LIMITED access to capital for infrastructure development is a major constraint to land developers, with mortgage lending dominated by Central African Building Society (CABS), followed by CBZ Bank, research by a local university shows.
In a paper titled Alternatives for Financing Urban Infrastructure in Zimbabwe: Focusing on Water, Sanitation, Housing and Road Infrastructure, presented to a recent debt conference organised by social justice organisations Afrodad and Zimcodd, University of Zimbabwe lecturer Tawanda Zinyama said urban housing development was being hindered by the existing incongruity between supply and demand of investment in urban infrastructure due to institutional and governance failures, mismanagement, non-production of audited financial statements and price distortions in the wider economy.
“This is a reflection of both human skills and systems capacity challenges within the local authorities. Urban authorities lack the upfront capital to fund their investment priorities. They also lack borrowing capacity due to low creditworthiness, that is, limited revenue sources and restricted revenue-raising powers, insufficient or inaccessible collateral and so on. Difficulty of changing investment patterns due to institutional, governance, and contractual/financial features present in the market portfolio or resource allocation mandates within funds or investment organisations that prohibit infrastructure finance,” he said.
Zinyama added that urban authorities could not initiate projects or act as bankable counterparties due to structural, technical, and skill limitations with lack of institutional knowledge, inadequate budgeting and accounting capacity and resources prevalent.
Lack of long-range targets or infrastructure planning, Zinyama added, have often resulted in lack of signals to market participants about investment needs and intent. He added that investors perceive a significant risk of losing their investment due to a variety of risk Asset performance uncertainties as political risk, foreign-exchange risk and limited additional capital sources for pooling, sharing risks being some of the key issues.
“Currency and exchange rate risks are also a major cause of concern. Investors cannot repatriate their proceeds and to predict the exchange rate currency risk is a key consideration in the negotiation of urban infrastructure financing contracts. In October 2018, total deposits were about US$10 billion while foreign notes in circulation were only at US$70.4 million with balances available in nostro accounts being US$305.5 million. The ratio of foreign currency to total deposits was only about 4%. The foreign exchange auction system marginally managed to reduce the exchange risk. Fear that investors would be stuck with RTGS dollars and be unable to convert them into foreign currency is a risk that does not promote infrastructure financing,” he said.
Zinyama said authorities needed to ensure that the quality of the investment, its feasibility relative to local economic circumstances and its appropriateness for the locality’s needs and possibilities take precedence over all other considerations when borrowing.