US$1bn infrastructure fund takes shape

16 Jun, 2019 - 00:06 0 Views
US$1bn infrastructure fund takes shape

The Sunday Mail

Martin Kadzere
Senior Business Reporter

The establishment of a US$1 billion infrastructure development fund by the Infrastructure Development Bank of Zimbabwe (IBDZ) and Hondius Capital Management of the US, is now imminent after the parties signed an agreement that will govern operations of an escrow account, a senior official has revealed.

This is part of conditions  set out in the global agreement signed between IDBZ and Hondius last October to facilitate the establishment of the fund.

The process had been delayed by foreign currency shortages but the ball is rolling now. IDBZ chief executive Mr Thomas Sakala told The Sunday Mail Business this week that the Memorandum of Agreement contains pre-requisites for Zimbabwe.

“A key pre-condition for Hondius to proceed with preparation of the necessary documentation for the establishment of the fund was an obligation placed upon the IDBZ to establish a jointly operated escrow account in a local commercial bank.

“The establishment of the escrow account would trigger all the other processes within the agreement. After considerable delays due to forex challenges, the process of opening the escrow account has picked up momentum and is now before the Reserve Bank of Zimbabwe for necessary approvals in line with the country’s exchange control regulations.

“A reputable commercial bank to act as the escrow agent has already been agreed upon between the IDBZ and Hondius, and both parties have since signed the escrow agreement governing the operation of the escrow account,” Mr Sakala added.

The IDBZ chief said the next step would be the setting up of a local special purpose vehicle to carry out the fund’s operations.

At the same time, Hondius would establish an offshore vehicle through which global investors would invest in Zimbabwean projects.  The process involves formulation of  institutional, operational and governing frameworks for the fund.

The funds raised under the arrangement will be channelled towards priority infrastructure and other developmental projects. The agreement commits Government, through the IDBZ, to contribute US$200 million or its local currency equivalent towards capitalisation of the fund, with Hondius mobilising the remaining US$800 million in capital from global institutional investors.

The funds raised offshore will be blended with the capital contributed by Government to finance the development and implementation of high impact infrastructure projects in energy, water and sanitation, agriculture and mining, among others.

Zimbabwe has an estimated infrastructure backlog of $30 billion, according to the Africa Development Bank. Between 2009 and 2016, the Government spent only $2 billion on infrastructure projects, the amount analysts say should have been spent on an annual basis.

The huge debt overhang and arrears to multi-lateral financial institutions, including the International Monetary Fund and the World Bank also made it difficult for the country to raise long term capital critical for infrastructure projects.

In the absence of significant lines of credit from multi-lateral financial institutions, Zimbabwe has been operating on a tight budget, with the bulk of revenue going towards paying wages, leaving it with little or virtually no money for infrastructure.

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