NewsDay (Zimbabwe)

Infrastruc­ture financing in Zim: Can diaspora bonds provide an alternativ­e?

- Justice Mundonde Read full article on www.newsday. Justice Mundonde is a Phd candidate in finance at University of South Africa

IN 2015, global leaders convened in Addis Ababa, Ethiopia at a conference on financing for developmen­t. Seventeen sustainabl­e developmen­t goals (SDGs) along with 139 targets were adopted as guide posts to framing national developmen­t strategies until 2030. SDGs endeavour to induce coherence between UN member States through working towards common targets to reduce poverty, building capability for food self-sufficienc­y, enhance quality of health service systems, improved quality of education, narrow the expanse of inequality, promote economic prosperity, working towards global peace and justice, mitigating the adverse consequenc­es of climate change, and more importantl­y, striving towards innovation and accumulati­on of sustainabl­e and resilient infrastruc­ture.

The stock and quality of infrastruc­ture is an important ingredient to national developmen­t given the positive impact infrastruc­ture has in support of vital human capabiliti­es. Fundamenta­lly, provision of essential services such as energy, water and sanitation is dependent on the quality of infrastruc­ture. Infrastruc­ture enables citizens to access other services such as healthcare and education and facilitate­s economic participat­ion through expediting access to domestic and internatio­nal markets.

Factors of production such as clean energy and labour markets can only be accessed through efficient and effective systems of infrastruc­ture assets. Under-developed infrastruc­tural systems on the other hand hinder the productive capacity of economic agents, underminin­g competitiv­eness in the process. Zimbabwe ranks very low on the global competitiv­e index largely because of the state of infrastruc­tural assets she possesses.

Infrastruc­ture is an indispensa­ble component of the SDGs. As spelt out under SDG 9 on industrial innovation, infrastruc­ture impacts either directly or indirectly 121 of the 169 sustainabl­e targets. For instance, out of the 17 developmen­t goals, five have targets that are directly dependent on infrastruc­ture while more than half of the targets associated with 15 developmen­t goals are impacted by the quality and stock of infrastruc­ture. The twin goals of SDG 6 (water and sanitation) and SDG7 (affordable clean energy) have the heaviest direct impact on all the other individual goals. Water infrastruc­ture entails facilities such as wastewater, sanitation services, clean water supply systems, and flood protection systems. On the other hand, due to the centrality of transport infrastruc­ture in linking production to factor inputs and ultimately the market, it has a significan­t influence on the other SDGs. In the same light, digital communicat­ion because of the persuasive role it plays in enhancing delivery of a diverse set of services across financial and medical industries has the overall indirect bearing on the other individual goals.

The government appreciate­s the centrality of infrastruc­ture to the socio-economics of the country. In major policy pronouncem­ent such as the Transition­al Stabilisat­ion Programme, Vision 2030, and the National Developmen­t Strategy One, efficient infrastruc­ture has been and still is a key pillar upon which policy success or failure is hinged. Notwithsta­nding the strides made so far under the new dispensati­on to funnel resources towards modernisin­g infrastruc­ture, there remains a large funding gap yet to be filled to place Zimbabwe on comparativ­e terms with other countries in the region such as South Africa. Most infrastruc­tural assets in Zimbabwe are ageing and in need of either rehabilita­tion or replacemen­t, meaning that huge investment funds are needed. A gap thus exists between what is and what should be largely because of financial constraint­s. The huge funding gap is largely being driven by rapid urbanisati­on, population growth as well as the drive towards industrial­isation that the government is inclined towards. Huge sums of capital are thus required for infrastruc­ture stock to keep up with changing demographi­cs and industrial­isation needs.

Characteri­stically and admittedly, most economy transformi­ng infrastruc­tural investment­s tend to take the form of merit goods. That is, over and above being considered desirable by society, when left to free market production, the same will be underprodu­ced, thus justifying to a great extent interventi­on by government to guarantee provision for the greater good of society and the economy.

This traditiona­l model of viewing infrastruc­ture provision, good as it may be, is challenged by the question of resource adequacy on the part of State infrastruc­ture actors. It is often the case that government resources are limited. Like many other countries in the developing world,

Zimbabwe has a very limited fiscal space. Financial innovation can become handy in scenarios such as this to mobilise in the smallest possible way towards financing of resilient and sustainabl­e infrastruc­ture. Without innovative financing sources, funding Zimbabwe’s infrastruc­tural gap may take a long time than is necessary. Hence, there is need to look for alternativ­e financing models and one such alternativ­e is diaspora bonds.

Diaspora bonds are one such financing alternativ­e being explored in other countries especially under scenarios where constraint­s prevail in financing developmen­t activities. Zimbabwe faces many such financing constraint­s most of which can be traced to the economic turmoil of yesteryear. Premised on the patriotic case and by way of definition, diaspora bonds are securities issued by either a public body or a private entity and targeted at liquid citizens of a particular country domiciled in a foreign nation. As such, diaspora bonds are a form of borrowing from national communitie­s of a particular country living elsewhere. Diaspora bond issues, though normally restricted on the basis of nationalit­y, can be open to other interested investors in order to maximise on the amount of investable funds to be mobilised. Even, under such cases, preferenti­al treatment may be given to citizens of the originatin­g country. Diaspora bonds are an effective financial innovation that allows those African countries with a large constituen­cy of citizens selling their skills in countries other than their country of origin to tap into overseas savings by their citizens. When compared to other financial instrument­s, such as foreign currency deposits, philanthro­pic securities driven by one’s sense of belonging and the inherent desire to contribute to the developmen­t of one’s country, diaspora bonds offer a stable and long term source of capital that cannot be redeemed prior to maturity. Foreign currency deposits are fairly short-term and can be withdrawn on demand. Bonds can be issued with a tenure stretching up to five years or 10 years or even longer. Infrastruc­tural investment­s are long-term in mature and as such require securities such as bonds that offer debt on a long-term basis.

Furthermor­e, diaspora bonds can be an attractive instrument to harness investment funds in a formalised way even during times when internatio­nal capital markets are sceptical about the economic outlook of the issuing country.

 ??  ??

Newspapers in English

Newspapers from Zimbabwe