Trafigura gives Zim US$1 billion bailout
April 28, 2017, Zim Independent
SINGAPOREAN global commodities firm, Trafigura Group, has agreed to bail out the debt-ridden and broke Zimbabwe government with US$1,1 billion to pay off the World Bank’s arrears, the Zimbabwe Independent has established.
This is part of government’s international re-engagement process agreed in October 2015 in Lima, Peru, between Harare and three international financial institutions (IFIs), the International Monetary Fund (IMF), World Bank and the African Development Bank (AfDB).
The Lima Plan is designed to clear Zimbabwe’s arrears to IFIs and secure US$2 billion in new funding.
This comes as Finance minister Patrick Chinamasa yesterday confirmed Zimbabwe has secured funding to clear the World Bank and AfDB arrears, raising hopes of fresh funding subject to a comprehensive economic recovery plan and a raft of political, economic, institutional and structural reforms.
“The Government of Zimbabwe is pleased to announce that it has met all the conditions precedent to the repayment of debt arrears to the World Bank and the AfDB This positive development comes after the country successfully settled its debt arrears to the IMF on October 20 2016,” Chinamasa said in a statement.
“The terms and conditions of the facilities that the Reserve Bank of Zimbabwe have put in place to repay the debt arrears to the World Bank and AfDB have been scrutinised and adjudged by the affected IFIs and found to be reflective of current market conditions with financing terms similar to market transactions recently concluded by several sub-Saharan African countries during 2016 and 2017. It is on this basis that Zimbabwe can now proceed to repay its debt arrears.
“Clearance of debt arrears is expected to attract in the short-to-medium and long-term foreign and domestic investment, given perceptions of lower country risk, and would be expected to open the door to foreign finance inflows and possible debt treatment by the Paris Club and non-Paris Club bilateral creditors through an IMF financing programme.”
Although Chinamasa did not say where Zimbabwe has secured the US$1,1 billion from, IFIs executives who attended the IMF and World Bank spring meetings in Washington DC said this week Trafigura — the Amsterdam-headquartered corporate giant which trades in base metals and energy, including oil — has provided the funding as a short-term loan with a usurious interest rate. It is said the loan would be repaid in three tranches of about US$400 million each.
Trafigura, which last year made US$98,1 billion in revenues, entered the Zimbabwean market, trading as Puma Energy, at the end of 2013 by acquiring a 60% equity stake in Redan Petroleum and Sakunda.
Although Zimbabwe’s economy is nose-diving, Puma has a strong presence in the country with 94 fuel service stations out of a total of 662 in Africa; second only to South Africa which has 123 service stations. The company also supplies fuel at four domestic airports out of the 29 it operates in Africa.
Zimbabwe owed the IMF, World Bank and AfDB US$1,8 billion in arrears, becoming ineligible for cheap funding.
Currently saddled with a debt overhang of US$10,8 billion accrued from both public and private sector borrowing, the country has been sinking deeper into a quagmire since 2013.
Its debt arrears amount to US$5,6 billion split between multilateral creditors (US$2,2 billion), the Paris Club, an informal grouping of creditor nations (US$2,7 billion), and non-Paris Club creditors (US$700 million). It owes the Paris Club about US$6 billion. Arrears contribute about US$1 billion. The amount overdue to non-Paris Club creditors is US$476 million.
Sources in the Ministry of Finance and officials who attended the spring meetings said after failing to get money from Lazard and the Standard Bank Plc, Zimbabwe approached Trafigura in a last-ditch attempt to save the Lima Plan.
The sources said initially the World Bank — controlled by the United States — was sceptical but diplomatic efforts by Britain and other advocates of the plan helped Zimbabwe to get the money despite its low credit rating and high political risk. The African Export and Import Bank is Zimbabwe’s financial advisor on the Lima plan.
“Initially the World Bank was sceptical of Zimbabwe’s sources of funding and the terms and conditions of the loan, but negotiations and interventions by those with vested interests helped to clinch the deal,” one official said. “It took a lot of lobbying and negotiations for that to happen.”
However, serious concerns about Zimbabwe’s controversial arrangement remain.
Former finance minister Tendai Biti said Chinamasa’s confirmation that Zimbabwe has secured money to repay its US$1,8 billion arrears should not be celebrated.
“That will not help much or anything at all in reality. The biggest challenges facing Zimbabwe cannot and will not be addressed by paying off arrears on which we defaulted almost 20 years ago; what really needs to be addressed are structural economic issues, de-industrialisation and unemployment,” Biti said.
“That money could be better used to fund industry revival to create jobs and boost production, as well as increase exports and improve liquidity. We also need to fix the currency and cash crisis, as well as related fiscal and monetary issues.
“Just paying off arrears is not the solution. What we needed to do was to go the Heavily Indebted Poor Countries route to get debt relief on account of reforms and become eligible for special assistance from the IMF and World Bank, not this fiddling. We could not do that because (President Robert) Mugabe and his Zanu PF regime are unable and unwilling to reform. So the country will simply sink deeper and drown in debt.”
However, Chinamsa said government was committed to reforms. He said government’s discredited economic blueprint, ZimAsset, was the anchor economic plan.
“Building on the above positive developments, government is dedicated to clearing the debt arrears to the World Bank and the AfDB on a simultaneity basis after completion of the exercise which it is undertaking to evaluate the future flows from IFIs and other cooperating partners and financial institutions,” Chinamasa said.
“This sequencing process is essential for debt sustainability by ensuring that there is no significant lapse of time between the settlement of the remaining debt arrears to the IFIs and the unlocking of future flows of capital that is necessary for sustained socio-economic transformation and eradication of poverty in Zimbabwe.”
Reserve Bank of Zimbabwe governor John Mangudya last night said: “The funds to service the arrears are from a consortium of banks.”
A World Bank memo seen by the Independent last year says the clearance of arrears would not only improve Zimbabwe’s access to concessional funding, but would also be a win-win.
Specifically, the IMF, whose US$110 million arrears were paid in October last year, will be able to offer a balance-of-payments support, provided a credible and practical new economic programme — not the utopian and discredited ZimAsset — is in place. The World Bank will provide budgetary support and the AfDB infrastructural development funding, starting with agriculture and energy.
Zimbabwe will also further engage the European Investment Bank to agree on an arrears clearance plan. It will also engage the Paris Club and non-Paris Club or bilateral creditors on arrears.
Questions sent to Chinamasa and Trafigura were not responded to. The Wold Bank local office spokesperson only said: “I acknowledge receipt of your e-mail. Unfortunately with the recently ended Spring Meetings our Country Manager is still in Washington. Should I manage to contact her before 5pm, I will revert.”
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