NDAMU SANDU
The private sector’s ability to access African Development Bank (AfDB) funding is dependent on Zimbabwe’s risk profile and capacity of institutions, the bank’s manager for Zimbabwe Damoni Kitabire has said.
In June, AfDB led a private sector development roundtable forum in Harare where the Abidjan-headquartered bank heard funding constraints of the local private sector. Kitabire told Business Times in written responses that AfDB had no resource envelope for the local private sector.
“The bank’s level of funding to the private sector in the long run will depend on a number of factors and these include country risk profile as well as the interest, capacity and suitability of private sector institutions to receive investments from the Bank,” Kitabire said when asked how much AfDB would advance to the private sector.
In June, the AfDB team signed two non-disclosure agreements with Zimbabwean companies, paving the way for the sharing of information with potential project owners in their quest to receive bank financing for the project.
The two companies are in financial, energy and agroprocessing sectors although AfDB’s new investments in Zimbabwe’s private sector are initially in the financial sector, Kitabire said.
“However, a broader assessment of other high potential sectors and businesses in Zimbabwe to inform medium to long-term investments is on-going and the sectors with potential to benefit from the Bank’s private sector support in the medium to long-term include manufacturing, agribusiness, infrastructure and mining given their propensity to aid quick economic recovery,” he said.
Kitabire said the business development mission that came to Zimbabwe in June 2018 was a major step in identifying “new private sector investment opportunities” in the country as well as initiating the process of “building a pipeline for viable projects”. The bank, he said, already had an active portfolio supporting private sector projects in Zimbabwe in spite of the country’s arrears situation. These include the $8 million Lake Harvest Aquaculture expansion project and a $25 million medium-term Trade Finance line of credit facility extended to CABS.
Zimbabwe owes AfDB $680 million and has up to 2020 to clear the arrears and access the bank’s ring-fenced bridge loan that is available to Sudan, Somalia and Zimbabwe. Kitabire said Zimbabwe became a fully-fledged member state of Africa Trade Insurance (ATI) agency in October 2016 with the financial support of the AfDB.
ATI’s role is to provide risk mitigation instruments, such as investment and political risk insurance, to investors, lenders and others doing business in Zimbabwe.
The provision of the risk mitigation measures comes in handy at a time President Emmerson Mnangagwa is singing the Zimbabwe is open for business hymn. Zimbabwe’s companies have been crying out for patient capital to be able to retool and become competitive. Local banks cannot offer long tenure loans due to the short term nature of deposits.
Kitabire said AfDB’s loans to the private sector generally run for terms of 5 to 15 years with suitable grace periods reflecting the implementation schedule and projected cash flow of the project.
Longer maturities can exceptionally be granted for complex infrastructure projects, he said.
The private sector is key to the growth of economies.
It is estimated that the private sector generates 90 per cent of jobs in developing countries and fund more than 60 percent of investment in those countries.
It contributes more than 80 percent of Government revenue in low and middleincome countries through company taxes, resource rents and income tax on employees. Despite its contribution, the private sector has been devoid of funding especially in Zimbabwe where Government has been borrowing heavily from the domestic market to fund runaway expenditure.
Government borrows from the domestic market through the issuance of Treasury Bills. Domestic debt has raced to $9,5 billion as of August from 275,8 million in 2012.
Kitabire said Government should find an optimal level of debt, which promotes both private investments and economic growth.
“More focus should be put on the country’s debt management profile particularly the expenditure items –borrowed funds are to be put on growth enhancing capital expenditure instead of consumption expenditures,” he said.
“Government should find ways of increasing alternative sources of financing apart from increasing domestic borrowing, that is, boosting alternative resource mobilisation efforts.”
