HIGH EXPECTATIONS FOR NEW YEAR

28 Dec, 2014 - 00:12 0 Views
HIGH EXPECTATIONS FOR NEW YEAR President Mugabe greets Russian Foreign Minister Sergei Lavrov in Harare recently while other dignitaries look on

The Sunday Mail

BUSINESS EDITOR’s NOTE: EVENTS by their very nature can be interpreted as devine bones that tell what the future is likely to hold. Pessimism is a very cheap commodity in Zimbabwe, especially in a market that is presently roiled by the biting liquidity crunch on the local market. However, judging from the events and interventions made by Government in the past 12 months, the new year seems to be very promising; that is if all stakeholders put their shoulders to the wheel. Below are some of the developments that we believe will anchor the country’s future economic prospects.

Investors warm up to Zim

In the decade after 2000, Zimbabwe, as an eligible investment destination, has not been able to find suitors.

The sanctions slapped on Harare by the United States of America and the European Union bloc made the country unattractive; no one was prepared to engage Zimbabwe, what with the excess baggage it carried.

Unsurprisingly, the country recently slipped two places to 170 out of 189 countries surveyed in the World Bank’s Ease of Doing Business Report.

Of concern is that the country continues to struggle in attracting meaningful foreign direct investment (FDI).

Last year, Zimbabwe managed to lure US$410 million in FDI, according to the United Nations World Investment Report.

At 19,3 percent of the gross fixed capital formation, Zimbabwe’s 2013 FDI inflows of US$410 million were the lowest in the Southern African Development Community (Sadc) region.

Instructively, the World Bank report has become the barometer through which investors select a potential investment destination.

But notwithstanding the challenges plaguing the local economy, there is now growing optimism that Zimbabwe is now ready to do business.

Mega Deals

The landmark multi-billion-dollar deals signed with Russia and China tellingly indicate that Zimbabwe has now allied with cooperating partners that are willing to underwrite projects intended to cover the country’s infrastructural deficit.

Economists believe that once the deals are rolled out they have the potential to provide a stimulus to the economy.

Projects in water, rail, power and telecommunications are largely regarded as key enablers for economic growth.

The mining deal with Russia, where Moscow will sponsor the US$3 billion platinum project in Darwendale, a small town that is located 62 kilometres west of Harare, is considered to be key to the country’s future economic growth prospects

The project, which close sources say will take off early next year, will see production of nearly 600 000 ounces a year.

Throughput is forecasted to rise to one million ounces per year by 2019, making it the largest platinum mine in the country.

Three miners already operating in the country – Zimplats, Mimosa and Unki – have a combined output of 430 000 ounces a year.

Most importantly, it is estimated that the new platinum project will create 8 000 jobs.

Russian Foreign Minister Mr Sergei Lavrov and Industry Minister Mr Denis Manturov signed the deal on behalf of Russia, while Mines and Mining Development Minister Walter Chidhakwa and Foreign Affairs Minister Simbarashe Mumbengegwi signed on behalf of Zimbabwe.

The two parties created Great Dyke Investments (Pvt) Ltd, which will be the lead entity in the project.

Apart from the platinum mine, a smelter will also be established.

This dovetails with the country’s economic blueprint, Zim Asset, which mainly emphasises on value addition and beneficiation.

Already the country is haemorrhaging significant revenues through exporting ore to South African refiners.

Platinum accounts for an estimated 36 percent of the country’s total mineral production.

The country has the second largest known platinum reserves in the world after South Africa and is the world’s third largest producer of the metal.

The Chinese Deal

Similarly, on August 25 President Robert Mugabe inked nine major deals with China in Beijing.

Largely focused on infrastructure projects such as power generation, the deal will most likely have a huge impact on the local economy.

Through the bilateral agreements, China committed to providing financial assistance to critical sectors such as energy, roads, tourism, railway network, telecommunications and agriculture.

A consortium of private Zimbabwean and Chinese companies, China Africa Sunlight Energy (CASECO), also signed an integrated project worth more than US$2 billion that will see the firm constructing a 600-megawatt thermal power station in Gwayi by 2017.

A coal mine, producing 2,4 million tonnes of underground coal per year, including the construction of the Gwayi-Shangani Dam as well as construction of Gwayi-Insukamini Power Station transmission line, form a key part of the project.

