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Lines of credit and finance activity

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Despite Zimbabwe’s country risk profile, which is widely acknowledged as the biggest impediment to the inflow of foreign capital; some funds defy gravity and still flow uphill into the country, mainly from export-import banks and development finance institutions (DFIs), augmented by bilateral lines of credit from the parent companies of foreign banks operating in Zimbabwe.

Omen Muza

Multilateral development partners are also beginning to warm up to the country as government intensifies international re-engagement efforts.

This installment reviews some key activity in the sphere of lines of credit and development finance, which to some extent helped to ease liquidity woes during the first half of the year.

January
The Eximbank of China released a $65 million tranche to Huawei International of China for NetOne’s network expansion programme, being 30% of the total credit facility. Huawei is contracted to undertake the network expansion project and the down payment enabled it to start manufacturing the relevant telecommunication equipment including towers and base stations.

The drawdown is under a concessional loan agreement worth $218,9 million signed by government for the benefit of NetOne’s expansion programme, which is meant to accommodate an additional four million users on its network and provide high speed internet connectivity.

Carrying an interest rate of 2% per annum and payable over 20 years, the loan is partly secured by an escrow account into which NetOne makes periodic deposits towards loan repayments.

February
On February 16 government and the European Union (EU) signed a co-operation agreement for the release of EUR234 million ($270 million) in development assistance, marking the first time since 2002 that the European bloc is channeling funds through Treasury (and not through non-governmental organisations). Health, agriculture as well as governance and institutional capacity building are being supported under the programme.

MBCA Bank Limited confirmed that the African Export-Import Bank had availed a $20 million line of credit to the bank to cater for borrowers intending to purchase or upgrade machinery, retool manufacturing operations and fund expansion programmes in key sectors of the economy such as agriculture, mining, construction and health. The tenure of the facility is for periods of up to 60 months and draw downs under the facility may be in the form of direct advances such as loans and/or letters of credit in line with client requirements. The main purpose of the line is to fund capital expenditure, mainly complete technology renewals and retooling programmes to enhance productivity for both local and export markets.

March

On March 4 the Reserve Bank of Zimbabwe confirmed that of the 25 tobacco merchants registered with the Tobacco Industry Marketing Board, 12 large-scale merchants had mobilised $824 million from offshore sources to finance the purchase of tobacco on the auction floors during the 2015 marketing season in line with the Exchange Control Tobacco Finance Order of 2004.

In terms of ruling exchange control rules, merchants are required to secure offshore credit for the purchase of green leaf tobacco. Meanwhile, CBZ Holdings said it had secured $19 million from unspecified offshore sources for on-lending to small-scale tobacco farmers, who constitute more than two-thirds of the 100 000 farmers who produced a crop worth $685 million in 2014.

The African Development Bank (AfDB) extended a $50 million multi-currency line of credit (LoC) with a seven-year tenor to ABC Holdings (ABCH) to be spread among the group’s subsidiaries in Zimbabwe, Botswana and Mozambique for the ultimate benefit of its small and medium enterprises (SME) portfolio.

The LoC will enable ABCH and its three selected subsidiaries to reach a larger number of SMEs across a wide range of sectors by offering medium-to-long-term loans, which are not currently accessible for local SMEs.

Harare-based Imara Fiduciary was appointed security agent for PTA Bank to facilitate the extension of a $70 million loan to PPC Zimbabwe to fund the construction of a new cement factory in Harare. Imara Fiduciary will hold tangible PPC security on behalf of PTA. Imara Fiduciary is a registered bond-holding company which provides banking and debt solutions to corporates, individuals and public-private partnerships thereby facilitating greater syndicated and direct participation in the Zimbabwean economy by foreign investors. Specifically, it provides debenture, security trust and corporate governance services and functions as a non-discretionary agent managing security and mandatory pre-payment or escrow account arrangements.

April

A high level team from the European Investment Bank (EIB) was in Zimbabwe for a week to assess the country’s economic situation, and met Finance Minister Patrick Chinamasa, RBZ governor, John Mangudya and several other private sector players with special emphasis on the financial services sector. The visit was a follow up to a 2014 mission and had prospects for unlocking foreign direct investment for the private sector, according to EU ambassador Philippe Van Damme. It is anticipated that the EIB will eventually extend credit facilities to the local financial services sector for on-lending to the real sector.

May
On May 29 the United Nations signed an agreement with the government of Zimbabwe providing for the mobilisation of up to $1,6 billion over a five-year period to support development programmes under the Zimbabwe United Nations Development Framework (Zundaf). Zundaf will support six national priority areas that include food security and nutrition, gender and equality, HIV and Aids, poverty reduction and value addition, public administration and governance as well as social services and protection. The implementation of the Zundaf will be done in conjunction with 25 UN agencies.

June

African Century Leasing (ACL) secured a credit line of $5 million with a four-year tenure from FMO (Netherlands Development Finance Company) for on-lending to agricultural and small and medium enterprises (SMEs) who will use the money to acquire equipment and machinery. This is the second tranche of funding that ACL has received from FMO, after having accessed $8 million in 2013.

Ecobank Zimbabwe confirmed drawing down $5 million being the second tranche of the $15 million line of credit mobilised by its parent company, with a tenure of around three years. The bank said loans would be availed to clients who are looking to retool their business, improve their infrastructure and produce at a lower cost in order to compete favourably with imported products.

Feedback: omen.muza@gmail.com. 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

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