admintarget and US$269 million was secured last month in June against a target of US$280 million.
The irony lies in expecting fellow Sadc states to intervene financially when the political capital they are already injecting through their participation in the GPA process is well documented.
The year 2012 has so far been an indifferent year on the economic front as the long-term trend in the business cycle is indicating to a downward facing economic growth. The key enablers of the economy are in intermittent supply with the real sector expected to be the mostly affected ahead of the financial service sector. Lack of long-term funds coupled with exhausted infrastructure plays a negative role in the quest to extricate Zimbabwe from its abyss.
The announcement of new capital requirements could send some shock waves in the market but the aura of bleakness within the sector is waning by the day as the call for new requirements is not as harsh as could be read on the surface, the quarterly benchmarks are not that low but are achievable.
A review of regional capital requirements for different financial institutions is useful but not sufficient to argue the capital requirements debate. South African commercial banks and merchant banks are obliged to have US$39 million and US$7,5 million respectively, in Tanzania it is USS$3,2 million, US$150 million for Nigeria and US$3,3 million for Kenya.
As much as such nations have substantially higher GDP values and a robust interbank market, the appetite to manage risk of bank failure is low as compared to the dollarised environment in Zimbabwe where banking is compromised and unethical, so it could be a safe haven for depositors to summon their confidence which was eroded prior to 2009.
Like that of Zimbabwe, the structure of Kenya’s banking sector is skewed, with the top six of the country’s 43 banks remaining dominant.
These six banks controlled 62 percent of industry’s profits in 2011, as well as 53 percent of customer deposits and 54 percent of total assets.
However, indigenous banks in that country are more profitable than foreign ones with Equity Bank and Kenya Commercial Bank Group surpassing Standard Chartered and Barclays. A 37,7 percent rise in five months profits to May, compared with 20,5 percent last year riding on high interest rate spreads that have, however seen their non-performing loans rise.
We need to be saved from the hawkish behaviour of bankers.
In Nigeria, there is much effort to rein in the powers and the budget of the Central Bank of Nigeria. Mr Lamido Sanusi has taken on the banking industry but faces a more formidable foe in the form of the country’s legislators as the same legislators had been busy protecting their interests through significant shareholding they hold in such banks, however the governor has the backing of foreign investors.
In 2012, Nigerian government’s spending budget was at US$31 billion, a 12,9 percent inflation rate as at the end of August and a market capitalisation of US$45,6 billion.
This will make the US$150 million capital requirements a pittance as a relative value.
The consumer price index has been waning of late with year-on-year inflation decreasing. This leaves Zimbabwe among nations with the lowest inflation rate in sub-Saharan Africa, the irony of the inflation decline is it has not been promoting micro-economic transformation. The third quarter was a tough phase as most economic indices were slackening save for inflation.
Conventionally, the negative relationship between unemployment and inflation holds as witnessed currently but unfortunately this has nothing to do with increased Government spending as the bloated Government has been forced into the mode of unintentional austerity.
Inflation decline where banking industry is fragile and not well capitalised has a risk of not promoting both savings and investments.
Zimbabwean banks still thrive on non-funded income mostly and this prompted the savings rate to remain under check while the bank charges continue breaching a presumed ceiling.
In the 2011 survey on banks in Africa, no Zimbabwean bank could make the top 200 grade with our strong trading partner, South Africa, dominating the top five position with Standard Bank, ABSA group, Nedbank group and First Rand making up the list respectively. This has indirectly suffocated our real sector with South Africa enjoying comparative advantage in producing retail goods which Zimbabwe can only produce at a much higher cost due to a depressed financial service sector which led to higher cost of capital.
Zimbabwe has been hit by an economic phenomenon where a decline in inflation does not seem to translate into increased purchasing power of residents through improved disposable income.
The third quarter has irked the spirits of nationals with jobs data, current account deficit and a hazy debt management strategy carrying the day as we move towards the final and last quarter.
Why would a nation with a significantly depressed capacity utilisation levels, a yawning trade deficit and political uncertainty witness an inflation decline?
The implication is there is not much to celebrate in the decline of inflation as the liquidity crunch and dominance of cheaply produced South African commodities led to a quasi-glut in the retail market.
A bleak but stable story is unfolding at the Zimbabwe Stock Exchange with the sole capital market in the country growing at a snail’s pace, this is explained by the marginal increase in most of the stock prices .As at the beginning of this quarter, African Sun was valued at 0,9 cents and it remained constant at that value, Barclays was at 3,2 cents and closed the week at around 3 cents, Colcom and Innscor rose significantly within this quarter from 25 cents and 54 cents to 35 cents and 66 cents respectively. This third quarter opened with a special bargain of 61 254 241 TPH shares at 11 cents each. A marginal rise was seen for Econet shares which rose to 435 cents from 430 cents at the beginning of the third quarter, Delta rose to 75 cents from 65 cents which was registered on July 2 which marked the onset of this quarter.
With a market capitalisation of below US$5 billion and about 75 actively trading counters, the ZSE compares unfavourably with exchanges which used to be at equal footing like the Nairobi Securities Exchange. The NSE has 59 listings and a market capitalisation of nearly US$12 billion, Tanzania’s Dar es Salaam Stock Exchange saw its capitalisation rise to 10,33 percent at mid year to just above US$8 billion. Instead of clamouring for an SME bourse, Zimbabwe at this juncture requires a restructuring of the whole exchange which will see some of the listed stocks being downgraded to TIER 2 levels. It is the highly capitalised counters which had recorded significant share price rises in this third quarter.
l Christopher Takunda Mugaga is an economist; and is attached at Econometer Global Capital where he is the head of research. He can be contacted on +263 772 340 353, +263 776 266 062 or e-mail address: [email protected]
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