‘Resolution of Lima Plan key to attracting fresh funding’

The Infrastructural Development Bank of Zimbabwe (IDBZ) is advocating the financing of infrastructure-related projects as part of economic recovery. However, major hurdles to this include inadequate project preparation and lack of timeous implementation. This week, Zimbabwe Independent business reporter Melody Chikono (MC) interviewed IDBZ chief executive Thomas Zondo Sakala (TS, pictured) on the state-owned bank’s prospects and challenges in the new environment. Find excerpts below:

MC: In 2016, you launched the Project Preparation and Development Fund (PPDF) at US$2,5 million with the hope that it would reach US$5 million in 2017. How far have you gone in achieving this?

TS: The PPDF Facility now stands at US$5 million, so this has been achieved.

MC: What milestones have you made in your efforts to close the funding gap on project preparation?

TS: Apart from the bank’s own initiative to provide resources towards project preparation out of the bank’s PPDF facility, the IDBZ has made representations to Treasury (i.e. Ministry of Finance and Economic Development) to allocate resources towards the packaging of priority national projects. We are pleased to note that through the 2017 national budget, Treasury allocated US$7 million towards the establishment of a national PPDF.

The facility is being used to fund detailed feasibility and design studies; and, environmental and impact assessments in order to prepare national projects for successful investment promotion. An additional US$15 million was allocated into the national PPDF facility through the 2018 national budget. Some of the priority projects that have accessed the facility to finance feasibility studies are the Tokwe-Mukosi Irrigation Scheme and the Ministry of Primary and Secondary Education Schools Infrastructure Development Project.

In addition, engagements are also being made with external development partners to solicit their support through availing technical and financial resources towards project preparation.

MC: What are the major obstacles to infrastructure development in Zimbabwe?

TS: The obstacles are at two levels: first is the enabling environment and, secondly, specific challenges within the project cycle itself. The positive thing is that since the onset of the new political and economic dispensation, there is strong commitment at all levels of government to address these bottlenecks. With respect to the enabling environment, the challenges included an unstable macro-economic environment which was not conducive for long-term investment, poor procurement practices and, related to that, corruption.

Furthermore, there were no clear national guidelines to standardise practices for project identification, packaging, approval, procurement and implementation by government line ministries, public entities and local authorities. These mandatory guidelines are now in place and were ushered in through the 2018 national budget, and the development of the Joint Ventures (JV) Regulations and Procedures to guide the implementation of the Joint Ventures Act is almost complete. These JV Guidelines are important as they provide the broad steps that must be followed in developing and implementing projects through the various forms of public-private partnerships (PPPs).

Another challenge has been the Indigenisation Act which was a major obstacle to foreign investment flows, and you will be aware that this has now been addressed through a policy provision in the 2018 national budget and the necessary legal instruments are being worked on to put the policy into effect.
I also wish to mention the issue of the country’s external arrears situation. Whatever their source or origin, sovereign debts do not just disappear. There are acknowledged international frameworks which exist to address them.

For Zimbabwe, resolution of this issue within the context of the Lima Arrears Clearance Strategy and also the re-engagement with bilateral and multilateral financial institutions is important to attract new funding lines towards, among other demands, infrastructure development. Domestic sources alone are not adequate to provide the scale of funding required to address the country’s infrastructure gap, so as long as the country remained in default our development partners and international financial institutions would not have much appetite to support local projects. No country in the world mobilises all its funding requirements from domestic sources only.

MC: What have been IDBZ’s major highlights in 2017 on infrastructure development?

TS: The bank has made significant strides in infrastructure development by managing to develop a healthy pipeline of bankable projects of national scale across its target sectors (housing, information communication technology, energy, water and transport).

In the housing sector, the bank has been actively involved in the servicing of stands in partnership with local authorities and private players. The bank seeks to reduce the national housing backlog that is currently estimated at around 1,25 million units. Some of the featured projects in the housing sector include but are not limited to:

The Kariba housing project in conjunction with the Municipality of Kariba — Servicing of approximately 1 600 stands in Kariba. Relocation of 390 families from Mahombekombe;

Hwange housing project in partnership with Hwange Local Board — Servicing of more than 2 000 residential stands in Empumalanga West, Hwange;

Universities Student and Staff Accommodation Programme (USSAP) — Intervention to provide accommodation to tertiary university students across the country. The project is planned to be implemented in phases;

Sumben housing project — Development of 370 low-density residential stands in Mt Pleasant, Harare;
Schools infrastructure project — Project planning for the development of 2 056 schools;
Victoria Falls (WASH) Project — The project that involves the rehabilitation and augmenting the water works in the resort town was developed to bankability in 2017;

Advisory services — Bank continued playing a catalytic role in infrastructure development by offering advisory services to national priority projects, that is Beitbridge-Harare Road Rehabilitation and Dualisation project and the Ministry of Primary and Secondary Education Schools Development project targeting 2 056 schools; and

Project Implementation Monitoring — In 2017, the bank successfully monitored the implementation of the following projects: Clipsham Views Housing Project (completed), New Marimba Project (completed), IPHC Mbizo 22 Project (completed), Kariba Housing project (on-going), Empumalanga Housing Project (ongoing), Emergency Road Rehabilitation Programme (ongoing), Tokwe-Mukosi Dam (completed), Gwayi-Shangani (ongoing), Causeway Dam (ongoing) and Marovanyati Dam (ongoing).

