By Ishemunyoro Chingwere and Tinashe Makichi
The African Development Bank (AfDB) has extended a three and half year $25 million loan facility to the local private sector that will be administered through CABS.
The facility is expected to help small to medium private players improve on their working capital, address liquidity constraints, cover the growing gap in foreign currency needs as well as import the much needed raw materials.
Speaking at the signing ceremony in Harare yesterday which was also attended by Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya, AfDB Country Manager Damoni Kitabire noted Zimbabwe’s potential to recover from its economic past, given the framework that is being laid by the “new political and institutional dispensation.”
He said local industry has been affected by business confidence which has been low over the last two decades during which the sector has grappled with numerous challenges including lack of working capital, liquidity constraints, inadequate foreign currency for manufacturing companies and the continued influx of cheap imported products.
“The agreement for signature for a Trade Finance Line of credit worthy $25 million with a tenure of 3,5 years is a testament to the African Development Bank’s strong commitment to Zimbabwe,” said Mr Kitabire.
“It marks the beginning of a new relationship not only between the African Development Bank and CABS, but also one that we believe will potentially extend to the broader commercial banking sector in the country.
“In a nutshell, this facility will be used to provide medium term foreign currency liquidity specifically for trade finance purposes.
“The AfDB is aware of the fact that Zimbabwean financial institutions are struggling to secure trade finance lines from the international market, especially those with tenure in excess of 270 days.
“The facility, therefore, partly mitigates this challenge by allowing CABS to on lend over a longer tenor especially in sectors where longer term trade finance funding is required, such as agriculture, infrastructure and manufacturing,” he said.
AfDB, Mr Kitabire said, hopes the intervention will complement Government’s current efforts which seek to revitalise the economy by among other interventions, improving access to affordable credit for small to medium enterprises while supporting the country’s economic transformation.
He said the bank’s expectation is to achieve a multiplier effect whereby increased employment will stimulate demand and further enhance private sector development.
CABS managing director Simon Hammond thanked AfDB for choosing Zimbabwe and channelling the fund through CABS.
“This facility will no doubt go a long way in supporting our local industry including manufacturing and exporting companies as a whole.
“These companies will in turn generate foreign currency and this will obviously contribute to the economic revival of Zimbabwe, something, I am sure we all want dearly.
Mr Hammond noted that due to the economic challenges that the country had been facing, long-term deposits were becoming thin as the banking sector had to contend with just short term and transitory deposits.
He also assured AfDB that, like in the past with funds from other international investors, CABS will make sure the fund performs well and be settled as and when it falls due.