Govt keeps Russian investor guessing

NDAMU SANDU
A Russian investor has said negotiations to buy shareholding in fertiliser manufacturing firm Chemplex Corporation are moving slowly amid fears government’s lethargy will affect efforts to lure foreign direct investment (FDI).

In January, Russian fertiliser giant Uralchem signed a memorandum of understanding (MoU) with government to acquire not less than 50 percent shareholding in Chemplex during President Emmerson Mnangagwa’s trip to Moscow as he lured investors under
the Zimbabwe is open for business mantra.

Chemplex is Zimbabwe’s largest fertiliser and chemical manufacturing company and wholly owns Dorowa Mine and ZimPhos— the only producers of phosphates for fertilisers in the country. It a so own 50 percent of ZFC and 36 percent of Sable Chemicals.

According to the MoU, the largest national corporations involved in the production of mineral fertilisers and agro-chemicals, including the leading state-owned company,

Chemplex, aim to establish business relationships with Russian partners in order to enhance the economy of Zimbabwe and develop local businesses.

In turn, for Uralchem and Uralkali companies, the supply of mineral fertilisers to African countries is among the strategic development areas they are focusing on.

Uralchem deputy chairman Dmitry Konyaev recently told Business Times on the sidelines of Afreximbank’s annual general meetings in Moscow, Russia, that the deal was taking time to consummate.

“We are waiting for government, what will be the feedback from government, what is their plan and how they want to proceed with it.
“The ball right now is on the side of government,” Konyaev said.
“We have discussions but they are moving quite slowly.”

He said Uralchem has been supplying nitrogen and NPK fertiliser to Zimbabwe and Zambia
and wants to be involved in the distribution of the product.

“We would like to be involved in local distribution. We are in discussions with Chemplex to be involved in the Chemplex business that we can bring the product inside  the country [Zimbabwe] and then distribute to the local farmers,” Konyaev said.

He said there are no plans to build a nitrogen fertiliser plant in Zimbabwe or Zambia.

“It’s possible to use in Zimbabwe phosphorous deposits what Chemplex are doing, then to
produce basic phosphorous fertiliser inside the country. This is possible,” Konyaev said.
According to the MoU,

Uralchem—individually or jointly with PJSC Uralkali—intends to invest in one or more Zimbabwean agricultural companies especially in Chemplex.

Investments will be made by purchasing of shares in the authorised capital of various companies or via investments in their fixed assets, Uralchem said in a notice published on its website.

It said the agreement provided for the supply of nitrogen, potash and complex fertilisers to the markets of Zimbabwe and other African countries.

Zimbabwe pledged to support Uralchem and Uralkali in implementing its objectives.Uralchem has said it will not agree to less than a 50 percent stake.

The proposed investment by Uralchem is part of Russia’s forays into Africa. Trace between Russia and Africa was US$18bn last year and Afreximbank projects total trade to hit US$40bn by 2023.

Russia, through Russia Export Centre, became a shareholder in Afreximbank in 2017, providing an institutional platform for promoting Africa-Russia trade.

That partnership has seen Afreximbank and Russia Export Centre jointly supporting the importation of critical fertiliser needs by Zambia and Zimbabwe, according to Afreximbank president Benedict Oramah.

ZFC produces between 25 to 35 percent of the country’s NPK compound fertilisers such as
compound D for maize, compound C, L and many others as well as blended NPK compounds.

Sable is the country’s sole producer of Ammonium Nitrate (AN) fertiliser which is used mainly as a top Dressing fertiliser and also in the NPK formulations.

The country has more than enough capacity for NPK compound fertiliser production which is well in excess of 1 million tonnes per year.

National demand for fertiliser is around 600 000 tonnes per year with 50 percent of this being  NPK fertilisers and 50 percent top dressing ammonium nitrate and urea fertilisers.

Last year, the Industrial Development Corporation of Zimbabwe (IDCZ) appointed EY Zimbabwe as financial advisors to assist with the privatisation process at Chemplex as part of reforms at parastatals and State-owned enterprises which will result in privatisation, mergers and liquidation.

In written responses, IDCZ said it was waiting for shareholder guidance on how to “proceed
with the transaction following the submission of Expressions of Interest and short listing of possible investors by the Financial Advisors to bring the process to a conclusion”.

It said the due diligence process will determine how much capitalisation the business requires.

“We are looking at an industry investor who will transfer technology and have market
access to ensure that Chemplex supplies affordable fertilisers and other chemical products that the company produces for the local and regional markets,” IDCZ said.

The delay in concluding the transaction flies in the face of President Mnangagwa’s drive to lure foreign direct investment to help rebuild the economy.

FDI has been giving Zimbabwe a wide berth over the years due to policy inconsistencies and red tape.

Government has moved to create a favourable environment for investors by announcing that the empowerment legislation—that prescribed that locals should have at least 51 percent shareholding in all business operating in Zimbabwe— will only be applicable to diamond and platinum sectors.

Government has also established the Zimbabwe Investment Development Agency, a one-stop shop for investors meant to cut on the red tape in acquiring permits and licences.

This has seen FDI inflows jumping to US$745m last year from US$349m in 2017 on the back of reforms undertaken by government, the highest haul in over a decade.

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