ArcelorMittal didn’t get where they are without having the strength of their convictions. Their investments in markets like Romania were not for the faint hearted but have proved to be far-sighted and sound as those economies have turned around. Now the company could be embarking on its riskiest venture yet if they beat Jindal Steel of India for a controlling stake in Zimbabwe’s Zisco Zimbabwean Iron & Steel Works.
The European Union has renewed sanctions on Zimbabwe for another year, citing a “lack of progress” in implementing a power-sharing deal. But sanctions on two corporations, Zisco and the Industrial Development Corporation have been removed following a dilution of involvement by members of Mugabe’s Zanu-PF regime. This removes one of many obstacles to ArcelorMittal making a success of the steel mill.
Another obstacle, still to be tackled, is the mountain of debt the company has accumulated. That debt is estimated to be some $300m but that in itself pales in significance to the $1bn that is estimated to be required to bring the steel mill back to full operational efficiency. One of the many problems Zisco faces is that it was built as part of an integrated industrial complex. So oxygen, for example, came from an adjacent fertilizer plant. Iron ore came from the Buchwa Iron ore mine. As with just about all of Zimbabwe’s assets, they are either closed down or in an extremely poor state of repair requiring an integrated and wide ranging approach to bring them all back on stream or find alternative sources of supply.
ZISCO has a capacity to produce a million tons of steel per year but the steel plant stopped operations in 2008 at the height of the country’s economic crisis. ArcelorMittal sees the mill’s geographic position as giving it an almost unique access to southern Africa’s landlocked central markets, markets that have significant potential for growth over the next 5-10 years. The great unknown for ArcelorMittal will be the political instability of Zimbabwe. Last year’s transition government which brought in the moderate Morgan Tsvangirai is fragile and still riven with internal discord due to the continued presence of the aging would be dictator, Robert Mugabe. Mugabe has repeatedly shown he reneges on deals when circumstances suit him. ArcelorMittal’s only hope is they may outlast him before he reverts to type and intentionally or otherwise ruins another opportunity to improve Zimbabwe’s future.