China Eximbank provides $25.9 million loan for Mulungushi Textile Mill Project (Linked to Project ID#57376, #66667)

A Zambian state-owned enterprise known as Mulungushi Textiles Ltd was incorporated in 1982, after the signing of an Economic and Technical Cooperation Agreement (ECTA) by the Chinese and Zambian governments on June 23, 1976 and the subsequent provision of bilateral funding by the two governments. Construction of the plant by the Chinese civil engineering team started in 1977 and was completed in 1981 and handed over to the Zambian government in 1983 for trial production. Then, in 1996, Qingdao Textiles Holding Group and the Zambia Ministry of Defense established a joint venture called the Zambia-China Mulungushi Textiles Joint Venture Ltd. (ZCMT) as a way of taking over the assets of Mulungushi Textiles Ltd (see Project ID#66667). Qingdao Textiles holds a 66% equity stake and the Zambia Ministry of Defense holds a 34% equity stake. China Eximbank issued two loans worth RMB 200 million (one worth RMB 150 million and another worth RMB 50 million) in 1996 -- through the Development Bank of Zambia (DBZ) -- to the joint venture for the rehabilitation of the Mulungushi Textile Mill (see Project ID#57376). These loans were to be used by the borrower to re-capitalize and provide working capital. However, the loans were ultimately issued in U.S. dollars and foreign exchange losses amounting to 5,175,095,643 kwacha were incurred as at December 31, 2003, due to the continuous depreciation of the Kwacha against the U.S. dollar from 1996 to 2003. Then, in 2007, China Eximbank issued another $25.9 million loan for the Mulungushi Textile Mill Project. The borrowing terms of this loan are unknown. According to the 2009 and 2010 Development Cooperation Reports from the Government of Zambia, the loan fully disbursed. The proceeds of the loan apparently supported efforts to reopen the Mulungushi Textile Mill after it went bankrupt and ceased operations in early 2007. In the 2000s, ZCMT encountered a variety of financial and operational problems, including (a) old equipment and machinery that affected production efficiency; (b) a fluctuating exchange rate that made planning difficult; (c) competition from imported cheap cotton fabrics that flooded the local market; and (d) the erratic supply of coal, which was the main source of energy for the boilers at the textile mill. The mill went bankrupt and closed in January 2007, laying off more than 800 employees. However, from January 26-30, 2007, the Chinese shareholders in ZCMT traveled to Zambia for consultations with the company’s management team and discussed a 'survival plan' that would include, among other things, liquidating all of the debts owed to ZCMT and clearing all outstanding salary arrears (with 600 million Zambian Kwacha — or approximately $33 million — of financial support from the Chinese shareholders). The Government of Zambia subsequently announced plans to reopen the mothballed Zambia-China Mulungushi textile mill before the end of 2012 to provide employment for youth workers. However, it was not reopened until August 1, 2016. Then, in June 2022, the Government of Zambia announced that it was seeking $100 million to recapitalize the ailing Mulungushi Textile Mill. Zambia's Minister of Defence, Ambrose Lufuma, said that his government has faced problems in revamping the textile mill due to its outstanding debt stock.

Additional details

1. The Chinese project title is 穆隆古希纺织厂. 2. This 2007 loan is omitted from the database of Chinese loan commitments that SAIS-CARI released in July 2020. AidData includes this loan in its dataset because it is recorded as a loan that was fully disbursed in 2007 in the Republic of Zambia’s Development Cooperation Report 2009 and Development Cooperation Report 2010.

Number of official sources

6

Number of total sources

19