RBZ wary over external loans contraction

THE Reserve Bank of Zimbabwe (RBZ) is concerned with the acquisition of external loans by local companies as the repayment of such loans eats into the country’s export earnings, deputy governor Kupukile Mlambo has said.

BY FIDELITY MHLANGA

RBZ9

Mlambo said RBZ preferred development financial institutions to invest in local companies through equity than loans.

“When companies get external loans, in general, it’s a good thing, but you see increasingly that investors are continuously giving out loans than buying equity. Every dollar we get from outside is equivalent to a dollar in export earnings when servicing that loan because we pay everything from our exports, whether its imports or loans. So for every loan that comes in, we have to find an equivalent export to repay it. Foreign companies are more interested in giving loans than buying equity. Increasingly, we are saying ‘can we have more of equity than loans?’,” he said.

This comes after the RBZ approved and registered 247 facilities with a monetary value of $1,8 billion external loans in 2016.

Agriculture received the largest share, accounting for 47% of loan approvals during the year, largely driven by tobacco finance facilities which are renewed seasonally.

The value of loan approvals increased by a marginal 1,5% to $1,843 million approved in 2016 from $1,81 billion in 2015.

Mlambo said RBZ was concerned about local banks’ lending skewed towards individual spending instead of the productive sectors of the economy.

“Civil servants have become a fishing ground for banks. We would want a reverse of that in such a way that lending goes to mining, manufacturing and all than going towards individuals,” he said.

Of the $3,69 billion loaned by banks in 2016, a huge chunk (28,7%) went to individuals, agriculture got 16,7%, distribution (15,3%), services (14,95%) and manufacturing sector at 10,4%.

The mining sector received 4,5%, construction (3,5%), financial firms (2,11%) and 1,5% of the loans went to the communication sector.

According to the central bank, funding to productive sectors of the economy such as mining and manufacturing continues to be constrained by the short-term liability structures of banking institutions’ balance sheets.

9 Comments

  1. Catch 22 situation

  2. The Deputy Governor fails to mention the funds that come into the Country from the investor in the first place. There should be no need to draw on export earnings to repay the loan.

    1. The loan might not necessarily come in as cash but probably in kind, mostly in the form of overpriced equipment!

  3. Does the heading meet the story?

  4. The reason is simple. Equity is riskier than debt in a country like Zim. Uncertainity is too high eg AfrAsia investment. When losses are more likely to be incurred you don’t need to get in as an investor but as a creditor with collateral to take in any eventuality as the first priority unlike when a company folds you are paid last as an nvestor

  5. My first year university economics tells me you need both individual loans and business loans. Individual loans stimulate consumption i.e demand. World over there is deliberate reliance on consumer demand to stimulate economic activity.

    1. When you invest in the productive sector you increase your supply side and thus create more jobs/employment as well as increase your exports, theoretically. The demand side will also increase due to an increased income base. Stimulating individual consumption without looking at the domestic supply side means more imports and depletion of forex reserves!!!

  6. How about the issuing of bonds to fund non-productive activities, paying civil servants (GHOSTS AND OBSCENE EXECUTIVE SALARIES included), creating authority this, authority that, the list is endless. It’s probably better to get a loan for packages to trim the bloated public service. Some cooperating partners would be very amenable to such a proposal, even advancing a grant. A GOOD START WOULD BE WEEDING OUT GHOSTS AT NO EXPENSE IN TERMS OF TERMINAL BENEFITS.

  7. She fails to mention the major problem in this country.

    A gvt which eats much than it produces and skewed expenditure towards revenue rather than capital i.e. 90% of expenditure goes to salaries.

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