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Need For Change On Infrastructure Financing Model –

CIMAS Leaderboard

By Victor Bhoroma

Zimbabwe is currently undertaking critical infrastructure projects such as the Harare-Beitbridge Highway, the Mbudzi Interchange, the Gwayi-Shangani dam, the Kunzvi-Musami dam and a number of other projects. A 2019 report by the African Development Bank (AfDB) pointed out that Zimbabwe needs over $34 billion in the next 10 years to upgrade its infrastructure to achieve sustainable levels of economic growth. This means that the country would need to invest $3.4 billion in each year up to 2030 to keep up pace with developments on the continent especially with fast developing peers in the SADC region such as Mozambique and Zambia. The Zimbabwe government points that it needs at least US$40 billion to fund critical infrastructure in the next 5 years. The 2022 national budget set aside ZWL$334.7 billion for capital expenditure such as infrastructure financing. By June 2022, ZWL$141.4 billion had been disbursed for road and dam construction among other projects. The government spent an additional ZWL$172.6 billion on projects, taking the total capital expenditure outlay to Z$507.3 billion for 2022.

Source of infrastructure funding
Most of the above projects are funded from tax revenues and disbursements done partially in the domestic currency. The government plans to issue a US$100 million bond on the Victoria Falls Securities Exchange (VFEX) to help fast track some of the projects that have been delayed by funding such as the Gwayi-Shangani Dam. However, there has been massive criticism of the short-term financing model used by the government for on-going developmental projects due to the impact of the large volumes of payment on the wobbly foreign exchnage market and the subsequent depreciation of the local currency which remains very volatile.
Due to that depreciation and lack of conficence in the local unit, infrastructure contractors rush to the parallel market to exchange their Zimbabwean Dollar payments to foreign currency the moment they receive their payments as a way to preserve value. To ensure stability for the local currency while meeting short term infrastructure needs, there is need for long term financing models in infrastructure development especially those that are self-financing in nature.

Need for private partnerships
Zimbabwe does not have a dedicated Public Private Partnership (PPP) law. In 2004 the government developed the PPP Policy and Guidelines, but this did not translate into binding legal and regulatory framework. Without such regulations, investors and financial institutions cannot take risks to finance PPP projects locally considering the monetary policy inconsistencies, Institutional decay (property rights flaws & tainted rule of law), bureaucracy and high levels of corruption in government. In the past 5 years, monetary authorities have announced a plethora of contradicting regulations, policies and statutory instruments that erode confidence in potential financiers. The AfDB (2018) report explicitly points that inappropriate regulatory framework limits private sector participation in infrastructure funding in Zimbabwe. Under PPP projects, the financial, technical, and operational risk is borne by the sponsor of the project hence PPPs do not constitute to public debt or draw from tax revenues.

History of PPPs in Zimbabwe
Notable PPP projects in Zimbabwe since independence include the current US$300 Beitbridge Border Post Upgrade by Zimborders under an 18-year Build-Operate and Transfer Arrangement, the 1994 Alfred Beit Road Bridge constructed by New Limpopo Bridge under a 20 year Build-Operate and Transfer (BOT) arrangement at a total value of $18 million. Other PPP projects that were successfully undertaken include the 800km stretch of Plumtree to Mutare highway done at a cost of US$206 million in 2014 (implemented by Group Five of South Africa with funding from Development Bank of South Africa (DBSA), The $600 million Chisumbanje Ethanol Plant Project by Green Fuel and ARDA implemented in 2013 and the US$65 million Beitbridge Bulawayo Railway (BBR) line which was implemented on a BOT basis by Beitbridge Bulawayo Railway (Private) limited in 1999 on the 317 km railway. Despite these successful examples, PPPs have been evading Zimbabwe in a worrying trend due institutional flaws that must easily be addressed to ensure sustainability.

