Banks continue to fleece clients
National Economic Consultative Forum, instructed and funded by the Ministry of Finance and Economic Development and its development partners.
The study concluded that even the most profitable companies in Zimbabwe may not earn returns enough to cover the cost of such punitive borrowing from the local banks.
“This cost directly affects the demand for bank loans and subsequently on how goods and services are priced in the economy.”
While Kenya and Zambia were found to also have high lending rates, standing at 18,08 percent and 19,5 percent respectively compared to Botswana (7,5 percent) and Mauritius (8,5 percent), interest rates in Zimbabwe are regarded too steep for a country that uses stronger currency, US dollar.
“Zimbabwe’s costs are in real terms compared to comparator countries whose interest rates are charged in local currencies whose value to the dollar fluctuates with any changes to the exchange rates,” the draft report by NECF noted.
The high lending rates are attributed to poor credit of the country (credit rating institutions), lack of investment vehicles in Zimbabwe (Government bonds), the political risk attached to the country, levels of Non-Performing Loans (higher than in the region) and problems with the collateral mechanism.
Generally, factors often cited for hindering business viability in Zimbabwe are high cost of borrowing, tight liquidity, outdated technology, use of old plant and machinery, declining agriculture output, low aggregate demand, electrical power outages and competition from cheap imports.
Government has since broadly responded to some of the issues constraining investors through policy reforms aimed at improving the ease of doing business environment to attract investment, which would address factors at micro level.