Dimaf a specious ploy

 

The economic consequences on Zimbabwe, in general, Bulawayo in particular and the entirety of the Matabeleland provinces were immense. Thousands of people were no longer gainfully employed, swelling the numbers of the distressingly impoverished.

Approximately a month later, the Minister of Finance, Tendai Biti, was in Bulawayo in pursuit of his nationwide consultations ahead of the national budget.  Concurrently, he announced the launch of the fund for the distressed industries nationwide, but with special focus on those in Bulawayo.  The fund would be known as the Distressed Industries and Marginalised Areas Fund (Dimaf), and would have  US$40 million dollars, of which half would be provided by government, and the balance by Old Mutual.  Administration of Dimaf and the provision of funds to distressed enterprises would be done by CABS, transparently and independent of political influences.

Within weeks thereafter, President Robert Mugabe expressed very supportive comments on Dimaf, and how it would bring positive transformation to Bulawayo’s ailing industries, as well as elsewhere in Zimbabwe. These sentiments were echoed by Prime Minister Morgan Tsvangirai, and several others in Zimbabwe’s political hierarchy.  Despite the declared funding intended for Dimaf being very little, in pronounced distinction to the more than one billion dollars essentially required for a significant industrial upturn, an atmosphere of hope and expectation rapidly developed within the decimated manufacturing sector.

As the months have passed by, industry’s expectations have been progressively quashed, and the hopes of imminent recovery totally destroyed.  Despite the grandiose talk by government, there has been virtually no assistance to industry from Dimaf.  Admittedly, government has yet to provide the US$20 million it pledged to the fund, despite recurrent statements by ministers that the release of the funds was imminent.  That fund timeously received the money committed to it by Old Mutual, and yet allocations to industry have been so miniscule as to be of any significance.  Diverse press reports and comments from industrial representative bodies say that since the “launch” of the fund in October 2011, only two industrial enterprises have received  funds, and the aggregate so received is apparently less than US$3 million.

Apparently the actual or intending funders of Dimaf (being government and Old Mutual) have prescribed, amongst other conditions, that:

 

  • No company under judicial management or provisional liquidation is to be a beneficiary of Dimaf funding.  That inevitably poses the question as to how any enterprises can be considered to be distressed to a greater extent than such companies.  The allocation criteria should be whether the provision of the funding would  reverse  the distressed circumstances.
  • The maximum duration of any Dimaf loan to any industry would be 12 months.  Very few distressed enterprises can realistically service loan repayment within such a short time.  Once they are in receipt of the loan funding they must solicit orders from customers, which would rarely be forthcoming over-night.  Then they have to order, and await delivery of the required manufacturing inputs.  Once such inputs have been received, manufacture must commence, whereafter the manufactured products must be despatched to the customers, and then payment received from the customers, generally 60 to 90 days after delivery.  Meanwhile, further manufacturing inputs must be purchased to enable execution of the next slot of customers’ orders, and so the cycle continues. Outstanding debts with suppliers must progressively be settled and in many instances, plant and machinery refurbishment, rehabilitation or replacement need to be funded.  Thus, as a general rule, meaningful industrial recovery requires a minimum of three-year funding, with no capital repayments in the first year, and progressive capital repayments over the following two years, failing which the enterprise will again become distressed, and will probably collapse.  Thus, the entire intent of Dimaf would fail to be achieved.
  • Indications have also been forthcoming, from Dimaf’s administration, that funding will only be provided against collateral security of first mortgage bonds over immovable property.  In so prescribing, there is evidently complete disregard of the fact that many industrialists operate from rented premises, and therefore are not possessed of land and buildings to provide as collateral.  Insofar as some are possessed of land and buildings, most had already secured commercial loans by such collateral. Dimaf necessarily must have greater flexibility as to the nature of collateral to be provided.

With the total of present, and intended  funding for Dimaf being inadequate, and with such unrealistic loan conditions, Dimaf will not be a success. If Dimaf is not realistically restructured, substantially funded, and the funds expeditiously released to industry, it is doomed to fail.

Therefore the inevitable conclusion must be that the conceptualisation of Dimaf, and the concerns to restore industrial well-being, are devoid of credence, and are naught but a ploy to try to procure votes, from the economically afflicted populace, in the elections to be held later this year, or in the first half of 2013.  It appears that the Dimaf conceptualisation is, in reality, only an attempt at capturing the votes of the electorate and, therefore, that the future of industry is bleak.

 

By Eric Bloch

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