By Eng. Paul Matshona & Eng. Martin January 

In Zimbabwe’s industrialisation agenda, the foundry industry sits quietly yet critically between mining and manufacturing.

Foundries transform scrap metal, pig iron, and alloys into castings that form the backbone of infrastructure, agriculture, transport, and mining supply chains.

Everything from mill liners and pump casings to ploughshares and machine parts begins in a foundry. However, despite their strategic position in the downstream of the iron and steel value chain, foundries remain starved of capital.

The sector is widely recognised as the missing middle too industrial for microfinance, yet too opaque and risky for traditional corporate banking. The result is under-investment, obsolete machinery, and chronic under-capacity in a sector that could otherwise anchor Zimbabwe’s import-substitution and beneficiation drive.

The challenge is not just about liquidity; it is about risk structuring-creating financial instruments and institutional confidence in a sector that is inherently cyclical, energy-intensive, and capital-hungry.

The backbone with rusting joints

 

Zimbabwe’s foundry sector comprises an estimated 35-40 small to medium firms, with an installed capacity of roughly 50,000 tonnes per year but operating at less than 30% utilisation.

The majority are concentrated in Harare, Bulawayo, and Kadoma, serving mining, agriculture, and engineering customers. The sector’s output has declined sharply since 2000 due to erratic power supply, the collapse of heavy manufacturing, and obsolete technology.

The few surviving foundries rely on aging cupola and low-frequency induction furnaces that consume high amounts of energy per tonne melted-often exceeding 600 kWh/t compared to 350-400 kWh/t in modern facilities.

Scrap sourcing remains informal, with inconsistent quality and contamination that reduce yields and drive-up rejection rates. Working capital cycles are stretched, as foundries pay upfront for scrap and alloys, while buyers (often large mines or utilities) pay 60-90 days post-delivery.

Structurally, this has left foundries trapped in a vicious cycle: low productivity; high unit cost ; uncompetitive pricing; weak cash flows; inability to invest in modern equipment. The financing constraint has become both a cause and a symptom of technological stagnation.

Financing structures available from local financial institutions

Financiers generally classify foundries as high-risk borrowers for several reasons. Collateral is weak, as furnaces, moulding lines and cranes are movable, specialised and often lack clean title.

Cash flows are volatile, tied to mining shutdowns, construction cycles and public procurement delays. Energy risk is significant, with load-shedding capable of halting melts, damaging equipment and inflating scrap rates. Many operators have limited governance structures, lacking audited accounts, and technological obsolescence raises both operational and environmental-compliance risks.

Together, these factors create a high perceived risk premium, pushing local-currency lending rates to 20–25% and limiting access to USD facilities. The result is stalled investment at a time when global steel and manufacturing supply chains are shifting toward localisation.

Yet despite these structural risks, local financial institutions do offer a broader financing toolkit than commonly assumed. Banks now provide:

Direct capex and working-capital facilities; project-finance options for strong cash-flow cases; and de-risking instruments such as guarantees, letters of credit and structured trade-finance products.

General corporate-finance lines, asset-financing for machinery and furnaces, and rehabilitation bonds tailored to statutory mining obligations.

As the policy environment pushes for beneficiation and the industrial base recovers, these financing mechanisms are becoming increasingly essential. With proper structuring, performance monitoring, and risk-sharing, local financial institutions can play a central role in rebuilding Zimbabwe’s downstream metals and manufacturing capacity; including the foundry sector, which remains foundational to industrial competitiveness.

Zimbabwe’s foundry sector faces three interconnected financing gaps that standard loans cannot resolve. Long cash cycles; upfront payments for scrap and alloys versus delayed customer payments; create chronic liquidity pressure and restrict production throughput. Modernising furnaces, moulding lines, and environmental systems requires hard-currency capex that most foundries cannot secure due to weak collateral and limited long-tenor financing. Banks remain cautious because of governance weaknesses and incomplete financial records. Without first-loss guarantees or blended-finance structures, many foundries fall outside normal credit appetite.

Rethinking finance for foundries: Models that fit

(a) Asset-Based Lending and Receivables Finance

A modern foundry’s balance sheet is dominated by inventory (scrap, alloys) and receivables from creditworthy buyers such as mines or power utilities. Asset-based lending allows banks to use these as collateral rather than relying on real estate.

A borrowing-base facility could advance up to 70% against receivables and 50% against inventory, dynamically adjusted as working capital changes. Cash inflows from buyers are channelled through controlled collection accounts, ensuring repayment discipline. Credit insurance or buyer confirmations further de-risk exposure. This model ties financing to real economic activity-orders, production, and deliveries-rather than passive collateral.

(b) Equipment Leasing and Sale-and-Leaseback

Leasing allows financiers to retain ownership of plant and equipment until the facility is repaid, addressing collateral concerns. For instance, a financier can purchase an induction furnace or dust-control system and lease it to the foundry for 5-7 years. Lease rentals can be denominated in USD or indexed to inflation, and maintenance contracts with OEMs ensure asset reliability.