In essence, CASECO is a joint venture of Oldstone Investments – a Zimbabwean company – and Shandong Taishan Sunlight Investments with its consortium HCIG Energy Company Limited and Cad Fund, both Chinese firms.

The four firms signed the agreement for the development of the Gwayi Integrated Project.

Government also signed other memoranda of understanding for feasibility studies on dualisation of the country’s highways such as Beitbridge-Harare, Harare-Nyamapanda, Harare-Chirundu and Mutare-Harare.

A loan deal of US$218 million towards NetOne’s expansion was also signed.

Furthermore, China Export and Credit Insurance Corporation, a key institution that guarantees key projects funded by Beijing, was also requested to give insurance to a loan of US$98 million from China Exim Bank to TelOne so that it expands its fibre optic programmes.

As part of the deal, the Kariba South Hydropower Station expansion project, which is expected to increase power generation by 300MW, has already begun. The 300MW will be added to the existing 750MW.The expansion is being carried out by a Chinese firm – Sino Hydro and will be completed in 2017.

Zimbabwe, which generates an average of 1 200MW with a demand of 2 200MW, is working towards boosting power generation in order to underpin projected growth in the manufacturing sector.

Though critics pooh poohed the major deals that were signed with both Moscow and Beijing, most of the expectations stem from the fact that multilateral finance institutions such as the World Bank and the International Monetary Fund (IMF) have all along been reluctant to extend resources to both the local public and private sectors.

Taking a cue from this stance, other finance institutions also frowned on Harare.

However, Zimbabwe’s major coup in securing the goodwill of the two global political and economic powerhouses is of major consequence to the local economy.

European trade missions retrace footsteps

As the ill-disposition of Europe gradually mellows, some members of the regional bloc are now retracing their footsteps, possibly suggesting that the situation is slowly returning to normal.

On October 28, a five-member business delegation from the United Kingdom arrived in the country for a three-day working visit to scout for business opportunities.

The visit was described by Finance and Economic Development Minister Patrick Chinamasa as the first step towards normalising relations between Harare and London.

“They are on a mission to investigate areas of co-operation, areas of investment opportunities and they are investigating how they can facilitate the implementation of our Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimAsset) economic programme,” said Minister Chinamasa then.

British Ambassador to Zimbabwe Ms Catriona Laing said the delegation came into the country to understand the realities of doing business. The delegation, led by Mr Alex Lambeth, indicated that the visit was a “chance to build long-term relationships with Zimbabwean partners”.

A bigger investment mission is expected in the first quarter of next year.

Another delegation from the United States postponed its visit to early next year.

British investors are keen on investing US$100 million in the country’s energy sector.

Another United Kingdom-based firm, Green Rhino Energy (GRE), has also revealed plans to construct a 150 megawatts (MW) solar plant in the country.

GRE, in partnership with a local company De Opper Trading, formed a special vehicle, De Green Rhino Energy Private Limited (De Green), to pursue a US$400 million solar energy project.

Indications are that the company has already secured 375 hectares of land in Marondera for the project, and has completed an Environmental Impact Assessment.

De Green is expected to roll out other solar power stations around the country, with total capacity to generate up to 2 500 MW at a cost of about US$5,2 billion.

GRE focuses on a broad range of issues in clean energy — from technology to financing renewable energy projects, with a particular focus on solar and is currently involved in large-scale solar and waste-to-energy projects in several African countries, among them South Africa, Namibia, Sierra Leone, Ghana, Nigeria and Cameroon.

Turkish Business Delegation

In July there was also a Turkish business delegation that jetted in to explore investment opportunities in various sectors of the local economy.

Three firms from Turkey immediately expressed interest in investing in the lucrative mining, construction and education sectors. The firms are keen on setting up offices in the country. Part of the 11-member delegation of the Confederation of Businessmen and Industrialists of Turkey, better known as Tuskon, showed strong interest in coal, chrome and gold mining, while other members expressed interest in construction and education.

Canyon Coal executive chairman Mr Vuslat Bayoglu said Zimbabwe has vast investment opportunities, adding that the Indigenisation and Economic Empowerment Act was not an impediment to investment.

Prospects are high that their visit will culminate into huge investments as they met several Government officials and local businesspeople.

Buoyed by these favourable developments, the Zimbabwe Investment Authority (ZIA), a statutory body mandated to lure investment, has set itself an ambitious target of attracting more than US$1billion in investments this year.

