BELOW is a speech by KH Research Equity Partners chief economist Ndumiso Hadebe at the Zimbabwe Independent Banks & Banking Survey and Award ceremony held last week on Thursday:
I am indeed excited to share a set of discussion points at this year's Zimbabwe IndependentBanking & Banking Surveyand Awards ceremony.
This is really about what the CEO of First Capital Bank (Tapera Mushoriwa) highlighted, the idea of economic growth through sustainable finance in the Zimbabwean and regional contexts.
There are three strategic elements that I wish to embed our conversation here this evening. They are around the question of accessibility, affordability and sustainability in the various industries through sustainable finance.
This is quite important in a post-Covid-19 era and in a world that is increasingly changing to really look at how all of these elements are affecting us on a day-to-day level and also the industries that we invested in.
Elements of strategic framework
There are four elements that I wish to really drive our conversation with you today, which is around strategic framework. But before we do that, I think it is important for us to recognise that there are certain things that we donot know.
It is only from that position, when we are able to recognise that there are things that we know and there are things that we donot know that we can really think more meaningfully about the strategic intent of how we seek to achieve economic growth through sustainable finance.
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The first pathway when thinking about sustainable finance is about water. Water is a fundamental basis of every economic activity and economic life.
We know that increasingly in the years to come, we are more likely to be faced with water scarcity. So I think when we are thinking about industries, we need to think about the impact of water in that area.
The second is of course the question of food security and adaptation when it comes to the agricultural sector. The whole value chain around agro-processing right through to distribution and retail.
What is the impact of water on food security in the agricultural sector and the mitigating factors and the role of sustainable finance in driving resilience in those areas?
The third is around mining. Mining has of course been a key enabler of many African economies.
But of course there are certain estimates that suggest that the pipeline of new mining projects is not likely to meet the sustainability transition needs that we have on the continent.
The fourth pathway is around the question of geopolitics and sustainability of the operating environment that you and I do business — be it in Zimbabwe, Africa as a region, or across the globe. Constantly, we need to think about risk and resilience — business continuity in a constantly rapid-changing world that is also affected by geopolitical changes.
Ladies and gentlemen, those four areas, when looking at them across the areas of accessibility, affordability and sustainability, are all embedded in what I consider to be a leading indicator for economic growth and one that becomes important for sustainable finance.
African projects
The number 10% is what the African Development Bank came up with to say only 10% of projects in Africa will reach financial close. Now, that raises an interesting phenomenon. As we are discussing driving economic growth through sustainable finance, we can drive and raise the necessary financing that is required to ameliorate the risks that are associated with water scarcity,food security, mining projects and the impact that it has across various products and services that we consume, and of course the geopolitical shifts that we face.
But I think from a banking and financing perspective, it raises an interesting insight that we need to also think around banking, not only just through finance, but also thinking about banking as having a knowledge bank.
The technical expertise that is required to bridge the gap that is required in order to ensure that more and more projects are able to meet financial flows to drive this economic growth that we speak of through sustainable finance.
So this includes areas, such as project preparation and feasibility studies in order to really estimate whether or not projects are viable, putting together the right capital structure of debt and equity and other instruments.
This is in addition to the appropriate risk profile for investors to look into and for it to be attractive and for those returns to be realised, coupled with the sustainable return that are associated with that.
Leadership
What is going on around us? Ultimately the hope is that as we have conversations here this evening, we will then be able to ask the questions, what are we going to do about itwith the state of the finance.
How are we going to do it through the various products, collaborations and of course ultimately everything rises and falls on leadership.
The kind of leadership that is required to realise the economic growth that will ensure that Zimbabwe is located within a regional context. When you look at Sub-Saharan Africa broadly, 83% of employment in our region is associated with the informal sector.
We also appreciate the number of currencies that are operating in that sector and that some of the countries are landlocked.
All of these elements, I would think, are what also contribute to the risk perception premium that is associated with African countries.
This is something that we need to think deeply about — how we can leverage sustainable finance to really bridge and enhance, in fact, create a value proposition for African economies to drive the last frontier of growth in the globe.
Environment social governance
This is really associated with what we understand as the sustainable development goals. The four areas that are highlighted also find expression here in these sustainable development goals and being able to assist companies to meet their ESG goals.
Here it raises a question, when we are thinking about sustainable finance to drive economic growth, how are we enabling companies to meet those goals through their ESG perspectives?
And of course there are a number of ways and themes that have come out about what is suitable for various investorsin the world of impact investing, through the global steering group.
This is work that we are trying to do to really mobilise capital towards projects, investments and companies that are able to really deliver on the financial and social returns.
We need to understand who we are talking about? What are the kind of companies and projects that are attractive to various levels of people.
Is it high net worth people? Is it family offices? And is it the retail market? How are we then able to leverage these areas through sustainable finance solutions to foster meaningful economic growth? And perhaps we can borrow some learnings from scholars, such as Pankaj Ghemawat, who really has done some work around what he refers to as a TEIT framework, looking at trade, communication, information, and people development and maturity in various economies.
He argues that when we look at economies through these lenses, we are able to ensure that inequality is flattened, poverty is reduced, and we are able to drive more meaningful economic growth.
I think this also presents an interesting insight around the allocation of capital. Another interesting insight is that with increased regional trade agreements that have been signed, both globally and regionally, in Africa specifically, we found that 45% of trade continues to happen.
How do we then begin to support this 45% through sustainable financing? The African story is indeed one that is known to us all. One of the biggest areas of opportunity is harmonisation from a trade and investment promotion facilitation point of view.
It is really linked to the 1991 Abuja Treaty with the various stages of development that we ought to achieve. The various stages of development towards ultimately establishing a continent via economic monitoring, which is a big task for the African Union.
One of the areas of debate and policy consideration that we need to be reminded of is around sustainable financing and various phases of the free trade agreement and the opportunities that come with that.
No man is an island on the African continent — it is only through increased trade in our region.
It enables us to borrow some learnings around some key areas, which we have seen post-Covid-19, around inflation. What are the drivers of inflation in the global economy?
As we continue to advance, what are the key considerations when welook at it from the financial perspective. This specific paper looks at it from the development of economies and the leakages that the economy has.
The advanced economies tend to have greater exposure to global shops, around 24% or more and oil shops only account for 4%of inflation variation.
Vision 2030
As we work towards Vision 2030 and as our countries continue to grow and develop these dynamics, it is important for us to take into account the sustainability of companies that we are investing in. Many have defined it as chase to zero — the goal of companies and industries to drive companies closer to zero and more competitiveness.
The chase to zero is when we look at it from the banking and fintec point of view — depreciation of fees, and what iscompetitive for various products and what is more meaningful.
Ultimately, we see it in a very common conversation about energy — solar and alternative forms that will make it more affordable and accessible for you and l to be able to drive a much-needed industrialisation on the African continent.
In closing, one of the big opportunities in the broader context of Zimbabwe is the question of diversification globally.
Diversification in the sense that Covid-19 really made us aware that the supply chainsdo become vulnerable depending on what is happening around the globe .
So when we think about strategy, risk, resilience or continuity these become important conversations located around accessibility of our products and services to our consumers and clients.
The affordability of those products to our consumers and clients and ultimately how that cycle speaks to affordability of our offers in the market.
Vison 2030 when debating and discussing these areas and meaningful policy considerations will indeed be achieved in Zimbabwe.
- Hadebe is KH Research Equity Partners chief economist.