Leasing also facilitates technology upgrading without large upfront capital. By spreading costs over equipment life, it aligns payments with productivity gains. Sale-and-leaseback can unlock cash from existing unencumbered assets. In South Africa and Kenya, leasing has revitalised similar mid-tier manufacturing sectors by converting fixed capex into manageable operating costs-a model Zimbabwean banks could emulate.

(c) Purchase-Order and Supply-Chain Finance

Many foundries fail to execute large orders due to lack of pre-delivery financing. Purchase-Order (PO) finance bridges this gap: once a credible buyer issues a confirmed order, a financier advances 60-80% of the PO value to procure materials and start production. Repayment comes directly from the buyer upon delivery through an escrow arrangement.

This model works best when the end-buyer (such as a mining company or OEM) has strong credit standing. Reverse factoring can complement it-where the buyer’s bank pays the foundry early at a discount, improving liquidity along the chain.

(d) Project and cluster financing

For larger capital programmes-such as establishing a Foundry Park or upgrading multiple plants-project-finance principles apply. A Special Purpose Vehicle (SPV) pools anchor clients, shared utilities (power, sand reclamation, testing labs), and multi-foundry shareholders. Revenues from long-term supply contracts with mining firms can underpin debt repayment.

DFIs or infrastructure funds can co-finance these clusters using a blended-finance structure: commercial banks take the senior tranche, DFIs provide mezzanine or guarantee layers, and government/NGOs contribute grant funding for environmental or training components. This risk layering attracts private capital while maintaining affordability.

(e) Green and ESG-Linked Loans

Energy efficiency and environmental compliance are emerging frontiers in industrial finance. Modern induction furnaces and dust-collection systems can reduce energy use and emissions by 30-40%. Green loans reward such performance by linking interest rates to measurable KPIs e.g., kWh per tonne of casting or dust-emission reduction. Financiers like Afreximbank and the African Development Bank are increasingly supporting green industrialisation. Foundries upgrading to clean technology could qualify for concessional funding or interest rebates under climate-finance mechanisms.

 

(f) Export-Guarantee Financing

Export-guarantee financing is emerging as a critical enabler for foundry exports, with banks increasingly using instruments such as letters of credit, export guarantees, and receivables discounting to stabilise cash flows and hedge against payment and currency risk.

The effectiveness of these instruments, however, depends on credible market assurance; this is where Minerals Marketing Corporation of Zimbabwe (MMCZ) can materially shift the risk profile. Because MMCZ already negotiates mineral offtake contracts and validates export documentation, it is uniquely positioned to act as a sovereign-backed risk mitigator: aggregating smaller foundry producers into bulk export contracts, certifying product quality and compliance, and providing government-recognised performance assurance to international buyers.

When banks and MMCZ operate in tandem, the underlying credit risk of export transactions declines, pricing improves, and banks can confidently extend larger export-guarantee limits. In this configuration, MMCZ becomes not just a marketer, but a risk-reducing anchor institution that enhances the bankability of Zimbabwean castings in regional and global markets.

6. Financial Structuring in Practice

To illustrate, consider a mid-tier Harare foundry seeking US$3 million to double capacity and install an energy-efficient furnace (Table 1)

 

Table 1 Mid-tier financial Model

Facility	Amount (US$)	Instrument	Security/Structure
Capex Lease	2.0 m	7-year lease for new induction furnace, cranes, and dust-control	Financier retains ownership; maintenance contract with OEM
Working-Capital Revolver	0.8 m	Asset-based line secured by inventory and receivables	70% advance on confirmed invoices; proceeds channelled via escrow
PO Finance	0.2 m	Revolving facility tied to confirmed castings export orders	Buyer confirmation; repayment from buyer escrow

 

Covenants include maintaining a debt-service-coverage ratio (DSCR) above 1.3×, keeping energy intensity below 500 kWh/t, and reducing scrap rejects to under 6%. If these KPIs are met, the lease margin steps down by 50 basis points-a classic ESG-linked incentive. Such structuring transforms a high-risk borrower into a measurable, performance-driven client. It also aligns financiers’ returns with the foundry’s operational improvements.

The role of development finance and policy

Financing foundries cannot rely solely on commercial banks. The sector sits at the intersection of industrial policy, SME development, and energy transition-making it a textbook case for blended finance.

(a) Credit Guarantees and First-Loss Instruments

Institutions like the Industrial Development Corporation (IDC), AfDB, and local development funds can provide partial credit guarantees covering 30-50% of loan principal. This reduces capital-allocation burdens for banks and lowers interest margins. Guarantees tied to job creation, local procurement, or environmental compliance ensure developmental alignment.

(b) Technical Assistance and Capacity-Building

Soft infrastructure accounting systems, energy metering, quality certification-is as crucial as hard assets. Development financiers should bundle technical-assistance grants into financing packages to build borrower capability and improve credit monitoring.

