Archive | November, 2013

Foreign flows to North Africa evaporate on shocks at home and abroad

28 Nov

north_africa_mapInvestment in North African markets by international funds has evaporated as shocks in and outside the region have prevented hoped-for economic progress since “Arab Spring” uprisings swept many of the countries nearly three years ago.

Morocco, which has avoided the worst of its neighbors’ turmoil, became the latest casualty on Wednesday when it was relegated in the leading MSCI indices from the league of established emerging markets to the “frontier” division of economies with less developed capital markets.

Along with its North African peers Egypt and Tunisia, Morocco suffers from a gaping trade deficit and relies largely on outside aid from international financial institutions or richer Gulf states, while domestic politics remain unstable.

Portfolio managers are largely steering clear of all three, apart possibly from a small number of strong companies. Instead, regional and international investors are choosing markets such as Dubai, which has already regained a safe haven status only a few years after its property bubble burst.

“The whole (North African) region has struggled in the last year or so,” said Andrew Brudenell, frontier fund manager at HSBC Asset Management. “Foreign investors are mostly not there, apart from a few names in Egypt and 1-2 names in Morocco.”

International investors have directed more than $1 billion of net equity flows to Egypt since 2008, according to fund tracker EPFR. But only a third of this – around $350 million – has arrived since Egyptians overthrew autocrat Hosni Mubarak at the start of 2011.

Net investment in Moroccan and Tunisian equities, the bulk of which is normally in companies listed on local stock markets, has stayed close to zero. This falls short of a number of sub-Saharan African countries such as Nigeria, which has drawn $100 million in net investment over the past three years, according to EPFR.

However, investors remain enthusiastic about individual stocks or interest rate markets. One favorite is Commercial International Bank, Egypt’s most profitable and strongest private bank which lends into some of the most lucrative sectors of the economy such as oil services.

Moroccan picks include Maroc Telecom and property developer Addoha.

A FAR CRY FROM 2010
But this is a far cry from the end of 2010 on the eve of the uprisings, when many international investors had Egypt near the top of their buy lists and were awaiting the first European listing of a state-owned Tunisian company, with more expected to follow. At that time Morocco had just launched a well-received euro bond following a three-year borrowing hiatus.

When Tunisians overthrew president Zine al-Abidine Ben Ali in January 2011, quickly followed by Mubarak in Egypt, investors thought new governments would follow more open economic policies that would benefit them. Instead the revolts started a long period of political conflict and – in the case of Egypt – bloodshed after the army removed Mubarak’s Islamist successor, president Mohamed Mursi, last July after only a year in office.

Morocco had no revolution but has had to raise state spending in an attempt to contain social discontent.

Foreign direct investment into North Africa has fallen, according to the United Nations development agency UNCTAD. It records FDI flows of $11.5 billion into the region last year, up from $8.5 billion in 2011 but well below 2010 levels of $15.8 billion. Western Africa, in contrast, has attracted record FDI levels in the past two years.

The European Bank for Reconstruction and Development, which now invests in Egypt, Morocco and Tunisia as well as Jordan, also sees weak portfolio and FDI flows into the region.

Tunisia – where Islamists and the secular opposition are arguing over forming a caretaker government to lead the country to elections next year – and Egypt are particularly suffering, said Hanan Morsy, the EBRD’s senior economist for the region.

This is due to the prolonged instability alongside weak economic growth in the developed world, such as the euro zone which is normally a major market for their exports.

“The Arab Spring put pressure on public spending and wages at a time when there was a weak external environment and (domestic) political turmoil – it’s a combination of shocks.”

While many frontier markets have rallied this year, Tunisia has fallen 8 percent in dollar terms. Morocco, which until Wednesday was classified as a small emerging market, and Egypt are also flat in dollar terms. The currencies of all three countries which have big trade and payments deficits are at risk of depreciation.

Cairo-based private equity firm Citadel Capital has kept most of its North African holdings to Egypt, apart from a stake in an Algerian cement company. “When you look at North Africa, the story has been the Arab Spring and upheavals,” said Hisham El-Khazindar, managing director of Citadel.

Citadel was also avoiding Libya, Khazindar said, following the overthrow of Muammar Gaddafi two years ago, due to its political and security problems.

