The Sunday Mail
There is an adage that goes, “The right time for an entity to finance growth is not when it needs capital, but rather it is when markets are most receptive to providing capital; in instances when the two coincide, then the money gods have shown their favour.”
This applies to both the private sector and governments. If it is true that European sanctions have been eased, then there should be a much happier mood settling within our country.
Particularly, at present, when Western capital markets are abounding with finance and are feeling quite receptive to making ample investment, if only they can find the right ones. Note, however, I am not referring to multilateral lenders and donors: it’s high time we perceived ourselves as a country looking for business and not one dependent on the generosity of others!
As such, I am referring to commercial capital markets.
Since early 2014, there has been more than US$3 trillion of cash reserves idly waiting for attractive investment propositions. In more recent months, buying negative-yield bonds (investors basically paying for the privilege of loaning money to governments) has become a pervasive trend.
This should all sound quite intriguing, especially considering that this receptive period by Western capital markets coincides with us needing to access capital, especially for infrastructure projects. Maybe a reason for greater optimism is that substantial representation within these Western capital markets is institutional investors such as pension funds and insurance groups; investors traditionally looking for long term investment propositions with time horizons best matched by infrastructural project returns. So, on the financier end, the money is there.
Introspectively, on our part, Zimbabwe needs to assess how palatable our infrastructure projects are. Also, while the focus is on capital expenditure projects specifically, a broad range of facets informing investors about the country can be just as imperative.
Hundreds of other countries are diligently committed to creating an investment climate of choice for investors.
Countries like Turkey, Chile, Mexico and Thailand have distinguished themselves as leading infrastructural investment options. While they may seem worlds away from Zimbabwe – far beyond relevance to many of our politicians and policy-makers – their data is just a few rows away from ours on portfolio spreadsheets that investors study.
Thus, we must be awakened to the fact that competition for investment is intense, on a global scale, with a huge field of participants jostling for the same money we want. If we are to present ourselves as an investment destination of choice, hard decisions have to be made. Even harder action has to be taken! Over the last few years, Government has been trying to float bonds through relevant infrastructural agencies as part of its Public Sector Investment Programme.
Some of these bonds were meant to incite interest in projects such as power generation and mining. Policy-makers have been flexible in their fiscal and monetary statements using tax exemptions and guarantees to attract potential investors.
Though these efforts have been commendable, the results haven’t been adequately substantial. There are two main reasons for this disappointment. First, we should interrogate the commercial viability of our infrastructural projects. Though I did concede that finance is there, Western institutional investors are facing more stringent regulation on their investment portfolios.
Thus, finding commercially viable projects becomes all that more important.
For instance, our power generation and energy projects must produce globally competitive returns beyond just repayment of capital and interest. If South African power provider Eskom – supplier to the most industrialised nation on the continent – was downgraded to junk status after power shortages and corporate uncertainty – one can imagine the scope of scrutiny surrounding power infrastructure investment.
This is not made any easier by the breakthrough in renewable and alternative energy sources such as solar, which has become the “hot” investment proposition at the moment with ample power capacity and attractively lowering consumer prices.
Countries like Morocco are on the verge of large-scale renewable energy distribution, which it will sell to a comparatively sustainable European market. The power and energy sector has also become a progressive showcase for business with investors emphasising environmental standards as well.
The fancy money is after clean, renewable energy.
Zimbabwe would be wise to assess the commercial viability of our energy sector, with companies such as Hwange Colliery Company posting a US$37 million loss last year and Zimbabwe Power Company being in debt with its sister company, Zimbabwe Electricity Transmission and Distribution Company owing it US$540 million.
Sure, there has been investor interest through entities such as Sino-Hydro, but market demand well exceeds the available supply.
Second, we should aim for better regulatory contracts and business friendly legal frameworks around infrastructure projects.
While it’s become custom for our political delegates to open dialogue with foreign nations, this becomes a technocratic space where experts in infrastructural regulation must advise suitable regulatory frameworks that support long term financing. Contracts must be high quality, offering win-win propositions and clarity of counter-party obligations.
Likewise, laws enforced within capital projects must be transparent and universally applicable to all potential takers.
This mitigates the risk of kickbacks and malpractice in tenders – once quoted by Finance and Economic Development Minister Patrick Chinamasa as being “the capital city of corruption”.
Even though contracts have some level of proprietary information, sooner rather than later more details from mega deals agreed upon with Russian and Chinese investors must be disclosed.
More importantly, capital project contracts must protect and respect property rights so as to appeal to security and long term certainty concerns of investors.
Notwithstanding, while these regulatory expectations involve legislative and enforcement competence, it is hard to draw the line between the rule of law and social conduct. That means while we can improve laws around capital projects, perception of social conduct cannot be separated from investor concerns.
It does us no good when we are still a country where headlines of highly positioned individuals and political structures are said to “take” another entity’s property!
That is undesirable conduct.
If African countries themselves, including a substantial portion of our population, considered economic retribution to South Africa after a fortnight of xenophobic incidents, can we blame Western investors pulling away if our environment tolerates conduct disrespecting property rights?
Economic policy-makers may work very hard to assure investor concerns, but if political structures evidently conduct themselves in a manner unbefitting of our economic ambitions, then there is little seriousness in our financing pursuits.
It actually takes away political capital to be associated with contributing to stalling our economic progress.
Perhaps these are conversations that we may not like to have, but investors definitely consider. These are the two great challenges that we face as a nation with regards to attracting infrastructure investment.
By the sheer level of competition for infrastructure capital on a global scale, our efforts must be uncompromised and approached with exceptional diligence. We have shown commendable signs of will, but until we are one of the best investment attractions in the world, we should keep trying harder!
