Zim to ratify AFC Charter in search of cheaper loans

Business Writer

Zimbabwe is set to ratify the Africa Finance Corporation (AFC) Charter to open avenues to a pool of affordable lines of credit for various key projects required to drive industrial and economic development, including infrastructure, energy and mining industries.

The Southern African nation has gaping long-term funding deficiencies across the areas of its infrastructure, industry, energy and extractive sectors, which would, if funded well, drive rapid growth.

Limited access to funding is one of the biggest factors constraining the growth of both public and private sector enterprises in the Southern African country, which has not had meaningful access to cheap global financing since the turn of the millennium due to several factors.

Zimbabwe is presently not able to borrow from low-cost international financial lenders such as the International Monetary Fund, the World Bank, and the African Development Bank due to outstanding areas.

The pari-passu (same treatment) rules that bind the institutions also dictate that they stop lending the moment arrears arise with any one of the lenders.

Nearly two decades of economic embargo by Western Countries, led by the US and Britain, have also created hurdles in the country’s quest to access concessionary funding.

The US, a strong ally of Britain, passed a law, the Zimbabwe Economic Recovery and Democracy Act (ZIDERA) in 2001, which forbids its officers from backing any concessionary funding to Zimbabwe by any of the lenders where the world’s biggest economy is represented.

The move to ratify the AFC Charter comes after the Government of Zimbabwe in May 2018 formally accepted the invitation to join the AFC. The pan-African financial institution is a creation of African Member States that adopted the agreement in May 2007 and concluded the Establishment Agreement.

As of December 31, 2023, the AFC had disbursed an equivalent of US$12,7 billion from its inception, which was disbursed to benefit many African countries.

The terms of the agreement for the establishment of the AFC, dated May 28 2007 require that all new member countries ratify the AFC Charter as amended in 2022.

Finance, Economic Development, and Investment Promotion Professor Mthuli Ncube, in terms of subsection (2) of section 327 of the Constitution of Zimbabwe, recently brought the Charter to the National Assembly for ratification of the agreement.

Mthuli said also in terms of Section 110 (4) of the Constitution of Zimbabwe, the President had the power to enter into international conventions, treaties and agreements on behalf of the country.

Further, he said according to Section 110 (6) of the Constitution, the President was required to act on the advice of the Cabinet in the exercise of this function.

He said the agreement for the establishment of the AFC was adopted in 2007 and amended in 2012.
Zimbabwe became a member on May 9, 2018.

“However, formal acceptance of the invitation alone does not bind Zimbabwe but requires approval by Parliament in line with Section 327 of the Constitution of Zimbabwe,” Mthuli said.

“Furthermore, Article 19 (3) of the Agreement for the Establishment of the AFC provided for the ratification procedures by the members of the Charter.

“The Agreement for the Establishment of the African Finance Corporation as, in accordance with its Article 3, defines a member State as any African state that signs the Agreement or executes an instrument of accession or ratification in respect thereof,” he said.

The overall objective of AFC is to foster economic growth and industrial development of African countries, collectively and individually, Mthuli said.

“The advantage of this institution is that there are no tough or onerous pre-conditions for access and therefore, it is advantageous that we should become members.

“This will also create economic integration and cross-fertilisation of ideas which are so needed and will give us more capital as a country,” he said.

AFC seeks to support and promote infrastructure development in Africa through the provision of investment funds, facilitate African trade generally and export-oriented trade by African countries.

AFC was also formed to contribute to the development of the energy and extractive industries in Africa, provide on-lending and refinancing facilities to African financial institutions and generally engage in any kind of banking and financial business intended to promote investments in Africa.

“It is therefore, desirable Mr Speaker Sir, that the Republic of Zimbabwe ratify the aforesaid Agreement,” Mthuli said.

Contributing to the motion for the ratification of the AFC Charter in the National Assembly, Mbizo legislator Corban Madzivanyika said the AFC was a multilateral development finance institution that was formed in 2007 in Nigeria, where it is headquartered.

“The intention of this institution is basically to support the economic growth of most African countries as well as to promote the industrial expansion drive of African countries.

“This institution extends loans to sovereign states as well as other institutions for a return which they will give to their shareholders,” he said.

He noted that the major areas of priority for AFC were in line with issues of power generation, and issues to do with the strategic national resources such as oil, minerals, and gas.

“To add more to its weight, it supports infrastructure, particularly the transport infrastructure as well as the telecommunications infrastructure, and lastly, the heavy industry sector,” Madzivanyika said.

Some of the success stories of AFC include the 44-megawatt Singrobo hydroelectric project which was established with funding support from AFC in Ivory Coast, situated on the Bandama River.

It has a capacity of employing about 500 employees and will help alleviate the power challenges in their country, Madzivanyika said.

The AFC also supported projects in countries such as Angola, specifically the Cabinda Oil Refinery project, which if completed, has an estimated capacity of producing 60 000 barrels of crude oil, which will see the production of petrol, diesel and aviation gas enough to support about 40 percent of the country’s domestic fuel requirements in terms of fuel.

“One of the success stories again is the Aliko Dangote Oil Refinery Project which is a US$5,6-billion-dollar project. This project has a capacity of producing 650 000 barrels of crude oil per day, which will cover close to 60 percent of Nigeria’s oil requirements,” Madzivanyika said.