Weak capital markets hold back infrastructure

Zimbabwe’s capital markets are too weak to sustain meaningful investments in infrastructure development, analysts have said.

The Infrastructure Development Bank of Zimbabwe recently suggested that there was need to use both regional and local capital markets to raise funds for infrastructure development.

IDBZ’s Nick Nyamambi told the mining indaba last week that infrastructure development faced challenges such as shortages of long-term funding due to limited domestic capital markets and institutional capacity constraints such as weak balance sheets for most would-be lenders.

“Efficient capital markets are an important integral part of infrastructure development, especially with regard to raising long-term funding,” he said.

Economist John Robertson told The Zimbabwean that Zimbabwe could not fully use capital markets because of its poor debt management record.

“We have a very poor record when it comes to servicing our debt. We can’t invite foreigners to buy Zimbabwean bonds to be repaid over a ten- to 12-year period with interest. We have to make them believe that we will keep that promise,” he said.

Robertson said some of debts were ignored for more than 20 years. “So why would they give new credit when we can’t settle old debts. We have spoiled our reputation,” he said.

Nyamambi said IDBZ-issued bonds had been used to finance prepaid electricity meters for the Zimbabwe Electricity Transmission and Distribution Company.

“The bank will continue to engage all stakeholders in working towards reviving the once vibrant capital market,” he added. Economist Eric Bloch said that local capital markets were too weak to fund infrastructure development. “The international market has no confidence in the country because of indigenisation laws,” he said.” It’s the way that we are pursuing our indigenisation laws that is the problem.

He added that certainty on the ownership of businesses was important to inspire confidence.

Nyamambi said IDBZ would engage regional partners such as the Development Bank of Southern Africa and the African Development Bank to create a vibrant regional financial sector.

“Benefits of well-developed capital markets include higher levels of capital growth, direct access by borrowers of funds from multiple investors, effective and efficient allocation of funds and attraction of long-term financing, ideal for infrastructure,” he said.

He said that regional players needed to promote “the development of an effective bond market, with highly liquid government bonds as a precursor for other private sector bonds”.

“The fundamentals for accelerated development of the bonds market include a sufficiently wide market with a variety of instruments available. There must be depth in the market and well developed market infrastructure,” he said.

Robertson said Zimbabwe had to focus on increasing productivity to improve its ability to repay its debts.

“The money that could go into infrastructure is being used to buy food which we should be producing ourselves,” he said.

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