The decision to lend, like any economic or business decision, is based on economic and or business fundamentals more than any political or personal background or relationship.
Notwithstanding the part that relationships (personal or political) play; the decision to grant or decline a credit facility is hinged more on the underlying economic and or business fundamentals peculiar to the borrower's case.
Awakening to the reality of a serious need to seek external funding for key economic initiatives while at the same time confronted by weakening economic capacity as key sectors fall prey to a myriad of challenges; it has become apparent that finding a financial partner to fuel the economic recovery process cannot be over emphasised.
It is estimated that the economic blue print in the form of Zim Asset requires $10 billion for implementation, funding is expected to come from the East particularly from China. China has extended $1,5 billion to Zimbabwe over three years and the country is still haunted by hanging external debt to the tune of $6,1 billion. Total national debt is estimated at a little over US$10 billion including domestic debt.
The Minister of Finance has on several occasions indicated that the huge debt overhang has been a significant hindrance towards efforts to secure funding from international financial organisations. Sovereign debt is chiefly a function of sovereign risk which in turn is a complex interaction of political, economic, public and private factors that feed into the overall risk rating attached to a nation.
When evaluating sovereign debt facilities, there are basically three factors that a lender considers (which factors determine credit rating) and these are,
Economic capacity to generate cash flows to service the debt within stipulated conditions: Ability and willingness to pay back debt is by far the most important aspect of sovereign lending, the willingness is there but do we have the capacity?
The ability of the country to embark on positive NPV projects that exploit a country's comparative advantage to generate products and or services that increase national income and reserves is of great importance. Zimbabwe sits with industry capacity utilisation of less than 50 percent across all key sectors due to challenges that have become common knowledge to all economic stakeholders.
Though deteriorating the infrastructure in place is still commercially viable and can be utilised to revive industry output across the Manufacturing, Agriculture and Mining sectors among others. For example, should funding be availed, the once prominent and vital steel giant Ziscosteel can make sizeable contributions to other non mainstream industries and national output in overall.
The country has the necessary infrastructure to turn its vast natural resources into income for its 14+ million people. Questions that attract attention however remain, can industry generate enough cash flows to service new debt as well as pay off existing debt?, in answer to this it is the writers analytical view that Industry is better off recapitalised for both current and prospective financiers. With the necessary support to key industries and given the right mix of credit terms, Zimbabwe can generate funds to service its debt and gradually pay off hanging debt. Former industrial capacity and output levels testify of the nation's industry capabilities.
The second factor considered is collateral- does the country have assets or resources that can be collateralised to secure funding.
This question has in the past been met with the notion that mineral resources can be used as collateral for future funding while at the same time it has attracted mixed view in terms of its feasibility, sustainability as well as desirability.
Questions that attract raised eye brows include; do we have enough mineral resources (at convertible market value) to guarantee the amount of investment required to stimulate economic recovery and what payback period is the lender looking at in case of default and forced conversion of security, when in fact since the discovery of the much talked about diamonds in their reported vast quantities, the nation has failed to turn around its fortunes as little contribution has been recorded from the mining initiatives that have been underway in this front due to a number of alleged factors, among them, transparency, capacity and under investment.
For us to securitise our mineral resources, we have to be fully aware of how much in value we have in reserves and what level of investment is required for extraction, only then can our mineral resources be worth any form of security to the lender. Unfortunately, a lot still needs to be done in terms of exploration to discover the true value of our mineral resource endowment, which requires resources that we at the moment do not have.
To be able to sell the mineral resources as an attractive form of security for funding, the Mining sector has got to start making noticeable contribution to the national coffers. Yes the country has capacity to underwrite funding from its natural resources, but like any form of security it has to be clearly outlined and its value to the lender should not be ambiguous. If we can clarify the value of the security and the modalities around realising from the security we would be in a better position to attract funding on the basis of our rich resource endowment.
Last on the list of most important factors but definitely not least are Governance issues --(policies, public funds and entities management, accountability and resource allocation traits). In simple credit analysis this would be viewed as the character of the borrower, character feeds into a lot of things regarding the credit facility, for starters how the borrower will use the disbursed funds, will they stick to the terms of the agreement, or will they extravagantly put the funds at the mercy of greed, over consumption and self enrichment.
Alleged abuse of public office and resources coupled with corruption is among the major concerns in Zimbabwe's Governance structures, if as a nation we are to stand any meaningful chance of getting international funding, Accountability, Responsibility and Transparency in the deployment and use of public resources and office should not be a secondary issue.
Regardless of the existing bilateral relations between the Zimbabwean Government and any potential lenders, no one is willing to extend credit where there is chaos and no rule of governance. Perpetrators of corruption across all sectors and facets of both private and public office must be brought to book regardless of political or social affiliation, only then can our nation be able to liberate itself from the cloud of both private and public corporate governance failure.
A rigorous and religious commitment towards enhancing the factors outlined above will have great impact on our ability to access external financial aid.
Albert Norumedzo is an Equities and Alternative Investments Analyst. Feedback can be sent to firstname.lastname@example.org