Zimbabwe Review

Reflections on Zimbabwe

Posts Tagged ‘industry’

Impressions of Zimbabwe in August 2009

Posted by CM on October 25, 2009

Visitors to Zimbabwe who have been fed a BBC/CNN-type diet of news about ‘The Zimbabwe Crisis’ and how everything in the country has ‘collapsed’ will be surprised at how ‘normal’ Harare looks at first glance. Driving from the airport into town, there are certainly signs of decay since a few years ago, but no immediate or obvious signs of the ‘collapse’ that certain media have in recent years hysterically, lovingly and perhaps even hopefully talked about.

Looking out of the airplane’s windows as it circled to land and on the drive into town in early August, the most obvious change for me was how areas that had once been at least semi-savannah on the outskirts of Harare had been stripped of trees. One manifestation of ‘The Crisis’ in recent years has been the difficulty in accessing forms of modern energy that had once been taken for granted: petrol, diesel, paraffin, butane, coal, electricity, etc. Their availability had been erratic for many years and their cost prohibitive, forcing many people to resort to firewood for energy. Hence the massive deforestation, which I later found was widespread.

The still newish airport is clean and well maintained, though the number of vacant boutiques compared to, for instance, Nairobi airport’s full complement of seemingly thriving over-charging boutiques was one indicator that things were not quite ‘normal.’ On the drive home from the airport there was no dramatic evidence of ‘The Zimbabwe Crisis,’ though the buildings did look shabbier than before and there were definitely more potholes to dodge on the roads. But the over-riding impression for me was the powerful natural beauty and colour of Zimbabwe, not the indices of the difficult times the country has undergone in recent years.

Having had a few days to unwind at home, I began to gradually drive around and explore my home city Harare. There definitely seemed less traffic on the roads than I remembered from a few years ago. Finding a parking spot in the city center was surprisingly easy at any time of day and the roads there were generally in very good shape, as appeared to be most of the visible infrastructure.

In town and in many of the suburban shopping centers there were many more vacant shops than before, but I was also impressed by the number of businesses that had hung on during the difficult years. But almost all had ‘diversified’ in various ways, with all selling a much wider variety of goods and/or services to survive. I thought the general level of service in shops had declined noticeably. I didn’t encounter any outright rudeness but it seemed noticeably common to be met by disinterested, bored and sometimes almost sullen store personnel. Almost all stores I remembered from a few years ago had a much narrower range of goods than during ‘the good old days,’ but many people mentioned to me that what I thought was a limited range of goods was a vast improvement from the situation a few months ago, and that the availability of goods was improving dramatically by the day, one of the early benefits of the US-“dollarization” of the economy.

While the widespread shortages of all kinds of goods was rapidly receding into the past as price controls and currency restrictions fell away, most things seemed very expensive, sometimes absurdly so. In the weeks before my visit home I had visited Europe and the U.S., as well as having passed through Senegal’s capital city Dakar,  a city not known to be cheap, and so I particularly keenly felt the comparatively high cost of goods and services in Harare. It was easy to understand why many Zimbabweans are only grudging in their praise of the ‘normalization’ that has begun to take place. “We are happy the shops are full again but we can’t afford the goods” was a frequent complaint I heard. But even as people grumble about “we can’t afford anything” the shops are certainly not empty of customers, although many merchants and traders said the level of spending was still low and still limited mainly to necessities. Yet all I spoke to agreed that the situation was significantly better than before, and dramatically better than in 2008, the period everyone agreed was Zimbabwe’s low point, with hyperinflation, shortages, violence and political tension and so on at their worst.

As ridiculously expensive as almost everything seemed to be, even in just the one month I was there prices were creeping down to more realistic levels. And if one took the trouble to shop around, which many more people were doing than I remember from before, it was possible to find widely varying prices for the same thing. A big culture change was that even in ‘formal’ shops it was possible to negotiate for price reductions, common in many countries all over the world but previously almost unheard of in Zimbabwe’s stiff formal economy. So merchants are feeling the effects of consumer resistance and growing competition from the opening up of the economy and the greater availability of goods, and they are being forced to respond by lowering their prices. In the shortage economy that had prevailed for several years, the relatively few people who could raise the hard currency to import goods became accustomed to charging huge, arbitrary mark-ups. The merchant was king, not the customer.

