Time for private sector to take up innovation

“FOR the first time in 25 years, African markets are set to contract and African governments will need an estimated US$150 billion to cover the fiscal gap created by Covid-19.

In response, the African Development Bank (AfDB) has launched a bold US$10 billion facility and an unprecedented US$3 billion social bond,” according AfDB president Dr Akinwumi Adesina.

With foreign credit lines for the country largely remaining elusive, Zimbabwe has to focus on achieving the most optimal mix of financing for quick recovery and sustainable development.

This has to be necessarily based on local resources.

However, there are still available avenues such as the recently announced US$10 billion stimulus package by the AfDB.

The package is comprehensive and covers both the public and private sector.

The local private sector has a significant role to play to achieve a quick economic turnaround.

Role of the private sector

The private sector must not limit itself to benefit from only the $18 billion local stimulus package announced by the Government.

This package is mainly short term and should be regarded as a starting point.

The private sector must innovatively develop long-term plans that begin now and pivot from the local stimulus package.

There is an opportunity to raise lines of credit from others sources, including on the continent.

Amongst the continental financial development institutions, the AfDB has adopted a leading role.

Afreximbank, the PTA bank and other regional development finance institutions such as the Development Bank of SA or the Industrial Finance Corporation are also critical.

The need for retooling and plant modernisation is now acute and the current environment provides players with the opportunity to look ahead and identify areas of growth in line with the new norm.

The global value chains are set to be significantly different.

In fact, Africa as a whole stands to benefit from the double incidences, being the Covid-19 outbreak and Brexit.

While the continent is set to become the next frontier, Zimbabwe in particular and its industry need to position well based on its best comparative advantages (These include labour and skills, climate, land and minerals and heritage sites). Some countries have already initiated notable movements.

Examples include:

◆ Localisation of manufacturing PPEs, including the production of ventilators (South Africa), face masks and sanitisers (Kenya and to some extent Zimbabwe), use of drones to assess and survey the country on monitoring lockdown compliance and testing areas (Ghana & Rwanda). ◆ Need to invest and grow a quality health defence system infrastructure.

Africa has already experienced and must draw lessons from the SARS, H5, AIDS, EBOLA and now Covid-19 pandemic.

Zimbabwe must take leadership on the development of primary, secondary healthcare and pharmaceuticals industries.

◆ Innovation on developing climate smart agriculture and related industrial value chains that lead up to the textiles and clothing manufacturing, support of food chain and achieve food sufficiency.

◆ Growth of the mining sector and proper finance houses for equipment.

Role of the financial sector

The financial sector in the country has become narrow, thin and lacks depth and innovation.

The banking sector in particular has become plain. The sophistication that was developing in the 199o’s has vanished.

The banks in the country have actually led in dis-intermediation and now rely on charges and fees for income.

As a result, there are no discount houses, there are no merchant banks, no proper finance houses or real savings institutions.

In fact the agricultural industry, for instance, is now dominated by shadow banking activities led by merchants and contractors.

For the above strategy to work, the country must return to proper intermediation institutions and therefore the banking sector in particular must rise to the occasion.

Credit growth to the private sector has seriously lagged behind Government credit and this speaks volumes to the monetary authorities and Treasury. The financial sector must take a lead in facilitating access to packages such as those being set up by the AfDB.

They must come up with innovative product development that aligns and promotes opportunities in ◆ Stimulating value and supply chains and localising manufacturing

◆ Reinforcing regional institutions relationships to build long-term funding capacity

The role of Government

The Government has commendably led from the front in the fight against the Covid-19 pandemic. It has put in place a stimulus package.

Its role must now just be limited to ensure it does not harm the fiscus through its various arms. It must cap its borrowings that are crowding out the private sector.

The Government must now completely lift all controls on market forces, including allowing the central bank to play an independent role.

It must now focus on the development of a suitable business environment by instituting suitable laws that protect innovation and private property.

Furthermore, it must now enhance processes and access by digitising its operations, including customs, intensify fight against corruption and achieve social stability.

In turn, the central bank must liberalise the market and adopt a more consistent policy drive. Some of the inconsistencies have contributed to reducing the levels of sophistication of the financial sector due to the difficulties in planning. In tandem, industry has borne the brunt of a weak financial sector.

◆ Misheck is a former expatriate banker once based in several SADC countries and currently works as a corporate advisory services consultant. He is the founder of Rucabel Investments Private Limited, an investment company based in Zimbabwe. He is a member and past vice president of the Zimbabwe Economics Society. He can be contacted on misheckugaro@hotmail.com, Linkedin: https://www.linkedin.com/in/misheckugaro and Twitter: @twitcagan.com