Is the insurance, pensions sector the missing link in long-term infrastructure financing?

DEVELOPING a sound infrastructure is at the heart of Zimbabwe’s drive towards transforming the economy towards an upper middle-income status by 2030.

Anywhere in the world infrastructure forms the capital stock of a serious economy as a critical enabler for facilitating efficient production systems and services. The extent to which infrastructure assets promote or strain production, efficiency, and reliability is a major headache for most governments including Zimbabwe as such bottlenecks tend to frustrate the success and sustainability of set development targets.

No wonder why in the National Development Strategy (NDS1), the Government has prioritised key infrastructure development projects with the conviction that large-scale public infrastructure spending will yield a solid growth-promoting impact with numerous benefits on downstream industries, massive job creation, and revitalisation of relevant social support services for improved livelihoods.

Since 2019, the Treasury has been allocating more resources towards priority infrastructure projects covering mainly transport and logistics, energy generation and distribution, health services infrastructure, water supply and sanitation, housing development and ICTs.

Given the high costs of developing new infrastructure, inadequate maintenance, and rehabilitation works when compared to the level of deterioration incurred in recent years, it is clear that Treasury financing alone is not enough to drive formidable long-term transformation.

During the recent 2023 Infrastructure Summit and Expo in Victoria Falls, stakeholders laid bare the reality of the inadequacy of cash budgets for infrastructure and stressed the need for mobilising more private sector participation and structuring suitable long-term debt financing for such projects in line with global trends.

This has been the Achilles heel for Zimbabwe, which is reeling under the yoke of sanctions, which have closed avenues for global lines of credit.

During debates on financing options, stakeholders queried what they viewed as limited input from the pensions and insurance sector in particular, and the financial services players at large.

President Mnangagwa, who was guest of honour, equally expressed his dismay, noting that private sector entities, including insurance and pension funds, should do more to complement Government efforts in developing the country’s infrastructure.

Vice-President, Dr Constantino Chiwenga, suggested that the financing hurdle must be resolved through proactive approaches that include “structuring debt financing where private participation such as pension funds, insurance companies, and banks is enhanced”. He called for the creation of strategic partnerships to bridge the funding gap.

“My plea to all of us is that let’s commit ourselves to implementing and supporting these projects and see to fruition the vision of our President,” said the Vice-President.

Due to the absence of global lines of credit and inadequate domestic private sector financing, Central Government and local authorities are now overly relying on cash budgets for funding critical infrastructure projects, said Mr Zvinechimwe Churu, permanent secretary in the Ministry of Local Government and Public Works.

“This is not sustainable and there is a need for long-term finance instead. We need at least 30-year infrastructure bonds and this is achievable,” he said.

“Let’s get our pension funds and insurance industry players getting interested in major infrastructure funding by subscribing to instruments to support such projects. I’m talking here about funding from within our grasp.”

Contacted for comment, Insurance and Pensions Commission (IPEC) director of pensions and life assurance, Mr Cuthbert Munjoma, said the insurance and pensions industry has been investing and is still funding infrastructure development in the country.

For example, he said about 80 percent of all the buildings in every city and town are owned by the insurance and pensions industry from historical investments such as bonds and quasi-government instruments, which used to average 60 percent of balance sheets before inflation and hyperinflation prior to the year 2000.

“That notwithstanding, the industry has continued to participate in infrastructure projects such as road rehabilitation, energy development, housing, and shopping malls,” said Mr Munjoma in written responses.

“However, while the industry has invested in these areas, IPEC continues to encourage the industry to do more by investing in projects of national importance including infrastructure development.

“IPEC has been recommending prescribed asset status on projects of national importance and the industry has been investing in these, though there is still room for improvement.”

According to IPEC, the asset base of the pensions industry as of 31 December 2022 was ZW$1,95 trillion (US$2,1 billion). At the same time, the life assurance sector had assets worth ZW$274,8 billion in nominal terms, representing an increase of 28 percent from ZW$214,6 billion in September 2022.

Zimbabwe Investment and Development Authority (Zida) chief executive officer, Mr Tafadzwa Chinamo, is convinced the revitalisation of infrastructure bonds is the most sustainable and suitable avenue to successfully finance key development projects.

To achieve this, he proposed that authorities come up with a viable project ownership model for potential funders as a form of assurance and guarantee for the release of funds. In this regard, he called for thorough research on ways to unlock domestic private-sector funding for major infrastructure projects.

Financial services experts who attended the meeting insinuated that their sector was equally crippled by the adverse macro-economic shocks facing the economy, which they expect the authorities to quickly resolve.

“Funding is not always there at banks but we need to ascertain where the economy is going. We may have pension fund monies but they don’t belong to us as banks and we invest these on their behalf,” First Capital Bank managing director, Mr Ciaran McSharry, said.

“We welcome the issue of infrastructure bonds but there is a need for confidence that people will get their monies back. At this stage, we don’t think foreign banks can give us funding because as a country we have huge external debt and the risk factor is high and we can only resort to equity funding.”

The country owes more than US$14 billion in external arrears.

CBZ Holdings chief executive officer, Mr Lawrence Nyazema, said resolving the national debt question was critical as it affects financial services sector operations, including their ability to fund big infrastructure projects. With an estimated US$3 billion in deposits at local banks, he said that even when combined, the local financial services players would not adequately finance the large-scale infrastructure needs of the country.

“We need to regularise our relations with our institutional creditors and debt clearance is a process. We are happy the Government is engaging over this so we tap into regional and international partnerships,” said Mr Nyazema.

He revealed that CBZ was one of the estimated 42 financial institutions behind the funding of the US$300 million Beitbridge Border Post modernisation project and was also involved in supporting the rehabilitation and upgrading of the Beitbridge-Harare Highway.

Zimbabwe National Road Administration (Zinara) chief executive officer, Mr Nkosinathi Ncube, said the biggest hindrance to financing road infrastructure projects, in particular, was to do with exchange rate volatility exposure, which has tended to erode budgeted funds.

He, however, urged banks and other finance houses to syndicate and pool resources together to support road maintenance works, which will require more talks at a closer level with guarantees from the Treasury.

Citing the need to bust sanctions impact on infrastructure projects, National Railways of Zimbabwe (NRZ) general manager, Ms Respina Zinyanduko, and Infrastructure Development Bank of Zimbabwe (IDBZ) chief executive officer, Dr Thomas Zondo-Sakala, said Zimbabwe must move with speed to revitalise its transport infrastructure and enhance efficiencies in order to tap into the huge investment and trade opportunities under the African

Continental Free Trade Area (AfCFTA).

Deputy chief secretary to the Office of the President and Cabinet, Mr Willard Manungo, said developing a sound infrastructure for the economy was a collective stakeholder responsibility. He urged public and private sector players to collaborate more on infrastructure development to ensure Zimbabwe achieves the desired upper middle-income economy status by 2030.

The meeting expressed hope that the Government’s engagement and re-engagement drive would unlock future project finance and made reference to the Japan International Corporation Agency (JICA), which is already warming up to financing one of the road development projects in the country.