One of the most disheartening remaining signs of how Zimbabwe has slid was in the complete absence of a daily media alternative to the state media. There are no daily independent newspapers and at US$2 an issue, the weekly private newspapers are way out of reach of most people. Of course there is no private TV or radio so there is a huge information deficit. But this is not to say the state media dominates the shaping of opinion. Despite its near monopoly, state newspapers, TV and radio are so dull and so blatantly pro-establishment that their credibility is extremely low. The public has largely learned to sense when they are being fed propaganda instead of news, which is rather often, and to dismiss and ridicule it even if they don’t know for sure what the other sides of the story are. Even more than before, the propaganda is so crudely done that I found myself often marveling that the government didn’t find it embarrassing and a negation of its attempt to win heart and minds. The stiffness, awkwardness and the over-the-top nature of much of the state media in the support of Mugabe and ZANU-PF and against Tsvangirai and the MDC had an almost surreal, self-defeating quality in its crudeness.

President Mugabe is still ass-licked by the state media as much as ever before, and in a way that I do not think does him any credit. One big change was that Reserve Bank of Zimbabwe Gideon Gono was no longer the swashbuckling public hero the media had tried to make him out to be when he was first appointed five or so years ago, promising to swiftly bring down hyper-inflation and perform all kinds of other miracles. Even in the slavish state media Gono’s gloss had long turned dull, with him now struggling to defend his controversial legacy to a tired-of-him, sceptical public. One would have to have been there in his early days in office and to experience what a dominant public presence he came to be to understand how far the man has fallen in public esteem.

Electricity and water cuts were frequent, although even in these regards many people said I had visited when the situation was getting much better than it once was. People are inconvenienced but out of necessity have had to adjust, and the down times are handled very matter of factly. Up until a few years ago I had never even seen a fuel-powered electricity generator but now many in the cities who can afford them have them and they are widely advertised in the Press. Those who have boreholes or wells can avoid the worst inconveniences of the periods without running water, but I was shocked by the number of people who calmly mentioned having gone for months without seeing a drop of municipal water in their taps, a major cause of last year’s cholera outbreak.

Visits to some of Harare’s once-bustling industrial areas were depressing. A few years ago a quick drive through any of them would have been enough to show anybody why Zimbabwe’s economy was the sub-region’s most dynamic after South Africa’s. Now they are quiet, many companies still open but quite clearly operating at a low level. The areas do not have the bustle of before; buildings, roads and company premises are no longer maintained like they once proudly were. But from job-seekers to company owners, many people said whereas most companies were just treading water for several years, there are now signs of activity picking up as a result of the policy changes in the economy and the relative political calm.

With low productivity in agriculture and industry for several years, and given all the crises the country has undergone, it is startling to see the number and proportion of smart late-model luxury cars on the streets of Harare. There seemed a very bizarre disconnect between the economy under-performing as it has done for years and the number and types of expensive cars which would have turned one’s head even in a wealthy, ‘normal’ economy. While the signs of the lack of investment in many critical areas of the economy were everywhere, this certainly did not seem to extend to the cars many higher-ups in government and the private sector drive. I’m still trying to figure out what this says, and whether this is positive or not.

My impressions are of a tiny slice of life in Zimbabwe. For instance, I only made two one-day forays into rural areas to visit relatives, and only made one other one-day trip out of Harare during my one-month stay. There are obviously many parts of the traumatic economic and political period Zimbabwe is just coming out of that will only be fully understood by those who were there during it. But the instinctive adaptation that one “who was there” undergoes to the rapidly changing situation is also precisely why it can be hard for them to pin down and catalogue the changes, even though they will have an insider’s deeper understanding of events they were a part of. On the other hand an inside-outsider like me, visiting for the first time in about three years, can much more quickly see what is different even if he has no first-hand knowledge and experience of the factors and events that drove the change.

When I ended my previously visit to Zimbabwe, in early 2007, it was with a very heavy heart. The economy was very steadily declining and the tensions between the rival political parties escalating. That state of affairs had been on-going for close to 10 years. There was a widespread sense that the country was still going down, with no one able to guess when we would hit bottom or how bad things would be then. I left home then worried and depressed.

My feelings were quite different this time. There remain many political and economic problems but there is now a widespread feeling that the worst is behind the country. There is not the same feeling of widespread political dread and economic desperation, even though things are far from easy or back to any definition of ‘normal.’  Everybody grumbles about how high the cost of living still is, but unlike before, prices are stable and in many cases even declining, and goods are widely available, which is a very different scenario from early 2007!

