The 5th International renewable Energy Conference and Expo which is running until today in the resort town of Victoria Falls has been notable for several things, the most important of which was the potential funding opportunities available to local power companies.
The European Union ambassador to Zimbabwe, Jobst von Kirchman opened the door to local firms to access €150 billion (about US$162,55 billion) in funding opportunities.
Local Independent Power Producers (IPPs) were welcome to access these funds, he said. This is a huge opportunity, not only for the IPPs, but for the country to solve a problem that has proved its Achilles heel in attracting investment. But Kirchman also had a warning for the government: That Harare needs to clear its debts to unlock the funding.
This is key to resolving Zimbabwe’s problems in unlocking funding for key infrastructure. When banks take risks and lend, they expect borrowers to honour their part of the bargain. Their work is not charity. They are in business, and they expect to generate profits out of funds lent to countries, corporations, or individuals.
After defaulting for decades, Zimbabwe is seen as a high risk destination for funding. Creditors are holding back fresh loans, but the ramifications are dire.
By not honouring debts, Zimbabwe has frustrated the banks that had placed so much confidence in its ability to do the right thing – debt service. Other African countries are already benefiting from the EU’s €150 billion (about US$162,55 billion) Global Gateway initiative, which is helping them build their economies.
Zimbabwe cannot tap into this and other similar funding windows because lenders know that repayments would be difficult to get.
At the turn of the century, Zimbabwe’s debt to global lenders ran into hundreds of millions of United States dollars.
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That debt has increased to about US$17,5 billion – just about half of its GDP — with foreign creditors owed about US$14 billion.
Ramifications of debt distress are dreadful. But if President Emmerson Mnangagwa’s administration took the debt crisis seriously, it should by now have made serious inroads in its efforts to come up with a viable clearance plan. The debt has suffocated the economy, triggered de-industrialisation, a labour market bloodbath and affected revenue inflows into the fiscus. Authorities have responded by piling up taxes on individuals and companies including, most recently, a sugar levy that companies say may wipe put US$1,6 billion from beverages producers.
That is not all. Waves of fresh taxes announced in December may affect up to 35 000 traders and push 40 000 out of their jobs, according to industrial bodies. Authorities are responding to the crisis by punishing everyone, instead of tackling fundamentals behind economic turbulences.
Huge amounts of funds that would ordinarily be used to fund social service provision are being redeployed to debt service.
Millions more are being drained by penalties and interests on the principal debt.
As a result, public hospitals have run out of drugs, schools are out of learning materials and sanitation services are collapsing.
This experience should serve as a wakeup call for authorities to treat ongoing debt clearance initiatives seriously.
