Mthuli negotiates ‘smart’ Rand credit facility

22 Mar, 2019 - 00:03 0 Views
Mthuli negotiates ‘smart’ Rand credit facility Professor Mthuli Ncube

eBusiness Weekly

Tawanda Musarurwa
Government is structuring a deal with South Africa’s Reserve Bank that will see banks in the neighbouring country paying directly to South African suppliers for Zimbabwe private sector’s raw material requirements.

The facility will be constructed under the Bi National Commission (BNC) that was held between the two countries earlier this month. Zimbabwe’s private sector largely sources its raw materials and other operational requirements from South Africa.

Finance and Economic Development Minister Mthuli Ncube, said such a facility would negate the typical exchange risk that would come with a traditional loan facility.

“For example, the Reserve Bank of Zimbabwe has a financial relationship with the Reserve Bank of South Africa through an inter-reserve bank credit facility, which is normal. We are going further to have a Botswana-like architecture where South Africa’s private banks can extend credit to Zimbabwe’s private sector.

“But we want to be smart about it. We want to make sure that the money actually doesn’t leave South Africa because our companies are already importing from South Africa. So we have got a South African financial institution with rands paying a supplier in South Africa who is supplying a Zimbabwean company that is importing from South Africa,” said the Finance Minister in an interview with Zimpapers Television Network.

“But then again we will overlay the guarantee structure that I am talking about, that is, the South African government will guarantee its financial institutions, and in turn the Zimbabwe Government will guarantee the South African government. This will take care of the exchange risk, because the money is really not leaving South Africa.”

Minister Ncube said his team will soon do a road show in South Africa to engage with that country’s financial institutions and other private companies.

Confederation of Zimbabwe Retailers president Denford Mutashu, said the move, if implemented, will help boost production locally.

“This will be a noble move that reduces or eliminates supply bottlenecks as manufacturers will have improved access to raw materials,” he said.

“The last quarter of 2018 into early 2019 saw a decline in production capacity due to supply bottlenecks on raw materials caused by financing challenges.”

What is the Bi-National Commission?

Established in Pretoria, South Africa in 2015 the Bi-National Commission allows the two neighbours to renew and strengthen bonds to ensure socio-economic development.

Prior to the third Zimbabwe-South Africa BNC, there were 45 existing bi-lateral agreements between the two countries, which had been signed over several years.

And only two new agreements were signed, namely an agreement for the upgrade of Beitbridge Border Post into a one–stop-border-post and an arrangement to clear all challenges delaying finalisation of the US$400 million National Railways of Zimbabwe (NRZ) re-capitalisation deal by September this year.

Enhancing regional integration

In respect of the Zimbabwe-Botswana BNC, which took place just before the Zimbabwe-South Africa BNC, Minister Ncube said the arrangement in place between Zimbabwe and Botswana’s private sectors is one way of enhancing regional integration.

“What we have in terms of the BNC facility with Botswana is an offer from the banks in Botswana to extend to the private sector in Zimbabwe. But there is need to have some comfort in respect of the credit risk and so forth. So the way it has been structured is that the Botswana government will provide a government guarantee to the financial institutions in Botswana and then credit is extended to Zimbabwe.

“But then we as the Zimbabwe Government counter guarantee the Botswana government as well so that they have further comfort and also to make sure that we also follow through and collect the debts from our own private sector,” he said.

He added that progress has been made in respect of facilitating access to the 1 billion Pula pledge made by Botswana under the two countries’ BNC.

“But we are looking for is that we can also enhance Zimbabwe’s guarantee by sourcing a further layer of guarantee to an international bank.

“That is what we are finessing right now. I was recently on the phone with the Minister of Finance of Botswana where we were discussing that finessing of the guarantee and once that is in place we will be able to wrap up that agreement and the 1 billion Pula can be extended.

“We want to also make sure that the companies that are supported by the BNC have links with companies in Botswana and I think that is good regional integration. So that is the architecture of that relationship.”

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