I found widespread relief at the existence of the inclusive government of the major political parties, and I thought that most people were generally much less passionately partisan than I remembered. I also think cynicism about all politicians was higher and more widespread than before, which may be a good sign!

The last ten years or so have been a lost decade for Zimbabwe in many ways. And there is no guarantee that the beginnings of stabilization that are being experienced will take hold or that the country will organize itself to get close to meeting its great potential. The possibility of the political parties going back to the bitter fighting that has contributed so greatly to Zimbabwe’s misery remains very real. But when I left Harare in early September after a month at home, for the first time in many years I felt the stirrings of hope about the country’s prospects.

Posted in business, Economy, People | Tagged: , , , , , , , , , , , | 1 Comment »

Nothing learned about price controls in many years

Posted by CM on September 2, 2008

The Financial Gazette in a recent issue had an article with the heading Cement firms on brink of closure.

There have been so many of these ‘collapse’ speculations about various sectors  of the Zimbabwean economy over the last ten years that I tend to take them with a grain of salt. Which is not to deny that things are extremely difficult for companies as well as for individuals trying to stay afloat. But the cement industry, and countless others, have been ‘on brink of collapse’ for years now but somehow keep going, holding on for better times.

The immediate cause of this ‘collapse’ story is a familiar one: price controls. For political reasons, government insists on dictating the costs that companies should charge for various goods and services, even if those mandated prices are below the cost of production. It is essentially an order for companies to operate at a loss.

The argument argues that the price caps would have been reasonably imposed to prevent exploitation by businesses able to charge as they like in a hyper-inflationary environment compounded by shortages of many goods.

Of course the arguments on both sides are much more involved than this, but the details of those contrasting arguments are not the subject of this post.

Excerpts:

The selling price of cement is set by the government-run National Incomes and Pricing Commission (NIPC), which accuses companies of hiking prices to foment public anger against President Robert Mugabe’s administration, charges denied by industrialists.

Despite the hyperinflation and a rapidly deteriorating exchange rate, there have been inordinate delays by the Commission in reviewing the price of cement, resulting in the cement price falling well below cost.

The industry, dominated by Pretoria Portland Cement (PPC), Circle Cement and Sino, has been pushed into a situation where it is no longer viable to manufacture cement. Currently, the selling price of cement is less than 10 percent of the cost of production.
The industry, which is the lifeblood of the construction industry, has in the past, and is again, being forced into considerable borrowings from the banks, at punitive interest rates to settle creditors accounts, while the NIPC debates the setting of a revised cement price. These increased borrowing costs will have to be recovered from the new price — thus pushing up the price of cement in the long run, according to industry sources.

“This is not to the benefit of the producers or the consumers,” said PPC finance director Gavin Stephens when contacted for comment this week. “Furthermore, when the NIPC does finally grant an increase, the hike in the selling price is considerable, causing major hardship to consumers. Small regular increments would be of benefit to both the consumer and the producer,” he added.

Investigations by The Financial Gazette revealed that the Commission has in the past approved increases in the prices of power (15, 419 percent), coal (12,700 percent), slag (8,630 percent), rail transport (18,000 percent), gypsum (5,064 percent), which are critical inputs in the production of cement. During the period of these input price hikes, cement price was only let up from $500 a bag to $1 000 a bag.

Industry sources said at the current price, manufacturers couldn’t produce because they cannot afford the input costs.

A property magnate alleged that cement manufacturers were ex-porting clinker, a critical raw material in the production of cement, he-nce the current shortages. Cement producers, it is further alleged, were exporting cliner to earn foreign currency required to import spares and replace antiquated machinery. It is also alleged that cement manufacturers had resorted to charging in foreign currency in order to circumvent the price controls and remain viable.

A bag of cement, which is only found on the illegal parallel market, ranges between US$10 and US$15.

Except for the figures, almost every detail  of this story could have been recycled from 10 years ago. Cement has been available on the regular market only in fits and starts for at least that long, with some combination of all the reasons given in this story blamed for the shortages and the regular, huge price increases.

What is depressing about the situation is its dull same-ness. Seemingly very little has been learned about the most effective ways to do so if government feels compelled to interfere with supply and demand.

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Yet another claimed oil deal for thirsty Zimbabwe

Posted by CM on December 17, 2007

We have had our hopes stirred by so many of these claimed oil deals over the past eight years of fuel shortages. None of them ever amounted to anything.