Stock-picking investors often point to firms in emerging and frontier markets which have survived coups or wars with their businesses intact. But they say many in Morocco or Tunisia are not cheap enough, as measured by their stock prices as a multiple of their earnings per share, to take the risk.

“There are companies in Morocco that are trading at several multiples of earnings – 17, 20, 30 times. You can find much cheaper alternatives elsewhere,” said Julie Dickson, equities portfolio manager at emerging market fund Ashmore, who preferred countries such as Ghana in an African strategy.

CHINKS OF LIGHT
But there are some chinks of light.
Egypt’s pound has slumped this year, but the local stock market has risen, boosted by past and expected aid from Gulf states and by a promised referendum on a new constitution. International investors have also favoured Egyptian T-bills.

Tunisia launched a dollar bond last year with the help of a U.S. guarantee and is likely to open up to Islamic investment funds, while IMF-supported Morocco has also managed to launch international debt in the past year.

While Egypt remains an emerging market, Morocco’s stock market has joined Tunisia in the MSCI frontier market index, which is followed by a smaller number of investors.

The index switch could still attract fresh risk-taking buyers, particularly as stock valuations there have recently dipped below those of broader emerging markets, making them a little less expensive. The Moroccan unit of Abu Dhabi company TAQA plans to float on the stock exchange in December and analysts believe this could revive the market.

“(Morocco) was a very small fish in a big pond; it will be a slightly bigger fish in a smaller pond,” said Maria Gratsova, EMEA emerging equities strategist at Citi. “It will be in front of the right audience.”

SOURCE: http://www.reuters.com/article/2013/11/27/us-nafrica-investment-idUSBRE9AQ0VT20131127

Tanzania lures investors with 10-year tax breaks, sets aside land for cities

25 Nov

Tanzania_flag_mapThe government is also offering PPPs in land concession agreements, where a private company enters into an agreement with the government to have the exclusive right to operate, maintain and carry out investment in a public utility for a given number of years.

According to Ms Lemunge, negotiations are already going on between the Chinese government and that of Tanzania with regard to the development of the Bagamoyo port.

Established six years ago, Tanzania’s EPZA has seven industrial parks and 24 standalone single factory units not located within the zones, with EPZA declaring such factories special economic zones.

The parks and stand-alone factories have attracted a total capital of $1.15 billion, creating 26,381 direct jobs with annual export turnover of $357 million.

SOURCE: http://www.theeastafrican.co.ke/news/Tanzania-lures-investors-with-tax-breaks/-/2558/2085746/-/item/1/-/10y3dw0z/-/index.html

Zimbabwe Network Against Illicit Outflows (ZINAIF) Launched

25 Nov

zinaifThe 20th of November 2013 saw the launch of the Zimbabwe Network Against Illicit Flows (ZINAIF), a coalition which is the brainchild of Zimbabwe Coalition on Debt and Development (ZIMCODD), African Forum and Network on Debt and Development (AFRODAD), Zimbabwe Environmental Law Association (ZELA), Transparency International Zimbabwe (TIZ) and the Centre for Natural Resource Governance (CNRG).

The main objective of the coalition, is to find drivers, causes and impact of illicit outflows from Zimbabwe.

Optimism and worry as Seychelles readies for WTO

24 Nov

Flag-map_of_the_Seychelles.jpgThe Indian Ocean archipelago of the Seychelles is pinning its hopes of economic recovery on its expected membership of the World Trade Organisation, but the impending move is also causing jitters for local businesses.

After 18 years of negotiations, the tourist destination — famed for its white sandy beaches and luxury hotels — is set to join the global trade body by the end of April 2014, said Cillia Mangroo, head of the finance ministry’s trade division.

For the authorities of the island nation, membership equals commercial security.

“Being a member of the WTO, for a small country like Seychelles, provides the opportunity to have a body that can defend their rights in case of a trade dispute with another country,” said Charles Morin, the islands’ chief negotiator.

Aside from pulling in tourists and honeymooners, the main export is canned tuna to the European Union. The EU is also the country’s main trading partner, taking 61 percent of exports and the source of 30 percent of imports.

The Seychelles also exports copra — coconut kernels that are ground down to extract oil — and furniture to Asia and Africa.

