LIVINGSTONE MARUFU
Local firms have been forced to stay away from tapping local banks for fresh capital in foreign currency for retooling as they consider the lenders’ interest rates punitive and unattractive, Business Times can report.
According to official data obtained from the Reserve Bank of Zimbabwe (RBZ), the lenders have an estimated US$1.8bn lying idle in their foreign currency accounts.
However, the US$1.8bn has found few takers due to high borrowing costs, which are as high as 18% per annum.
The few that access forex credit are the hardest hit and are said to be finding it hard to meet repayments. They are now saddled with higher capital costs, which are likely to continue hurting them.
To a larger extent, the impact of the forex credit crunch is that local industry will continue to be uncompetitive as a result of obsolete machinery which are inefficient.
The Zimbabwe Chamber of Commerce CEO, Christopher Mugaga, told Business Times that is of great concern, imploring RBZ to come up with measures to ensure that industry is able to access the close to US$2bn lying idle in local banks.
“Industry is in urgent need for cheaper but patient capital for recapitalisation and retooling as we aim to be competitive in the region,” Mugaga said.
Mugaga said this will lessen pressure on the foreign currency auction market while spurring economic activity in the productive sectors.
The Confederation of Zimbabwe Industries president Kurai Matsheza said home grown solutions are needed to promote industry growth.
“We cannot continue looking for credit lines across the globe when we have (about) US$2bn lying idle (in local banks ) because the interest rates are high and are not competitive,” Matsheza said.
“It’s high time we start finding solutions that promote organic growth as only Zimbabweans have the power to extricate themselves from current problems.”
It is estimated that local industry requires about US$1.7bn annually to retool, a move which will help stimulate production in the manufacturing sector.
As a result of the existing funding gap, exports across all value chains remain subdued as the local industry is uncompetitive.
The CZI said obsolete equipment was one of the key factors derailing efforts to increase capacity utilisation to competitive levels.
A recent CZI manufacturing sector survey report indicated that it was imperative for Zimbabwe to improve its country credit from external development finance institutions.
Industrialist, Sifelani Jabangwe, said: “…Government should continue to address key economic fundamentals which will help industry increase capacity. With that, production cost comes down and this will enable the firms to invest in additional capacity in future.”
Economist Tapiwa Mashakada said most of the local companies have dilapidated machinery and require re-engineering. He said the retooling of the industries could be achieved through a sustained funding of the industrial sector by the government, supported by some financial institutions.
“There is a need for the government to work together with banks such as Afreximbank to fund the retooling exercise but this should be linked to the export sector,” Mashakada said.
An economist with a leading commercial bank said Zimbabwe’s risk profile has increased the cost of borrowing from international banks.
“International financiers view us as high risk because of the external debt which we have failed to honour before. Whoever wants to lend us money take that into consideration,” the economist said.
Asked why banks were sitting on US$1.8bn, the economist said the money belonged to depositors and has to be protected adding banks do not want to be burnt like what happened in the past when non-performing loans threatened to tear the sector apart.
“Banks want to lend but they are doing it cautiously,” the economist said.