Here’s the latest one, in The Herald of December 17:

Zim strikes oil deal

ZIMBABWE has struck a deal with Equatorial Guinea in which the petroleum-rich West African country will supply crude oil, a Government official has said

“Following our engagement with Equatorial Guinea . . . Zimbabwe can now even get crude oil and arrange for its refinement through third parties,” said Industry and International Trade Minister Mr Obert Mpofu in his information memorandum to the Cabinet on his trade and investment mission to Angola recently.

The Government and Iran have already agreed to work on the refurbishment of the oil refinery here whose equipment has become obsolete. The refinery was built in the 1960s using Iranian technology and an agreement was sealed during former president Mohammad Khatami’s last visit to Zimbabwe.

Mr Mpofu said the Government was working on arrangements of paying for crude oil imports from Angola. Angola has been concerned with Zimbabwe’s payment terms. However, following consultation with stakeholders by the Ministry of Energy and Power Development, indications were made to the Angolan Ministry of Petroleum that Zimbabwe is comfortable with a 90-day credit facility. Alternatively, Zimbabwe could also repay with a refined product. In that respect, Zimbabwe would send a team to Angola to pursue the matter at a technical level.

Zimbabwe has been facing acute fuel shortages over the past seven years, a development that has affected key sectors of the economy such as tourism, manufacturing and mining. This has prompted the Government to look for alternative ways of producing fuel, including extracting bio-diesel from jatropha seeds and vegetables.

President Mugabe last month commissioned a multi-billion-dollar bio-diesel plant capable of producing at least 100 million litres of diesel per year, saving the country at least US$80 million annually.The plant is of its first kind in Africa. Plans are underway to set up such plants in all provinces.

There are also moves to revive the ethanol plant in Triangle.

As a Reuters report on the Herald story points out,

Zimbabwe agreed in 2005 with Iran to revive an oil refinery built using Iranian technology in the 1960s. Work at the refinery has not started to date.

This is not the first purported oil deal with Equitorial Guinea. None of the others came to fruition. What is different this time?

And it sounds very convoluted. The connection between oil from Eq. Guinea and payment needing to be made to the Angolans is far from clear to me!

Zimbabwe might very well be “comfortable with a 90 day credit facility,” but it is doubtful that anyone else who knows the problems the country has been experiencing all these years would be. The crazy idea to pay back the Angolans for their crude oil with refined fuel sounds like yet another of the many hare-brained schemes Zimbabwe’s desperate straits have forced the country’s rulers to conjure up over the years.

What would be in it for the Angolans? Flush with oil cash as they are, they could/should simply build up their own refining capacity. With their cash reserves, I can’t believe that would be so much more difficult than having to depend on the revival of a forty-something years old refinery in another country. The mess, logistics and expence of shipping crude one way and refined product the same way back to the original source would be silly. I cannot believe this is an option that would be seriously considered by the Angolans.

Apart from the implausibility of the story, the need for “reviving” both the Iranian built refinery and the sugar cane-based ethanol plant in Triangle is telling: They should never have been allowed to go to seed in the first place! Why were they? Is the money for the big capital expenditure required to refurbish them available, when the country cannot even import enough maize maize seed for the current farming season?

If the oil refinery was revived, how would the country afford to import the crude oil it has been failing to do in sufficient quantity for close to ten years now? Forget about private investors doing it: they would insist on charging fuel prices that made it possible to recoup their investment in re-starting the refinery, and we have seen over the years that this simple concept is not acceptable to the Zimbabwean government.

As for the Triangle plant, where is the feedstock going to come from when a lot of the area’s sugar cane production has plunged over the years, creating shortages of sugar on the market? Price controls have also been a concern, with producers being forced to sell sugar at prices below the cost of production, with predictable results-shortages on the local open market, a thriving black market and a preference for exports over supplying the domestic market. With none of these issues having been resolved for sugar, how would ethanol production be different?

As for the “100 million litres of biodiesel a year” from the new plant, I will believe that when I see the first drop. I have previously dealt with the reasons for my doubts about the workability of this otherwise good idea at this messy time in Zimbabwe.

Sadly, this latest Herald story is how the country has been strung along for eight years now. No one takes these stories of new breakthroughs too seriously anymore, and with good reason. They are too full of holes.

