LIVINGSTONE MARUFU
Zimbabwe banks have put brakes on lending to the country’s manufacturing sector, a move which has stalled its growth amid growing pressure to fulfil the demands of the African Continental Free Trade Area (AfCFTA), the Confederation of Zimbabwe Industry (CZI) has warned.
In its latest report, CZI said the sector got a paltry 9.42% of the total loans extended to the private sector last year with a large portion going towards the mining and agriculture sectors.
“For the manufacturing sector to adequately retool, more credit must be extended to the sector, especially with the AfCFTA now in force. There is a need for the banking environment to promote long-term deposits, out of which long-term loans could emerge, which are more suitable for the manufacturing sector,” part of the CZI reads.
The AfCFTA, which came into force in January 2021, is touted as Africa’s Marshall Plan with a potential to lift 100m Africans out of poverty and contribute US$450bn to Africa’s GDP by 2035, according to a report by the World Bank.
The AfCFTA is the world’s largest free trade area bringing together the 55 countries of the African Union and eight regional economic communities. It will create a market with a population of about 1.3bn and a combined GDP of over US$3trillion.
The squeeze, CZI warned, has hamstrung the manufacturing sector, curtailing the growth of the industry.
Zimbabwe’s banking sector, which consists of 13 commercial banks, five building societies, and one savings bank, said they cannot absorb the risk.
Instead, the lenders are only availing working capital loans, which companies can use to cover for short-term operational needs.
The short-term loans, CZI said, were not suitable for the manufacturing sector.
According to the Reserve Bank of Zimbabwe (RBZ) monetary policy statement, about 78% of total loans were extended to the productive sectors in 2022, with agriculture getting the bulk of the loans. The agriculture sector got 22.94% of the total loans from the financial institutions.
Total foreign currency loans to deposits ratio as of 31 December 2022 stood at 62.69% whilst the Zimbabwe dollar loans to deposit ratio was 41.40%.
Multiple captains of industry said borrowing in US$ for working capital means businesses will be forced to sell more of their products in US$ for them to be able to service their debts.
It also comes at a time when foreign currency deposits are now dominating the market. Forex money supply stood at 56.88% of the total money supply at the end of December last year.
The Zimbabwe dollar constituted 43.04% of the total money supply.
