Martin Kadzere
Zimbabwe could be paying huge premiums for infrastructure projects due to high country risk profile and poor contract negotiating capacity.
Zimbabwe is largely using an Engineering, Procurement, Construction model to finance infrastructure projects, particularly in the energy sector, but critics believe most of the deals are coming at a “very huge” cost as the country cannot adequately fund its projects.
After Intratek indicated plans to shave off $42 million from the initial cost of the 100-megawatt solar power tender it won, without cutting the amount of estimated power supply, analysts say this could be a timely pointer to the complex challenges underlying the EPC funding model, particularly in large projects.
Intratrek had initially won the tender to build the solar plant for US$202 million, but intends to cut the cost by a massive $42 million. It followed protests by the Zimbabwe Power Company that at $202 million, the initial quote could have been heavily inflated.
Zimbabwe is also paying $133 million more than what Zambia paid for building a 300 megawatt electricity plant at the northern bank of Kariba four years ago while the investor conference to raise funds for Batoka project, to be jointly implemented by the two southern Africa nations was held in Livingstone to avoid Zimbabwe’s risk profile.
As a result of the high risk profile, Zimbabwe ends up attracting excessive risk takers who, by nature, put a huge premium on their money. A fund manager with a local firm noted that as long as the domestic financial markets remain quite shallow “as they are”, and the major state-owned parastatals being poorly run with limited capacity to harness own resources, the “curse” of undertaking costly infrastructure projects will remain a huge burden for the country.
Zimbabwe’s domestic savings ratio is around -11 percent of the gross domestic product and the country is relying on inadequate foreign savings for infrastructure development. Ideally, developing countries must strive to achieve savings, which are above 25 percent of GDP.
While research has shown that high long term savings were major drivers of infrastructure development for developing nations, Zimbabwe’s saving ratio has been negative since 2011, making it one of the countries with lowest savings rates in the region.
Zimbabwe’s savings ratio to the GDP was negative at -3,5 percent in 2011, -2 percent in 2012, -4,7 percent in 2013, -4,2 percent in in 2014 and -1,5 percent in 2015.