Companies urged to use domestic credit sources
LOCAL companies can go around the challenges created by the country’s poor credit risk which has prevented the firms from accessing offshore credit by adopting “right” sources of funding available in the domestic market.
Finance and Economic Development Minister Professor Mthuli Ncube said this while addressing delegates at the International Business Conference held on the sidelines of the just-ended Zimbabwe International Trade Fair (ZITF) in Bulawayo.
He said because of the country’s credit rating, which is poor on the global scale, there were a number of credit sources that local firms can leverage to secure the much-needed capital. As the country has intensified its re-industrialisation agenda, there has been a strong appetite by the private sector, particularly manufacturing companies for funding to retool as most of them were operating with obsolete equipment.
Of late, because of the policies being implemented by the Second Republic, locally-manufactured products now constitute 70 percent of shelve space in shops.
“I would like to say 70 percent of our goods in the market are domestically produced, which speaks to successful value addition.
“But this needs to be accelerated through right funding sources. We have got four buckets of available funding from the
capital markets (domestic),” he said. Prof Ncube said the private sector could also secure funding from Government-assisted funding largely through the fiscus in terms of various guarantees and Special Drawing Rights (SDRs) resources.
“The second bucket is on global financial markets which I have already alluded to and highlighted that the interest rates are a bit of a challenge and also the credit rating for Zimbabwe is an issue.“I must hasten to say recently we overcame that when we actually raised the sources but as
Government, it could have been the private sector by involving a credit guarantee organisation in South Africa.
“I must thank the South African government for this; for involving ECIC (Export Credit Insurance Corporation) of South Africa which provided the guarantee to banks in South Africa to lend to the Zimbabwean government . . . that shows you we can be innovative to get around the credit risk element for Zimbabwe.”
Prof Ncube said domestic capital markets are also a source of capital looking at the Zimbabwe Stock Exchange, the hard currency bourse (VFEX).
“There is a fourth bucket, which is the use of private equity, venture capital finance, and equity capital from pension funds. “So looking at the issue of raising capital from VFEX or ZSE, as a company you have got an option to go public, so we have got 57 companies listed on the ZSE and you can raise further capital through rights issues.
“If it’s expensive to borrow out there, you can also make use of preference shares,” he said.
“If you are in the property sector, seriously consider using the Real Estate Investment Trust. It’s a fantastic instrument and profitable interest on the ZSE but also it allows you as an investor to come in and out of property investments without having to sell the underlying properties and estates.”
Prof Ncube also called for more investors to invest in the private equity sector which provides an avenue for credit to industry.
“At the moment, we have got a few, Mangwana Capital, Takura Ventures, and the National Venture Fund, and others.
“My view is that we have too few private equity players so those of you in the financial services sector, let’s talk about how we can give you incentives to establish, more private equity funds because we want to really deepen our capital markets and this will be a source of funding for our industrialisation,” he said.