THE African Export-Import Bank (Afreximbank) recently revealed that it had given financial support of over US$10 billion to Zimbabwe, laying down other initiatives that the bank has in store for the country. Afreximbank vice-president finance, administration and banking services Denys Denya (DD) said the journey towards the country’s economic transformation was a collective endeavour that required the active participation and commitment of all stakeholders. Here is how his discussion with our senior business reporter Melody Chikono (MC) went:
MC: You mentioned that you have given financial support worth US$10 billion to Zimbabwe. What sectors have you supported specifically?
DD: We started offering loans in 1994. I think the Harare branch was established in 1996. Since that time to date, we have dispensed about US$10 billion to Zimbabwean companies, financial institutions and some state-owned companies. So it is largely through the financial sector, because we normally lend through banks as trade finance intermediaries. Banks can reach a wider audience than ourselves. We also lend to the central bank in support of the private sector.
MC: Speaking of the central bank, there was a time that it got some lending from you, specifically for letters of credit (LC). Is that fund still running?
DD: We have a product called Afreximbank Trade Facilitation Programme and the central bank supported commercial banks in issuing LC’s and we confirmed these LC’s. It's now less active than it used to be because of the liberalisation they have done. Banks are coming for LC confirmation lines. They no longer really require the central bank backing. But there was a time when we would lend to the commercial banks, really confirming letters of credit for essential imports and the central bank would provide the foreign currency undertaking because exporters were surrendering about 40% of their export to the central bank.
Although it is still available, it's less active than it used to be because banks can now, on their own, approach us and other financial institutions for confirmation lines.
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MC: Talking about that, I recently did a story about how the exporters were finding it difficult to get the LCs confirmed because of issues to do with Zimbabwe's risk. How does it work?
DD: That is news to me because we have an appetite to confirm Zimbabwe, especially for exporters. There should not be any problem in us confirming LCs for exporters either directly or through commercial banks. We can establish LCs ourselves, but if they establish a LC through a bank, we can add our confirmation.
MC: You indicated that you have never lent to the government except for this year. How is that?
DD: We do not do budget support and historically have not had any loans to government ministries but have had loans to government owned entities.
MC: Are there reasons why you did not lend to the government?
DD: It is not that we don’t lend to governments. Where we do lend to governments, it will be based on trade facilitation for the private sector and the facilities will be structured. Afreximbank was created by African governments, in response to the South American debt crisis which led to international banks cutting credit lines to Africa which impacted trade finance availability. So, their idea was, as Afreximbank, we will work with the private sector to develop, increase trade, and economic development through trade. It's not that we don't lend to governments, we do sometimes, but it has to be structured to facilitate trade.
MC: You said Zimbabwe was missing out on a number of projects. Can you expand on that?
DD: Afreximbank has an array of products and facilities and I suspect that, because of the challenges that the economy of Zimbabwe has faced in the last decade, borrowers have tended to borrow for short term trade financing, mostly aimed at consumption. We have not had significant requests for project financing, infrastructure provision such as building factories, project preparation and equity financing. The only infrastructure project that I can think of here is the Beitbridge Border Post that we facilitated and the Zimbabwe Electricity Transmission and Distribution Company sub-station expansion. But we have not seen demand from the private sector players, who have to retool factories, buy new equipment for factories, you know, things that we are passionate about because we want to see Zimbabwe’s industrialisation and export development succeed. That's why I was appealing to colleagues to say look, I think we need to focus on the medium to long term, because you create more value rather than focusing on exporting raw products be they agricultural or mining. Projects that focus on value addition create wealth and jobs for Zimbabweans and Afreximbank can help in birthing these.
MC: So what can you say about the appetite of borrowing in the Zimbabwean market?
DD: High interest rates make local currency borrowing problematic especially for term projects and the country risk premium makes foreign currency borrowing expensive, however, Afreximbank’s facilities are fairly priced. What I found out at this conference is that most people actually don't know what Afreximbank does.
MC: Concerning SMEs, how are you handling the issue of collateral?
