Zimbabwe’s transitional government of national unity, formed of long-time rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai, has appealed for as much as US$8.3bn to help revive the country’s decimated economy, which has been shattered by years of hyper-inflation and contraction.

Despite government pleas, direct financial aid has been limited, with only South Africa and China weighing in with US$35mn. This is a fraction of the US$1bn that Tsvangirai’s party, the MDC, suggests that the country requires in direct funding to pay civil servants and meet other budgetary expenses.

However, regional African states and banks are beginning to provide trade credit lines directly to local companies within Zimbabwe.

As GTR goes to press, there is even talk of a Zimbabwean Diaspora bond being floated to draw additional funds into the country.

These measures will not be enough to solve the country’s wider funding problems, but they are a start. Credit lines will allow private banks to lend money to wholesalers, retailers and producers to purchase goods using credit, and ultimately give millions of Zimbabweans easier access to essential products.

Long-term investment in infrastructure and social services is, however, imperative, and despite various announcements of bailout packages from regional entities outside Zimbabwe, to date a number of proposed schemes have stalled.

Credit lines
According to Zimbabwe’s economic planning minister, Elton Mangoma, the country has exceeded its target of securing US$1bn in credit lines from the African continent. Local companies set to benefit from the credit lines have already been identified and have begun accessing the funds.

Countries in the Southern African Development Community (SADC) have provided US$200mn in credit lines, and another US$200mn has been supplied by the Common Market for Eastern and Southern Africa (Comesa).

The funds are being used to meet pressing working capital requirements and revive operations for local companies. As yet, it is not known which SADC countries are providing funds. However, local Zimbabwean media has reported a R500mn (US$56.1mn) credit line facility from South Africa and a US$70mn pledge from Botswana. As GTR goes to press, Zimbabwe is in further negotiations with South Africa to provide an additional US$150mn in credit lines.

SADC countries should benefit from a properly functional Zimbabwean economy, as it would bring aid to the millions of refugees that have fled the country, and would signal a stronger regional base, improving regional trade flows.

The African Union (AU) and SADC are the underwriters of the global political agreement (a memorandum of understanding between the Zimbabwe African National Union-Patriotic Front (Zanu-PF) and the two Movement for Democratic Change (MDC) formations, on resolving the challenges facing Zimbabwe) and, in theory, have an obligation to finance the reconstruction package.

However, the countries have problems of their own due to the fall in the global prices of commodities and the prevailing global credit crunch. It has been reported that SADC recently endorsed a bail-out package for Zimbabwe that includes US$2bn in short-term loans and aid to help revive the economy, and another US$6.5bn in long-term reconstruction finance. But SADC’s self-imposed deadline to raise the funds came and went.

At the beginning of May, the Cairo-based African Export-Import Bank (Afreximbank) provided Zimbabwe with a credit line of US$250mn. According to Zimbabwean finance minister Tendai Biti, the Afreximbank fund will be used to support the gold and tobacco sectors, as well as to provide liquidity for trade finance for banks and grain imports.

According to Afreximbank executive vice-president BO Oramah, the bank’s support of Zimbabwe is in line with their mandate to shore up projects in member states. The credit line falls within the bank’s new country programme for Zimbabwe.

Afreximbank has remained active in Zimbabwe over the years, and is also planning to float a Diaspora Bond with a view to harnessing resources from Zimbabweans abroad. “We are working on the bond now, and are looking to issue US$50mn initially,” Oramah says.

The bank is also offering facilities to the gold and fertiliser sectors to the tune of US$40mn and US$60mn respectively. Oramah believes that whilst the bank is unable to contribute to direct funding for budgetary support, the credit lines that the bank is offering will have a secondary effect on the budget through enhanced tax revenues.

Zimbabwe has also received a line of credit worth US$178mn from the Eastern and Southern African Trade and Development Bank (PTA Bank).

PTA Bank has, in fact, extended two facilities – one for US$185mn in support of mining and agriculture, and another of US$80mn to enhance the liquidity of banks, so that they can on-lend to the key sectors of the economy. An amount of US$82mn has already been utilised from the first facility, leaving an undrawn amount of US$103mn. Just US$5mn has been drawn down from the second facility, leaving a balance of US$75mn.

The bank has recently set up an office in Harare in order to be closer to the action.