Ahead of joining the 159 member bloc, officials in Victoria has been busy signing bilateral agreements with Canada, Mauritius, Oman, Switzerland, and, more recently, the EU and Thailand. According to the WTO, the country has been particularly committed to cutting export subsidies to zero.

Worries for local businesses
But not everyone in the small nation of just 90,000 inhabitants is convinced of the benefits of casting off trade barriers.

“Architects, engineers and lawyers are worried about the opening up of the market, because once the Seychelles becomes a member of the WTO, any business can come and invest in the country,” said Marco Francis, president of the country’s chamber of commerce. There are fears too for the country’s poultry and pig farmers, already badly struggling since the authorities began to open the market, including allowing meat imports from Brazil.

“I fear that the country’s entry into the WTO will result in the end of such farming… and that could put the country’s food security at risk,” Francis added. He said many livestock breeders have also closed shop because the Seychelles does not have the means to make “mass rearing such as Brazil and China.”

Francis hopes that a list of “protected” products will be reserved for key Seychelles companies, arguing Victoria should retain a monopoly on traditional fishing.

But the government will not budge, arguing that WTO accession is key to putting the economy back on track after skirting close to bankruptcy during the peak of the financial crisis.

Becoming a member “will help us attract the right direct investment,” Mangroo added.

In a statement issued at the conclusion of bilateral negotiations in late October, the European Commission said it believed accession “would be the last step on the process of economic reform and development of the Seychelles”.

The International Monetary Fund (IMF) ends in December its five-year programme of assistance to Seychelles, an austerity plan that has resulted in a major restructuring of the debt, privatisation and slashing the government staff.

At the end of 2008, the Seychelles faced a balance of payments crisis and liquidity problems. Its public debt reached 130 percent of gross domestic product (GDP), inflation stood at 37 percent and GDP grew by just 0.1 percent.

The following year, prices soared by over a third while GDP tumbled by 9.6 percent.

For 2013, the IMF now expects the Seychelles to post growth of 3.3 percent and inflation of 4.9 percent.

Victoria should also have cut public debt to 70 percent of GDP, and hopes to see this ratio fall to 50 percent by 2018.

SOURCE:
http://www.globalpost.com/dispatch/news/afp/131123/optimism-and-worry-seychelles-readies-wto

Help us collect our taxes — African MPs

21 Nov

tax_africaMultinational corporations doing business in Africa are finding it all too easy to circumvent taxation — and that loss of tax revenue just makes countries even more dependent on foreign aid.

Stemming from underdeveloped tax administration systems, tax avoidance is one of the biggest obstacles toward achieving transparency as a catalyst for development in the continent, Tanzanian MP Zitto Kabwe told Devex.

Africa is losing $50 billion every year from illicit financial flows, while at the same time receiving around $30 billion in foreign aid. That means Africa is losing out on tax revenues equivalent to almost twice the amount it gets in official development assistance from overseas, noted the deputy opposition leader and shadow finance minister.

Kabwe is one of 10 African experts on a fact-finding mission to look at tax and transparency issues in Europe. Organized by the European Network on Debt and Development, the initiative is taking the experts — among them several MPs — to discuss national taxation issues and challenges with representatives of EU member state governments, the United Nations, the Organization for Economic Co-operation and Development, EU institutions and civil society groups in Brussels, London, Oslo and Paris.

“We are here in the developed world to engage with various organizations, discuss and present our [side] of the story, in order to get their views on how some of these problems can be addressed,” explained Malawian MP McJones Mandala Shaba.

Transparency
African countries see the issue of improved tax revenues as part of a long-term strategy to become less dependent on foreign aid. But multinational corporations need to be willing to change their ways and start paying taxes, the MPs asserted. For that to happen, they explained, help would be required from the governments of the countries in which these companies are based.

“If developed countries support us in our effort to ensure we don’t lose our own revenues, we won’t need foreign aid and we’ll have a partnership of equal footing, rather than the donor-recipient relationship that has lasted more than 50 years,” Kabwe noted. “We just need our taxes: companies must come, invest in Africa, get their profits, but pay their taxes in Africa. Once we have our own revenues, we’ll be able to finance our development, we’ll build our schools, facilities, infrastructures, pay our teachers well, and have a good health system.”

