What happened to ZISCO, Africa’s biggest iron smelter?

By Rutendo Matinyarare

I find the story of ZISCO Steel very fascinating because many Zimbabweans peddle falsehoods about the reason it collapsed, due to lack of history.

And by not understanding the history of ZISCO, Zimbabweans miss the opportunity to learn how the Rhodesians built it, the mistakes we made when we took over the company and thus we risk repeating the same mistakes in future.

We need to keep the history and institutional memory of our country alive, to learn about sanctions busting, geopolitics, nation building and the stakes that we are playing for in the racial war that is at play in this world.

In this ZISCO saga, we will see a contest between the resolute push by whites to maintain their racial dominance by deindustrialising Africa, while on the other side we see blacks worshipping their enemy in the name of reconciliation, to a point of not realizing that life is a winner-take-all war of racial dominance and in this case, the battle ground was the biggest iron and steel producer in the southern hemisphere.

Through this ZISCO case study, I hope to impress upon Zimbabweans that we can not strategize on how to advance Zimbabwe without serious research, insights and understanding of the past or history. Every national strategist, economist, accountant, project manager, brand builder, entrepreneur or politician needs lessons learnt from the past (history/experience) as a compass for the future, otherwise they are assured of failure.

Background

ZISCO Steel was established in 1942 by the Rhodesian government, with the formation of RISCOM (Rhodesian Iron and Steel Commission) in Redcliff.

The company was formed to control all iron and steel production in Rhodesia during the Second World War when the world was facing a huge global shortage of iron and steel.

At the time, Rhodesia was sitting on over 3.8 billion tonnes of high grade iron ore, 200 million tonnes of limestone, 23 billion tonnes of high grade coal (the seventh biggest reserves in the world) and 10 billion tons of the highest quality chrome (second biggest reserves in the world), all the ingredients required to produce steel and stainless steal.

Due to this endowment of nature, it only made sense for the country to start producing its own iron and steel for itself and to satisfy the latent global demand.

When RISCOM started its operations in 1948, it had no experience, an unskilled workforce and only one open hearth furnace that produced 12000 tonnes of steel per year. This small output and inexperience, made the company’s operations costly and Rhodesian steel very expensive and uncompetitive globally.

As a consequence, RISCOM made huge losses for the first ten years as they grew up the experience and learning curve. This became a bleeding wound for Rhodesian government coffers, to a point where the government contemplated privatizing the company.

By 1954, the amalgamation of Southern Rhodesia, Northern Rhodesia and Nyasaland, pushed up the demand for steel. Consequently, this led to the Rhodesian government installing a second blast furnace to increase output. The increase in market and production, led to RISCOM achieving economies of scale and turning a profit in 1956.

With this shift in fortune, RISCOM became attractive to a global consortium of investors who expressed interest in buying shares in the entity.

Thus in 1957, RISCO (Rhodesian Iron and Steel Company) was formed to undertake iron and steel production. In the consortium were Messina Transvaal Steel (SA) with 24,2% shares; Anglo America (SA) holding 22,6%; Stewards and Lloyds (SA) at 14,5%; Lancashire Steel (UK) 14,5%; Roan Select Trust with 7%; Tanganyika and the Rhodesian government retained just over 10%.

The Rhodesian government maintained the distribution side of the business through Rhodesia Steel Sales Corporation (Rhosales), in which ISCOR (South Africa Iron and Steel Corporation, a competitor but at the same time it was a white brotherhood of colonial African exploitors) had shares.

In essence, RISCO was built off the back of South African capital and markets, creating huge dependency on South Africa and Anglo America (which had taken over Cecil John Rhodes’ BSAC enterprises alongside Lonhro) which already controlled over 35% of the Rhodesian economy then.

With new cash flush investors capitalizing the operations, in 1959, RISCO recapitalised a second upgrade which saw them importing two new open hearth furnaces, coking ovens from Europe, a second hand sheet plate mill from Ireland, making improvements to existing mill and the commissioning of a new blast furnace from Kawasaki Steel Industries of Japan.

