CDC Group, a British development financier, and Standard Chartered Bank announced their collaboration to launch a US$100 million finance facility to support growing businesses in the agriculture, food processing, and manufacturing sectors.
The capital will be used by these businesses to meet their day-to-day financing needs, and for capital expenditures to grow their businesses, create jobs, and improve the country’s general economic strength.
Through the five-year facility CDC and Standard Chartered will share the risk associated with possible defaults on loans originated by Standard Chartered Bank Zimbabwe, the oldest banking institution in the country.
“Our agreement with Standard Chartered will enable them to provide vital foreign currency lending to some of Zimbabwe’s most dynamic businesses, creating jobs and opportunity,” said Nick O’Donohoe, CEO of CDC. “Our support will not only enable local companies to access finance in hard currency, but will demonstrate to commercial investors that the economic environment is ready for further financing.”
Rebirth Through Agriculture
This commitment reflects the largest investment in Zimbabwe’s private sector in years, and comes at a critical junction for the country.
After 37 years under the disastrous leadership of President Robert Mugabe, Zimbabwe’s economy fell into collapse, hyperinflation decimated the value of the Zimbabwean dollar, land ownership rights were in disarray, and local banks were left unable to back the capital needed by the country’s critical industries such as agriculture in order to grow.
Once considered the “breadbasket of southern Africa”, Zimbabwe began to experience a decline in agricultural production, food shortages, and declines in income, despite having a bank of fertile agricultural land.
Mugabe undertook a system of land redistribution that saw some 4,000 white-owned farms be appropriated and taken over by his supporters, most of which had no experience in agricultural production. The resulting collapse of agricultural output had a domino effect, leading to the collapse of many dependent industries including leather tanners, textile manufacturers, and clothing producers, reports Reuters. This in turn killed the country’s ability to earn foreign money, forcing its central bank to print more currency – a disastrous move for the country’s economy.
However, conditions are changing. Mugabe resigned his position in November of last year after his ZANU-PF political party and the country’s military turned against him, making way for new leadership under Emmerson Mnangagwa, who has promised reforms that include offering 99-year land leases to commercial farmers as a way to reinvigorate the country’s ag sector.
“We are convinced positive signals will come quickly in terms of property rights,” Ben Purcel Gilpin, director of the Commercial Farmers Union (CFU), which represents white and black farmers, told the Thomson Reuters Foundation in January of this year. “It would send a good signal to people outside Zimbabwe.”
“Zimbabwe’s economy has been shattered over the last two decades, yet holds real potential for future growth,” said O’Donohoe. “CDC is taking a lead within the investment community in showing its support for economic development. If a new government in post-election Zimbabwe encourages investment and pro-business policies, Zimbabwe can be one of the great investment success stories of the next decade. What the country needs is patient capital, and it needs it now.”
Indeed, this is not the first capital commitment by CDC to Zimbabwe’s agriculture sector. In 2013 the group invested US$23 million (nearly half the total fund) with Takura, a domestic investment fund focused on supporting SMEs working in the food and agri-processing sectors. This commitment to backing the resurgence of Zimbabwe’s economy was echoed by British foreign secretary Boris Johnson, who the Financial Gazette reports stated in February of this year, “I am encouraged by President Emmerson Mnangagwa’s words so far. During his inauguration speech, he promised to reform the economy and give investors the security of title they need if Zimbabwe is to fulfill its potential and create the jobs that are sorely needed. For as long as the President acts on his words, then Britain is willing to work alongside him and offer all the support we can.”
-Lynda Kiernan