Germany demands payment of debt

Bernard Mpofu

Germany has asked Zimbabwe to settle its outstanding financial obligations owed to Berlin before the southern African nation can fully reengage with Europe’s powerhouse and access €2 billion in investment.

Last week President Mnangagwa assigned Finance Minister Patrick Chinamasa to Berlin as a special envoy to German chancellor Angela Merkel where he was tasked to push for the restoration of cordial relations between the two countries. Zimbabwe has stepped up its re-engagements efforts with Germany and other Western countries after nearly two decades of frosty diplomatic relations following the resignation of Mugabe.

Relations between Germany and Zimbabwe turned sour at the turn of the millennium when the latter embarked on the land reform programme which resulted in some Bilateral Investment Promotion and Protection Agreements (Bippa) were violated after white commercial farmers were evicted.

Germany, along with the European Union, suspended budgetary support to Zimbabwe in 2002 citing allegations of rights abuses by former president Robert Mugabe’s administration. The EU has since lifted the sanctions, citing improvements in the political environment after the adoption of a new constitution in 2013.

As of last year, Zimbabwe owed €465 million ($507 million) to the German Development Bank (Kreditanstalt fur Wiederaufbau — KfW).

KfW, which is majority-owned by the German government, is also owed €40 million euro ($43 million) by the mothballed Ziscosteel which borrowed the funds to construct a steel plant in 1998.

Diplomatic sources this week told Business Times that Chinamasa held meetings with senior bureaucrats in Germany who include State Secretary, Ambassador Walter Lindner; Director for Southern Africa in the German Foreign Ministry, Ambassador Georg Schmidt accompanied by Officials from the Federal Ministries for Economic Affairs and Energy, and Economic Cooperation and Development; Chancellor’s Special Representative for Africa, Gunter Nooke; Africa Verein (German-Africa Business Association); and Carl Bruhn, CEO of Amatheon Agri.

It is understood that during the meeting with Lindner, Chinamasa discussed the state of the Zimbabwe’s economy, investment opportunities, ongoing economic and political reforms and the country’s external debt. The meeting according to sources lasted for an hour.

Official figures show that Germany is Zimbabwe’s largest bilateral creditor in Europe and for years the Deutsche Bank that served as Zimbabwe’s Corresponding Bank and provided favourable Lines of Credit to the Reserve Bank of Zimbabwe (RBZ).

Lindner, sources said told Chinamasa that Germany was also ready to assist Zimbabwe in reengaging with the Paris Club.

Official figures show that Zimbabwe owes $1,8 billion to the Paris Club and $1,1 billion to the non-Paris Club.

The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries. As debtor countries undertake reforms to stabilize and restore their macroeconomic and financial situation, Paris Club creditors provide an appropriate debt treatment. Paris Club creditors provide debt treatments to debtor countries in the form of rescheduling, which is debt relief by postponement or, in the case of concessional rescheduling, reduction in debt service obligations during a defined period (flow treatment) or as of a set date (stock treatment).

“The main sticking point for this reengagement at the moment is the issue of the Bippa and Zimbabwe’s outstanding loans to German financial institutions,” a source familiar with the development said, adding that Harare had committed to resolve the issues once it resolves external support.

“Chinamasa appealed for more German financial support saying this would help Zimbabwe come out of the woods and enhance her capacity to honour her financial obligations. The German officials told Chinamasa that there were ongoing discussions on Zimbabwe at the Paris Club and decisions taken, which they were not yet at liberty to disclose.”

Lindner, the sources also told Chinamasa that the holding of a free, fair and credible election was also key to re-integration into the global economy. Zimbabwe is expected to go for elections on July 30. At least 22 presidential hopefuls are expected to vie for the highest office on the land.

During a meeting with Afrika Verein, the German Africa business association told Chinamasa that there were pleased with the reforms in the country’s investment climate such as changes to Indigenisation and Empowerment regulations.

Sources said Amatheon Agri chief told Chinamasa that the group and its strategic partners are proposing toestablish a Private Equity Fund with a minimum capitalisation of €2 billion targeting investments by Germans in various economic sectors in Zimbabwe.

Amatheon Agri is an agribusiness and food company headquartered in Berlin and operating in sub-Saharan Africa-focused on farming, trading and food processing.

Chinamasa sources said the proposal is a quicker way of propping up Zimbabwe’s investments and liquidity situation while discussions on initiatives to resolve the country’s debt are ongoing.

“The special envoy (Chinamasa) welcomed the proposal and highlighted that the fund should consider investing in the energy sector, tourism, horticulture, mining, real estate and the manufacturing sectors.”

The fund promoters, according to sources will establish the proposed Fund in Netherlands due to the favourable double taxation agreement between Zimbabwe and Netherlands.

“Tentatively after the general elections, the two countries will sign a memorandum of understanding which clearly outline the proposed framework for this fund,” another diplomatic source said.

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