To repay Kawasaki Industries, RISCO would make repayments by delivering 360 000 tonnes of pig iron and 600 000 tonnes of iron ore annually to Japan for 50 years from 1963. This meant that the full Japanese debt was scheduled to be repaid by 2003 (impact of colonial legacy debts).

By 1965, RISCO was producing rods, window sections, fence standards, ploughshares, rounds and over 360 000 tonnes of pig iron per year that was being exported to Japan, Britain, Egypt, Italy and the Philippines.

Sanctions Busting

In that same year, Ian Smith declared UDI which coincided with another US$50 million upgrade in which more ovens, furnaces, mixers, cranes, oxygen feeders and trains were bought. The following year, UN sanctions were imposed on Rhodesia and a number of furnaces had to be mothballed to reduce output by 50%.

By then, the UN sanctions prohibited any country from lending Rhodesia money, giving them technology or buying their iron and steel, albeit, ISCOR continued to sell RISCO steel as South African steel to complicit overseas buyers. Some steel was sold through agents and complex trading agreements and the money externalized.

In 1972, Anglo America, using its international connections, arranged a secret meeting in Paris with lenders from Britain, Switzerland, West Germany, France and South Africa, where it was agreed to lend RISCO US$63 million for the next phase of upgrades aimed at making the company the biggest iron and steel smelter in the southern hemisphere, at over 1 million tonnes of output per annum.

In this Paris meeting, it was agreed that repayment would be made in delivery of iron and steel to the lenders and the surplus would be bought for much needed foreign currency.

However, for risk management purposes, a clause in the agreement said if the UN discovered the deal [which was illegal at international law], then the Rhodesian government would have to pay for the partial implementation and buy up the shares of some of the lenders, who feared the international backlash.

In less than two years, the information of the loan was leaked by Kenneth McIntosh and so Rhodesia assumed the debt and bought the shares of some of the players to control about 49% of RISCO by Zimbabwean independence.

ZISCO Is Born

In 1980, Zimbabwe gained independence and the various improvements that had taken place between 1972 and independence, had turned RISCO into the biggest iron and steel smelter in the southern hemisphere and this gem was now grudgingly handed over to Africans, to the disdain of the west.

The new black government took over RISCO and renamed it ZISCO. Immediately, many white Rhodesian technicians left, including Austrian Kurt Kuhn, the CEO who had helped Rhodesia bust sanctions over the period of UN sanctions. He moved back to the Austrian iron and steel parastatal Voest-Alpine, and in 1982 the Zimbabwean government asked him to return to take over operations.

Kuhn came back with staff from Voest-Alpine to initiate a US$200 million upgrade of ZISCO that was also undertaken by Voest without any competitive bids.

Many critics of Kuhn say about US$50 million of the work could have been done locally by Zimbabwean companies, but all of it was given to the Austrian company which in exchange brought staff (recruited by Kuhn’s recruitment agency) to train and transfer skills to locals.

The new government had strategically forgone local content manufacturing, for the Austrians to train and transfer skills to the locals at hefty commissions for Kuhn and Voest.

At about this same time, the new government took over a broke Rhodesian treasury, and almost all industrial sectors in the country had outdated machines and technology due to 12 years of sanctions, 17 years of high indebtedness, while many parts of the country were destroyed by 17 years of war and in need of reconstruction.

To begin the reconstruction project, the new government went about trying to borrow money from the IMF and the Paris Club, to reconstruct and develop a broke and war damaged economy left behind with a huge debt of $700 million ($2.7 billion today) by the Rhodesian government.

The IMF and World Bank in 1980 declined to give Zimbabwe loans to retool most parastatals, including the likes of Feruka refinery, which was in need of about $2 billion to upgrade. Instead, they advised the government that it was more cost effective to import fuel and other industrialized products, while focusing on resource extraction and export.

The Paris Club would however agreed to give the country some loans and to be surety for loans borrowed from private banks to build the Hwange Power Station, upgrade ZISCO and develop other infrastructure.

In return, the government had to stop subsidizing ZISCO and other parastatals, to ensure the country would have surplus to repay its debts and maintain a good credit rating.