All the above PPP projects were successful because financiers were satisfied with the repayment model (self-financed by users) and the foreign exchange regulations that bound the contract. On the domestic market, pension funds sit on over US$650 million of foreign currency that can be utilized on infrastructure projects provided policies and the law can guarantee uninterrupted return on investment. The same applies to financial institutions who can easily secure offshore funding and synergies from external financiers provided there is an enabling environment. It has been noted that local financial institutions lack sufficient capital to fund infrastructure, however capital flows to where the environment is favorable and there are guarantees for repayment.
Complex project corordination
Zimbabwe does not have a dedicated PPP unit, which means that implementation is done by the ministry of finance with collaboration from various government agencies and departments involved. This makes it difficult to get traction on projects that fall under various ministries or departments such as Dam and Water Projects in towns where the financing model falls under the Ministry of Finance and Economic development, users fall under opposition controlled urban councils which are administered by the ministry of local government and public works, water resources fall under the ministry of Ministry of Lands, Agriculture, Water, Climate and Rural Resettlement through the Zimbabwe National Water Authority (ZINWA), guarantees to repayment coming from the Reserve Bank of Zimbabwe (RBZ) among other agencies that will be involved. This makes execution of PPPs in Zimbabwe complex, prone to corruption, political interference and beuracracy. Corruption has been rampant in PPPs agreements to a level where some projects had to be abandoned while project costs skyrocketed to cater for many pockets involved. Additionally, utilization of public infrastructure through payment in an unstable domestic currency and lack of a market driven foreign exchnage market dentany hopes for private sector funding in infrastructure projects.

Need for political commitment
Long term infrastructure financing requires high level government leadership commitment before and after implementation since the private players incur operational and financial risks in these long-term contracts. PPPs require clarity on policy and legal framework before the private sector can commit millions of dollars into public projects. Zimbabwe has been at pains to separate economic policies and politics in the last four decades to the detriment of infrastructure development.

Government Justification
The government points that it is unlike other African economies such as Zambia, Mozambique, Ghana and Kenya who are securing huge chunks of loans for infrastructure development from international partners, Zimbabwe does not have that privilege as the country has been shut out of debt markets due to nonpayment of debt and arrears running into billions. As of June 2022, public and publicly guaranteed debt stood at ZWL$1.3 trillion and US$13.2 billion, comprised of domestic and external debt, respectively. Harare has external arrears to multilateral and bilateral institutions such as the World Bank, The Paris Club, the African Development Bank, and the European Investment Bank. As a rule, institutions such as the International Monetary Fund (IMF) are prevented from lending to a country that has arrears to other international financial institutions. Similarly, other potential funders wary of extending any loans to Zimbabwe without resource-based collateral.

Way forward
Any potential infrastructure funding for Zimbabwe would require a clear path to comprehensive restructuring of external debt, including the clearance of arrears and receiving financing assurances from creditors. PPPs are ideal for self-financing projects such sports facilities, water distribution, power generation, rail network upgrade and rehabilitation of all the country’s border posts.

The consequences of infrastructure decay are evident in the high cost of importing power from neighboring countries year in year out, high cost of doing business and poor investment inflows into the country as investors prefer markets with better infrastructure in the Southern region. The government does not need to fund (or even own) all the public infrastructure. A favorable duty for the government would be to ensure that citizens derive maximum utility from the usage of such public infrastructure only, to the government’s credit. The fact that PPPs tend to fund projects that are long term in nature call for policy consistency and stability as prerequisites for boosting investor confidence. There is no national security benefit in funding all public infrastructure through printing money or dedicating constrained public resources at the expense of other pressing short-term needs. The government only needs to provide opportunities for the private sector to partner government at local or national level through an enabling PPP regulatory and policy environment. Infrastructure built and maintained by public resources cannot match that is which is provided and maintained by PPPs.

Victor Bhoroma is an economic analyst and writer. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email or Twitter @VictorBhoroma1.

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British pound stabilizes, but turmoil still roils UK economy – New

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By Associated Press

LONDON: The British pound stabilized Tuesday as U.K. authorities tried to ease investor concerns after the biggest tax cuts in 50 years sent the currency tumbling to a record low the previous day.

The turmoil is already having real-world effects, with several British mortgage lenders pulling offers from the market amid expectations the Bank of England will sharply boost interest rates to offset the inflationary impact of the pound’s recent slide.

