Bad debtors stall economic turnaround
Minister Chinamasa

Bad debtors stall economic turnaround


An insidious culture of dishonouring loan agreements has taken root in public and private enterprise and is now affecting Government inter-State economic partnerships.

The latest victims of this subterfuge are key Chinese institutions that extended loans worth millions of dollars to several mining firms that appear intent on not paying back.

Economic agreements signed with China over the last two years have unlocked recapitalisation and new project finance to Zimbabwean companies in various sectors.

 Dr Mangudya
Dr Mangudya

These arrangements require beneficiaries to service loans using profits thereof from project implementation.

A good many borrowers were on the brink but are now back on their feet, courtesy of the Sino-Zimbabwe mega deals that came with nominal interest rates.

However, defaulters abound, and Government is now on an aggressive drive to ensure every cent is accounted for.

Mines and Mining Development Deputy Minister Engineer Freddy Moyo told The Sunday Mail that Chinese insurance giant Sinosure no longer wanted to guarantee loans for Zimbabwean projects.

He said US$100 million meant to benefit small-scale miners may not make its way to Zimbabwe because financiers are now hesitant.

“We have some companies among us who are not honouring their obligations and our message to them has been that they should pay back the money.

“What these companies should understand is that their failure to pay not only affects them but also impinges upon other areas where the Chinese had pledged to provide funding.”

Eng Moyo went on: “Recently, we had an unfortunate situation where the Chinese became hesitant to release the US$100 million loan which had been earmarked for the small-scale mining sector because they were worried about some companies that are not paying back.

“The Chinese have said that for now, they will pay US$5 million out of the US$100 million as they are concerned by this failure to service loans.”

Economist Mr Kingstone Khanyile chipped in: “We are friends with the Chinese, but they also have to implement the principles of lending, which include looking at the track record of debtors.

‘‘If they are not satisfied, they will not release their money, even if they are our friends.

“If people feel they don’t have the capacity to take loans and repay, they should reorient their business models and invite investors who are willing to take up the risk.”

Eng Moyo
Eng Moyo

A banker who preferred anonymity added, “Dishonouring loan agreements is now a culture among both firms and individuals, and this culture has to be dismantled if the nation is to progress. One just has to check the record of non-performing loans to get the picture of what I am saying here.

“Once we clean up our act, knowing fully well that we are in business for simply that, business, then we should be able to follow business principles that make us succeed. It is heartening, though, that Government has said it does not want any of that nonsense to continue.”

Non-performing loans reached 20,45 percent of all lending in 2014, and US$577 million in 2015.

In 2014, Government amended the Youth Development Fund eligibility criteria after being hit by a 92 percent default rate.

The US$10 million fund was set up in 2012 to assist entrepreneurs aged 35-years-old and below and is administered by CBZ Bank, Stanbic Bank and the Central African Building Society.

Last month, Finance and Economic Development Minister Patrick Chinamasa approached the High Court to compel agro-equipment supplier Farmers World Holdings to pay back over the US$12 million advanced by China Export Import Bank and underwritten by the Zimbabwe Government in 2010.

The company had paid just US$6 000 by 2012.

Government has itself committed to clearing its debts with multilateral institutions as expressed by the Lima Agreement (Debt Clearance Strategy) of 2015.

Authorities will settle IMF arrears via Special Drawing Rights worth US$129 million, use a bridge loan to clear US$600 million due to the African Development Bank and pay back the World Bank’s US$1,1 billion through a medium/long term facility.

The strategy is anchored on accelerated public enterprise reform, improved public finance management, modernising labour laws, anti-corruption, aligning Acts to the Constitution and adhering to the rule of law.

In 2015, Government — through the Reserve Bank of Zimbabwe — established the Zimbabwe Asset Management Corporation to assume, manage, restructure and dispose of bad debts.

Zamco has acquired non-performing loans worth US$242 million so as to free bank funds for productive sectors.

Companies relieved of debts through longer repayment periods and have good cashflows are entitled to fresh funding at six to10 percent interest.

Cottco Holdings, RioZim, Cairns Foods, Border Timbers, Hwange Colliery Company Ltd, Astro Motors and Cold Storage Company are in line for debt-absorption.

In the January 2016 Monetary Policy Statement, RBZ Governor Dr John Mangudya said: “The institution of various resolution policy measures by banks, the assumption of qualifying non-performing loans by Zamco and the establishment of a credit reference bureau are expected to further reduce the level of NPLs.

“Towards this end, banking institutions are working towards reducing their NPL ratios to levels below 10 percent and five percent by 30 June and 31 December, respectively.”

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  • Wilson Magaya

    Trust is the foundation of economic prosperity. Lets build trust and lets be exemplary in all we do. Zimbabweans look up to our business and public sector leaders. We need to lead ethically. Society tends to mirror. “Nyika Vanhu, Musha Matare” Lets get Zimbabwe to work for the sake of its people.

  • Zvichapera

    The culture of failing to honour obligations on loans by borrowers is ZANU PF. ZANU PF thinks that debt collection efforts are colonial. I recall a story from a friend, who was a bank manager and they had attached property of someone who was from Zvimba for non repayment of the money he had borrowed. The guy fought back by writing a long letter saying all sorts of things about the war of liberation and how the bank was so colonial, and he copied Robert Gabriel Mugabe. The guy was protected and the bank failed to recover anything. As long as we have ZANU PF and its thugs, who believe that they can withdraw any amount of money irrespective of the balances in their respective accounts, then we are going no where. These ZANU PF guys do not even respect or even listen to bank managers, instead they address these bank managers as kids. Sometimes the bank managers run away from the ZANU PF politicians. I would like to hear any bank manager who can stand up to these ZANU PF thugs. The central bank is not spared either when Gono used to give directives to take funds from client foreign currency deposits. So talking about anything else other than the culture of impunity is utter naivety. Time will tell.