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Diamond-Financed Defense College Deal Exposes Zimbabwe's China Ties

Finance Minister Tendai Biti says he wants to renegotiate the deal so that ordinary Zimbabweans will benefit from the Anjin diamond operation, not just Beijing and the Zimbabwean military

Controversy over a US$98 million Chinese loan to Zimbabwe to build a defense college, funded by Harare's share of revenues from a diamond mining deal with a Chinese firm, became a case study of the questions around China's burgeoning economic relations with Africa just days after US Secretary of State Hillary Clinton raised the issue.

Interviewed in Lusaka, Zambia, Clinton expressed misgivings about Beijing's potentially negative influence on governance across Africa and warned against a “new colonialism” developing as Beijing sought African resources to fuel its industrial expansion.

Touring three African countries to promote trade between the United States and Africa, Clinton said Chinese foreign aid and investment on the continent have not always been consistent with international norms for transparency and good governance. She said Beijing is pursuing its own interests, not advancing Africa's - a sentiment that was echoed soon after by Zimbabwean Finance Minister Tendai Biti.

“It is easy to come in, take out natural resources, pay off leaders and leave. And, when you leave, you don't leave much behind for the people who are there," Clinton told her Zambian television interviewer. "You don't improve the standard of living. You don't create a ladder of opportunity. We don't want to see a new colonialism in Africa.”

A few days later, Biti addressed Zimbabwe’s parliament to question the deal involving a $98 million loan from China to build a military college outside Harare, funded by the cash flows from Anjin Investments, a joint venture between the Zimbabwean government and Chinese construction company Anhui Foreign Economic Construction Group.

Biti told Parliament that the deal was “criminal." But backers of the deal within President Robert Mugabe's long-ruling ZANU-PF party noted however that he signed the deal in March along with three other commercial agreements with China.

Biti told VOA that he signed the loan documents in March because they were presented to him with three other agreements in the presence of the Chinese Vice Premier Wang Qishan, and he “didn’t want to create a diplomatic furor" though he had misgivings.

“The agreements were presented before me in the presence of the Vice Premier, and I didn’t want to embarrass Zimbabwe and embarrass the Vice Premier of China." But the finance minister added, "I think China is capable of assisting Zimbabwe.”

Though Zimbabwe needs the funding, Biti said the terms of the four loans for a total of US$500 million are problematic. He said the interest rate is too high, and he added that Zimbabwe has more urgent needs to address than the lack of a defense college.

Another sore point for some Zimbabwean is that the college is being constructed not by a local concern but by Anhui Foreign Economic Construction Group.

The agreement states that "the goods, technologies and services purchased by using the proceeds of the Facility shall be purchased from China preferentially and also from Zimbabwe where this will benefit the project and end user.”

Biti says he wants to renegotiate the deal so ordinary Zimbabweans will benefit from the Anjin diamond operation, not just Beijing and the Zimbabwean military. He said he has written to the Export-Import Bank of China seeking reduced interest rates.

But some are skeptical he will be able to undo what was signed and sealed in March.

“It seems that it is all too late for any such hope," commented Harare economist John Robertson. He noted that if there were going to be a meaningful parliamentary debate on the project "it should have happened maybe a year ago."

Though declining to comment specifically on the deal, Mines Minister Obert Mpofu said it was an example of the success of President Robert Mugabe's “Look East” policy.

“The technical details of that contract [are] agreeable to Zimbabweans,” Mpofu said.

“This is a deal that will see our academy developing its technological expertise through collaboration with China. It is a deal that is really one of the best deals that this country has ever entered into since independence. We are very grateful for that.”

Mpofu blamed Washington for what he termed hype against the agreement, saying the Americans are worried the Chinese will brush them aside in Africa.

China recently replaced the United States as Africa’s largest trading partner. Chinese trade with the continent rose more than 40% in 2010 to around $127 billion.

Mpofu also accused the United States of being hypocritical by doing business with China while discouraging Chinese investment and commercial development in Africa.

