eBusiness Weekly
Oliver Kazunga
CAPTAINS of industry have questioned the sustainability of the 200 percent lending rates increase and the desired impact of gold coins on the performance of the manufacturing sector and economy at large.
Few months ago, the monetary authorities introduced a raft of measures to tame upward spiralling of the exchange rate and arbitrage opportunities, speculative behaviour as well as a resurgent of inflationary environment.
While notable positive impact was being experienced as a result of the above policies, industrialists at the recently held Confederation of Zimbabwe Industries (CZI) annual conference in Harare, have queried the sustainability of the policies in stabilising the exchange rate and the creation of an enabling environment for the manufacturing sector to thrive.
Matabeleland Chamber Industries immediate past president, Dr Shepherd Chawira, who is also Shepco Group chief executive officer, told Business Weekly at the recently held CZI annual conference in Harare that while they were excited that the 200 percent interest rate was discouraging lending for speculative purposes and gold coins taking away excess liquidity in the market, the policies were not sustainable in the long-term.
“We are quite happy with those developments but the challenge that we have as business is how sustainable are those measures.
“Firstly, we have a problem with the 200 percent interest rate on borrowing, that may not be sustainable, especially if you look at borrowing for productive purposes.
“That’s not a sustainable number and it has to be used over a short period of time and then we expect the Government when the situation actually stabilises to be reviewed because no productive entity can borrow at that rate and still be competitive.
“Otherwise if they (Government) do that it can actually be inflationary on its own because we have to factor in the cost,” he said.
Dr Chawira added: “The gold coins in as much as they have taken excess liquidity, one cannot trade them now but only after 180 days. And what then remains to be seen is what happens after those 180 days when people start trading. They might be sold and liquidity again crops up into circulation and that can also start driving the parallel rate in another direction.”
In June this year, The Reserve Bank of Zimbabwe (RBZ) increased interest rate for loans to 200 percent per annum from 80 percent citing the need to align these with prevailing inflationary developments to tame exchange rate distortions and price volatility.
During a plenary discussion the industrialists expressed concern that the 200 percent interest rate increase on borrowing had also affected prior loans that were taken prior to the raising of the lending rates.
“On the introduction of the 200 percent interest on borrowing, why didn’t we have a cut-off because it affected the already running loans to the extent that when somebody was having $1 million or less, with the 200 percent interest rate, it turned out to be even much higher than the principal amount, which one borrowed,” said a business executive Ephraim Museva said.
Speaking at the same occasion, Yanaya managing director Nyaradzo Moyo, whose company produces beverages using indigenous fruits said: “Regarding the 200 percent interest rate, are there exemptions for start-ups like us? We are employing over 100 people in our company and the 200 percent threshold just makes it difficult for us to operate. It just becomes impossible for us to get the financing that the Government has organised.”
In his response, Finance and Economic Development Minister Professor Mthuli Ncube, said pertaining to the impact of the 200 percent interest rate increase on industry, monetary authorities as policymakers will reflect on that.
“On the interest rate that should really not have affected the current loans, the loans that were in existence when the policy was enacted, again, I have listened carefully to that statement, it’s a very pointed observation and as policymakers we will reflect on that,” he said.
Turning to concerns raised on exempting start-ups from the 200 percent interest rate on borrowing, Mthuli said the interest rate policy is so blunt an instrument and it covers everyone including loans that existed prior to the enactment of the policy. However, he said innovations such as the venture fund and other start-up initiatives were appropriate to provide financial support to emerging enterprises for their working capital requirements rather than securing overdraft facilities from banks.
“What you need is longer term pension capital in the form of equity capital or capital from private equity funds, but l think the truth is we have a shortage of private equity funds.
“We need private equity funds and I stand ready to give them national project status or prescribed asset status in terms of pension fund support,” said Mthuli.
At the moment Zimbabwe has three private equity funds — Mangwana Capital, the National Venture Fund, and Takura Ventures.
Mthuli challenged players in the banking sector to establish private equity funds adding that at least six equity funds are needed in the country to support start-ups or emerging enterprises with long-term capital.