Big brands return to Zimbabwe

Most analysts use the ability of an economy to lure big brands as a yardstick to measure how attractive it is.

The year 2014 brought these brands to Zimbabwe’s doorstep in droves.

Top international companies such as Kentucky Fried Chicken (KFC), Botswana Stock Exchange listed supermarket Choppies Enterprises and international energy giant Puma Energy, are some of the big names that have spread their tentacles into Zimbabwe.

Choppies Zimbabwe

The firm is a joint venture between listed Choppies Enterprises of Botswana and the Mphoko family.

The company employs more than 1 400 people and has grown to become one of the leading taxpayers in Bulawayo.

Choppies has opened 18 supermarkets around Zimbabwe since last year and plans are currently underway to spread its footprint into Victoria Falls.

More shops have been opened in Harare, with the High Glen branch being the latest addition.

Already, dominant retailers have injected an estimated US$35 million into the economy and more funds are expected to be channelled to the establishment of 40 more supermarkets in the next three years.

Emphasising its regional footprint, Choppies has 63 stores in Botswana and 13 in South Africa.

KFC

Most tongues were left wagging – no pun intended – when top US fast food outlet KFC re-opened in Harare this year, seven years after leaving the country after the previous franchise holder failed to maintain the international standards demanded by the American-owned brand.

Mr Kelvin James, a Zimbabwean based in South Africa, teamed up with Takura Investments to acquire the franchise for the local market. Mr James already owns and operates several KFC fast food outlets in South Africa, but Takura holds 51 percent shareholding in the local business.

The two investors have poured in US$1,5 million in the project.

There are long-term plans to open 25 outlets in the next five years.

Mr James owns Consolidated Farming Investments and is regarded as a leading investor in the fast food sector in Zimbabwe. He is also the chief executive of Country Bird Holdings, which is understood to be the third biggest chicken supplier in South Africa. The local fast food business has been dominated by Innscor Africa Limited’s Chicken Inn, Chicken Slice, Food Express and other small players.

KFC is an international fast food franchise with a presence in more than 80 countries.

Pick n Pay

South African retail giant Pick n Pay is one of the South African-based compa nies that has invested in Zimbabwe and become more visible over the past 11 months. More and more shops, previously TM Supermarkets are being rebranded as Pick n Pay branches. Pick n Pay has a partnership with TM Supermarkets, a subsidiary of Meikles Limited. The former has so far invested over US$25 million – sourced from Standard Chartered Bank – to upgrade the chain so that it matches international standards.

The firm had owned a 49 percent stake of TM Supermarkets since November 2010, and has provided operational support through a skills development programme to equip the Zimbabwean local team with international best practice.

Investments and refurbishments follow the supermarket chain’s increase in profits through improved management practices and better stock control, merchandising and buying strategies.

Pick n Pay Holdings Limited and Pick n Pay Stores Limited are investment holding companies listed on the JSE since 1968. and it operates 95 stores in Africa.

Since 1967 when consumer champion Raymond Ackerman purchased the first few stores, the Ackerman family’s vision has grown and expanded to now encompass stores in South Africa, Namibia, Botswana, Zambia, Mozambique, Mauritius, Swaziland, Lesotho and lately Zimbabwe.

New broom at RBZ heralds new era

Beginning May 1 2014, Dr John Mangudya took over the reins at the Reserve Bank of Zimbabwe (RBZ), marking the beginning of a new era. Dr Gideon Gono, who steered the monetary policy ship through the turbulent times from 2003, had unfortunately acquired a reputation of quasi-fiscal projects. Both the international community and the local financial markets largely viewed in with suspicion. On the overall, the financial services sector lost the confidence of ordinary depositors.

The situation had become untenable for the country to move on to a new slate.

The new RBZ, however, represents the new slate, and then reforms that have since been proposed, especially plans to amend the Banking Act, including the RBZ Debt Assumption, promise a new future for Zimbabwe. Dr John Mangudya, himself a seasoned banker, has brought a glimmer of hope. The new RBZ administration has since the beginning of its term been trying to sell hope to Zimbabweans. Appearing before the Parliamentary Portfolio Committee on Finance and Economic Development in August, Dr Mangudya indicated that it was time for locals to unlearn the suspicion and negativity that is often directed at policy makers.

“I bring a message of hope and optimism. This economy is not as illiquid as it is said, but what is there is that the negative perception is high. It’s just like saying that in Mangudya’s place there are witches and wizards and then you expect visitors to come to my place.”

