Zimbabwe Seeks Equity Investments

Jun 19, 2018 | AllAfrica

GOVERNMENT is targeting between $4 billion and $5 billion in equity investment annually as it seeks to grow the economy in the absence of loans due to the debt overhang.

Zimbabwe is struggling to service over $10 billion of debts to multilateral and bilateral creditors, a situation that has locked access to financing required to reboot the economy. Of the total debt, $7,5 billion is external debt. Speaking to Standardbusiness on the sidelines of the launch of a local Pepsi plant by Varun Beverages Zimbabwe Private Limited last week, Finance minister Patrick Chinamasa said government would be happy with between $4 billion or $5 billion equity investment. "Let us say $4 or $5 billion, if I can get that annually I will be happy, but what I need you to also understand is when we talk about equity, it comes in different forms. There is equity which comes in this form (capital investment), but there is also what we call portfolio investments which come through the stock exchange, which is where our challenge is," he said. "We need new counters on our stock exchange. The fund managers all over the world are looking for people with new ideas which they can look at and say we to put up money towards that idea." Chinamasa said government was also approaching venture capitalists and hedge funds to get equity investment from them. Equity investment is an investment by individuals or firms that is usually in the form of stocks whereby profits are in the form of capital gains or dividends. It is considered as a long-term strategy to maximise wealth by investors. In recent years, venture capitalists and hedge funds have been offering more equity investment as it allows them to invest without physically being present in the country they may choose to invest in. Banker and former Zimbabwe Investment Authority chairman Nigel Chanakira said equity investment was the most ideal, but investors were waiting for the holding of free, fair and credible elections. "The brave ones have been coming through and began to look at signing contracts, but in terms of actual flows I think it is only fair to say that people are waiting for free, fair and credible elections. We could really see a change of flows depending on the outcome," Chanakira said. "Ideally you want private equity, but there is nothing that is private from doing joint ventures with the public sector and what they are looking for, particularly, for infrastructure funding is to look for private capital that goes into partnership with government through the Joint Venture Act." He said there was probably $20 billion worth of infrastructure projects that needed to be done which was probably one area government was looking to get equity investment for. "Your clean foreign direct inflow is also needed so there are opportunities there, but at the moment what government is really promoting is their own agenda in terms of infrastructure projects," Chanakira said. According to the African Private Equity and Venture Capital Association (AVCA) 2017 Annual African Private Equity Tracker report, the total value of African private equity fundraising decreased to $2,3 billion in 2017 from $3,4 billion in 2016. What that means for Zimbabwe is that it will have to compete for equity investment, private or public, because research has found that in this region, Botswana, Malawi, and Zambia are currently more attractive destinations. The country's large debt further increases the challenges in government's ability to lure equity investment. "In fact, our biggest challenge at the moment is the debt problem whereby because of that debt we are unable to access new capital. So, our thrust now is to encourage investors to come in with their own money to set up and look for opportunities to do business. Already, most investments which are coming in now are mostly equity and from the private sector," Chinamasa said. "We have said I think even through (Industry, Commerce and Enterprise Development minister) Mike Bimha that we want private-led growth in our economy. Now what that means is that it is the private sector. The private sector can be in two parts: domestic in which case they borrow from local commercial banks or they get foreign currency reserves from the Reserve Bank if they want equipment." Chinamasa said government had plans to lure investors through the human capital as this was "our comparative advantage". Source: AllAfrica