S. Biyam Executive Director: BAZ Access to Capital Recapitalization & Greenfield Projects

Contents  Introduction  Recent Financial Developments  Capital Requirements By Industry Agriculture Manufacturing Mining sector Financing Requirements  Greenfield Projects  Concluding Remarks

Introduction Economic Developments Economy broadly in recovery Low and stable inflation Positive real GDP Growth (9.3%) in 2011 Banking sector deposits growth Fiscal Revenue growth Slow capacity recovery Steady Growth in aggregate demand (Retail Sales) Measured progress in infrastructure Rehabilitation

2012 Inflation Forecasts……… Introduction

Inflation Forecasts Inflation is likely to be in the range of 4-5% in 2012 Inflation has remained low and stable since dollarization Allows for savings, investment and business planning Hence steady (uneven) business capacity recovery

Real GDP Growth (yoy%)

Sectoral GDP Growth Rates Total GDP growth 9.3% Of which Agriculture 7.4% Mining 25.8% Finance and Insurance 24% distribution and tourism 10.3% and manufacturing 3.5% 2012 growth is projected at 9.4%, but is likely to moderate to reflect among other things current liquidity challenges.

Introduction But, the economy continues to face serious challenges Liquidity – (few lines of Credit); Structural challenges – low savings & Investment; Low capacity utilization; Energy & Power shortages; Jobless recovery (slow jobs formation); Uncertain Business Environment Perceived Sovereign risk issues. Outstanding external debt arrears

Banking Sector Financing capacity is a function of intertwined factors: –Domestic deposits growth and –Credit lines –Exports growth Total deposits in 2011 grew by 41% to US$3.25 billion. 90% of deposits are short term Recent Monetary Developments

MONETARY DEVELOPMENTS DEPOSITS GROWTH (US$ millions) SOURCE : RBZ MONETARY POLICY STATEMENT, January 2012

Over 90% of Deposits are Short Term 2011 Deposits Structure

Sectoral Credit Distribution

Utilization of Bank Credit 2011 Utilization of Bank Credit by Purpose Source: RBZ MPS July 2011

Utilization of Bank Credit About 7% of bank credit is committed towards capital expenditure by the private sector This highlights the acute capital deficit conditions of the country and the need for urgent remedial measures

Banking Sector Conditions Tight Liquidity Conditions  Since December 2011, Delayed Payments Settlement across most banks Absence of interbank market Limited interbank trading instruments Slow Deposits Growth Transitory deposits

 Agriculture  Manufacturing  Infrastructure  Mining  Other sectors Capital Financing Requirements

Agriculture Financing Requirements Agriculture Financing Requirements exceed a $1 billion annually in respect of Crop Financing. –Land Preparation –Seeds & Fertilizers – Fuels & Utilities –labour

Manufacturing  CZI has highlighted that industry requires as much as $2 billion to recapitalize.  Factory re-tooling  New Equipment & Technology  R & D (New product development)  New Markets

 Substantial Financing Requirements: Energy & Power Roads & Railways Water and Sanitation Airports, Universities, Hospitals Irrigation & Dams Infrastructure Development

Financing Greenfield Projects  Greenfield Projects require special financing because of their unique status  Typically Greenfield Projects are: Capital hungry (particularly in mining) High risk with uncertain outcomes Require Longer term financing Open new frontiers for innovation and technology Venture capital financing

Mining Greenfield Projects

 Mining requires over substantial resources for capitalization: Mining Financing Requirements  Current estimates show as much as US$5 – US$6 billion recapitalization requirements over the next 5 years.  Gold (US$1 billion)  Platinum (US$1.2 billion)  Nickel (US$110 m)  Chrome (US$118 m)  Diamonds (US$339 m)  Coal (US$225 m)

The Golden Opportunity…….. Surging Gold Prices since 1995

 Zimbabwe has over 40 different minerals – Green Field mining Projects  Major Minerals are: Platinum (45%) Gold (24%) Diamonds (14%) Chrome Coal Nickel Opportunities in Mining

Mining Financing Requirements  Growth in the medium to long-term can only occur with additional investment in the sector.  There is need for:  exploration financing;  expansion of current projects; and  Greenfield Projects & new mines development  Infrastructure development is key  Power and energy  Efficient transport systems (railway networks)  Beit Bridge Boarder Post chaos

Green Field Mining Projects ……….capital intensive industry 27

Venture Capital Project Finance Corporate Lending Project Funding Cycle Lower risk, lower reward High risk, high reward 28

Typical cost of a large scale mine over its life Gross outlay to get a mine to production up to $315m and up to 12years Exploration 3-7 years Shareholder funded Extremely high risk Cost: $10-15m Construction 2-3 years Shareholder funded Very high risk Cost: $20-200m Ramp-up 2 years Debt/Equity funded High risk Cost: $10-100m Operation years Debt/equity funded Moderate risk Benefit: $0-100m Wind down 5 years Debt/equity funded Moderate-high risk Benefit: $0-100m Closure 3 years Equity funded Moderate-high risk Cost: $5-100m 29

Role of FDI in Financing Mining  Long Term Funding is key for sustained mining sector growth  Venture Capital Financing High risk/ high return  Shareholders Equity  Debt Financing  Structured Financing  Syndicated Loans

What is Required?  Political and Macroeconomic stability  Genuine Domestic stakeholder Engagement  Stakeholder Consensus driven Policies  Genuine External Stakeholder Engagement  External Debt and Arrears  Visible Investment Promotion  Secure Tenure; Investment security  Policy consistency  Conducive Investment Environment.

Concluding Remarks  At present, the banking sector in Zimbabwe cannot meet national financing requirements, let alone financing Greenfield Projects  Access to capital is key for growth  Size matters in financial affairs - For a small open economy with low domestic savings, FDI is critical for growth  Improving the investment environment becomes an integral part of proactive economic development policy

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