A vote of confidence

This week the European Investment Bank (EIB) signed credit lines facilities with two Zimbabwean banks valued at €25m for on-lending to exporting SMEs and mid cap companies.

The facilities which have a tenure of 7 years can be offered in either short term or medium to long term for local companies.

This is the third time that EIB has advanced lines of credit to local banks after giving CABS  €15m last year.

The credit lines are a boon for local firms that have been struggling to access patient capital from banks due to the short term nature of deposits.

Zimbabwe requires lines of credit to reboot the economy ravaged by the twin shocks of the Covid-19 pandemic and the Russia-Ukraine war and the boost could not have come at a needy time than this.

Companies have been crying for cheaper medium to long term loans in foreign currency to be able to retool and become competitive. The demand for medium to long term loans comes as the foreign currency auction system has been unable to meet industry needs.

Local companies need to become competitive to be able to withstand the heat in the enlarged market created by the African Continental Free Trade Area (AfCFTA).

The AfCFTA is the largest trading bloc since the creation of the World Trade Organisation with a population of over 3bn.

Central bank chief John Mangudya said the facilities showed the confidence the EIB has on Zimbabwe.

By focusing on the private sector, it is expected that the move would create employment, exports. It will lead to private sector-led growth.

The banks that accessed the credit lines have to be thorough and diligent in the disbursements to avoid non-performing loans.

Those that access the loans have to make sure that they are used for what they were intended for.

Any misuse will close the opportunity for future beneficiaries. The regulators have to ensure the environment is conducive for offshore lines of credit. Predictability and certainty should be the buzzwords for regulatory authorities. There is no room for night decrees like what happened when authorities ordered banks to suspend lending.

The suspension was lifted following an outcry.

What the EIB facilities have demonstrated is that there are some financiers awash with cash and looking for a home to deploy  resources.