eBusiness Weekly
The decision by the European Investment Bank, the European Union’s bank owned by its member states, to extend a 15 million euro line of credit to Zimbabwean businesses hard hit by Covid-19 using CABS as its Zimbabwean partner is important in itself.
Many of our businesses do need such a line of credit, and the method chosen, using a local bank to do the nitty gritty and prudent banking checks, is one that most of us will welcome. We will be dealing with someone who knows what is going on, so the viable and honest can get a good hearing when they apply, and the more dubious can be excluded. But the decisions will be bankers’ decisions, not political decisions, and by bankers who cannot be bamboozled or have wool pulled over their eyes.
O even greater importance is the message the facility sends, both here and in Europe, or rather the messages it sends, as there are several.
First this is the first engagement by the EIB in Zimbabwe for 22 years, and is a strong reinforcement of the major improvement in relations between the European Union and its members and Zimbabwe that has been developing since the start of the Second Republic and its major diplomatic effort.
As President Mnangagwa said recently, generally relations with the EU and its members have been normalising fairly quickly with almost all sanctions imposed at land reform now rescinded. We might have problems buying arms in Europe, but then we are not shopping or planning to shop, so this is hardly a factor.
The EIB engagement is not a special programme. It is part of the normal EIB’s major effort to support the African private business sectors, and the Zimbabwean facility is far from unique. But it could have been vetoed by the governments and it was not. To a major extent Zimbabwe is being treated a “normal” African country, and that basically is all we want.
Secondly the engagement sends a message to European private sector banks, that it is okay to deal with Zimbabwean banks and Zimbabwean businesses, especially those in the private sector which is almost everyone. Sanctions regimes and the like had made some wary and nervous about having too much to do with Zimbabwe, this being marked by the difficulty Zimbabwean banks had in establishing something as basic and non-threatening as correspondent relationships, although there was a lot more that was more important.
A great deal of trade, and to some degree investment, has to be greased by banks. This is one of their core functions and there are many banks that started off as facilitators of trade finance, helping to manage that critical gap between orders being placed and goods being delivered and paid for. It is a fairly routine sort of business, largely helping everyone manage cash flows during that period when no one has use of the goods but which cost money to make.
While there were no trade sanctions, the financial sanctions, and even more the nervousness created in banking circles by those sanctions, did hamper trade significantly.
It also hampered a lot of other business relationships, again not specifically banned but made more difficult and often impossible in financial terms. At one stage Zimbabwe was building up contract or toll manufacturing with European companies. This is local businesses being able to compete with a lot of other Third World firms for contracts to make things where European companies want to outsource production.
Generally, the most successful of our contract manufacturers used Zimbabwe’s strengths when bidding for orders. We tended to specialise in the areas where very short runs were needed because, with our well-educated labour force and hands-on management, we could switch production runs daily if required.
So in something like clothing manufacture, we might get the orders for limited quantities of some fashion design. Even in something as basic as jeans, the standard sizes would go to some major Asian producer, but we could get the limited runs of special sizes, such as narrow waist coupled with extra-long legs or the opposite, huge waists and short legs. But all those one percents could add up.
As a member in good standing with the African-Caribbean-Pacific grouping, Zimbabwe has certain special access in some areas to EU markets. With the word now out that we are “normal” our business sectors can start to read the documents and rules and see where we can compete and then do the hard selling. We are not getting anything handed out on a plate, our businesses still have to sell and meet requirements of quality, price and all the other factors that make a successful sale. But artificial constraints are now removed so they can make the effort.
This will require knowledge of markets and knowledge of opportunities. No one is saying it will be easy, but it is now possible.
It is impossible to overstress the importance of being businesslike and professional. Even the EIB is now like this. That is one reason why it wanted local expertise when it included Zimbabwe on the list of countries whose private sector could access the Covid-19 facility. So it asked around and chose a local bank it reckoned it could trust fully and which had the required expertise.
And even then, hidden in the press statements, is the presence of a recently appointed resident EIB officer in the region. No doubt he is here to be “helpful”, but no one can doubt that he is also around to just make sure the EIB interests are not jeopardised and that there is nothing dodgy going to happen.
Investment is now also more likely. Here the giant investment being made by Switzerland’s LafageHolcim in its local subsidiary, in effect making it a potential regional supplier of its products, along with an assessment that Zimbabwe is going to grow fast and will need these basic raw materials used in construction, adds to the message. And as President Mnangagwa noted when he grabbed the invitation to preside over the commissioning of the completed first phase, it shows that Zimbabwe is serious about being investment friendly.
He noted pretty much the same thing in other ceremonies he has attended where Russian investors started work on a new platinum mine and a Chinese investor turned the sod on its new steel mills. But when it comes to European potential investors the Swiss company’s example might carry more weight.
Switzerland is not a EU member, although for purposes of trade and human movement it is part of the common economic area and its economy is now integrated into the EU. Because not all political decisions applied to Swiss firms, they could take the balanced view, and a year after the Second Republic started work LafargeHolcim came to the conclusion, based on business priorities, that Zimbabwe was a good bet. It is interesting that they waited to 2019 before taking the plunge, perhaps a case of “just making sure”. But President Mnangagwa and his Government like to trumpet what they have done, and are light on talking about what they might be thinking of doing.
That sort of decision gets around. Swiss businesses have a certain reputation after all. The word “careful” comes to mind and, deserved or not, the Swiss have a reputation of watching the cents, let alone anything of higher value.
