BY VICTOR BH0ROMA
The Zimbabwe Iron and Steel Company (Ziscosteel) is once again hunting for potential investors for its now-defunct integrated steel works with indications that up to US$1 billion will be required to bring the former giant to optimal production.
Ziscosteel is 89% owned by the government of Zimbabwe while the remainder is in the hands of private shareholders. The company owns Buchwa Mining Company (BIMCO), Lancashire Steel, ZimChem and Frontier Steel. The new investor is expected to hand over 35% of the design, procurement and construction operations to local companies and residents as part of the deal. To entice new investors and remove litigation hurdles, the government took over Ziscosteel Debt of about US$500 million in January 2018.
Ziscosteel provided a lifeline to various companies in the value chain and industry. It remains the biggest missing link in the Zimbabwean economy. The company used to produce mainly for the export market, earning the country millions in foreign currency.
Critically for the local economy and employment creation, the company’s interconnection with ZimAlloys (for provision of ferrochrome), Hwange Colliery (for provision of coking coal), Shabanie-Mashava Mines (for the provision of heat insulation asbestos), National Railways of Zimbabwe (for the transportation of raw materials and steel) and Zimbabwe Electricity Supply Authority (for a direct supply link of electricity).
Various companies that relied on Ziscosteel for production purposes had to close, downsize, or switch to uncompetitive imports for survival. These include Sable Chemicals, ZimChem, Ripple Creek Mine, Zimasco, Steel Makers, Haggie Rand and ZimCast. Currently Zimbabwe imports steel and steel by-products worth over US$1 billion per year mainly from Turkey, South Africa and India.
Ziscosteel was founded in 1942 as Rhodesia Iron and Steel Commission (Riscom) as the largest integrated steel plant in Africa. The commission was a response to private investor forays in steel production that had started in late 1938 in Belmont, Bulawayo.
By 1957, the company was now producing 257 166 tonnes of steel per year. At Zimbabwe’s Independence in 1980, the company was renamed to its current name with steel exports providing the bedrock for direct employment of over 5 500 people in surrounding towns and over 50 000 indirectly in the value chain.
Export destinations ranged from Europe, Japan, India, and other countries in Southern Africa. At its peak in 1990, production capacity was 1 million tonnes of steel while export capacity was 700 000 tonnes per year.
In the early 90s, Ziscosteel started to experience production challenges as its blast furnaces and equipment became obsolete.
The company also encountered mismanagement problems as skilled personnel were frustrated out. It was recommended then that the plant be replaced in a phased approach over a 10-year period as commodity prices had fallen to a level where complete overhaul was not possible in a short space of time.
Corporate governance problems
However, the technical recommendations fell on deaf ears as the company was operating without a fully constituted board of directors. It is during this phase that political interference reached fever pitch with various politicians jostling for control, appointing cronies as executives, and meddling in the company’s daily operations.
A 2006 audit report on the company operations noted the controversial contracts parcelled out to conflicted parties, airfares and hotel bookings for politicians and uncompetitive directors’ fees, salaries and entertainment allowances.
By 2008, the company was now producing less than 12 500 tonnes which were way below the breakeven point of 25 000 tonnes per year. Plant breakdown became very routine with a single blast furnace providing the lifeline.
Previous investment deals
In early 2010, the company invited bidders for a 64% stake to save over 3 000 jobs that anchored life in Kwekwe and Redcliff, and to pay off debts that totaled US$340 million (With US$240 million owed to a German Bank).
In 2007, an Indian company called Global Steel Holdings proposed to invest in Ziscosteel, but the deal did not materialise due to political interference and disagreements on the funding model. During the height of the inclusive government in 2011, a US$3,5 billion deal was struck with Essar Africa Holdings (a company from India) to invest into the company and form New Zimbabwe Steel Company. Essar would assume 54% shareholding while the government retained 36% shareholding and 10% remained in the hands of private investors.
However, the deal fell through in 2015 as the government was reportedly not keen on ceding iron ore claims and the planned exportation of over 10 million tonnes of iron ore to India by the investors. Behind the scenes political squabbles and jostling for a stake in the new company created bottlenecks that frustrated the newfound investors.
There was also a deal with a Chinese Company called Guangzhou R&F in 2017, which was reported by the state media to be over US$2 billion. That too did not materialise as the government changed goal posts on shareholding structure from 100% foreign ownership to renegotiating a 50% deal in line with the then Indigenisation and Empowerment Policy.
Other investors that expressed interest in Ziscosteel in the past include ArcelorMittal (The world’s biggest steel maker), Jindal Steel, China Metallurgical Group, Apollo Steel, Posco, Gateway Zimbabwe and Sovereignty Capital.
Key challenges now
The government has cleared the debt hurdles that impeded investment and has accepted that there is no commercial value in the company in its current state. However, potential problems remain. Vandalism, corruption and theft of assets has dismantled the company assets to a level where almost all movable equipment needs replacement.
Similarly, the existing plant has outlived its lifetime (over 50 years) to the extent that reviving the old plant may not be economically viable. Previous technical evaluations have pointed that it will be cheaper to build a new integrated steel works near the vastly endowed Ripple Creek Mine for easier transportation of iron ore and limestone into the new plant as the old 16 km conveyor belt, barrols, mills and the furnaces need new replacements. The existing railway network connecting Ziscosteel to its subsidiaries, key suppliers and the market also needs extensive rehabilitation on its own.
Going forward, possible investments must be made into modern electric arc furnaces that can produce steel at economic levels and cost less in terms of maintenance.
Lastly, the centuries-old political interference may also be a spanner in the works in terms of “cuts” to influential figures that may facilitate any investment deal. For Ziscosteel to stand a chance on the current plant or possibly a totally new plant, there have to be independent technical advisors who evaluate bids from potential investors with an objective goal.
The advisors will need to work with the board of directors on the financial, technological and engineering needs of the company in order to evaluate various investment options and table recommendations that are devoid of political machinations or posturing.
Whatever the case, Zimbabwe cannot afford to let Ziscosteel or at least its subsidiaries rot while the market spends a billion on importing steel and various steel byproducts to satisfy consumer demand in each year.
The story of Ziscosteel paints a heart-wrenching, but vivid picture of maladministration, rampant corruption, economic demise and failure to invest in state entities in the country.
Bhoroma is an economic analyst and holds an MBA from the University of Zimbabwe. — firstname.lastname@example.org or Twitter: @VictorBhoroma1.