When a Steel Company Can be Too Big to Succeed

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Back in February we reported on ArcelorMittal’s bid to buy a controlling 60% share in the old and now mothballed Zimbabwe Iron & Steel Works (ZISCO) from the Zimbabwe government. At the time we presented it almost as a done deal, hardly imaging any country in Zimbabwe’s appalling economic condition could turn down the inward investment estimated to be in the region of a billion dollars to buy, modernize and run the one million ton a year long products mill.

But to our surprise a report in The Southern Times last week has said the deal is off. The Zimbabwe government has reportedly thrown out both ArcelorMittal and Jindal Steel of India saying of Arcelor that they did not feel a sale to the largest steel company in the world was in the country’s interest, that they needed a medium sized steel player rather than one which could dominate the southern continent creating a monopoly. On that they have a point, Arcelor is already the largest steel producer in South Africa and taking on Zisco would give them a commanding position able to dominate the whole southern end of the African continent. Of Jindal they said they did not like the company’s proposal for handling the $300m of debt that Zisco has run up for which read either Jindal were expecting the government to pick that up or they are proposing paying it back over a number of years, something the bankrupt Zimbabwe state probably cant accept.

Another article in commodityonline.com suggests the Mugabe regime prefers Chinese investors, possibly because it comes with less strings attached. Certainly Chinese partners would be less likely to raise issues of corporate governance or political interference providing they continued to earn their share of the proceeds. But even so almost any other country in the world as desperate for inward investment as Zimbabwe would have welcomed major producers like Arcelor and Jindal with open arms. The country is estimated to need over US$10bn to tackle the chronic underinvestment after years of destructive rule under the Mugabe regime. They may yet come to regret the day they shut the door in the face of the first serious foreign investment for a decade or more.

–Stuart Burns

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