Financial Sector Spotlight with Omen Muza

via Zimbabwe’s Eighth Parliament’s legislative agenda NewsDay September 26, 2013

On the September 17, 2013, President Robert Mugabe opened the First Session of the Eighth Parliament of Zimbabwe.

Financial Sector Spotlight with Omen Muza

Hopefully, the business community in general and the financial sector in particular did not view this as just another political event whose motions they could observe from a distance. It is a significant economic event in which they should be keenly interested.

It has far-reaching consequences since ultimately, the laws passed by Parliament shape the economic environment in which business must operate. Against this background, this week I take a financial look at the Eighth Parliament’s legislative agenda as spelt out in Mugabe’s speech.

Agricultural Support

The Eighth Parliament seeks to empower farmers through provision of inputs support and marketing incentives. This is certainly most welcome, but inevitably raises questions about the form which the support will take. Will it be on commercial terms or in the form of the usual free handouts which have in the past paid scant attention to issues of sustainability?

“We must employ strategies that avert our country from developing an over-reliance on food imports and handouts from donors,” said Mugabe in his speech.

I must hasten to add that unceasing handouts from government are ultimately not necessarily good either, Mr President. What’s good for the goose is good for the gander.

Hopefully, going forward government’s new model of agricultural support will finally seek to root out the handout mentality, with the intention of eventually making farmers self-reliant and transforming farming into a self-sustainable business. I must also point out that Government has previously proved to be a poor manager of credit risk, and going forward, should consider partnering with banks to improve loan recoveries so as to build sustainable revolving financing facilities for agricultural.

Commodity Exchange

“Government will hasten the operationalisation of the Commodity Exchange of Zimbabwe, which is intended to serve as a market where farmers can market and fetch fair prices for their products,” said Mugabe

This is long overdue, Mr President, and if it finally sees the light of day following its official launch in early 2011, the Commodity Exchange will bring more transparency and predictability to agriculture markets, which can unlock bank financing and complement government’s support for agriculture.
Financial Sector Reform

Efforts to chart a sustainable economic recovery and growth path means government must leave no stone unturned in mobilising the required levels of funding. As part of this thrust, several pieces of legislation will be brought before the Eighth Parliament for debate. The Banking Act Amendment Bill, which seeks to strengthen regulation of new forms of banking, is a case in point.

Indigenisation and Economic Empowerment

“Implementation of the country’s indigenisation and economic empowerment laws is to be pursued with renewed vigour” said Mugabe.
The nature of the “renewed vigour” will no doubt be of immense interest to banks such as Barclays, Standard Chartered and MBCA who are still to comply with the country’s indigenisation and economic empowerment legislation.

Sovereign Wealth Fund

Government also intends to establish a Sovereign Wealth Fund (SWF) as one of the vehicles for mobilising resources for the critical programmes of public infrastructure, irrigation and rural development. If the SWF comes to fruition, the likely impact would be an improvement in the country’s sovereign risk profile accompanied by enhancement of local market liquidity since government is likely to insist that at least a portion — if not all — of the SWF funds should be kept onshore in locally owned and controlled banks.

Government will also seek to position the mining sector to play a greater catalytic role in the country’s industrial development process. Strong and clearly defined horizontal linkages between the mining and manufacturing sectors can result in faster recovery and growth for the latter, which can in turn improve the banking sector’s catchment area for loans and deposits.

Political Risk & Cost of Credit

“With the elections now behind us, we look forward to meaningful and effective collaboration with all the progressive members of the global community. We indeed stand ready to work even with those who, before, were at odds with us,” said Mugabe, signalling government’s intended foreign policy direction.
If the Eighth Parliament follows up this reassuring political rhetoric with meaningful economic actions, the overall result could be an improvement in the country’s risk profile.

That, in turn, can result in corresponding reduction in the cost of foreign lines of credit which is, of course, principally beneficial to the banking sector, and ultimately, to business in general.