With this, the IMF and World Bank, also pushed the Zimbabwean government to devalue its currency, immediately raising ZISCO and the country’s legacy debt repayments.

All these decisions were taken at a time when most decisions were still being made by white Rhodesian bureaucrats and advisors who were still occupying the decision making positions in government ministries, parastatals and ZISCO management.

The devaluation of the currency would have devastating consequences as it drastically increased the debt repayment costs for both new technology for the ongoing upgrades and inherited RISCO debt.

Apartheid South African Sanctions

Most unfortunate for the newly independent country, the moment it shunned apartheid South Africa’s CONSAS (Confederation of Southern African States), to join SADC, on attaining independence; apartheid South Africa’s State Security Council imposed total war on the country.

This total war consisted of military incursions by the SADF, alongside economic sabotage and sanctions imposed by State Security Council corporate members, which included ZISCO shareholders such as Anglo America, ISCOR, Messina Steel and other European partners like Austria’s Voest-Alpine [ the biggest supplier of steel smelting machines to South Africa, Angola and Zimbabwe].

The first objective of these white owned companies was to destroy Zimbabwe’s industry by sabotage, blocking its access to port through Mozambique, hampering exports and crippling transport systems to foster dependency on apartheid South African ports.

On the 25th of August 1980, three months after independence, apartheid South Africa imposed sanctions and Spornet demanded the return of 25 locomotives that were lent to Rhodesia to service rail routes that included exports from ZISCO.

Simultaneously, the RENAMO rebel movement was funded by the CIA and apartheid government to destabilize Zimbabwe’s Beira Corridor, oil pipeline, eastern boarder and Chicaulacaula Route to Maputo.

Meanwhile, the South African shareholders and partners of ZISCO, conspired to sabotage the smelter, so as to deprive black Africa of the largest steel plant in the southern hemisphere because they [the South Africans and their western backers] feared that it would be used to industrialize SADC, build infrastructure, break dependency on South African industry and advance SADC’s military capacity at this time when SADC was planning to wage war against apartheid South Africa.

To advance this agenda, Anglo America, Messina Steel and ISCOR alongside Voest-Alpine targeted Lancashire Steel: a British subsidiary and shareholder in ZISCO, one of the biggest customers of its steel and a major exporter of manufactured products for Zimbabwe.

The other reason for targeting Lancashire Steel by the South Africans was because it was a biggest buyer of ZISCO billets, which it used to make high quality wire and rods that were eating into Anglo’s Haggie Rand South Africa’s lucrative, captive, high margin, marketshare in South Africa and Africa.

The South Africans began their assault by asking the apartheid government to increase import duties and to lower quotas on Lancashire’s high quality rods and wire. When that didn’t work, they attempted to buy all of Lancashire’s exports to kill competition but Lancashire refused to become captive to their competitor.

Thereafter, influential stakeholders like Anglo and ZISCO CEO, Kurt Kuhn, began to use their influence on government and ZISCO, to convince decision makers and politicians that Lancashire Steel was transfer pricing and sabotaging the development of Zimbabwe. No evidence has ever proved that this was true, as Lancashire products were way cheaper than Haggie Rand.

In retaliation, the Zimbabwean government began to cut Lancashire Steel’s subsidies to less than 50% of those given to Anglo owned Haggie Rand. When Haggie raised prices by 25% in 1982 due to currency fluctuations, Lancashire was denied price increases for months, to a point where they had to close their factory for two months.

Anglo and Kurt Kuhn continued to pile the pressure, asking the Zimbabwean government to allow ISCOR and Anglo to buy Lancashire as they suggested that Zimbabwe had only room for one wire and steel rod manufacturer (which would be South African Haggie Rand, despite Lancashire having better quality products and deeper Zimbabwean roots).

This made Lancashire’s operating conditions very difficult and as a result in June of 1984, ZISCO Steel took over the company. The moment that happened, ZISCO through Kuhn’s influence, signed an exclusive deal for Anglo to buy Lancashire exports; however, Anglo would pay the price in rands, which were depreciating against the Zimbabwe dollar due to sanctions.

