Companies borrowing for day-to-day needs

08 Nov, 2019 - 00:11 0 Views
Companies borrowing for day-to-day needs

eBusiness Weekly

Tawanda Musarurwa
Companies are largely borrowing to meet day-to-day expenses, rather than for capital investing, latest figures show. Although data from the Reserve Bank of Zimbabwe (RBZ) for the month of August 2019 show that credit to the country’s private sector grew during the period under review, the majority of those funds went towards recurrent expenses.

Recurrent expenditure on goods and services is expenditure, which does not result in the creation or acquisition of fixed assets.

It typically consists mainly of expenditure on wages, salaries and supplements, purchases of goods and services and consumption of fixed capital (depreciation).

Financial experts say, capital expenditure spending is critical for firms insofar as it helps them maintain existing property, plant and equipment, and invest in new technology and other assets for growth.

“Credit to the private sector registered a monthly growth of  10 percent, from $5,55 billion in July 2019 to $6,10 billion in August 2019. On a year-to-year basis, credit to the private sector grew by 63,75 percent in August 2019.

“Outstanding credit to the private sector was distributed as follows: households (21,71 percent); agriculture (21 percent); services (13,41 percent); distribution (13,10 percent); manufacturing (10,4 percent); financial organisations and investments, (9,75 percent); and mining (6,82 percent),” said the apex bank its August 2019 report.

“In terms of utilisation, private sector credit was channelled towards: other recurrent expenditures, 33,49 percent; inventory build-up, 24,21 percent; consumer durables, 21,07 percent; fixed capital investment, 15,7 percent; and pre and post shipment financing, 5,53 percent.”

The local manufacturing sector, for example, a sector Government has projected to contract -4,3 percent in 2019 — on the back of a depreciating local currency, foreign currency shortages and high costs of production — only received 10,4 percent of bank financing during the period under review.

Analysts at IH Securities maintain that Zimbabwe’s manufacturing sector is in dire need of significant capital injection going forward.

“Resuscitating the manufacturing sector is imperative to production, as productivity is the cornerstone for growth. It is estimated that full revival of the sector requires approximately $2 billion,” they said in the Q3 Zimbabwe Equity Strategy Report.

“Capacity utilisation estimated at 48 percent in 2018, is forecast to fall below 40 percent in 2019, owing to the drought, power outages and foreign currency shortages.”

But also notable is that a significant portion of bank loans to the private sector (21,71 percent) during the period under review was consumed by households, while the balance was distributed towards the various economic sector.

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