MC: What have been your achievements in resource mobilisation for infrastructure financing?

TS: Since 2012, the bank has pioneered the return and development of the debt capital market in Zimbabwe through the issuance of infrastructure bonds which have been received well by institutional investors.

However, in the past two or three years, the bank has faced challenges in its resource mobilisation efforts. For an institution like ours, which requires long-term capital, the market was particularly difficult in 2017 as the fluid macro-environment and inflation fears led investors to focus more on listed equities and short-term paper with high yields. This was done at the expense of infrastructure development which requires long-term investment.

The bank continues to engage institutional investors, particularly those that handle long-term savings, to invest in infrastructure projects as a way of balancing financial return with socio-economic impact. Despite these challenges, the bank was able to build on its successful issuances of energy bonds and 2015 Maiden Housing Bond to mobilise a significant amount of funds through five-year housing bonds to support the implementation of housing projects such as Kariba, Empumalanga West (Hwange) and Sumben (Harare). The bank is still receiving subscriptions into these bonds under private placement.

The bank has also mobilised funding for a student accommodation complex in Bulawayo for which construction is expected to commence before the end of the first quarter of 2018. The bank is at advanced stages of packaging other student accommodation projects which can be funded through the same framework as the Bulawayo project, and there is strong appetite from institutional investors to invest in these projects. Furthermore, a similar programme for medical staff is being prepared as a matter of urgency.

MC: Now that you have listed on Finsec, what does that mean for the future of IDBZ in terms of infrastructure bonds?

TS: The listing of the bank’s energy bonds on Finsec was done to improve the tradability of the instruments, offer an exit route to investors who may not want to hold the instruments to maturity and also offer an opportunity to investors who would have missed the instruments during the primary offer to invest through the secondary market. We will be selectively listing our future bonds, depending on the size of the issue, to ensure broad market participation in the instruments which is necessary for deepening our capital markets.

MC: How do you see IDBZ in the next five years following this development?

TS: As the macro environment stabilises and the culture of long-term savings returns, which is feasible within the medium term, the bank will accelerate bond issuances to access capital from both domestic and foreign investors for building its funding base and to scale up the financing of developmental projects.

Once the obstacles that have been inhibiting the flow of foreign capital into the country are addressed and the country is on a sustainable growth trajectory, there is also the opportunity for the bank to issue debt instruments in the international markets which will help mobilise both long-term and appropriately priced capital which is suitable for infrastructure.
Our profound ambition, in light of the huge infrastructure agenda, is to see the IDBZ capital grow to US$1 billion in 10 years’ time!

MC: What is the future of infrastructure development in Zimbabwe?

TS: It’s a promising future if the various obstacles that have been constraining investment are addressed, and there is political commitment to aggressively deal with these challenges. Already, government has, through the 2018 national budget, made a raft of policy provisions to address fiscal imbalances (which has been the main source of macro-economic instability), promote investment and improve the ease of doing business.

The country’s indigenisation framework, which has also been the largest impediment to attracting foreign investment, has been rationalised; clearance of external debt arrears under the Lima Debt Clearance Strategy and re-engagement with multilateral financial institutions is now top on government’s agenda; and government has also committed to allocating more resources towards developmental projects and capacitating critical public institutions such as the IDBZ and others.

MC: What is your outlook in terms of the development of projects?

TS: The stage is set for growth in infrastructure on the back of an expected improvement in the macro-economic environment, increased political will to eradicate corruption and support from the government as enunciated in the national budget. These factors are expected to unlock long-term infrastructure funding, improve project delivery and allow the bank to expand infrastructure development in the Zimbabwean economy.

Fact File: Thomas Sakala

  • Experienced Zimbabwean economist and development banker;
  • Worked with the African Development Bank (AfDB) for 31 years, with 18 years in various managerial positions;
  • In 2015, he was appointed CE of the Infrastructure Development Bank of Zimbabwe;
  •  In 2012, he was appointed vice-president of AfDB;
  • From 2007 to 2012, he was director, programming and budget at AfDB;
  • From 2002 to September 2006, he was resident representative at AfDB; and
  • In 1980, he was appointed principal planning officer in Zimbabwe’s Ministry of Manpower Planning and Development.

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