(c) Policy and Regulatory Reform

Government’s role is to remove the structural frictions that inflate risk premiums for lenders. This begins with fully operationalising the Movable Property Security Interests Act so that banks can reliably enforce collateral over equipment, inventories, and receivables; broadening the asset base that foundries can leverage when seeking finance.

Complementary fiscal incentives for energy-efficient furnaces, dust-control systems, and environmental compliance infrastructure would further lower upgrade costs and accelerate technological modernisation. Equally important is regulatory stability: predictable power tariffs, dedicated industrial feeders for foundry clusters, and clear grid-reliability commitments all directly reduce operational risk. Finally, prompt-payment rules for public procurement would shorten receivables cycles and strengthen cash-flow visibility.

Collectively, these reforms enhance credit confidence, compress perceived risk, and help crowd in private financing for downstream industrial growth.

(d) Industrial Parks and Shared Facilities

Zimbabwe’s re-industrialisation blueprint under NDS 1 envisions sector-specific clusters. A Foundry and Metal Casting Park-equipped with shared labs, pattern shops, and waste-management systems-would spread fixed costs across multiple SMEs, lowering individual financing needs. DFIs can underwrite infrastructure while private investors operate within the park under lease or franchise models.

Quantifying the opportunity

Zimbabwe imports over US$100 million worth of iron and steel cast products annually, including mill liners, pump impellers, and automotive components. If even 30% were locally produced, the foundry sector could generate US$30-40 million in annual value addition and 5,000 skilled jobs.

Financing is the catalytic lever. Assuming an average investment of US$2 million per mid-sized foundry to modernise equipment and working capital, the total sector financing requirement is around US$60-80 million-a modest figure compared to mining capital budgets but with far greater employment multipliers. For financiers, the business case is solid: foundries enjoy consistent domestic demand, import substitution potential, and relatively short project gestation periods (12-18 months). Well-structured loans with cash-flow controls can yield competitive, low-default portfolios.

Managing risk through data and discipline

For financiers entering this market, success depends on data-driven credit management. KPIs should become loan covenants

Table 2 Performance-Based Operational Covenants (KPIs)

Operational KPI	Benchmark Target	Financial Implication
Energy consumption	≤ 500 kWh/t	Margin step-down incentive
Scrap yield	≥ 94%	Efficiency covenant
DSCR	≥ 1.3×	Debt sustainability
DSO (receivables)	≤ 60 days	Liquidity covenant
EHS compliance	ISO/ASTM certification	ESG eligibility

Regular monitoring through energy meters, production dashboards, and bank-controlled cash-flow accounts provides transparency and reduces default probability. The objective is to treat foundry finance like structured trade finance, not unsecured SME lending.

Currency, power, and policy risks

No financing architecture can ignore Zimbabwe’s macro constraints. With dual-currency operations, foundries often earn ZWL while importing in USD. Facilities should be structured with currency-matching-USD for export revenues, local-currency lines for domestic sales-or with FX-indexation clauses to preserve value.

Power disruptions erode productivity and threaten furnace integrity. Financing models must integrate captive power components-solar, gas, or waste-heat recovery. Energy-efficiency loans or blended grants can finance these systems alongside production upgrades.

Frequent shifts in import tariffs, scrap-metal export bans, and environmental regulation complicate forecasting. Long-term financing should include stabilisation clauses and force-majeure carve-outs recognising government-policy risk. Continuous dialogue between financiers, industry, and policymakers is essential.

From foundries to fabricators

Beyond finance, the foundry sector’s competitiveness will hinge on integration into downstream fabrication-machine-shops, rail, and construction engineering. Financiers should view foundries not as isolated borrowers but as nodes in a manufacturing ecosystem.

Structured cluster financing, supply-chain mapping, and performance benchmarking can create credit synergies and reduce transaction costs. If executed strategically, financing Zimbabwe’s foundries can do more than rescue a struggling sector; it can reignite industrial sovereignty. Every imported casting replaced by a local product represents retained foreign currency, skilled employment, and technological upgrading.

Engineering finance for industrial recovery

Financing the downstream iron and steel industry demands a new financial engineering mindset. Banks and DFIs must move beyond collateral-based lending towards cash-flow-anchored, performance-linked structures that reward efficiency, transparency, and sustainability.

For Zimbabwe’s foundries, access to capital is not merely a question of interest rates, it is the gateway to productivity, competitiveness, and national industrial renewal.

Structured correctly, the sector could become the beating heart of the nation’s re-industrialisation effort, turning rusting furnaces into engines of inclusive growth.

Paul Matshona is a Mining Engineer and Researcher at the Zimbabwe School of Mines, specialising in sustainable mining systems, environmental governance, ESG, responsible mining, and de-risking strategies for small and medium-scale mining operations.

Martin January is a Financial and Mining Engineer, and Training & Operations Manager at the Zimbabwe School of Mines, focusing on financial modelling, operational efficiency, technical and financial valuation, and capacity-building in the mining sector.