But how can this goal be met? With more transparency, argue the MPs. First of all, explained Mandala Shaba, donor governments should demand that multinational corporations report the profits they make in the country where “real economic activities take place,” not only in the country where the headquarters is located.

Kabwe agreed with Tax Justice Network senior analyst Marcus Meinzer, who recently suggested to Devex that the main issues to tackle illicit financial flows concern transparency of ownership (concerning shell companies and trusts registered and created in the EU on behalf of residents of developing countries), better exchange of financial account-related tax information, and transparency of multinational corporations’ annual accounts.

“I totally agree with his analysis. In a country like Tanzania, minerals exported over a period of 10 years were valued at $11.3 billion, but the taxes paid were around $440 million, less than 4 percent of the total. A similar situation [occurred] in Zambia … It clearly shows how transparency in the accounts is crucial for the extractives industry,” said the lawmaker.

Information access
Kabwe argued that the first step to assess, monitor and prevent incoherence is to set up a system of automatic exchange of information.

“Various initiatives [have been undertaken] by the EU and the OECD to set a convection of mutual exchange of information. I call on developing countries, especially African countries, to sign up to this convention. Signing it is the first step to have access to information, automatically or by request.”

He added that a global intergovernmental body is also needed to provide rules and guidelines, and a system implementing a single convention on tax avoidance.

“Having one single convention, ratified by all countries of the world, would be easier and even sanctions could [imposed] to countries that are not providing information.”

Archaic legal framework
However, the tax administration in Africa lacks the capacity to come up with specific legislation that would ensure “getting as much as possible” from the investments of multinational companies, pointed out Mandala Shaba. “One of the challenges we face … is that we have outdated, odd and archaic legal policy frameworks and legislation.”

He gave the example of Malawi’s mines and mineral act, enacted almost 40 years ago, but never reviewed since to be brought more in line with current social economic developments.

“Companies are taking advantages of this particular aspect. We should come up with an appropriate legal framework, which would guide the management of natural resources, in particular mines.”

Corruption
On tax issues in Africa, there is almost always the same elephant in the room: corruption, in the form of powerful bureaucrats who appropriate revenues from natural resources and hide the money abroad in tax havens.

“We recognize that corruption in most African countries is like the way of life — corruption in the street with the traffic police, all the way to the top executives and politicians,” said Kabwe. A solution to address the problem, he argued, would be to bring the fight to offshore tax havens.

“Corrupt money needs a place to hide, so we have to create an environment where if you are corrupt you don’t have any place to hide … so that corrupt politicians have less incentives to engage in stealing.”

Kabwe mentioned that another solution is to establish accountability mechanisms — ways of holding everybody responsible through the actions they commit, while ensuring that the citizens are empowered to inform on acts of corruption.

Both solutions would be music to the taxman’s ears.

SOURCE: https://www.devex.com/en/news/help-us-collect-our-taxes-african-mps/82336

Tanzania praised for better use of aid, scores low on graft war

20 Nov

Tanzania_flag_mapTanzania Development Partners have said despite positive signs in 2012/13 general budget support there has been stagnation in the fight against corruption in key sectors like health, energy and port operations.

Speaking during General Budget Support (GBS) Annual Review in Dar es Salaam yesterday, Chair of Group in Tanzania – who is also the Swedish Ambassador to the country – Lennarth Hjelmaker said corruption is still a problem in the country.

“The Assessment shows that a more active fight against corruption is needed.

After positive signs in 2012-13, there has been stagnation in the fight against corruption, including a lack of movement on specific anti-corruption cases in key sectors…It seems that there is still an underuse of administrative sanctions for petty corruption offense,” he said.

According to Hjelmaker, DPs have also expressed concern over certain human rights issues or more generally accountability when implementing government commitments related to the right to information and to protect and promote freedom of the media.

He cited areas where reforms are moving at a snail’s pace as including education where both primaryand secondary school pass rates have been dropping and pupil-teacher ratios have not improved as planned.

The DPs said however that an independent evaluation of GBS in Tanzania has confirmed that the aid modality does deliver tangible results and allows the government to spend more on development sectors such as in education, health, water and infrastructure.