The most comforting fact is that the local financial services sector still has a solid footing.

By mid-year a total of 14 out of 19 operating banking institutions (excluding POSB) were in compliance with the prescribed minimum capital requirements. Four banks are, however, still facing liquidity challenges. These are Metbank, Allied Bank, Tetrad and AfrAsia.

On aggregate, core capital for the banking sector amounted to US$753 million as at June 30 2014.

However, the level of non-performing loans (NPL) has risen to 18,5 percent as at June 2014 from 15,9 percent in December last year.

NPLs continue to pose a real threat to the local economy. But the RBZ has established a national special purpose vehicle (SPV) called the Zimbabwe Asset Management Company (ZAMCO) to deal with the toxic assets affecting banks.

ZAMCO is being funded by a combination of non-funded lines of credit, new inflows, long-term bonds and Treasury Bills. NPLs amounting to US$45 million have already been acquired by ZAMCO from three banks as at August 15 2014.

Far-reaching reforms in the financial services sector are however expected when the Banking Act is amended. The amendments will usher in the Credit Reference Bureau, a key institution is preventing non-performing loans.

They will also provide the legal standing for the Bank to superintend over the operations of the previous Small Enterprises Development Corporation. Recently, additional measures to buttress the multi-currency system were spelt out.

The introduction of bond coins (from December 18) will help retailers and consumers deal with change problems that were affecting transactions.

It is also hoped that the new coins will prevent retailers from rounding off commodity prices..

Recapitalisation of the RBZ

Government has spelt out elaborate programmes meant to recapitalise the RBZ in a move that is forecasted to restore its lender-of-last resort function. The central bank is also working on modalities to ensure that the interbank market supported by the Afreximbank will commence “soon”. All this is expected to improve the liquidity situation on the local market.

The RBZ has also provided amnesty to previous offenders of the Exchange Control Policy to trade market discipline and self-regulation.

So far, a total of US$23 million offshore loans since the announcement of the conditional amnesty for local companies has been regularised. Dr Mangudya also reviewed the threshold of offshore loans to be approved at the banks’ level to US$7,5 million from US$1 million and the Consolidation and Streamlining of the External Loans Co-ordination Committee and the Exchange Control Review Committee to enhance efficiency.

Government will also be making efforts in recapitalising the Reserve Bank of Zimbabwe (RBZ) as it seeks to contain the central bank’s debt which is now over half a billion dollars.

Government assumed the central bank’s debt to ease pressure on the bank and ensure it assumes its other roles which were eroded after the adoption of multi-currency in 2009.

In April, Government launched the US$100 million interbank facility as part of efforts to recapitalise the central bank. By May, only six banks had applied to be vetted to access the facility, while three banks had been placed in the category of those with liquidity “to place in the interbank market against the Aftrades instrument as security”.

The interbank lending market entails banking institutions offering liquidity reprieve to each other by advancing short-term credit facilities among themselves. Besides ensuring stability of the financial sector as banking institutions can bail each other in the event of a temporary liquidity glitch, the interbank lending market also ensures efficient allocation of financial resources.

Banking institutions with excess liquidity on any given day can, at a reasonable return, offer banks in deficit funds which they can optimally deploy onto the economy.

If the lender of last resort facility is restored, the central bank will be able to offer loans to banks and other eligible institutions that are experiencing financial difficulty or are considered highly risky and nearing collapse. Interest rates are also expected to drop. The International Monetary Fund (IMF) and local banks have in the past raised the red flag, warning of an imminent exposure of banks in the absence of a lender of last resort.

However, the Government has been challenged to consider the enactment of a provision which protects financial institutions from litigations by creditors in respect of debt assumed by the state under the Reserve Bank of Zimbabwe Debt Assumption Bill, which will be tabled before parliament when it resumes seating in February.

Bankers Association of Zimbabwe (BAZ) is also seeking immunity from depositors whose money they transferred to RBZ.

BAZ cited a Supreme Court judgment, which ordered Standard Chartered to reimburse US $45 000 seized from a client’s account by RBZ in 2007.

RBZ exchequer account reactivated

The Reserve Bank of Zimbabwe (RBZ) assumed control of the Government revenues account from CBZ Bank as Treasury intensifies efforts to restore it status as the banker of last resort and re-capitalisation of central bank.

 

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