Investors in Zim switch from equity financing to loans

07 Oct, 2016 - 00:10 0 Views

The ManicaPost

The remaining foreign investors in Zimbabwe are re-strategising, swapping equity financing for loans as the preferred form of investment, according to Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya. He highlighted that Harare needs to take hard measures and “walk the talk” to turn around its economy.

Zimbabwe is struggling for liquidity and its economy, currently in deflation, has seen limited investments, with companies shutting down and job losses mounting. It also blamed its woes on a weaker rand after remittances tumbled.

“It is evident that due to the perceived unfavourable investment climate in Zimbabwe, investors have since devised a method to mitigate this perceived risk by using loans to finance their investments in the country as opposed to equity financing,” Mangudya said in his monetary policy review in Harare on Thursday.

In the half-year to end June, the RBZ “approved and registered a total of 156 (offshore loan) facilities with a monetary value of US$976,4m”.

South African companies with units in Zimbabwe – including Tongaat Hulett, PPC, SABMiller and Nedbank – have mostly provided support for their units in the country. Some of the bigger SA companies in Zimbabwe are delaying capital projects, sources said.

The country has also imposed import restrictions and is limiting outbound remittances to manage scarce cash resources. Mangudya said Zimbabwean banks processed, on a cash-flow basis, total outgoing payments amounting to $2,7 billion.

“This represents a 24 percent decline from $3,5 billion for the same period in 2015,” he said.

Zimbabwe is set to introduce local bond notes next month to help breathe fresh capacity into productivity in the economy. The central bank chief admitted that “private sector offshore external loans have been an integral source of liquidity in the economy” as new capital projects and equity investments in Zimbabwean ventures take a pounding.

“These loans, as opposed to equity injection, have mostly been utilised for working capital and capitalisation.” – Fin 24.

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