DD: Collateral is required depending on the risk assessment of each borrower. It really depends on what the particular SMEs are engaged in, if you take, for example, a tobacco merchant, they usually don't have a balance sheet that would support the level of borrowing that they need. So what do we do? We structure it along the participants in the trade so that we disaggregate the risks enabling various parties to bear the appropriate risk. We transfer the risk from the SME to the buyer of the product because they are better able to manage that risk, and the collateral will be the receivables instead of the SME’s physical assets. So we employ structured trade finance techniques that transfers payment risk to the part best able to bear that risk whilst the SME retains performance risk. Hence you don't necessarily need to have physical assets as collateral. The same applies to individuals or SMEs who sell oil, they might not have money but because they have contracts with BP or Shell, the Bank takes the payment risk of BP and Shell when providing funding to these individuals and SMEs. Supply chain finance, invoice discounting and reverse factoring are all financing models that SME’s can use without the need for provision of collateral most of the time.
MC: In 2021, Afreximbank allowed Zimbabwe to reorganise some US$1, 4 billion debts that it owed the institution. What has happened since then?
DD: It was a consolidation. We had a number of facilities running, so we consolidated them into one facility.
It has been working well so far. Not a problem. The Reserve Bank of Zimbabwe has been performing and up to date. So we do not have any problem.
MC: Going forward, what is your outlook for Zimbabwe?
DD: Zimbabwe is the third largest shareholder of Afreximbank and we are fully committed to supporting businesses through economic conditions, in good and bad times.
As a testament to our confidence in the country’s future, we are in the process of building our called Afreximbank African Trade Centre (AATC) in Harare, our Southern Africa Regional office. The AATC is more than just an office complex but includes a 4-star hotel and a conference centre, an exhibition centre and a tech incubation hub. Our vision for the AATC is centered around trade facilitation. It's a place where businesses and people will come and get trade assistance, gain knowledge and access resources. We are particularly focused on equipping small and medium enterprises as well as empowering youth and women entrepreneurs Zimbabweans will have the opportunity to learn, workshop and exhibit within our AATC, and we will provide them with trade information, as well as trade services including issuing documentary credits for those interested in doing business. I think this initiative will significantly expand our engagement in Zimbabwe.
MC: What is the end goal for this?
DD: As I mentioned during my presentation, we want to help Zimbabwe to industrialise and grow its export base. Currently, we export our minerals in their raw form, but there is great potential to add value to these products and earn more foreign currency, generate jobs and expand our participation in the regional value chain. We have successfully implemented similar initiatives in other countries. There is no reason why we cannot have fully functional agro-processing zones with the level of agricultural activity in this country. There is no reason why we cannot have industrial zones that are based on particular minerals such as iron ore, lithium and gold. Zimbabwe produces a lot of cotton, but we ship it mostly unprocessed.
MC: So how exactly do you want to do it in Zimbabwe?
DD: I think the only way is to engage with the private sector because this is the private sector. It is not the government that is going to do this. Government can do two things like the provision of the land where we do the industrial zone.
Two, is to consolidate the licensing, the regulations because in an industrial zone or a natural processing zone, you want one centre. That way you go, you get your permit for expatriates, license for production, everything under one roof.
So it becomes efficient. So that is why you need a government. The rest of it, you need the private sector.
MC: Are there any ongoing engagements?
DD: There are indeed ongoing engagements. Afreximbank has made an investment in Arise IIP, an industrial infrastructure platform developer specialising in industrial zones. Their primary role is to attract investors to establish businesses within these industrial zones, developing and managing the necessary infrastructure. They work to create an ecosystem that aligns with the country's strategic focus areas based on its comparative advantages. We have facilitated introductions between Arise IIP and the government of Zimbabwe, as well as other private sector stakeholders.
These discussions are progressing and we are hoping for a positive outcome.
If the government or other entrepreneurs express interest and provide the required land and regulatory and licensing approvals, developers like Arise IIP would present detailed feasibility studies covering every aspect, including assessments of raw material availability in the area, along with infrastructure and financing needs. Afreximbank would then evaluate the project's viability and determine the appropriate financing and support to provide.
MC: How much have you set aside for that?
DD: So far, we've set aside a billion US dollars for the expansion of Industrial Parks across the African continent and as I indicated earlier, we are already in discussion with other twelve African countries on this initiative, apart from Zimbabwe.
MC: I mean for Zimbabwe.
DD: Right now, Zimbabwe's portion is within that one billion, because it has not been scoped.