The country’s economic outlook remains bleak amid fears more companies will fold due to current problems, Finance Minister Patrick Chinamasa has warned.
At a Zimpapers breakfast meeting held in the capital this week to unpack President Robert Mugabe’s recent visit to China, Chinamasa said the international community was only warming up to funding infrastructure projects, shunning economic rescue packages.
He warned companies to address their cost structures to survive.
Chinamasa said failure to address cost structures would result in companies sinking, adding the current wage levels were unsustainable given a generally low productivity level obtaining in the country.
After a series of visits to unlock funding and investment from China, Chinamasa said significant progress had been made in respect of mega infrastructure projects, but securing support to the productive sector remains a big challenge.
“My biggest challenge at the moment, and we are working on it, is support to the productive sectors at affordable interest rates; that is my biggest challenge,” he said.
“What we need here is foreign direct investment which grows your taxes but currently, because of sanctions, we have got a challenge which is why we can only fund whatever we are doing through loans and the European Union has promised to lift sanctions in November. So far in anticipation of the lifting of sanctions we are already in discussions with the EU to see what we need to do.”
Zimbabwe has failed to attract meaningful funding to capitalise its ailing industry after a hyperinflation and economic meltdown.
Foreign investors have adopted a wait-and-see attitude towards Zimbabwe at a time industry needs to retool and match international competition which is producing better quality products at cheaper prices.
The country’s sovereign risk rating is among the highest in the world, resulting in higher interest bearing loans. The country also has poor credit rating.
Economist Takunda Mugaga told businessdigest that Zimbabwe is viewed as a bad investment destination largely because of its poor record on governance and policy inconsistencies, including lack of respect for property rights.
Apart from the governance deficit and lack of policy consistency, the country owed US$9,9 billion to domestic and international creditors as of December 2013. Zimbabwe’s banking sector is saddled with non-performing loans which have risen to 18,5% as at June 30 2014 from 15,9% as at December 31 2013 due to challenging economic conditions and increasing cost of doing business.
Part of government’s efforts include formation of a debt management office to help monitor and clear government debt which stood at a combined US$9,9 billion as of December 2013, 54% of the country’s gross domestic product in 2013.
Chinamasa said internally, government was trying to address fundamental macroeconomic issues that are of concern in partnership with the Reserve Bank of Zimbabwe.
He said government was working with China to ensure private Zimbabwean businesses can access funding directly from Chinese banks.
“We have done quite some work already on the Zimbabwe Stock Exchange by demutualisation,” Chinamasa said.
He said government has agreed to make token repayments to China and other international funding institutions as a demonstration of its willingness to restore relations in order to unlock new funding.
“We have so far coughed up more than US$180 million which was not in the budget just to make ourselves look good not only with China Exim bank but also Sinosure because you cannot access any funding from China if it’s not insured by Sinosure,” Chinamasa said.
Chinamasa said his office would present a Debt Resolution Strategy in a few weeks with a view to adopt a clear strategy on clearing Zimbabwe’s debt which remains an albatross on the economy and inhibits inflow of fresh capital.
In an update of government’s recent visit to China, Chinamasa said the Chinese government promised the President Robert Mugabe-led delegation it would fund infrastructure projects.
He said the main projects include expansion of Kariba South expansion and Hwange Thermal Power Station rehabilitation.
On telecoms, he said a US$219 million loan facility was signed for NetOne to expand its network whilst another US$98 million is in the pipeline for expansion of TelOne’s fibre optic internet infrastructure.