Many companies are trying to increase their capacity in order to accrue economies of scale. However, accessing concessionary loans for these projects is the major challenge. The loans currently offered by local banks are short term, due to the transitory deposits coming through. Bank deposits are also very low, with the loan-to-deposit ratio already high. Due to Zimbabwe’s bad credit rating and our high national debt, it is impossible to access concessionary loans outside the country.
Companies are desperate. However, there has been a recent trend where the directors of profit making companies are choosing not to declare dividends to shareholders and are re-investing the money in the company. Examples of such companies are Seed-Co and Hippo Valley.
Seed-Co indicated that it was not declaring dividends for the year in order to allow the business to balance its working capital. Hippo Valley, which made a profit after tax of $13 million this year, will also not declare a dividend because it requires cash to recapitalize the business, particularly in the replacement of agricultural equipment and crop re-establishment.
Zimbabwe has been in negotiations to access lines of credit. Some of the countries include South Africa, Botswana, Afreximbank, China’s Eximbank and PTA. However, most of these negotiations are still to bear fruit. Botswana’s $70 million and South Africa’s $100 million pledges are still to come through.
Post published in: Business
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