It was trading at around $1.08 on Tuesday, after plunging as low as $1.0373 early Monday. The British currency is still down 4% since Friday, when Treasury chief Kwasi Kwarteng announced plans for 45 billion pounds ($49 billion) of unfunded tax cuts. The pound has fallen 20% against the dollar this year.

Kwarteng’s announcement, which comes at the same time the government plans to borrow billions to help shield homes and businesses from soaring energy prices, sparked concerns that the new government’s policies would swell government debt and further fuel inflation.

Late Monday, the central bank said it was “closely monitoring” financial markets and was prepared to boost interest rates “as much as needed” to curb inflation, which is already running at 9.9%, the highest among major economies. The bank’s Monetary Policy Committee isn’t scheduled to meet until Nov. 3.

“There is no rate increase today and speculators will enjoy the prospect of two months of Bank of England inactivity if the statement is taken at face value,” said Alastair George, chief investment strategist at Edison Group.

The U.K. Treasury also sought to reassure investors, saying it would set out a more detailed fiscal plan and independent analysis from the Office for Budget Responsibility on Nov. 23.

“We have responded in the immediate term with an expansionary fiscal stance on energy because we had to. With two exogenous shocks — Covid-19 and Ukraine — we had to intervene. Our 70-year-high tax burden was also unsustainable,″ Kwarteng said in talks with investors on Tuesday following the so-called “mini-budget″ last week.

“I’m confident that with our growth plan and the upcoming medium term fiscal plan — with close cooperation with the Bank — our approach will work,” he said.

That did little to quiet criticism of the government’s policies.

Lawrence Summers, who served as U.S. Treasury secretary under Bill Clinton, said he was surprised that the International Monetary Fund hadn’t spoken out because a currency crisis in Britain could have worldwide consequences and affect London’s viability as a global financial center.

“I was very pessimistic about the consequences of utterly irresponsible U.K. policy on Friday,” Summers tweeted Tuesday. “But, I did not expect markets to get so bad so fast.”

Kwarteng and Prime Minister Liz Truss, who replaced Boris Johnson as prime minister on Sept. 6, are betting that lower taxes and reduced bureaucracy eventually will generate enough additional revenue to pay for the tax cuts announced Friday.

But many economists say it is unlikely the gamble will pay off.

Torsten Bell, who heads the Resolution Foundation, a think tank focused on economic inequality, said the markets were looking at the government’s plans “and saying that is not what serious policymaking looks like.”

Market reaction to Friday’s announcement will hurt consumers by fueling inflation in the short term, leading to higher mortgage payments in the medium term, and boosting government borrowing in the long term, the foundation said Monday.

“The world we are heading for is a bumpy few weeks,” Bell told Sky News. Kwarteng “is now going to have quite a tough time because he has now set out plans to balance the books in November. That is going to be very hard.”

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Lifeline for locals seeking specialist medical services – Chronicle

The Chronicle

Leonard Ncube , Victoria Falls Reporter
ZIMBABWEANS seeking specialised healthcare outside the country especially in India could get a lifeline as a Botswana health institution Francistown Academic Hospital (FAH) is seeking partnerships with local health service providers for locals to get medical help in the neighbouring country.

Over the years, many Zimbabweans have been referred by doctors to India for specialist surgeries.

The common surgeries people travel to India for include open heart and liver surgery, cardio and vascular surgery, kidney transplant, neurosurgery, radiation surgeries and intestines laparoscopic among other services.

Some people have died after failing to raise money for transport, accommodation, food and surgery running into thousands of United States dollars.

Few that have been lucky have been assisted by well-wishers to raise the money.

Government is encouraging partnerships in the health sector while efforts are also being made to come up with a National Health Insurance towards a universal health service.

FAH is a subsidiary of Indus Healthcare in India, a one-stop medical facility with a variety of services, most of which are demanded by Zimbabweans.

FAH has partnered the Association of Health Funders Association of Zimbabwe (AHFoZ) in an effort to work with local health care service providers to improve access to health services for Zimbabweans.

