Zimbabwe’s government has ordered the African subsidiary of India’s Essar group to hand over 51% of its shares to a Zim parastatal, in what is being described as a ‘u-turn’ in the original deal to rescue Ziscosteel.
Essar has been told to enter into a joint venture agreement with the Zimbabwe Mining and Development Corporation (ZMDC) and hand over 51% of its shares as part of the ZANU PF led indigenisation drive.
Essar acquired a 60% stake in Ziscosteel in March last year, in a US$750 million deal that saw the once giant steel maker be re-branded as NewZim Steel. The arrangement was also reportedly made on the agreement that Essar was exempt from ZANU PF’s indigenisation plans, which require foreign owned firms in Zimbabwe to hand over more than half of their shares to Zimbabweans.
NewZim Steel was meant to usher in the rebirth of the steel sector in Zimbabwe, after Ziscosteel stopped production in 2009 over massive debts and a myriad of other problems.
But over the past year Essar’s plan for rejuvenating the steel sector through NewZim Steel has been stalled over an ongoing dispute with Zimbabwe’s government, in particular the Mines Ministry.
Last month Mines Minister Obert Mpofu argued in Parliament that the Indian firm should not be allowed to pay only US$700 million for resources that he said are worth over US$30 billion.
Economic analyst John Robertson who is also against Zimbabwes economic empowerment drive told journalists on Wednesday that the targeting of Essar for indigenisation purposes is surprising and disappointing, explaining that it could lead to Essar pulling out of the plan completely.
“Essar will lose control in this deal and I am sure they will be wondering if there is any clause left with this requirement. It will massively diminish their interest in carrying on with this arrangement,” Robertson said.
The analyst added that this deal is yet another warning to potential investors in Zimbabwe “that the government here cannot be trusted to keep its word.”
“It seems that the ZANU PF side of government in particular wants to sabotage anything that is successful economically,” Robertson grunted.