The Sunday Mail
Mr Chris Msipa
Africa Moyo
THE contrasting fortunes of the manufacturing sector – a key measure of the health of the productive sectors of the economy – and the banking sector, which is supposed to give oomph to economic growth, points to a sickening anomaly in the local economy.
While industry groans and moans, banks continue to grow and prosper.
Captains of industry say the greed in the banking sector is pushing the manufacturing sector to the precipice.
The cost of money in banks is attracting interest rates of between 15 percent and 20 percent per month, which is 15 percent more than regional averages.
Such interest rates are considered punitive by industry, especially for a country that is seeking to bring the economy back on the rails.
As more than 90 percent of bank deposits are transitory, banks are reluctant to commit to long-term loans and have been charging high interest rates for short-term facilities.
Banks smile all the way to the bank
Unsurprisingly, banks continue to be profitable.
Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya said in the 2015 National Budget the banking sector was generally sound.
In fact, the aggregate net profit for banks climbed to US$52,8 million in December 2014 from US$3,4 million in the same period a year ago.
Fourteen out of the 19 operating banking institutions recorded profits for the year ended December 31 2014.
Also, as at December 31 2014 banking sector deposits, including interbank deposits, grew by 4 percent to US$5,1 billion, while loans and advances fell marginally to US$4 billion in the same period.
A (BAZ) official, who spoke on condition of anonymity as he is not authorised to talk to the Press, said last week banks were making every effort to support local economic growth.
“I think that is not too bad at all considering the environment we are operating in and the fact that banks have a fiduciary responsibility to protect depositors’ money,” said the official.
A fiduciary duty is a legal duty to act solely in another party’s interests.
Though banks have been posting satisfactory results, non-performing loans remain higher than regional and international averages.
By the end of last year, NPLs had risen to 16 percent.
But as banks rake up profits, the manufacturing and mining sectors continue to weigh on the economy due to working capital constraints.
For example, the manufacturing and mining sectors are estimated to have shrunk by 4,9 percent and 2,1 percent respectively in 2014.
Analysts have begun to question the anomaly where the local banking industry always strive at times when the economy is under pressure.
In 2007, the banking sector also recorded super profits at a time when capacity utilisation in the manufacturing sector plunged sharply from 35,8 percent in 2005 to 18,9 percent by 2007 and eventually to less than 10,0 percent in 2008.
The economy is projected to grow by 3,2 percent in 2015 driven by services, mining and manufacturing.
The unavailability of cheap money for retooling might however prove to be a huge challenge.
Industries complain
Doubts also remain whether local banks are able to judiciously extend resources to the productive sectors of the economy.
The bulk of the US$4 billion in loans and advances from the banking sector to the private sector was to manufacturing 25 percent, individuals 21 percent, distribution 16 percent, agriculture 18 percent and mining 5 percent.
Cumulatively, the bulk of the advances were to consumptive sectors.
Zimbabwe National Chamber of Commerce vice president Mr Davison Norupiri told The Sunday Mail Business last week that local interest rates “are just too high” compared to the region, “even if they highlight issues to do with high risk”.
“The regional average in terms of interest rates is at 5 percent and we are at 15 percent to 20 percent; this is too high and I do not think that it should be there even with the so-called high risk.
“The problem with high interest rates is that it affects production costs and prices of products end up being too high.
“My view is that banks are also contributing to company closures due to the high interest rates. After dollarisation, banks were giving interest rates of between 40 and 45 percent and a year down the line, it came down to between 19 and 30 percent, but it was still too high and companies that borrowed at those rates are still struggling while others have closed,” said Mr Norupiri.
He said if companies borrow at existing rates, they will also find it difficult to survive.
Grain Millers Association of Zimbabwe chairman Mr Tafadzwa Musarara also said it was critical that banks support the manufacturing sector through lower interest rates.
Mr Musarara said millers want banks to use the leverage that they have to lend to different sectors of the economy on different terms, given the centrality of the sector in determining inflation figures, and more so, because of the low margins on their products.
“What is happening in the banking sector is immoral; we have instances where our members who borrow money have had interest deducted upfront.
“You ask, for instance for US$100 and they give you US$80 after deducting the other US$20 as part of the interest, that is unacceptable.
“As GMAZ, we think that the banking sector has a moral obligation to lend to the manufacturing sector at lower rates compared to those that borrow funds to import whisky and yachts,” said Mr Musarara.
On the other hand, Confederation of Zimbabwe Industries president Mr Charles Msipa said the failure by the country to attract “adequate capital inflows” since adoption of the multi-currency system has had an impact on the cost of finance.
However, Mr Msipa conceded that lack of cheap loans has negatively affected the manufacturing sector.
“I can confirm that inadequate access to affordable short and medium term funding and high cost of funding is one of the factors that have eroded viability and competitiveness not only in manufacturing sector, but for many small, medium and large businesses.
“Many firms in manufacturing sector are in financial distress due in part to the inability to access affordable funding and/or the high cost of funding that they have to bear – this is reflected in the low levels of capacity utilisation and output – as well as their inability to meet their statutory and other obligations,” said Mr Msipa.
A number of companies have had their accounts garnished by the Zimbabwe Revenue Authority after failing to pay their tax obligations due to liquidity problems.
Recently, customers requested Zimra to extend the tax amnesty by three months to June 2015 to enable them to raise money and pay.
A tax amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax period or periods and without fear of criminal prosecution.
The tax clemency began in October last year.
Companies say if interest rates remain high, they will seek protection from the RBZ.
