I continue with the Zim trip update where I’ve been sharing various thoughts and observations about my short business trip last month.
My disclaimer: I’m not an economist by any means so some of my ideas or thoughts are mere interpretations of situations or conversations. What I will say though, as a number cruncher with the kind of experience, education or exposure to different economies as I have under my belt, my main focus tends to be the SMEs (small and medium size enterprises). This specific group within the business environment is what drives economies in real terms. I worry about the challenges they face especially access to capital or lack of it as is the case.
This issue of liquidity in the financial markets was a topic of most business discussions I found myself involved in. With approximately 15 commercial banks in Zimbabwe one does in fact wonder how we are ever going to overcome this liquidity crisis with way too many banking institutions operating in Zimbabwe. The banks themselves are unable to lend as much as they would like to due to funding issues on their part. As banks struggle to access offshore credit facilities and so forth, this then directly affects local businesses attempting to recapitalise their businesses in this dollarized economy. I met a few individuals with great business ideas (inspiring ideas really) and yet face the uphill struggle of trying to access adequate funds to achieve their business objectives. As I sat down after ‘Day 3’ of my trip, the reality of the current challenges really sank in. We had all hoped that the IMF talks would yield a more favourable result financially whilst injecting much needed confidence for any potential external investor. We also hoped that investment and cash inflows would be much higher than currently being experienced. We are also aware that there are several large interested parties looking to invest in Zimbabwe and yet some are simply waiting. Waiting for what exactly? Well, some say they are waiting for possible elections in 2011 so that we no longer have this coalition government setup. Some were scared off by the proposed indigenisation laws announced in early 2010. Depending on whom you talk to, there seems to be a plethora of reasons why Zimbabwe’s economy is not growing as expected. As I sat there, I fully understood the implications and the challenges we face going forward. The other important aspect is the actual cost of capital. Speaking briefly to one individual about this actual cost of capital and 5% per month was thrown around. Seems extremely high right? Look at the money market rates at Kingdom Bank and it all starts to make sense.
We are still operating largely in a cash economy with a multitude of SMEs in particular bypassing banks and passing their daily cash sales directly to their suppliers. This is done mostly to avoid paying bank charges as opposed to lack of confidence in the banks themselves. This situation obviously has adverse effects on the banking sector. The lack of plastic money across the board has limiting effects on our growth potential but I hear that this situation is currently being looked at the moment and should be addressed shortly. We are already seeing signs of this coming through now. CBZ, Barclays and Standard Chartered all have the facility for overseas travellers or residents to withdraw their cash using a VISA debit card. I can not advise on the actual bank charges associated with this but the important aspect is that it is now possible in Zimbabwe.
Till the next update…