According to DPs, Tanzania has done well in decentralisation of management of natural resources, improved budget transparency and procurement, with the number of districts with three or more nurses and midwives per 10,000 inhabitants – exceeding the targets.

However the country has underperformed on water where more than half of the households in rural areas are still lacking access to safe and clean water.

Hjelmaker said as a consequence the 2014 commitments and disbursements from DPs will be affected, as the performance tranches cannot be realised in full.

He said it is a good move that “Tanzania is raising more internal revenues and that dependence on donor funding in slowly decreasing,” adding however that the DPs would continue to support the country in GBS and different areas.

Last year DPs largely fulfilled obligations in line with their current agreements for 2012/13. A total of USD 584 million was disbursed against the USD 495 million committed. Two thirds were disbursed within the first quarter. Two out of the 15 disbursements were delayed.

For her part, Finance deputy minister, Saada Mkuya, expressed satisfaction with the country’s performance, saying the government was taking measures to ensure that such challenges are addressed.

The deputy minister said over past eight years budget support has influenced growth and improved outcomes in the education sector and in reducing non-income poverty.

SOURCE: http://www.ippmedia.com/frontend/index.php?l=61698

Kuwait offers $2 bn in loans, investments to African states

19 Nov

kuwaitKuwait’s Emir Sheikh Sabah al-Ahmad al-Sabah opened the third Africa-Arab summit Tuesday by pledging $1 billion (740 million euros) in low-interest loans and the same amount in investments to African states.

Arab and African leaders gathered for the two-day summit in Kuwait City to review steps to promote economic ties between the Arab world, which includes wealthy Gulf states, and investment-thirsty Africa. “I ordered officials of the Kuwait Fund for Arab Economic Development to provide soft loans worth $1 billion to Africa over the next five years,” Sheikh Sabah announced.

Sheikh Sabah also said Kuwait, in cooperation with the World Bank and other international institutions has decided “to provide investments and investment guarantees worth $1 billion” over the next years and this will focus on infrastructure projects. The Kuwait Fund is the oil-rich Gulf state’s investment and aid arm in African, Asian and Arab countries. So far it has provided billions of dollars in low-interest loans for development and infrastructure projects.

Thirty-four heads of state, seven vice presidents and three heads of government are attending the third Africa-Arab summit, which brings together 71 countries and organizations. The meeting is the first of its kind since 2010, when leaders met in Libya prior to the Arab Spring uprisings that toppled long-term dictatorships in the region.

In his opening speech, Sheikh Sabah called for a focus on projects to achieve “food security” for the two regions. But he also stressed that “it is no longer acceptable … that our countries continue to provide aid and that the other side does not participate.”

The leaders are expected to approve measures and resolutions adopted by foreign ministers on Sunday aimed at boosting economic cooperation between the two regions.

Kuwait’s Foreign Minister Sheikh Sabah Khaled al-Sabah said the “Partners in Development and Investment” summit will discuss a proposal by the Africa-Arab Economic Forum to create an Arab-African common market for a combined population of around 1.2 billion people.

The leaders will also look at how to accelerate investment flows into Africa, which is facing an acute investment gap.

According to the World Bank, Africa needs around $30 billion a year to develop its energy sector.

The International Monetary Fund says African economic growth was a solid 5.0 percent in 2012 despite the world economic crisis. Growth is forecast to ease slightly at 4.8 percent this year and rebound to 5.1 percent in 2014.

In addition, Africa has 12 percent of global oil reserves and 42 percent of its gold deposits. The discovery of large quantities of natural gas off Africa’s east coasts has added to the continent’s economic potential.

On the other hand, the energy-rich Gulf Cooperation Council states have accumulated surpluses of $2.0 trillion thanks to persistently high oil prices. A majority of the assets are invested in the United States and Europe.

The summit held in Libya three years ago adopted an Africa-Arab Partnership Strategy and a 2011-2016 Joint Action Plan to increase investment, trade and other economic projects.

But implementation has been slow, in part because of the turmoil unleashed by the 2011 Arab Spring, which saw the leaders of Tunisia, Libya, Egypt and Yemen toppled by mass protests and the outbreak of civil war in Syria.

The leaders are expected to approve a resolution to set up an Africa-Arab Joint Financial Mechanism to provide the means for implementing projects and encouraging investment.

