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Tsingshan deal shows the way

THE rebuilding of Zimbabwe’s steel industry from scratch by Tsingshan Holdings Group, the world’s largest nickel and steel producer, is a direct result of the Second Republic’s investment drive, led in this case by President Mnangagwa himself, and possible because all the raw materials are readily available on site.

Tsingshan is already involved in smelting ferrochrome and is now ready, in May, to start work on its steel mill that will eventually be producing two million tonnes of assorted steels and stainless steels a year, most of which will be exported into the region. This is good because Zimbabwe will have the raw materials for its engineering sector to restart the metal bashing that even the greenest of modern economies needs to anchor its industrial base.

Some have queried the greenfield investment near Mvuma rather than look at reopening zisco at Redcliff. There are several reasons. For a start, zisco is old technology. When it closed it was still making basic steel by batch processes, when more than 95 percent of steel globally is now made by the modern continuous process which has swept into dominance over the last quarter century.

So regardless of where you go, an investor still has to start from scratch. We are talking about the third decade of the 21st century, not 1942 when a wartime colonial government made what was then an inspired investment, but which was expanded rather than rebuilt.

Secondly, the Mvuma investment dwarfs zisco. It is going to be several times larger, and be producing a range of carbon and stainless steels. Tsingshan knows the economics of steel. To be profitable there are a range of conditions. The most important is to have all raw materials very close by: quality iron ore, limestone, coking-quality coal, fluorite for the flux, chrome as an 11 percent addition for stainless steels, plus smaller quantities of other metals like nickel and vanadium, and vanadium is produced from iron slag if you start with the right kind of iron ore.

Presumably when Tsingshan started looking very hard at Zimbabwe it spent a lot of time looking at the geological maps and then physically checked the deposits. Even the largest firm checks before it sinks US$1 billion, the figure being bandied around as the approximate investment. And when the sums were done, Mvuma came out as the place.

The other three conditions are in place. On the human resources side, as other mining and manufacturing investors have found, Zimbabwe has skilled and experienced people with technical universities colleges producing a steady and growing stream of graduates. While something new will need a group of outside experts, this does not have to be oversized, since a growing percentage of the skills can be adapted and trained on site. Local talent on tap can cut costs.

Secondly, we have sorted out a lot of the investment procedures and laws. It is noteworthy that while President Mnangagwa first met Tsingshan Steel boss Xiang Guangda in 2016 when he was Vice President, it was not until he moved up into the top office and had accomplished some of the heavy lifting in cleaning up the investment climate that Tsingshan started turning interest into action, and even then the conversion of commitment into work on the ground followed the conversion of policy into law.

Thirdly, we need infrastructure. Conveniently Mvuma is already on the Masvingo railway spur from Gweru. It is on the cross roads for the main north-south highway, now being upgraded, and the connecting highway to Gweru, Kwekwe and Bulawayo, where many local customers are already based and where more are going to want their home.

Good communications to local and export markets are critical for profitability; this is after all one reason why Tsingshan wants to be in the middle of Southern Africa rather than build yet another mill in China, import some raw materials from Zimbabwe, and ship the steel a quarter the way round the world.

Housing, water supplies and the like are already inked into development plans from this year, so minor adjustments on the priority lists are simple. The advantages for Zimbabwe are huge. While industry and manufacturing are now growing again, the heavy industrial sector was almost totally wiped out over the last quarter century, and in any case needed a modern range of steels.

While there is a lot of talk about the new industrial revolution, this talk is actually about how industrialised countries will continue to grow. It assumes that the heavy engineering base in such countries has reached maturity. For a developing country like Zimbabwe, that base is missing. It will now be put back. We import steel for building; we import steel for thousands of purposes. And if we are going to become an exporter of manufactured goods, rather than just rely on commodities, we need the steel, in all types and grades, to make them.

The size of the mills will mean plenty for export, even with a growing heavy-industry base. But we will more and more be exporting steel and stainless steel, rather than ore or even ingots. And Tsingshan reckons it can export coking coal and fluorite without problems. We keep talking about adding value to exports; this investment means just that.

When we talk about a US$12 billion a year mining industry, more mines are obviously the first requirement, and Tsingshan adding its big investment to the total will be an important contribution as well as telling other investors that a hard look at Zimbabwe under the Second Republic is well worth while, word of mouth advertising again.

But that huge expansion in the value of mineral output must mean more than just volume. Digging more minerals out of the ground and selling unprocessed or partly processed metals is just a first stage. Selling refined metals and selling stuff that can be used by a buyer as it is delivered, and a range of precisely made steels is just that, adds serious dollars to the basic products.

In fact, as time goes on, the majority of our mining income will be from the value added in Zimbabwe, and as the bulk of that is composed of Zimbabwean wage bills, we seriously win in our drive to middle-income status. In any case, considering our geographical location, value added is needed for viability.

Australia can make good money vacuuming up rich iron ore near the coast and filling bulk carriers and South Africa can do much the same with coal fields near a port. Zimbabwe cannot compete with those operations and has to ship higher-value, lower-bulk products so that the profits are not eaten up by transport bills.

The Tsingshan deal shows the way. It obviously makes good sense for Zimbabwe in so many ways. But it makes sense for Tsingshan now we have corrected our investment climate since big commercial companies are not charities.

As mentioned, this sort of investment is a direct result of the major changes under the Second Republic, with Zimbabwe now willing to work with investors for mutual benefit. Sunday Mail

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