The proposed US$1 billion infrastructure fund deal between the Infrastructure Bank of Zimbabwe and US-based Hondius Capital Management, could have made a little headway after the Reserve Bank of Zimbabwe approved the opening of an escrow account.
The deal potentially faces a serious challenge as the agreement commits Government, through the IDBZ, to contribute US$200 million or local currency equivalent towards capitalisation of the fund, with Hondius mobilising the remainder (US$800 million) from global institutional investors.
“This is where the challenge is; whether the IDBZ will meet its side of bargaining by raising the US$200 million or Zimbabwe dollar equivalent,” said one source who requested not to be named because the matter is private.
Finance and Economic Development Minister Professor Mthuli Ncube was not committal when contacted for comment, saying he would want to be appraised.
“I know there is progress but I need to be fully appraised,” said Prof Ncube in an interview last week.
However, Treasury sources said the most logical route that IDBZ could take was to re-negotiate the transactions with regards to the IDBZ’s contribution or the period, which the contribution could be made.
Zimbabwe is facing serious foreign currency shortages, which has seen the economy struggling to imports essential commodities such as medicines, electricity and fuel.
“As much, the deal looks so attractive, it may not be possible . . . for now,” said a source with Finance Ministry.
“The opening of the account took very long because IDBZ could not raise US$500 000 . . . what about $200 million.”
It is our view that the only logical thing to do is to renegotiate the transaction.”
IDBZ said it will comment after engaging the Ministry.
If the IDBZ deal sails through, Hondius will establish an offshore vehicle through, which global investors will invest in Zimbabwean projects.
The process involves preparation of various documentation to create the institutional, operating and governance frameworks for the fund. Such documents include a private placement memorandum, investment management and advisory agreements, and subscription agreements which are the instrument through which investors will invest in the fund. Once these documents and necessary approvals are in place, the next stage is market canvassing of global investors and the launching of the fund.
The funds raised offshore will be blended with the capital contributed by the Government to finance the development and implementation of high impact infrastructure projects in energy, water and sanitation, agriculture and mining, among others.
Zimbabwe needs as much as US$34 billion in the next decade to revamp infrastructure to achieve sustainable levels of growth, the African Development Bank has said.
The water supply and sanitation and resource management would require an outlay of US$3,7 billion for capital works and related technical support while the energy programme need US$1,14 billion, the bank said in its Zimbabwe Infrastructure Report 2019 released last week. The huge chunk of approximately US$28,6 billion would go towards transport, which is mostly required for roads while the communications sector would require US$412 million. The huge debt overhang and arrears to the multi-lateral financial institutions, including the International Monetary Fund and the World Bank also made it difficult for the country to raise long term capital critical for infrastructure projects.
In the absence of significant lines of credit, Zimbabwe has been operating on a tight budget, with the bulk of revenue going towards paying wages, leaving it with little or virtually no money for infrastructure projects.