Ashly DhaniNelson Gahadza
Pension funds are failing to commit long-term funding as they are skeptical of what will happen to US dollar investments post- multicurrency system, which was entrenched into law for the period of National Development Strategy 1 (NDS1, January 2021–December 2025).
They are considered the most liquid industry that is critical in terms of resource mobilisation for companies and projects that require patient capital.
However, the sector is still alive to what happened in 2009, when pension values and savings were completely wiped out during a transition from the Zim dollar economy to a basket currency, predominantly the US dollar.
In this case, the pension funds believe a predictable policy environment is likely to foster confidence and investor participation.
“Currently, there is a statutory instrument that speaks to investments in terms of the US dollar for the next five years. What will happen after five years? Investors will shun away and pension funds tend to become skeptical of long-term investments,” said Zimbabwe Association of Pension Funds (ZAPF) director Sandra Musevenzo during a recent IPP indaba.
She said investors do not want to experience major changes or upheavals that could affect their investment.”
“The funds are key to economic development, contribute significantly to the country’s gross domestic product (GDP), and are also aligned with the country’s National Development Strategy (NDS1).
“We need a predictable policy environment that fosters confidence and investor participation,” said Musevenzo.
In June 2022, the Government gazetted Statutory Instrument 118A of 2022, entrenching the multi-currency system into law and making both the US and Zimbabwe dollars legal tender for all local transactions for the duration of the NDS1.
The regulations empowered registered lenders, banks or any financial institution that lends foreign currency to receive repayment of the loan or credit in that foreign currency.
In addition, the legislation is also aimed at supporting the use of the willing-buyer, willing-seller exchange rate market price discovery in the setting of prices on the local market.
Commenting on the same issue on her Linkedin page Investment Analyst, Vongai Chidaushe, said most financial institutions in Zimbabwe don’t know how to calculate risk beyond the expiration of NDS1 in 2025.
“As a result, we are witnessing a proliferation of financial products with a short-term focus, leaving long-term investments, such as those made by pension funds, largely neglected.
“This short-sighted approach is discouraging, considering the importance of long-term investments in driving sustainable economic growth and development. The issue of currency poses a significant threat to national development. It is imperative that the Government and relevant authorities address this matter urgently,” Chidaushe said.
The Bankers Association of Zimbabwe (BAZ) also recently raised the issue, seeking clarity as banks are cautious about lending long-term due to the uncertainty in the multicurrency system.
Musevenzo said performance return is probably the most important factor for investors, and they want to see that there is a good chance they will make money if they invest.
She said that regulation, the ease of doing business, and regulatory frameworks should be investor-friendly to foster participation, noting that regulatory burdens such as licensing and costs should not be discouraging enough to prohibit investor interest in IPP’s.
In Zimbabwe, the main sources of funding for IPPs are development finance institutions, multilateral agencies, and private equity funds, and these financiers offer various instruments, such as debt, guarantees, grants, and equity.
Other financing options include blended finance, which involves combining concessional finance from public sources with commercial finance from private sources to reduce the financing gap and improve the risk-return profile.
Debt instruments issued by a special purpose vehicle that owns or operates an IPP project can raise funds from institutional investors, and the project bonds can offer long-term, fixed-rate financing for IPPs at lower costs than bank loans.
Crowdfunding can also enable IPPs to access alternative sources of capital, such as retail investors, diaspora communities, or social enterprises.
Other funding instruments include a green bond, which is a fixed-income instrument specifically earmarked to raise money for climate and environmental projects.
These bonds are typically asset-linked and backed by the issuing entity’s balance sheet, so they usually carry the same credit rating as their issuers’ other debt obligations.
Green bond finance projects are aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, clean water, and sustainable water management.
Musevenzo said green bonds may come with tax incentives such as tax exemptions and tax credits, making them a more attractive investment than a comparable taxable bond.
Bongani Ndlovu