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Tuesday, 10 September 2019 13:10

Government should look closely at the NRZ deal

The Diaspora Infrastructure Development Group (DIDG), a consortium of Zimbabweans living outside the country has renewed its interest in turning around the fortunes of the National Railways of Zimbabwe.

The technical, operational, and financial performance of NRZ has over the years been adversely affected by the macroeconomic instability at the height of the country’s economic meltdown in 2008 and, in particular, the critical shortage of foreign exchange.

Apart from effects of an underperforming economy, which had a significant effect on railways, low availability of locomotives and other rolling stock and the old and poorly maintained track have been among the main causes of the decline in service levels of the railway. The deteriorating state of the railways infrastructure has, in turn, resulted in accidents and derailments.

Nearly three years ago, the DIDG announced its plans to inject US$400 million into the business. As part of an interim solution to NRZ resource gaps, the parastatal is leasing 13 locomotives, 200 wagons and 34 passenger coaches from Transnet. Transformation of the NRZ will not only reduce overheads for companies carrying bulk freight but will also create a strong platform for resuscitating public transport.

Early this year delays in consummating the transaction prompted government to remove the exclusivity clause for the US$400m recapitalisation deal after DIDG failed to provide proof of funding.

The NRZ deal reminds many of the resuscitation of Ziscosteel. There was pomp and fanfare when Indian investors were announced as new investors for the yesteryear steel giant. The deal collapsed due to disputes over concessions and bureaucratic red tape. Using the Dependency Theory, chances of reviving Ziscosteel are almost remote due to the benefits that industrialised countries derive from developing countries such as Zimbabwe.

In the case of NRZ, Transnet was better placed to take over the entity due to its capacity and operational advantages. DIDG represents a group of investors who do not have the requisite experience in running a company like NRZ as well as the capex for such an entity. Judging by how listed companies have struggled to raise capital on the domestic market and in some cases offshore, it would be interesting to see how DIDG would marshal resources that are adequate for the turnaround of NRZ.

The NRZ board announced that DIDG will be working with the African Export-Import Bank (Afreximbank) and this proposal is now awaiting approval from Treasury. The involvement of Afreximbank should be looked at closely given how government has been borrowing from the institution. In finalising this deal, authorities should be mindful of the debt issues and all the salient features attached to this deal.

The state of affairs at NRZ expose government’s lack of oversight on institutions it has interests in.

Published in econometer