Providing linkages to capital markets for Zim businesses

As part of its core constitutional mandate, the Zimbabwe National Chamber of Commerce (ZNCC) seeks to promote, improve and encourage in Zimbabwe, the development of trade and commerce.

In line with this mandate, the Chamber hosted a Webinar on August 10 focusing on trade finance and innovative linkages to capital markets for Zimbabwe businesses.

To support the attainment of National Development Strategy 1 (NDS 1), which has now just passed the midpoint in its implementation, the Chamber is aware of its roles and is frantically working to ensure that the objectives of the blueprint are attained with flying colours.

Some of the sector outcomes in the NDS1 where ZNCC has been cited as one of the contributing partners include: increased growth in the manufacturing sector; energy sector; provision of improved infrastructure and services, among others.

And looking at the infrastructural sector as a case in point, Zimbabwe has an infrastructural development funding gap of about US$40 billion, which is about eight times the size of the national budget.

This demonstrates that the national budget alone cannot adequately support accelerated infrastructural development projects that are needed in the country, and there is a need for other forms of funding to supplement budget financing.

Even the NDS1 itself highlighted that some of the possible financing options underpinning the blueprint include loans, foreign direct investment and other sources.

Given the above, the Webinar that ZNCC hosted on August 10, therefore, sought to explore various forms of international financing for Zimbabwe businesses to provide linkages to international capital markets.

To deliver this crucial Webinar, the Chamber partnered with STF Capital, Yield Group, and International Credit Rating Agency, and provided participants of the webinar an opportunity to engage with experts with key insights on trade and finance.

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There is a lot of competition for capital and you can enhance your capacity to access capital through credit rating.

As alluded to earlier, ZNCC exists to represent the interests of its members through lobbying, collaboration and facilitation; it is, therefore, in line with the Chamber’s mandate to pursue opportunities for collaboration with various entities if such collaboration has the potential to create business opportunities for members.

In Zimbabwe, access to finance is sometimes a challenge, especially at the international level. However, regardless of such challenges, there are opportunities available for Zimbabwean companies and this webinar was held to avail such opportunities to more local companies.

One of the major constraints to accessing different forms of financing at the international level is the lack of international credit rating for local companies and in presenting these international financing opportunities, viable solutions were recommended in the webinar. The webinar was held under the theme: Linkages to capital markets for local businesses.

Therefore, the objectives of the webinar were to provide local businesses with linkages to international capital markets, to assist local businesses to overcome the challenge of accessing international finance, and to avail platforms for direct engagement with experts in international capital markets.

Participants were also made aware of the tools available to meet common ground and mitigate risks that are inherent to cross-border trade.

Otherwise without such tools, when it comes to international trade, a sale remains as a gift until payment is received, and any payment is akin to a donation until goods are received. Some of those instruments include letters of credit as well as bank guarantees.

The issuance procedure for Yield Finance, for instance, begins with a transaction review where, after acquiring all the pertinent documents and information, they will select the issuing bank or financial institution and provide the draft for the client’s review.

And upon receiving the draft of the instrument, they allow the client to thoroughly review it with all concerned parties.

Once the draft is approved, they then receive a copy of the draft with signature and approval stamp; and then raise the invoice for the agreed charges and the client will make the payment against the invoice.

After that stage, the issuer and correspondents will then send and relay the instrument after the documentation is completed and onboarding of documents from the issuer will also be provided. Lastly, simultaneously, they will send the issued copy for reference and record.

The other important aspect is that of international credit rating to attract international capital. It was highlighted that ratings can significantly influence corporate institutions to achieve better market standing.

Getting rated can also give businesses chances to get projects, access markets, validate a company’s creditworthiness, enhance transparency, and is also useful for banks to make lending decisions.

There are also instances when companies might be disadvantaged by blanket country ratings or sectoral ratings, and in such instances, getting your business to be rated can then mitigate risks of other blanket ratings so that your business is not put in one basket.

By simple definition, a credit rating is an independent assessment of a corporate entity’s creditworthiness in general terms.

Through a credit analysis, a determination can be made about a potential borrower’s creditworthiness; by looking at the company’s capacity and likelihood of repaying principal and interest commitments, and this can be done for different transactions such as a bank loan, investment financing decision, credit facility, project analysis among other avenues.

With such a credit report, rating firms such as International Credit Rating Agency can help clients to get access to funding opportunities by giving recommendations and endorsing them directly with their funding partners.

They can also help clients to get access to factoring opportunities by giving recommendations and endorsing them directly with their factoring partners.

Going forward, the Chamber will continue to promote innovative ways to secure funding for key projects for the private sector, which is the engine of economic growth.

There is an urgent need to foster export-led growth, by ensuring that the country’s exports grow dynamically and are diversified. For that to become a reality, there is a need for adequate funding for recapitalisation to ensure that local companies become competitive.

The country’s current international trade profile calls for more action to ensure that it becomes sustainable. Zimbabwe’s exports during the first half of 2023 increased to US$3,23 billion compared to the US$3,18 billion recorded during the same period in the prior year.

The decline in the prices of mineral commodities on the international markets contributed to the slow performance of exports during the first half of the year, considering how mineral commodities constitute the majority of Zimbabwe’s total exports.

This goes to show how Zimbabwe needs to diversify into other products to cushion it from external shocks, and the need for investment comes into play.

On the other hand, imports for the first six months of the year 2023 rose to US$4,29 billion compared to the US$4,07 billion realised during the same period last year.

The growth of imports was also encouraged by the removal of import controls on basic commodities, through Statutory Instrument 80 of 2023, a measure which was imposed in May 2023 by authorities for a period of six months.

The country’s trade deficit for the first half of the year 2023 widened by 19 percent to US$1 058 467 753, compared to US$888 669 095 which was recorded in the first half of 2022.

It is therefore apparent that Zimbabwe needs to accelerate the growth of its exports to realise trade surpluses. This can be achieved if local businesses are given access to capital markets to raise concessionary funding.

This article was prepared by the Zimbabwe National Chamber of Commerce for Business Weekly