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In March last year, Government entered into an agreement that saw Essar, an Indian firm, acquiring a 60 percent stake in the Redcliff-based steel producing company.
However, in line with the country’s indigenisation laws, Government has directed Essar to enter into a joint venture ownership arrangement with ZMDC, ceding a 51 percent stake to the parastatal.
Economic analysts predict that the directive was likely to create complications that would see the $750 million investment deal falling through.
“The biggest risk so far is that the deal that Government and Essar initially signed may collapse because Government would have not honoured the initial agreement.
“If the deal collapses it is unlikely that as a country we will get possible investors in future because already a very bad investment signal would have been sent to the investment community,” said economic analyst, Mr Trust Chikohora.
He said it was imperative for the Government to implement the agreement it entered into with Essar.
“In business you have to respect contracts that you would have signed. As a country, we stand to lose more at a time when we need foreign direct investment,” he said.
He said the NewZim Steel deal was one of the largest investments in terms of foreign direct investment that Zimbabwe had had since independence.
Mr Chikohora said the deal touched on many aspects of Zimbabwe’s economy.
“It touches on energy taking into consideration that Essar intends to build a power station to guarantee power supplies at NewZim Steel.
“Also if built, Essar have indicated that some of the electricity from the power station will be fed into the national grid, a development that will go a long way in easing power challenges Zimbabwe is facing.
“The revival of operations at NewZim Steel will also go a long way in creating employment for thousands of people in Redcliff as well as the country at large as its operations will have a knock-on effect to downstream industries.
“Essar have indicated plans to rehabilitate the railway infrastructure as well as do some work at Hwange Colliery Company to ensure guaranteed coal supplies from the colliery to the steel plant.”
Another economic analyst, Mr Peter Nyoni, said while Government intended to standardise the indigenisation framework, the effect of such a decision was likely to result in Essar reversing the deal.
“By its directive to Essar, Government is looking to maintain consistency with the indigenisation law but the risk is that Essar people can pull out of the initial deal they signed with Government.
“It is advisable that Government should let those deals signed outside the indigenisation policy prevail in good faith. In future, any deals to be signed should be clear on investment laws to avoid destabilising the agreements,” he said.
An economic analyst, who refused to be named, said the directive seemed to reflect that Government had not done its homework prior to signing the agreement.
“Considering that Zimbabwe risks collapsing the Essar deal as a result of its directive that Essar should enter into a joint ownership arrangement with ZMDC, I suggest that the arrangement has to be above board; put on the table so that the parties can negotiate fairly,” said the analyst.
Mines and Mining Development Minister Dr Obert Mpofu last month said the Essar deal should be revisited as the Indian firm should not be allowed to pay only $700 million for resources worth more than $30 billion.
Online Reporter