Zimbabwe must lower risk profile to access international finance

via Zimbabwe must lower risk profile to access international finance, says bank | The Source June 4, 2014

Zimbabwe needs to lower its risk profile and improve its business climate to unlock funding opportunities provided by international bonds, a leading investment bank has said.

Eurobonds have become an instrument of choice by most African countries to raise capital since 2006 when Seychelles became the first country in sub-Saharan Africa, other than South Africa, to issue the bonds.

Since then, several other countries, including Ghana, Gabon, Senegal, Côte d’Ivoire, the Democratic Republic of Congo, Nigeria, Namibia and Zambia have successfully raised funds similarly.

In 2012, Zambia launched a 10-year bond of $750 million which was oversubscribed while Rwanda raised $400 million last year in a heavily oversubscribed sale.

Last month, the Kenyan government announced it expects to issue its debut international bond worth up to $2 billion that will be used to fund infrastructure projects, including rail and roads and retire a $600 million syndicated loan.

“Locally, authorities may possibly learn from all these various initiatives by other African nations as a way of unlocking finance,” said Tetrad in its weekly analysis.

“Kenya…appears to be making progress in trying to unlock finance and ultimately economic growth. Zimbabwe may thus opt for this route as other nations which have benefitted once faced similar challenges, particularly on political instability.”

Other African countries, however, have adopted investor friendly policies and implemented reforms mainly aimed at debt management, fiscal management, capital formation, promoting transparency and management of mineral resources and also improving international relations.

Zimbabwe’s relations with the West broke down about 12 years ago over allegations of human rights violations and electoral theft against President Robert Mugabe – which he denies – and Harare’s failure to repay debts that are now estimated at $10 billion.

But ties with the European Union are thawing and the bloc has progressively eased the embargo since 2009 when the veteran ruler agreed to share power with the opposition.

While Mugabe and his ZANU-PF party regained control of government in another disputed poll in 2013, the EU has continued the rapprochement and will resume direct development assistance to Harare this year if the European Council of Ministers votes to lift the embargo in November.

On May 16, outgoing World Bank Zimbabwe president, Mungai Lenneiye, told The Source that Zimbabwe does not qualify for the Highly Indebted Poor Countries’ (HIPC) status because it has capacity to recover, narrowing Harare’s funding options.

Tetrad said Zimbabwe may raise the much needed finance through selling international bonds, by righting its business and empowerment policies.

“This option requires certain issues to be addressed, chief among them being the formulation and implementation of business friendly policies,” said Tetrad.

“Addressing the public service wage bill, continuous efforts to payback our lenders and transparency in resource utilisation are the other key areas. Overall, policymakers may possibly need to consider this route and its implications among the various options … as a way to resolving the slowdown in the economy.”