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Investors in Zim switch from equity financing to loans

Sep 15 2016 18:38
Memory Mataranyika

Harare – The remaining foreign investors in Zimbabwe are re-strategising, swapping equity financing for loans as the preferred form of investment, according to Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya. He highlighted that Harare needs to take hard measures and “walk the talk” to turn around its economy.

His warnings came in the aftermath of President Robert Mugabe shooting down plans by Finance Minister Patrick Chinamasa to cut 25 000 civil service jobs and shelve bonus payments for government workers this year.

READ: Zim drops plan for job and bonus cuts

Zimbabwe is struggling for liquidity and its economy, currently in deflation, has seen limited investments, with companies shutting down and job losses mounting. It also blamed its woes on a weaker rand after remittances tumbled.

“It is evident that due to the perceived unfavourable investment climate in Zimbabwe, investors have since devised a method to mitigate this perceived risk by using loans to finance their investments in the country as opposed to equity financing,” Mangudya said in his monetary policy review in Harare on Thursday.

In the half-year to end June, the RBZ “approved and registered a total of 156 (offshore loan) facilities with a monetary value of US$976.4m”.

South African companies with units in Zimbabwe - including Tongaat Hulett, PPC, SABMiller and Nedbank - have mostly provided support for their units in the country. Some of the bigger SA companies in Zimbabwe are delaying capital projects, sources said.

The country has also imposed import restrictions and is limiting outbound remittances to manage scarce cash resources. Mangudya said Zimbabwean banks processed, on a cash-flow basis, total outgoing payments amounting to $2.7bn.

“This represents a 24% decline from $3.5bn for the same period in 2015,” he said.

Zimbabwe is set to introduce local bond notes next month to help breathe fresh capacity into productivity in the economy. However, doubts still linger about the sincerity of the government amid claims that Mugabe and his government are readying reintroduction of the Zimbabwean dollar “through the back door”.

The central bank chief admitted that “private sector offshore external loans have been an integral source of liquidity in the economy” as new capital projects and equity investments in Zimbabwean ventures take a pounding.

“These loans, as opposed to equity injection, have mostly been utilised for working capital and capitalisation.”

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