HomeOpinion & AnalysisThe Changing Financing Landscape: A Reverting Story

The Changing Financing Landscape: A Reverting Story

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Lately, the financial sector has begun to resemble an action movie — or is it perhaps a soap opera? — for there is never a dull moment in sight. There is always something new unfolding, a twist in the tale, so to speak. Either it’s a new product launch, regulatory manoeuvres to improve market liquidity, inter-ministerial jibes about the indigenisation of the banking sector or it’s yet another chapter in the long-running bank recapitalisation sub-plot. Add to this cocktail the anxiety and anticipation of the financial reporting season and you have all the ingredients of a reverting story.

This week FSS focuses on some recent developments that have game-changing implications on the financial sector landscape.

Econet /TN Bank tie up
We hear Econet Wireless, the country’s largest mobile phone operator in terms of subscribers and coverage, is on the verge of concluding acquisition of a 49% equity stake in TN Bank for a consideration of $20 million.

If it happens — or let me perhaps say when it happens — the transaction will bring together TN’s considerable reach achieved through a wide branch network with Econet’s deep pockets.

This could see the creation of another locally owned bank to give the traditional giants a run for their money. It is thought Econet’s decision to buy into TN Bank is part of a wider plan to facilitate and broaden its EcoCash product, launched in partnership with the bank. In early 2010, Tawanda Nyambirai, the group CEO of TN Holdings famously vowed to wrestle market leadership from the traditional giants, asserting TN Bank sees itself “being the largest bank in three years . . . in terms of deposits, clients, distribution network and eventually profitability”. This transaction gives the largest hint yet the realisation of that goal may not be very far off the horizon.

CFU/BAZ collaboration
The Commercial Farmers’ Union (CFU) and the Bankers’ Association of Zimbabwe recently announced collaboration meant to improve the country’s productive sector capacity by stimulating investment inflows leveraging on real estate as collateral. Under the arrangement, the government would act as a guarantor to mortgage transactions financed by foreign investors.

The potential of this arrangement to yield longer-dated financing of five to 10 years from international investors as well as its prospect of reducing the cost of borrowing make this initiative something to watch. I am aware of the CFU’s strategy document titled The Way Forward to which the latest initiative bears some resemblance, but I also see this in the context of recent calls by the Reserve Bank of Zimbabwe in its January 2012 Monetary Policy Statement to unlock the economic potential of real estate assets by securitising and transforming them into liquid assets through Real Estate–Backed Security.

ZMDC/ ZABG tie-up
Word going around is that the Zimbabwe Mining Development Corporation (ZMDC) is set to acquire a 30% shareholding in the Zimbabwe Allied Banking Group (ZABG), alongside unidentified South African investors who would acquire a 49% stake in the new bank to be renamed Minerals and Miners Bank.
An unidentified local intermediary would take up a 21% stake, apparently to ensure compliance with indigenisation regulations. We also hear the South Africa-based investors are ready, willing and able to inject $100 million into ZABG. While we applaud this initiative, we only hope that it is not just another premature announcement that will dissipate as quickly as it came into public consciousness. I say so because only a fortnight ago, the same bank was “finalising negotiations” with three potential investors, Unicapital Finance of Mauritius, Swiss-based company AFG Global and a local firm Trebo & Kays (Pvt) Ltd.

Should this corporate action come to pass, its impact could be to reconfigure the banking arrangements of diamond mining companies in which the ZMDC has equity stakes as they seek to channel business through their sister company — ZABG. The mining sector would no doubt finally benefit from having a dedicated bank which understands mining and is willing to put its mouth where its money is by extending long-dated financing more in keeping with the development needs of the sector.

Repatriation of export proceeds by mining firms
The government has reportedly resolved to compel all mining companies to bank their money with local financial institutions following indications billions of dollars from the sector are stashed in foreign accounts. The Mines and Mining Development minister Obert Mpofu recently said Cabinet had taken the decision in line with concerted efforts to improve liquidity and boost economic performance.
Accordingly, mining firms that had deposited export proceeds earned from the sale of local minerals into offshore accounts are expected to repatriate the funds in line with a deadline that would be announced together with appropriate action to be taken against defiant firms.

Such a directive is not a new phenomenon. In late 2011, Angola passed a new law obliging oil companies operating in the country — the bulk of which are foreign — to use Angolan banks for international transactions such as payment to suppliers or their expatriate workforce. In Angola however, the oil firms were given up to two years to adjust to the new law.

While awaiting my turn to be served at one of the local banks, I overheard a man behind me making reference to this issue and remarking the current arrangement was clearly disadvantageous to the country and it was ridiculous mining firms had been allowed to bank their money offshore for so long. Such money, he argued, could actually end up being recycled and lent to the very country that generated exorbitant interest rates for good measure. So, he charged, it is only fair for the funds to be repatriated in order to benefit the local economy. Need I say more?

What’s your take on these issues? Weigh in with your insights on omen.muza@gmail.com.

Owen Muza writes in his personal capacity. He is a banker and managing director of TFC Capital(Zimbabwe) (Pvt)Ltd, a Harare based company with interests in banking and agriculture as well as the convergence area between them.

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