INVESTORS are shying away from sinking investment in African nations facing foreign currency challenges as they fear hurdles in repatriating profits and dividends, an expert has said.
The revelation comes at a time when Zimbabwe is in desperate need of investment as the country has a capital requirement bill of at least US$40 billion and has debt estimated at over US$20 billion.
In an interview with NewsDay Business on the sidelines of the African Development Bank annual meetings in Kenya on Monday, World Bank Africa Multilateral Investments Guarantee Agency regional head Nkem Onwuamaebgu revealed that investors want markets where they would be able to take out their monies.
“It’s not about depreciation or devaluation. But if you are a foreign investor coming in, you are looking at hard currency. You’re raising financing in hard currency. You are generating local currency revenues, but you have to then distribute investment proceeds in form of dividends,” Onwuamaebgu said.
“You have to be able to convert your local currency into hard currency in order to make this investment repatriation to serve your investors. If you can’t find the foreign currency, if you have the local currency and you can’t essentially convert and transfer, then you’re unable to meet that commitment.”
She said a lot of investors wanted to make hard currency investments, knowing that they will be able to repatriate at the time that they need to, but that it is becoming increasing difficult.
“It’s been getting worse since COVID-19 and then the onset of the wars in Europe. With the disruption of the supply chain, financing costs have increased and all those kind of factors have now contributed to the fact that a lot of our countries in Africa are really heavily indebted,” Onwuamaebgu said.
“So, even if they haven’t taken on new financing, the financing that they already have is much more expensive. So, they’re using even more of their scarce forex resource to pay off and to keep their existing debt profile current and that has basically constrained foreign exchange for other activities.”
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She added that the group has also noticed an increase in foreign currency challenges.
“So, it’s been actually worsening and the long-term impact is that if those investments are predicated on their ability to get this kind of mitigation, then those investments will go forward. And that’s kind of a shame,” Onwuamaebgu said.
“Obviously, looking at local currency type financing solutions so that you don’t have the mismatch is one solution, but then local currency can be very expensive or you don’t have enough liquidity in the local market or it’s short tenure.”
The central bank last year assured foreign investors in Zimbabwe that they would receive priority to repatriate all their profits and dividends to their home countries.
