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Africa, China, Governance, Leadership, Zimbabwe

Mugabe Goes to China

China has agreed to help Zimbabwe avoid a total economic meltdown. Without the promise of assistance from Beijing, Zimbabwe could not even begin to pay its civil servants, police, and soldiers their monthly wages.  Nor, without China’s support, could Zimbabwe continue to import oil and gas, and crucial foodstuffs with which to feed its people.

Ever since President Robert Mugabe’s Zimbabwe African National Union – Patriotic Front (ZANU-PF) unexpectedly won a possibly rigged parliamentary and presidential election last year, defeating the reformist Movement for Democratic Change (MDC), Zimbabwe’s economy has been in free fall.  A number of banks have failed, hundreds of businesses have collapsed, and 80 percent of all adults of working age are unemployed.

ZANU-PF’s victory in mid-2013 meant that Mugabe, now 90, would continue to govern Zimbabwe with a heavy hand. His administration’s attempt to control 51 percent of all foreign-owned large, medium, and small businesses would continue.  So would his decade-long assault on the country’s handful of remaining white farmers. With official Chinese assistance, Mugabe’s reelection also meant that he and his associates would continue to control the country’s massive diamond fields near Marange in eastern Zimbabwe.

These policies precipitated capital flight, a resultant loss of liquidity within the commercial and banking sectors, and relatively rapid and pronounced deflation. Since legal tender in Zimbabwe since 2009 has been the US dollar and the South African rand, and more recently the Chinese yuan, Mugabe’s government cannot just print money to give itself working capital.  Hence a series of visit to Beijing by Mugabe and his senior ministers throughout this year, culminating with a full state visit in late August, a generous welcome by Chinese President Xi Jinping, and the signing of a nine-part agreement to pump funds into Zimbabwe’s heroically called Agenda for Sustainable Socio-Economic Transformation.

Under its terms, Chinese firms will receive preference over all others, even local ones, when construction contracts are put out to bid. Zimbabwe and China will also work together to promote visits by Chinese tourists, an influx that could prove substantial. Last year, China invested heavily in the agricultural sector.  President Xi Jinping also promised Mugabe massive short-term food with which to feed hungry Zimbabweans.

But the key use of Chinese funds will be devoted to helping to restore Zimbabwe’s crumbling infrastructure. Zimbabwe’s electrical and water systems are in shambles, especially in Harare, the capital. Chinese money will be used to revive the economy by rehabilitating, upgrading, and building key physical as well social facilities. It will also be devoted to remediating power shortages to enable a turnaround of the economy and to create business and employment opportunities. Exactly what is entailed in each sector, and exactly how Chinese investments will be made, and how much of what the Chinese will offer Zimbabwe will be conditional loans and how much grants was not disclosed.

Reports of the visit also kept the total amount of Chinese promises to Zimbabwe secret. But it is known Mugabe had been seeking $4 billion in investment and assistance. Last year, too, China invested more in Zimbabwe than to any other African country, a total of $602 million. Trade between Zimbabwe and China doubled between 2010 and 2013, reaching a total of $1.1 billion.  And Mugabe and the leaders of China have always remained close.

What was also not revealed was against what the new Chinese funds were “securitized.” Zimbabwe Finance Minister Patrick Chinamasa said that the new aid was contingent on such securitization, but denied that most of Zimbabwe’s mineral resources were now pledged to China in exchange for the financial bailout. Zimbabwe has the world’s largest platinum reserves after South Africa, abundant coal, iron ore, chrome, diamonds, and gold.

Rather than pledging minerals, Chinamasa said that he had instead agreed to payback Chinese aid from the performance and cash flows of state enterprises in the electrical power and telecommunications sectors.  However, China must know that most of these government-owned corporations have long floundered and, especially in the electricity and water fields, are considered insolvent.

Mugabe needed a lifeline for Zimbabwe and now has it. But his country is in such parlous economic and social straits, and the national morale so weak, that even if China does strongly intend to resuscitate Zimbabwe, it may be too late. A full 25 percent of Zimbabweans have fled to neighboring countries, taking with them critical skills and education. Since civil servants are being paid only occasionally, and usually in arrears, and since corruption is rampant, it is not clear whether or not Chinese investment and assistance will be able to bring Zimbabwe back to some semblance of normality and prosperity.

This post appeared under the same title in China-US Focus, http://www.chinausfocus.com, on Sept. 4

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