The Herald (Harare)

Zimbabwe: DiMAF Remains Pie in the Sky - AfDB

THE African Development Bank says the hopes pinned on the Government's Distressed Industries and Marginalised Areas Fund (DiMAF) remain unfulfilled for local firms, although it is the only available policy to rescue them.

There had been huge expectations from the corporate sector when the policy instrument was announced in 2011 amid hopes that the fund would help alleviate the financial problems. But only private funds have been made available, with no input or guarantee from the Government, hence the stiff lending terms.

"However, one year down the line, there is still little worth celebrating, as accessing the funds has remained difficult.

"No other measures have yet been put in place to address this," the regional bank said. "Hence DiMAF remains only a policy tool at hand. It is important to ensure the implementation of the policy is given the priority it deserves."

AfDB made the comments in its monthly economic report for June, which reviews developments in the Zimbabwe economy. The continental bank said it emerged last month that one of the key challenges towards accessing the DiMAF funds was the condition upon which the funds would be released.

"One such condition is that companies that are under provisional liquidation are not allowed to benefit from DiMAF, even though the majority of the distressed companies fall under such a category," the bank added.

Another condition, which makes funds inaccessible, is that the maximum duration of DiMAF loans was set at 12 months, a period too short for any company, especially a "distressed" company, to earn any meaningful return to pay back.

Furthermore, only collateral security of first mortgage bonds over immovable property would be accepted to unlock funding, which would be a challenge to most of the "distressed and marginalised" companies who use rented premises. As such, DiMAF has failed to live up to expectations.

AfDB said the situation had also been compounded by the fact that the fund was never fully constituted.

Government was supposed to contribute US$20 million, with Old Mutual chipping in with the other US$20 million. But that has not happened.

Government failed to contribute its share, which could also explain why the lending conditions are largely private sector-oriented.

DiMAF was established as a solution to reverse the trend where over 87 companies had ceased operations while many others relocated to Harare, as others downsized operations. According to Industry and Commerce Minister Professor Welshman Ncube the local industry requires at least of US$2 billion to recapitalise.

Local companies have not replaced old and antiquated equipment over the last decade when the economic downturn reached its peak, but have set out to regenerate the industrial base, after stabilisation of the economy in 2009.

Economic activity has not and may not reach the desired levels in the absence of a significant dose of funding to re-establish the industrial base of years gone by.

Uncertainty over the political situation in the country has also kept investors guessing and withholding their funds and that pushed the cost of the little available funds through the roof. Local banks charge between 10 and 31 percent interest for loans.

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