Rising scepticism

In early May, Zimbabwean finance minister Biti told reporters in Senegal that the African Development Bank (AfDB) had agreed to give Zimbabwe funds from its Fragile State Facility, without saying how much it will receive. Donald Kaberuka, AfDB’s president, speaking at the bank’s annual meeting in May, was emphatic that assistance would only be forthcoming if Zimbabwe honoured its commitments to persist with the inclusive government.

Over the years, Zimbabwe has accumulated arrears on loan payments to the AfDB, and has not been able to receive further support since 2000 due to this build-up of arrears. Although the bank has suspended operations in Zimbabwe, it continues to engage Harare through policy and arrears dialogue and provision of humanitarian assistance. The bank commenced operations in Zimbabwe in 1982 and before the suspension had approved more than 20 projects valued at over US$470mn.

Western support

While there is no doubt that recovery funds from African states and banks may indeed help, it is believed that Zimbabwe’s fragile economy is in need of aid from western donors.
It has been reported that donor reticence is due to a lack of confidence that the money will not reach its intended recipients. It is also widely accepted that scepticism about the credibility of the unity government is at the core of the decision by western donors and creditors to withhold funding for Zimbabwe’s reconstruction efforts. Western and multilateral creditors have demanded that the unity government carry out wider political and media reforms and release all political prisoners before committing funding.

There is concern from some quarters that political and economic reforms have been lacking pace. Recent farm invasions, the subsequent arrest and prosecution of farmers, detention of political activists and widely reported – but also widely denied – political disputes in government circles have not helped matters. Additionally, most bilateral lenders would take a cue from multilateral lenders before they can loosen their purse strings.

Nevertheless, two events in the last few months are being viewed by analysts as possible precursors of change: a visit by the International Monetary Fund (IMF) could see the institution renew its relationship with Zimbabwe, and the arrival of envoys from Britain, the former colonial power.

An IMF delegation that visited Zimbabwe in March to assess the country’s economic situation and humanitarian crisis, reported that the organisation would lift its suspension of technical assistance to Zimbabwe, and will help the Southern African nation with tax policy and administrations, payment systems, banking supervision and central banking governance.

However, it said that it would not release any financial aid until the country had settled its US$133mn arrears. In 2002, the institution adopted a declaration of non-cooperation with Zimbabwe because of its overdue financial obligations, and suspended all assistance.

The decision by the IMF not to resume lending to Zimbabwe until it clears its arrears and demonstrates a sound policy track record is a significant blow to the country’s efforts to attract funding.

There has been speculation that either the AfDB or the SADC could arrange bridging finance to pay off Zimbabwe’s arrears with the IMF, but remarks from the AfDB appear to discount that possibility.

“The return of international capital is absolutely critical for the country’s change of fortunes,” says Omen Muza, who has recently set up a trade finance boutique, Trade Finance Consulting (TFC), in Zimbabwe. But the company’s ability to arrange funding is currently constrained by the liquidity challenges that the country is facing, following the decision to abandon the Zimbabwe dollar and “dollarise” the economy. “Overnight, entire balance sheets were wiped away and everyone had to literally start afresh,” explains Muza. This includes government, which no longer has the luxury of printing hard currency to fund its budget deficit like it used to with local currency.

Commenting on the reluctance of western donors, Muza suggests that this may be overcome if the donor community sets up its proposed trust fund to ensure funds are not diverted. “For our part as a country, even though the major political players have been at each other’s throats for the past decade or so, they will need to demonstrate unquestionable commitment to the global political agreement if it is to inspire confidence in the international community,” he adds.

Despite what has been called Zimbabwe’s ‘lost decade’, there is an air of optimism in the country, given that policy reforms have already taken place. “I was there two weeks ago and was very encouraged,” says Afreximbank’s Oramah. “The stock market is virtually doubling every month. So there is hope.”

As GTR goes to press, Prime Minister Tsvangirai has just completed a three-week state visit of Europe and the United States, where he met US President Barack Obama and other world leaders. The tour saw the Prime Minister attempt to convince the west that all is well in Zimbabwe and win financial backing for the coalition government. According to finance minister Biti, more than US$180mn was raised from donors in Europe, but this will be channelled through non-government organisations, leaving the government with a substantial funding gap. Clearly, western governments remain wary.