High country risk hurts local banks

LIVINGSTONE MARUFU

Zimbabwe banks are having difficulties  accessing offshore  funds , largely due to  high country risk, the Bankers Association of Zimbabwe (BAZ) said yesterday.

Zimbabwe lost about 80 lines of credit and correspondent banking relationships with numerous foreign lenders over the past few years as a result of the high country risk.

“We have many banks that are applying for credit lines outside the country but very few are successful due to  high country risk. We have a number of banks which no longer pursue these offshore loans and  very few which  are still pursuing  and on those few they got very little   at a high  rate  due to high country risk . These amounts can’t  service a country  which is in dire need of international funding,” BAZ CEO, Fanwell Mutogo said.

He added: “We now have very few offshore funders who are willing to extend credit to Zimbabwean banks and they price at a high risk. Only those few funders who give us charge exorbitant prices and this means that the country has limited credit lines when compared to the demand.”

In addition, Zimbabwe lost access to over US$100 billion in bilateral donor aid, international business loans, grants, and loans from the International Monetary Fund (IMF), the World Bank, and the African Development Bank after Harare took land from former commercial white farmers in the course of the land reform program in 2000.

The enormous debt Harare owes foreign creditors has also hurt Zimbabwe’s credit rating, making Harare an outcast on international capital markets.

Zimbabwe owes international financial institutions and other offshore creditors close to US$12.8bn , while local debt totalled about ZWL$5.2bn.

As a result of lack of access to international capital, production has decreased over time, and no discernible growth is anticipated.

Kurai Matsheza, president of the Confederation of Zimbabwe Industries, told Business Times  that the sector needs about US$1bn annually but is unable to access even 10% of that amount.

“When a local company  applies  for the credit lines together with other companies in southern Africa, we find out that the local company cannot stand a chance with its regional  counterpart due to high country risk.

“Even if we get the loans, given the high country risk we will get it at a higher interest rate and that will be difficult for us to repay due to that,” Matsheza said.

He said the industry cannot grow without international funding and this has affected local companies in the past two decades.

According to Mike Kamungeremu, president of the Zimbabwe National Chamber of Commerce, local financial institutions have not been able to finance the industry and the situation is even worse outside; as a result, some foreign creditors have declined to continue providing local companies with goods and services due to lengthy outstanding debts.

Numerous analysts  also claimed that a high country risk and limited access to capital result in an unfavorable investment environment that may outweigh Zimbabwe’s prospects for economic growth.