Industry bemoans high cost capital


Industry is battling to contend with high cost of finance while access to capital is a major hurdle despite the Government’s guarantees for loans under the $18 billion economic stimulus.

On May 1, 2020, President Mnangagwa, unveiled an $18 billion economic recovery and stimulus package aimed at reinvigorating the economy, but the bulk of it were in the form of guarantees.

This was meant to provide relief to individuals, families, businesses and industries impacted by economic slowdown caused by the pandemic and measures by the Government to control the health crisis.

However, the majority of industrial firms were not able to obtain funding under this arrangement, which has been compounded by the already prohibitively high cost of short term funding. Confederation of Zimbabwe Industries (CZI) president, Henry Ruzvidzo, told this publication that the cost of funding and access to long term capital were issues the industry is grappling with.

“We, however, recognise that there is a need to ensure a fine balance (so that) macroeconomic stability is maintained. The stimulus package was mainly in the form of guarantees, which made access difficult,” he said.

Ruzvidzo said industry needed retooling and bridging finance following the national lock down, which cut most of the companies’ revenue streams, save for a few in the essential service category.

“Most value chains are financing, but a stable environment is a very important consideration,” he noted, as economic agents call for measures to stop open and official market exchange rate margins from widening.

Finance and Economic Development Minister Mthuli Ncube, said last year the Government would provide guarantees of up-to $2,5 billion for bank loans to be accessed by industry for working capital purposes.

The cost of funding remains an issue despite the Government, when it announced the 418 billion stimulus, saying that productive Sector lending interest has been lowered to not more than 20 percent and loans must be restructured to allow businesses to recover. Loan restructuring would entail review and relaxation of regulatory guidelines and benchmarks.

The Reserve Bank of Zimbabwe last year hiked its bank policy rate from 15 to 30 percent to contain money supply growth and speculative borrowing, as inflation threatened to bolt away amid exchange rate volatility. As such, bank lending rates are hovering around 45 percent per annum, due to the high policy rate, as inflation levels in the economy remain elevated nearly half way into the current year.

The central bank is targeting monthly inflation to trend below 3 percent for much of the year and the annual rate to progressively trend down to below 10 percent by the end of the year.

Former CZI president Busisa Moyo recently told Industry and Commerce Minister Sekai Nzenza that industry was not special but peculiar, and so needed special financing to reboot operations. – B-Metro