Source: We’re exploring alternative funding models: Minister Ncube – herald

Minister Mthuli Ncube

Oliver Kazunga

Senior Reporter

ZIMBABWE is exploring using future mining revenues and toll-road income to unlock billions of dollars for infrastructure projects under a new financing model being discussed with international lenders.

The proposed framework, discussed with international financiers during the ongoing World Economic Forum Annual Meeting of the New Champions in Dalian, China, could unlock fresh funding for roads and other strategic infrastructure, while reducing pressure on conventional public borrowing.

Responding to questions from journalists during a virtual Press conference from China on Wednesday, Finance, Economic Development and Investment Promotion Minister, Prof Mthuli Ncube said discussions held with potential financiers had focused on the principles underpinning resource-linked debt instruments, which would combine income from infrastructure projects and mineral assets to service loans.

“Here the discussions were not specific in terms of amounts and in terms of a specific project, but rather principles.

“These principles, I must admit, wherever we went and discussed, were generally accepted that we could foresee a situation where we want to develop a specific road, and this road is going to attract toll gates that are developed and will be receiving toll fees.

“But as collateral for a loan to develop the road, the Government could then co-invest in a mine with a company that is extending the loan in the first place,” he said.

Resource-linked debt instruments involves using a country’s natural resources such as future commodity exports as collateral or direct repayment for loans.

The model is primarily driven by China’s State banks and private commodity traders, this model swaps natural resources for large-scale infrastructure and cash advances.

In Africa, countries such as South Sudan have secured up to US$12,9 billion in loans from United Arab Emirates companies and international traders, collateralised by long-term oil production.

The Democratic Republic of Congo has secured up to US$7 billion for its massive cobalt and copper reserves under a joint-venture mining and infrastructure swaps with Sinohydro and China Railway International Group (CRIG).

Nigeria has utilised oil-backed funds from Chinese institutions with a combined value of US$80 billion to finance several gas-to-electricity power — and infrastructure projects such as the US$2,8 billion Ajaokuta-Kaduna-Kano (AKK) gas pipeline venture, and the US$1,2 billion project to revitalise key gas processing and aluminium production facilities.

Outside Africa, a number of countries that include Peru, Venezuela, Brazil, and Ecuador have secured resource linked debt instruments.

For instance, Brazil’s State-run energy company, Petrobras has secured a US$10 billion loan from the China Development Bank for a power development project.

Prof Ncube said under the proposed arrangement, the Government and the financier could establish a joint venture in a mining project, creating an additional revenue stream to support debt repayment.

On account of its vast mineral wealth endowment, Zimbabwe can secure resource-based loans leveraging gold, diamond, platinum, chrome, lithium, copper, and coal among others.

“So we have a joint venture on a copper mine or whatever with this company, and then they extend the loan for us to develop the road.

“We’re also going to use the toll fees to support the loan repayment.

“The earnings that the company earns from the mine will also go towards extinguishing the loan from the company,” he said.

Prof Ncube said the structure would provide two distinct sources of repayment, strengthening the viability of infrastructure financing while ensuring projects generate the resources needed to settle obligations.

“So, basically the investment in the mine plus toll fees are two sources of revenue that will help us to pay off this loan.”

“So that’s the idea about this resource-linked debt instrument.

“And we have discussions for various projects.”

The remarks provide the clearest indication of Government’s thinking on alternative financing mechanisms as authorities seek to accelerate infrastructure development without relying solely on traditional sovereign borrowing.

Over the years, the Government has prioritised the rehabilitation and expansion of roads, railways, dams, energy infrastructure and border posts to support economic growth and regional trade integration.

Such projects include the US$300 million Beitbridge Border Post modernisation project — the US$109 million Kunzvi Dam project — the US$1,5 billion Hwange Thermal Power Station Expansion project — and the US$88 million Mbudzi Interchange investment, among others.

The new financing approach comes at a time when competition for development capital is intensifying globally, prompting many countries to seek innovative funding structures that can unlock infrastructure investment while preserving fiscal sustainability.

Prof Ncube indicated that the resource-linked financing model would extend beyond rail projects and could be applied to a broader range of infrastructure developments.

Addressing questions on a feasibility study undertaken by CRIG regarding Zimbabwe’s rail infrastructure, he said the process had been completed and was now under consideration by the Mutapa Investment Fund.

“The study has now been completed and we have given it to Mutapa Investment Fund, who are the holding company for NRZ.

“They are looking into that and having discussions around the railway infrastructure in the first place.

“So they’re having conversations about how best to proceed.

“What I mentioned was much broader instruments for other infrastructure beyond rail, such as roads, which could be resource-linked,” he said.

Last year, Prof Ncube announced that a US$600 million deal was being negotiated between CRIG and NRZ for infrastructure rehabilitation, which could transform Zimbabwe into Southern Africa’s logistical nerve centre.

The proposal is likely to attract interest from investors and development financiers given Zimbabwe’s vast mineral wealth, which includes significant deposits of lithium, platinum, gold, chrome, coal, copper and rare earth minerals.

Economic commentator Mr George Nhepera said linking infrastructure development to productive mineral assets could create a self-sustaining financing model capable of accelerating project implementation while generating long-term economic benefits.

“From a capital markets perspective it’s very good and less risky to use resource-linked debt instruments to raise funding for infrastructure projects.

“This is a self-funding financing model which in the long run could create national assets for the country and ultimately benefit the next generation,” he said.

“Once done the same resource linked debt assets could them be listed on Victoria Falls stock exchange so that we create a secondary market for the instrument and deepen of capital markets which of late have started to attract foreign investors.”

Mr Nhepera said listing the instrument would give a liquidity exit mechanism to holders of the instrument while at the same time promoting active trading and revenue generation for the Government through capital gain taxes.

Another economic commentator, Mr Peter Mhaka said the danger with resource-backed financing is that countries can become overcommitted if commodity prices decline or infrastructure projects fail to generate expected revenues.

“Zimbabwe can mitigate these risks through transparent contracts, independent project valuation, strict debt sustainability assessments and ensuring that only a portion of future mineral revenues is pledged.

“If properly designed, this model can accelerate infrastructure development while preserving long-term national wealth,” he said.

If successfully implemented, the initiative could open a new chapter in infrastructure financing and provide the Government with additional options to fund projects such as NRZ rail infrastructure, a strategic asset to Zimbabwe’s industrialisation and economic transformation agenda.

In line with its development thrust, Zimbabwe requires billions of dollars for infrastructure development — for example, as enunciated in its National Energy Compact launched last year, the country requires US$9,13 billion to achieve sustainable energy development, boosting economic growth and achieving energy security across the country by 2030.

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