adminDr Gift Mugano
The African Export-Import Bank is set to inject US$1,5 billion to stabilise Zimbabwe’s economy and to provide investment guarantee to investors that it will pick up country risk which may befall their investments.
Sources close to the deal indicated that the US$600 million nostro stabilisation facility extended to the country to meet the forex requirement for productive foreign payments had also been finalised.
The funds will support the productive sector through banks and the mining sector, especially the gold sector, as well as retooling the manufacturing sector among other industries.
In availing the US$1,5 billion, Afreximbank president and board chair Dr Okey Oramah underscored that the facility would go towards revival of the productive sector to stimulate more exports and stabilisation of Zimbabwe’s economy by providing currency liquidity to avoid bank queues.
In line with this, he said Afreximbank would also be supporting nostros of the different banks to ensure that those dealing in American dollars had access every time they needed them to pay for goods.
In addition, the funds being provided by Afreximbank would also provide investment guarantees for investors to entice them to come to Zimbabwe.
In this regard, the Afreximbank put aside a US$150 million facility, which will work as a credit guarantee for companies importing essential items like fuel, fertilisers and so on.
After having unpacked the deal, it is important to then ask one important question: What is the importance of this deal to Zimbabwe? This deal will help the country address liquidity problems, generate exports, raise production and employment generation and boost its confidence and image.
With respect to the liquidity problem, it is in the public records that the Reserve Bank of Zimbabwe had been grappling with backlogs of foreign payments in the region of US$700 million.
The shot in the arm of US$600 million, together with the US$150 million credit facility from Afreximbank will help the country clear that backlog and reduce pressure on the RBZ in balancing both domestic and foreign requirements of cash. With respect to productivity enhancement, part of the US$1,5 billion deal is to support country’s production, especially in the manufacturing sector and mining, with specific focus on gold through provision of funds for retooling.
Zimbabwe suffered a drought of capital for retooling for a long time.
And, as such, because of obsolete equipment, the country lacked capacity to export. As a result, the country became a net importer. Undoubtedly, incessant trade deficits have been the major root cause of the liquidity challenges the country is facing.
The most exciting feature of the Afreximbank facility is that the whole US$1,5 billion is anchored on supporting the country’s production capacity.
The nostro stabilisation facility and the US$150 million credit facility are both aimed at production-oriented requests. This is a gospel which was preached by RBZ Governor Dr John Mangudya when he assumed office and President Emmerson Mnangagwa in his inauguration speech.
It is refreshing to note that we are moving in the right direction at a fast pace for that matter. As we all know, enhancing production capacity will certainly result in job creation, expansion of fiscal space and general improvement in people’s welfare. With respect to improving the country’s confidence level, the US$1,5 billion shot in the arm, which came on the back of the new political dispensation, will send positive signals to investors and other international development partners that Zimbabwe is good ground for business.
Ironically, the Afreximbank facility is coming at an opportune time when Finance Minister Patrick Chinamasa has just unveiled a reform-oriented National Budget. The facility is a clear endorsement of the National Budget Statement and it is most likely that a number of financiers will come and support it.
The US$150 million facility for letters of credits will certainly reduce the country’s risk profile and help the private sector access international funding.
In trying to unpack the implications of the Afreximbank facility on the economy, it is important to look at it in the broad spectrum of the measures Government is putting in place.
Measures enunciated in the National Budget Statement aimed at boosting production through policy reforms, rationalisation of the civil service expenses and dealing with corruption, together with the amnesty given to those who externalised funds and cash barons, will go a long way in putting this country on a growth trajectory.
Most importantly, what does this deal and a number of measures put in place by Government mean for the ordinary Zimbabwean? The ordinary people want jobs and cash! Like I indicated in my last instalment, I am convinced that in 100 days, we should be able to withdraw cash from automated teller machines.
And, obviously, as we work on pushing production frontiers, we will be creating jobs.
Dr Gift Mugano is an economist and the Registrar of Zimbabwe Ezekiel Guti University. He wrote this article for The Sunday Mail.
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