Deputy Prime Minister Arthur Mutambara told Parliament that Harare should take a fresh look at all the deals it has signed with China. Like many in Zimbabwe, he said the deals largely benefit China rather than the impoverished Zimbabwean people.

China’s expanding role in the Marange diamond field is of particular concern to many in the country and around the world who have noted the almost total lack of transparency in general in Zimbabwe's development of the rich alluvial diamond deposits.

Little is known about any of the five companies, including another Chinese-Zimbabwe venture, operating in Marange. But Anjin remains the least transparent.

The terms of the Sino-Zimbabwean joint-venture are protected from public scrutiny by a non--disclosure agreement. A report on Chinese investments in Zimbabwe by the Labor and Economic Development Research Institute, an arm of the Zimbabwe Congress of Trade Unions, said many Chinese companies in Zimbabwe were highly secretive.

Such companies told trade union researchers they did not need to share any information because “their deals were more on a government-to-government basis.”

An ongoing controversy over the commercialization Marange diamonds in the Kimberley Process Certification Scheme is keeping these rough stones from being sold openly to major dealers. The companies operating in Marange are seeking a consensus in Kimberley’s inter-sessional meetings next week to let them sell without oversight.

But the lack of Kimberley certification has not prevented Marange stones from entering the international diamond market through smuggling. Mpofu told VOA that Anjin is not yet selling its rough stones. In April Anjin announced that it has stockpiled a million carats of diamonds. But sources suggest far more than that has already been shipped by air to China given that Anjin has been operating in Marange since early 2010.

While other companies operating in Marange must find buyers willing to deal without a Kimberley certificate. But a Chinese state enterprise mining diamonds in Marange has a vast home market into which it can sell large quantities of stones, no questions asked.

China has been aggressively seeking to acquire rough diamonds across Africa in a bid to displace India as the world’s top cutter and polisher of the precious gems.

Partnership Africa Canada Research Director Alan Martin says Anjin has shadowy ties to the Chinese and Zimbabwean militaries. “We’ve had information that the deal is actually military to military,” Martin said. “One of the concerns people have about Anjin is that it has not done what is expected of every other foreign company in Zimbabwe, which is to register itself with the relevant authorities ... Anjin has skirted the current Zimbabwean laws which are applicable to every other foreign company.”

Parliamentary Legal Committee Chairman Shepherd Mushonga led spirited efforts by the Movement for Democratic Change formation of Prime Minister Tsvangirai to block the defense college deal - with little success as Biti had already signed off on it.

Asked why MDC members of Parliament ratified the agreement, Mushonga offered an explanation similar to Biti’s: “There were visiting Chinese military leaders, they were sitting in the gallery. It was going to be a very embarrassing scenario.”

Moreover, the defense college is nearly completed. Biti said that when he had signed the deal he was just “legitimizing what was taking place de facto.” Mushonga confirmed that the construction of the defense college began about a year ago, a little after rumors emerged that a Chinese company was actively mining in Marange.

Economist John Robertson said Zimbabwe will not benefit much from the deal.

“Most of the projects I’ve heard about do not employ Zimbabwean people, they bring their laborers with them from China and they don’t involve many Zimbabweans at all in any of the projects that they have engaged in, even the sports stadium in Harare was built with Chinese laborers they didn’t employ any Zimbabweans.”

Mushonga noted that the deal does not adhere to the country’s new indigenization law requiring a 51 percent stake in foreign enterprises for local black investors. "Going into that agreement, there is nothing for Zimbabwean companies. There is totally nothing.”

It remains to be seen if Biti can undo or rewrite the deal or whether, as in so many other instances in Marange, the ZANU-PF and military officials who control access and the development of the zone will have their way. But the seemingly expanding Chinese role in the Marange diamond zone could fuel Zimbabwean resentment at the disappearance of a precious resource that could meet many crucial needs - but is not doing so.