The African Export Import Bank (Afreximbank) has availed US$255m letters of credit to Zimbabwe for fuel imports and the production of basic commodities in a bid to ensure adequate input supplies to the local market.
The letters of credit (LCs) will work as revolving funds from the Afreximbank and will be recycled for three years for the importation of critical commodities such as fertilisers, pharmaceuticals, fuel, production of cooking oil, and other raw materials for industry.
he LCs will reduce the burden on the various lines of credit that Zimbabwe is currently enjoying as it will utilise and replace the funds within a period of three months. This however comes amid reports that foreign insurers were now rejecting the LCs after violent protests last month increased the country’s risk profile in terms of economic stability.
The Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, told Business Times that the country was considering increasing its LCs rather than loan facilities as LCs are easily manageable and “will help us without necessarily drawing down from the main loan facilities we have with Afreximbank.
“Our LCs matures in 90 days, some in 120 days and the others in 10 days as they give each other an opportunity to be revolved. Let’s say the RBZ draws down $10 million for drugs and it’s a 90-day LC, we will repay that money within the stipulated time,” Mangudya said.
“Of the $255m worth of LCs, $150m of them are running facilities and $105m is yet to be used.”
He said the pricing of all the Afreximbank LCs was competitive and benchmarked to international standards, and also within the stipulated thresholds of such borrowings for the economy.
Last year, Zimbabwe secured credit lines worth $880m from regional and international banks as efforts to resolve the country’s foreign currency shortages intensified.
Though Afreximbank has been Zimbabwe’s biggest benefactor since the turn of the millennium, the Cairo-based export and import bank’s facilities have not been able to end the country’s cash and forex shortages due to a huge backlog of over $800m arrears and high import bill.
Zimbabwe is currently drawing down from the Afreximbank’s $500m facility, $250m from Germcorp of UK and $30m from the Industrial Development Corporation of South Africa while the $100m from CDC is still to be finalised.
Well placed sources say the loan had stalled due to stringent requirements for guarantees that the RBZ is supposed to provide. British Minister of State for Africa, Harriet Baldwin, alluded to such when she appeared before the UK parliament this week.
According to Baldwin only one company had qualified for the funds but the facility was yet to be disbursed over the lack of guarantees. This is because there are fears that the foreign currency shortages may result in defaults.
Business Times understands that the company, which filled in all the applications for the facility successfully is Delta Corporation. Delta has been struggling to secure foreign currency for its raw materials. Mangudya on the importance of credit lines Mangudya said these credit lines were dealing with the disequilibrium in the foreign exchange supply.
The central bank insists that the parallel market for forex reflects the mismatch between the supply and demand for foreign currency. Thus an increase in foreign exchange receipts will keep the parallel market rates under check.
Despite the promises by the central bank that credit lines will meet the critical obligations such as external payments for raw materials or key industrial machinery, as well as fuel and medicine among others, the country is still struggling to meet industry’s forex demands.
The RBZ is currently looking for lines of credit from South Africa and other countries, but the recent wave of violence and human rights abuses following the violent protests against the fuel price increase three weeks ago, will make it difficult for the country to access fresh lines of credit. But with tobacco auction floors expected to open in mid-March, forex challenges are expected to lessen.