Harare - The precipitous decline of the Zimbabwe Iron and Steel Company (ZISCO) stands in stark contrast to the nascent rise of China's Dinson Iron and Steel Company (Disco), illuminating the complex interplay between government mismanagement, global capital flows, and Africa's pursuit of industrialization.

As recently as the 1990s, the vertically integrated ZISCO ranked amongst the largest steelworks in Africa, employing approximately 5,500 direct employees and around 50,000 contract workers, miners, and suppliers indirectly. The company generated significant export earnings, with its strategically vital iron and steel products bolstering Zimbabwe's manufacturing sector. However, ZISCO fell victim to the epidemic of corruption, patronage, and gross mismanagement that plagued Zimbabwe's state-owned enterprises in the late 20th century.

Despite its immense potential, ZISCO hemorrhaged money and failed to reinvest profits into plant and equipment. By 2008, with liabilities exceeding $500 million, the company had collapsed entirely. The reasons for ZISCO's implosion reflect wider pathologies of cronyism and institutional decay; political loyalists stuffed company boards while siphoning off funds, and government failed to protect the company from predation.

In the two decades since ZISCO's effective closure, the government struggled to attract serious investment, with multiple deals collapsing. The negative perceptions of Zimbabwe's economy, notwithstanding its wealth of natural resources, have stymied bids for ZISCO's revival. Even a 2022 deal with Kuvimba Mining House, promising a $300 million investment, remains exploratory in nature.

At the same time, China has aggressively expanded foreign direct investment in African industry and infrastructure. As the world's largest steel producer, China's industrial juggernauts have both the capital and expertise to undertake mega-projects. The $1.5 billion Dinson plant, launched in 2021, represents the biggest Chinese investment in Zimbabwe to date.

The vertically integrated facility incorporates coking, iron ore mining, smelting, and rolling mills, with an initial capacity of 1.2 million tonnes of steel per annum. Construction has progressed swiftly, with the first blast furnace nearing completion and overall works around 75% finished as reported last week. Disco expects steel production to commence by the end of this year.

The project's scale is immense, encompassing a new town for 30,000 workers, with Disco promising to build additional infrastructure from roads and railways to dams and schools. This 'mine-to-township' model leverages China's expertise in centrally planned development, aligning with Zimbabwe's national industrialization strategy.

Critically, Disco appears to have avoided the pitfalls that doomed ZISCO, maintaining a laser-like focus on efficient steel production, not political patronage. The corporate backing of Tsingshan Holdings, China's largest stainless steel producer, provides both technical and financial ballast. With an offtake agreement to supply China's voracious steel market, commercial viability seems assured.

The Dinson project's impact could be transformative for Zimbabwe, replacing imports estimated at $1 billion annually and driving growth across the value chain. The country is believed to hold over 30 billion tonnes of iron ore reserves, sufficient for a century of production. If Disco succeeds, its model of Chinese vertical integration may be replicated across Africa, accelerating industrialization on the resource-rich continent.

However, risks remain; power shortages could disrupt operations, infrastructure deficits can hamper exports, and a potential global recession could dampen steel demand. But with its phased development plan and China's strong appetite, Disco seems poised to deliver, heralding a new era for Zimbabwe's once proud steel industry after ZISCO's ignominious collapse.

The divergent fates of these two steel titans thus encapsulate both the promises and perils of African industrialization. While ZISCO imploded from mismanagement, Disco brings advanced technology and modern management, fused with China's financial heft. If Disco fulfills its ambitions, it may blaze a trail for Africa to leverage its resources and human capital, building globally competitive industries integrated into worldwide supply chains. With sound policy and institutions, Zimbabwe and other African nations can foster manufacturing champions, lifting economies beyond extractive industries. But they must evade the pitfalls of cronyism and incompetence that doomed ZISCO. The rise of Disco, phoenix-like, from the ashes of ZISCO's failure, offers a redemptive path to prosperity, powered by minerals, minds and modernity.

Implications on Electricity Demand

Last week, the dynamics of electricity demand in Zimbabwe were highlighted in Axis Issue 84, noting how they will evolve once the election season concludes. In particular, there are industrial applications that require over 1650MW of power, especially from the mining sector seeking connection to the national grid. DISCO is one such entity, with an anticipated demand of 500MW from ZESA alone. Initially, DISCO will require 100MW as the plant initiates production.

At present, the country is generating an average of 1500MW per day, relieving the population from load shedding. Last year, when water levels at Kariba dropped and Hwange Power Station underperformed, power cuts averaged 16-18 hours daily. However, this has been mitigated by Kariba's exceptional productivity, generating around 900MW daily, while output from Hwange has been augmented by Hwange Unit 7. Once Hwange Unit 8 comes online, Hwange's total output could reach 900MW. Thus, the power-hungry DISCO plant will likely disrupt electricity demand when operational, but the scale of DISCO's undertaking warrants the risk.

DISCO has the financial capacity to pursue its electricity needs. To connect to the grid, the Chinese company provided ZESA over $55 million, with DISCO's total project valued near $2 billion. In this sense, DISCO's plant could aid electricity imports into the country, which Zimbabwe has struggled to finance. Zimbabwe previously imported 350-450MW from neighboring SADC countries but, with those nations also lacking power, such volumes appear unrealistic given Zimbabwe's payment history.

Therefore, Zimbabwe must explore other renewable energy sources. As DISCO demonstrates, companies can profoundly impact the economy, so investments to build sustainable energy sources, while sacrificing in the short-term, will attract firms to revolutionize Zimbabwean industry. However, power challenges will likely hinder any government-led industrial renewal. Electricity is the lifeblood of an economy, so strategically addressing Zimbabwe's growing energy needs is paramount.

Admittedly, efforts are currently focused on Hwange Power Station, and the addition of Unit 8 will occupy ZESA despite demands elsewhere. The utility aims to boost output from Unit 5 over the next year. This begs the question: is this the right approach? Honestly, tapping renewables is expensive and presently unaffordable, while seeking funding has its own costs and restrictions. Given Zimbabwe's limited options and need to minimize debt, its current strategy is understandable. Coal plants can only secure Chinese financing, and available investors are few, so China is Zimbabwe's sole prospect.

In summary, while mismanagement doomed ZISCO, Disco brings advanced technology and management, combined with China's financial power. Yet its massive electricity draw will have implications that, while engendering overall economic benefits, must be strategically addressed.

Equity Axis News