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Big fish, small pond syndrome

Business
Recently, as part of its ongoing expansion plans, listed financial services group CBZ Holdings reportedly secured shareholder approval to pursue regional financing mandates.

Recently, as part of its ongoing expansion plans, listed financial services group CBZ Holdings (CBZH) reportedly secured shareholder approval to pursue regional financing mandates involving natural gas beneficiation and construction of power generation plants.

Omen Muza

“The CBZH group is indeed establishing opportunities to exploit outside the Zimbabwean market. The initial target countries will be economies in the Southern African Development Community (Sadc) and Common Market for Eastern and Southern Africa (Comesa) region.

The strategy is to utilise our internal local expertise on regional deals. We have been mandated to be financial advisers and lead arrangers on electricity power projects in the region. Our mandates entail fundraising for ventures requiring over $500 million,” said group marketing and corporate affairs executive Laura Gwatiringa.

Lately, I have been thinking about the rationale of this move, its benefits and other considerations surrounding it and my view is that under the circumstances, it’s a sensible decision to make, if not the entirely logical one to make. In this installment I share my thoughts.

The rationale

Big fish, small pond: I see this move by CBZH as tacit admission that the Zimbabwean market is no longer big enough to accommodate the group’s burgeoning growth ambitions given the excruciating liquidity conditions and shrinking gross domestic product growth.

Having beaten the 2020 deadline for achieving the minimum capital requirement of $100 million by a good six years, no one can begrudge the diversified financial services group for looking beyond the country’s borders for new challenges.

Diversification of revenue streams: The group anticipates that the non-funded income from these regional assignments will enhance the geographic diversification of its sources of revenue at a time when the local demographic is clearly constrained by liquidity shortages which are curtailing the volume of business.

Taking on competitors its size: At a pan-African level, CBZ Holdings can compete head-to-head with other big names such as Standard Bank, Nedbank and Barclays Africa, among others, in line with its global ambitions. CBZ Holdings’ vision is “To be the preferred provider of financial solutions in Zimbabwe, with a global reach,” according to information on its website. It appears that the group is beginning to exercise its global impulses, start with the flexing of its regional muscle.

The benefits

Unlocking external funding opportunities: In addition to fundraising for the regional mandates, the move could also unlock funding opportunities for local transactions as CBZ leverages on its Mauritian connection and its vast network of developmental finance institutions, export credit agencies (ECAs) and private equity firms that are focused on emerging markets. In mid-2014, CBZ Holdings’ announced plans to deal with an inhibitive country risk profile by establishing a Global Fund in Mauritius as a way to increase access to lines of credit and lower the attendant cost.

Sharpening the axe: One of the inhibiting features of the local market is that it is not deep enough to keep bankers on their toes in terms of transactional skills levels due to inadequate volumes of high level or sophisticated transactions, yet one needs to sharpen the axe.

CBZ’s forays into the region will help in terms of skills transfer and assimilation of international best practice as its local staff grapple with the requirements of new transactions and interact with better informed peers as well as customers. The skills learnt on these regional power projects will definitely be needed in Zimbabwe which has a power deficit of its own.

Diversification of risk: Recently CBZH CEO Never Nyemudzo decried the worsening credit default risk in Zimbabwe. “There is always the risk in terms of pricing where you accumulate on the liability side, whilst on the asset side the issue of quality borrowers comes to hand . . . do you have the pipeline that can take that quantity?” he said. It is, therefore, entirely logical for the group to seek exposure in other markets where quality assets can be created with reasonable risk.

Conclusion Regulatory Support: Organisations such as CBZ Holdings, which carry the Zimbabwean flag into the region, deserve local regulatory support in order for them to be competitive on a sustainable basis.

For instance, government could consider waiving or reducing tax on income earned from such forays. Government could also speed up initiatives such as the proposed establishment of an international financial centre in the Victoria Falls/Kariba area, which would reinforce what CBZ is doing as its move effectively seeks to make Harare some sort of international financial centre.

“We, however, do not have to set up physical operations within the countries with running transactions, but these mandates can be driven and co-ordinated from our Harare head office,” Gwatiringa said.

Feedback: [email protected]. Omen N. Muza writes in his personal capacity. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8