source said.

Zinara generates US$19 million from toll fees a year on the Beitbridge-Chirundu highway which has six tollgates and in total collects US$50 million from other roads minus the Plumtree-Mutare road whose fees are ring-fenced to pay back the Development Bank of Southern Africa (DBSA) loan which financed the project.

Considering that Zinara, which is struggling to repay DBSA, generates only this, constructing a US$2,7 billion road would not be financially viable, experts say.

“Besides, a small budget and paltry Zinara collections the minister has threatened to ban haulage trucks from the roads, saying all heavy goods should be transported by National Railways of Zimbabwe. So where will the money to pay back the loan come from considering that trucks huge amounts in toll fees and their volume is high?,” one expert asked. “The bottomline is that this project, as shown in the master plan, is simply unaffordable and thus uneconomic at the moment.”

Recent Posts

Stories you will enjoy

Recommended reading

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

NewsDay Zimbabwe will use the information you provide on this form to be in touch with you and to provide updates and marketing.