Secondly, Lancashire would have to pay to transport product to South Africa at a time transport prices kept on rising due to apartheid South Africa’s sabotage of Zimbabean transport routes, and the final blow was in 1984, when the South African government slapped Zimbabwean steel with a 50% tariff increase.

By 1985, the destruction of ZISCO was well underway. The Austrian CEO’s contract expired just after putting the knife in ZISCO’s back. This time, Kuhn left for good to work for Voest-Alpine in South Africa and using his own Swiss based recruitment agency, he poached many experienced staff members to join him in South Africa.

By now, ZISCO’s Lancashire Steel was totally dependent on Anglo America to buy and sell their wire and rod products at a song, precisely what the South African State Security Council had wanted.

Gradually, Anglo stopped buying Zimbabwean wire and rod, pushing their own lower quality wire and rod from Haggie Rand to slowly starve Lancashire. Overtime, the South Africans, with Voest by their side, kept improving their steel industry technologically, while ZISCO was stagnant (it could no longer upgrade the plant every 5 to 10 years as RISCO had been doing on government guarantees) as markets dwindled due to ESAP.

The government of Zimbabwe and ZISCO executives had been duped by the South Africans, the Voest-Alpine man and multilateral lenders who led Zimbabwe in to ESAP; all because of the African syndrome of trusting whites who are hellbent on destroying Africa to continue exploiting its resources for free.

This decimated Lancashire and ZISCO revenues almost immediately, as now they were competing against insiders, shareholders, apartheid enemies, multilateral lenders and former partners who were also white enemies intent on destroying black competition. Talk about infiltration.

ISCOR, which had the marketing rights to market ZISCO products, in cahoots with Anglo, began to influence mines and governments in Africa to buy cheaper South African steel, wire and rods forged by new Voest technology and not Zimbabwean steel that was produced by old technology.

As revenues decreased at both Zimbabwean companies, the lack of government subsidy and high debt repayments weighed heavily on ZISCO because of further currency devaluations during ESAP. As a result, the companies could not renew their machinery and more marketshare was lost.

US, EU, UK, Canada And Australian Sanctions

By 2001, ZISCO was operating at less than 35% capacity and the legacy debt it inherited from Rhodesia, which in part was to supply 360 000 tonnes of pig steal and 600 000 tonnes of iron ore (1mil tonnes of product) to Japan every year for 50yrs since 1963, to repay Kawasaki Steel Cooperation for supplying ZISCO with their second blast furnace in 1961, was weighing the company down.

They also owed European companies which had lent RISCO money in 1972 and further loans from the 1980 upgrade by Voest.

In February 2001, the government, its municipalities and its parastatals were put under US sanctions, which prohibited the government of Zimbabwe from getting loans from multilateral lending institutions, making it almost impossible to fund future upgrades of ZISCO on debt.

These sanctions accompanied by EU sanctions in 2002, also choked Zimbabwe Defense Industries which was a major consumer of iron and steel used in the manufacture of armor and other military equipment.

In 2003, 2005 and 2008, additional executive order sanctions were imposed by the US government to specifically target ZISCO Steel and Lancaster Steel; IDC which took over Willowvale, Deven, Almin Metals; NRZ : National Railways of Zimbabwe and institutions like the Infrastructure Development Bank of Zimbabwe which were all major users or drivers of iron and steel demand, among others.

With a dwindling internal demand for iron and steel, this would lead to the inevitable demise of ZISCO Steel and Lancashire Steel between 2010 and 2013.

This is the sad history of the demise of two of Zimbabwe’s most iconic companies that had direct and indirect linkages with diverse downstream industries from motor manufacturing, coach building, rail manufacturing, mining, construction, agriculture equipment, military engineering, manufacturing, civil engineering and over 50 000 jobs that were eventually lost on their demise.

The question now is, as we reengage the west, have we learnt our lessons, can ZISCO be revived or will the new Chinese iron and steel smelter fill the vacuum to revive Lancashire Steel?

Disclaimer

The views expressed in this article are those of the writer and do not necessarily represent those of the Zimbabwe Broadcasting Corporation.