The organisation attended the recent AHFoZ annual conference in Victoria Falls where Deputy Minister of Health and Child Care Dr John Mangwiro, who was representing Vice-President Dr Constantino Chiwenga as guest of honour, said such a partnership will be beneficial to Zimbabweans.

Acting President Constantino Chiwenga

“This is interesting and will reduce costs for our people who go out of the country to seek medical services especially in India,” said Dr Mangwiro during a tour of exhibition stands where FAH was exhibiting.

FAH business development and marketing manager Mr Nonofo Brian Molatlhegi said Zimbabweans will be able to use their medical aid if the organisations strike deals with local schemes.

“This is a subsidiary of Indus Group with six hospitals in India and we facilitate treatment or make payment terms for clients in Francistown instead of going to India.

“We offer a wide range of services where pre-operation procedures will be done in Francistown and if need be the patient will be airlifted to India but reviews and follow-up surgeries will be done in Francistown where patients get the same help they would have gotten if they were in India. This is a win-win situation as people will save on money and will be able to save life,” said Mr Molatlhegi.

The Government of Botswana is an equity partner in the hospital.

Mr Molatlhegi said instead of patients flying to India, FAH can also fly Indian doctors to Francistown.
Most people who travel for treatment in India are accompanied by a relative who will be taking care of them and that increases costs.

“This is what we are selling to Zimbabwean medical providers that clients should not go to India where they are unknown. When there are many clients we collect the cases and fly doctors to Francistown to do surgeries. The patients share the cost of flying a doctor and that will be cheaper than going there individually,” Mr Molatlhegi.

FAH was opened in 2020 and targets the Angola, Botswana, Zambia and Zimbabwe markets and Zambia before spreading to the whole continent.

AHFoZ is a member of Health Funders of Southern Africa and International Federation of Health Plans in UK as the health sector continues to strike partnerships. [email protected]

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Parly and ZELA draft laws to curb illicit financial flows – New

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By Thobekile Khumalo

PARLIAMENT, in partnership with Zimbabwe Environmental Law Agency (ZELA), is working on crafting laws to curb illicit financial flows (IFF) manifested by loopholes in policies contributing to the crippled economy and underdevelopment in the country.

IFFs worsen poverty and are mainly exacerbated by the mining sector where gold is not submitted to Fidelity Gold Refineries but sold to the black market that offers a higher rate. This has necessitated the formalisation of small scale and artisanal miners as a way of preventing resource leakages.

In an interview with the vice chairperson of Africa Parliamentarians Against Illicit Financial Flows, Member of Parliament (MP) Vimbai Matevere said as law makers they should make sure they do not only enact legislation, but give solutions to problems.

“As Parliament we’re not only suppose to create laws but also be giving solutions so that we make our country go forward. So, here we are discussing about illicit financial flows because it cripples the economy.

“The moment that we have a lot of illicit financial flows going out of the country, we realise it reduces the amount that we’re supposed to have as a country.

“Our revenue collection then reduces from the intended ways that we want it to,” she said.

Matevere said they are working on certain laws that are able to curb illicit financial flows.

“We need to appreciate that there are certain sectors in the economy which include mining, tourism and agriculture which are the bases of National Development Strategy 1 (NDS1) and when we look at them we need to find out ways for them to become effective,” she said.

She added: “We are also talking about formalising gold mining, especially that is now small scale miners, it’s a matter of us having some cultural mindset which makes it important to understand why it is important to formalise the artisanal and small scale miners.

“We need to understand their contribution to economic development and we also need to appreciate that its also important for us to have a holistic approach so that we understand that it will go from generation to generation because we understand that land is an infinite resource and also the same with the mines and also the minerals that we have.

“We need to understand that we create mechanisms that make us be able to sustain our operations going forward as a country. So these are some of the objectives that also made us be able to get here.”

According to a 2013 African Development Bank report, Zimbabwe had lost a cumulative US$12 billion in the last three decades through lFFs, ranging from opaque financial deals to tax avoidance and illegal commercial activities.

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