They will also discuss establishing an Africa-Arab Technical and Coordination Committee on Migration to help protect migrant workers.

Source: http://english.alarabiya.net/en/business/economy/2013/11/19/Arab-Africa-leaders-to-review-economic-ties-at-summit-.html

ASSESSING THE DELIVERY OF WATER AND SANITATION IN AFRICA: THE CASE OF THE AFRICAN WATER FACILITY

14 Nov

AWF2013
Africa has over 50 significant water basins spanning across nearly all of the 54 countries. For 14 of these, practically their entire national territories fall within shared river basins. Apart from these, there are also large inland water bodies such as lakes Victoria, Chad, Malawi, and the Kariba Dam. In Sub-Saharan Africa (SSA) however, international river basins constitute the principal source of water resources and about one-third of the world’s river basins. Thirty five countries in the region share 17 of the aforementioned river basins. However, even with these water resources Africa has the lowest total water supply coverage of any region in the world. As of the year 2008, only about 60% of the total population in Africa had access to water and sanitation. About 300 million people in Africa do not have access to safe water and about 313 million have no access to sanitation thereby exerting a heavy toll on the health and economic progress of African countries.

Therefore, due to the realisation that 40% of SSA’s total population do not have access to clean drinking water and safe sanitation services , African leaders across the continent took it upon themselves to address this urgent and long standing problem. The leaders declared their commitment to achieving universal access to clean water, through their development blue-print, the New Partnership for Africa’s Development (NEPAD), and through their support for the Millennium Development Goals (MDGs), adopted by world leaders in 2000. However, if the international coverage targets of the MDG for 2015 are to be met in Africa, approximately 210 million people in urban areas will need to be provided with access to water supply services, 211 million people with sanitation services, while a similar number of people in rural areas will also need to gain access.
In this report AFRODAD analyses the Africa Water Facility (AWF) project portfolio hosted by the African Development Bank (AfDB) on behalf of the African Ministers Council on Water (AMCOW). The objective of this analysis is to: i) understand how the AWF contributes to fulfilling the objectives of the AfDB in water supply and sanitation ii) assess its effectiveness iii) identify areas for improvement in order to achieve its objectives and mandate.
The report notes that since inception of its operations, the AWF has been active in 50 of the continent’s 54 countries and had by end 2012 approved and funded 66 national and regional projects at a total cost of €79 million. The AWF approved projects are distributed across the continent’s five main Sub-regions i.e. North, South, East, West and Central Africa. All grants have so far been given to the public sector, and no public/private partnerships (PPP) were ever forged from inception of the projects to the time of the publication of the report.

Read or Download the FULL report below
ASSESSING THE DELIVERY OF WATER AND SANITATION IN AFRICA THE CASE OF THE AFRICAN WATER FACILITY

Call to consider domestic funding

13 Nov

Flag-map-of-ZimbabweTHE single biggest challenge to efforts aimed at setting Zimbabwe back on a sustainable path to economic recovery and growth after a decade of recession to 2008 is lack of access to affordable medium and long term funding. Zimbabwe faces a peculiar situation where it has to deal with a multiplicity of problems including power deficit, external competition, high cost of labour, utilities and raw material scarcity as it battles to bring the economy back on the rails.

Economic analysts believe that no matter how brilliant Government policies will be, without access to reasonably priced long term finance economic will not succeed. Billions of dollars are required to rehabilitate and put new infrastructure from water and sanitation to roads, airports, railway lines, power stations, electricity transmission lines to industrial machinery and equipment to enhance productivity.

Other productive sectors of the economy namely agriculture, mining and tourism equally require significant funding to escape the quagmire of the decade of recession. While the economic problems are varied and distinctly separable, the bottom line is that their size and magnitude has been fermented by lack of access to affordable medium to long term funding especially after dollarisation of the economy.

The scenario has constrained the country’s capacity to regenerate its productive capacity. One of the questions that have popped up is whether it is not possible to vigorously pursue innovative ways to enhance domestic liquidity mobilization to support productivity with as much as US$3 billion thought to be speculating informally.

This is not however to underestimate the amount of money required to revive the economy. Infrastructure alone, according to the African Development Bank needs US$14 billion, agriculture US$2 billion annually, industry US$2,5 billion for retooling and mining requiring US$5 billion to US$7 billion over a 7 year period.

