28 October 2012

Zimbabwe: 'Financial Sector Needs Alternative Approach'

A supply chain-based approach to empowerment in the financial sector could have resulted in more value being created between 2009 and the half- year ended June 2012 as opposed to indigenisation, a leading brokerage firm has said.

This approach entails the government putting in place procurement financing measures aimed at ensuring that indigenous people have access to capital from the financial sector for both operational and capital spending with little or no traditional type of security for loans.

In its latest report, MM Capital said that foreign banks utilised about US$81 million in operating expenditure in 2009, US$115 million in 2010, US$132 million in 2011 and US$69 million in the half-year 2012.

"Assuming an empowerment policy that requires foreign banks to acquire 70% of their supplies locally, the empowerment benefit that would have accrued to the locals would have translated to US$57 million in 2009, US$81 million in 2010, US$92 million in 2011 and US$48,3 million in the half year 2012," the report said.

The amounts are guaranteed and have less time value of money or opportunity cost issues compared to dividends.

Statistics show that the total profitability of the foreign banks rose from about US$4 million in 2009 to US$18 million in 2010, US$32 million in 2011 and US$17 million in the half-year 2012.

The current indigenisation policy focuses on dividend payments, which are contingent upon the profitability of the bank and the decision to issue dividends to shareholders.

However, the MMC report said that no dividends were declared for the period 2009 up until the half-year 2012.

"Assuming that Indigenisation was implemented in 2009, the actual benefit that would have accrued to the locals in terms of dividends would have been zero for the three-and-half years, resulting in nil financial benefit to indigenisation," reads the report.

The report comes at a time the government has said the banking sector is expected to comply with the Indigenisation and Empowerment Act.

In May, Youth Development, Indigenisation and Empowerment minister Saviour Kasukuwere gave foreign-owned banks one year to transfer at least 51% shareholding to locals in line with the Act.

Reserve Bank of Zimbabwe governor Gideon Gono hit back arguing that the sector was fragile and had to be treated with caution.

Earlier this year, Gono proposed a supply-side model as an alternative to indigenisation.

Gono said that under the Kasukuwere-led equity approach, beneficiaries were generally people seeking to satisfy their esteem and self-actualisation needs, consequently leading to a weakened banking sector that would undermine its stability.

Four foreign banks targeted for compulsion to cede 51% of their stakes to locals are MBCA, owned by South Africa-based Nedbank, Stanbic, a unit of Standard Bank (South Africa), British-owned Standard Chartered Bank and Barclays Bank.

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