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Canaf ditches its Zimbabwe deal

Posted by CM on December 16, 2007

From MiningMx :

Canadian mining group Canaf Group Inc has abandoned a proposed plan to acquire Great Lakes Minerals and associated mining assets in Zimbabwe, citing the controversial Empowerment and Indigenisation Bill now awaiting assent from President Robert Mugabe.

Canaf president and CEO David Way said political risk in the country, now in its eighth year of a recession, was increasing, making the planned acquisition unattractive. The initial agreement with Midas Trust for the acquisition was adjusted after the announcement of the Indigenisation and Empowerment Bill, passed through parliament in Harare last month.

Way said in a statement. “After much discussion, we have decided that this acquisition is not in the best interests of our shareholders at this time,” he said. “We are committed to providing value to our shareholders and will focus on our now 90%-owned coal processing facility, with a view of increasing both our ownership stake to 100% and the overall profitability of the plant.”

Canaf is the majority holder of Quantum in South Africa, which currently supplies Mittal Steel with approximately 6,000 tonnes of coal per month.

“We will continue to search for new high-potential mining and mining related opportunities in Africa.” Midas Trust and Canaf remained on good terms and may choose to revisit the acquisition potential of Great Lakes Minerals at some time in the future, he said.

Canaf’s decision adds to increasing concern from foreign-owned mining companies over the effect of the proposed law on investment in the mining sector. Rio Tinto Plc recently indicated that it had put on hold plans for $250m of additional investment into expanding Murowa Diamond Mine pending the outcome of agreements with the government that will recognise and reduce the risks to Rio Tinto’s existing and future investments following passage of the proposed law through parliament.

Nothing at all surprising about Canaf’s decision. Long term speculative investments like Lonrho’s in areas like property may be fairly safe and smart in the long term, but high-capital productive investments like mining certainly look very dicey in Zimbabwe at the moment. There are all the uncertainties over policy and many other day to day, on the ground issues that would make a new investor in an area like mining very squeamish.

This is hardly likely to encourage the investors who the government is hoping will partner with locals in mining under the requirements of the Indigenisation Bill.

As with the take over of the farms, in mining Zimbabwe may be about to be reminded that physical possession of a resource is very different from having the capital, technology and managerial wherewithal to be able to exploit it for one’s benefit.

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Qatar oil refinery for Harare?

Posted by CM on December 16, 2007

If the following takes place, it would be a significant development for Zimbabwe:

Qatar’s Venessia Petroleum plans to build a 120 000 barrels-per-day refinery in Zimbabwe costing as much as $1,5-billion, the company’s general manager said on Monday.”We have signed the agreement with the Zimbabwe energy ministry and the feasibility study is nearly completed,” Jawhar Zaidi said.

Zaidi said the refinery, to be located in Harare, would move into the design stage by the end of the year. “We would look to import crude from Qatar or another Middle Eastern country,” Zaidi said, adding that the company had still to decide how the project would be financed.

Venessia Petroleum is chaired by Abdulaziz Bin Mohammad Bin Jabor al-Thani, a member of Qatar’s ruling family, Zaidi said.

Zimbabwe’s economy is on the brink of collapse with inflation running at an annual 6,600 percent, the highest in the world. Isolated from the West over its human rights record, the government has proposed a bill to transfer majority ownership of foreign companies to Zimbabweans. The bill, if passed by the Senate, would force mining and banking firms to give at least 51 percent control to Zimbabweans.

Another member of the Venessia group plans to build a hotel in Zimbabwe, Zaidi said, adding the company was not concerned about the political situation.

Engineering News

It is hilarious for Zaidi to say his company “was not concerned about the political situation.” That would make Venessia a very naive and foolish investor!

Obviously they would have received guarantees to safeguard their investment which they believe are credible enough to make it worthwhile. For a non-Western investor of that magnitude, and investing in the critical area of fuel, perhaps that is the case given the country’s energy desperation.

There is no question this is a good area to invest in in Zimbabwe given the chronic fuel shortages of the past eight years. And a Qatar company would certainly have no trouble with providing the crude oil for the refinery. An obvious issue would be whether for them to be allowed to charge fuel economic retail prices for the fuel. This has not been such a straightforward issue in the Zimbabwe of price controls often completely unrelated to production costs, and of a deep official mistrust of the business sector in general.

This would be a very good development for Zimbabwe if it came about.


Posted in Economy | Tagged: , , | 1 Comment »