It should be noted that building confidence in the country’s financial system will be key to efforts Government will undertake to mobilise domestic resources considering the critical intermediary role of banks in oiling economic activity. Apart from exports the other source of liquidity would be foreign direct investment. But due to Zimbabwe’s perceived risk profile, this has not worked despite the Southern African region having received over US$10 billion in FDI in 2012.

Whereas under normal circumstances Zimbabwe like many other members of multilateral lenders could also turn to global lenders for funding assistance the avenue is shut out as the country is not eligible due to arrears from previous loans. Further, most other bilateral lenders take a cue from the International Monetary Fund and the World Bank that obviously are controlled by Western countries with which Zimbabwe currently does enjoy very cordial relations since the fall out in 2000 when it redistribute whites occupied land to majority blacks.

It means Zimbabwe might not be getting any funding from Bretton Woods institutions and related lenders remote controlled from the West for as long as it will also not be able to freely deal with the countries minus the economic embargo.

But with such a scenario, Finance Minister Patrick Chinamasa has pleaded with the global lenders to at least consider shifting from insisting on the country clearing its arrears first before being eligible for low priced long term funding once again. But without ruling anything out, this remains a tricky issue.

SOURCE: http://www.herald.co.zw/call-to-consider-domestic-funding/

Call to consider domestic funding

13 Nov

Flag-map-of-ZimbabweTHE single biggest challenge to efforts aimed at setting Zimbabwe back on a sustainable path to economic recovery and growth after a decade of recession to 2008 is lack of access to affordable medium and long term funding. Zimbabwe faces a peculiar situation where it has to deal with a multiplicity of problems including power deficit, external competition, high cost of labour, utilities and raw material scarcity as it battles to bring the economy back on the rails.

Economic analysts believe that no matter how brilliant Government policies will be, without access to reasonably priced long term finance economic will not succeed.

Billions of dollars are required to rehabilitate and put new infrastructure from water and sanitation to roads, airports, railway lines, power stations, electricity transmission lines to industrial machinery and equipment to enhance productivity.

Other productive sectors of the economy namely agriculture, mining and tourism equally require significant funding to escape the quagmire of the decade of recession.

While the economic problems are varied and distinctly separable, the bottom line is that their size and magnitude has been fermented by lack of access to affordable medium to long term funding especially after dollarisation of the economy.

The scenario has constrained the country’s capacity to regenerate its productive capacity.
One of the questions that have popped up is whether it is not possible to vigorously pursue innovative ways to enhance domestic liquidity mobilization to support productivity with as much as US$3 billion thought to be speculating informally.

This is not however to underestimate the amount of money required to revive the economy.
Infrastructure alone, according to the African Development Bank needs US$14 billion, agriculture US$2 billion annually, industry US$2,5 billion for retooling and mining requiring US$5 billion to US$7 billion over a 7 year period.

It should be noted that building confidence in the country’s financial system will be key to efforts Government will undertake to mobilise domestic resources considering the critical intermediary role of banks in oiling economic activity.

Apart from exports the other source of liquidity would be foreign direct investment. But due to Zimbabwe’s perceived risk profile, this has not worked despite the Southern African region having received over US$10 billion in FDI in 2012.

Whereas under normal circumstances Zimbabwe like many other members of multilateral lenders could also turn to global lenders for funding assistance the avenue is shut out as the country is not eligible due to arrears from previous loans.

Further, most other bilateral lenders take a cue from the International Monetary Fund and the World Bank that obviously are controlled by Western countries with which Zimbabwe currently does enjoy very cordial relations since the fall out in 2000 when it redistribute whites occupied land to majority blacks.

It means Zimbabwe might not be getting any funding from Bretton Woods institutions and related lenders remote controlled from the West for as long as it will also not be able to freely deal with the countries minus the economic embargo.

But with such a scenario, Finance Minister Patrick Chinamasa has pleaded with the global lenders to at least consider shifting from insisting on the country clearing its arrears first before being eligible for low priced long term funding once again. But without ruling anything out, this remains a tricky issue.

SOURCE: http://www.herald.co.zw/call-to-consider-domestic-funding/