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S. Biyam Executive Director: BAZ

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Access to Capital Recapitalization & Greenfield Projects. S. Biyam Executive Director: BAZ. Contents. Introduction Recent Financial Developments Capital Requirements By Industry Agriculture Manufacturing Mining sector Financing Requirements Greenfield Projects Concluding Remarks.

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slide2

Access to Capital

Recapitalization & Greenfield Projects

S. Biyam

Executive Director: BAZ

contents
Contents
  • Introduction
  • Recent Financial Developments
  • Capital Requirements By Industry
    • Agriculture
    • Manufacturing
    • Mining sector Financing Requirements
  • Greenfield Projects
  • Concluding Remarks
introduction
Introduction
  • Economic Developments
    • Economy broadly in recovery
      • Low and stable inflation
      • Positive real GDP Growth (9.3%) in 2011
      • Banking sector deposits growth
      • Fiscal Revenue growth
      • Slow capacity recovery
      • Steady Growth in aggregate demand (Retail Sales)
      • Measured progress in infrastructure Rehabilitation
slide5

Introduction

2012 Inflation Forecasts………

inflation forecasts
Inflation Forecasts
  • Inflation is likely to be in the range of 4-5% in 2012
  • Inflation has remained low and stable since dollarization
  • Allows for savings , investment and business planning
  • Hence steady (uneven) business capacity recovery
sectoral gdp growth rates
Sectoral GDP Growth Rates
  • Total GDP growth 9.3%
  • Of which
    • Agriculture 7.4%
    • Mining 25.8%
    • Finance and Insurance 24%
    • distribution and tourism 10.3%
    • and manufacturing 3.5%
    • 2012 growth is projected at 9.4%, but is likely to moderate to reflect among other things current liquidity challenges.
introduction1
Introduction

But, the economy continues to face serious challenges

  • Liquidity – (few lines of Credit);
  • Structural challenges – low savings & Investment;
  • Low capacity utilization;
  • Energy & Power shortages;
  • Jobless recovery (slow jobs formation);
  • Uncertain Business Environment
    • Perceived Sovereign risk issues.
    • Outstanding external debt arrears
recent monetary developments
Recent Monetary Developments
  • Banking Sector Financing capacity is a function of intertwined factors:
    • Domestic deposits growth and
    • Credit lines
    • Exports growth
  • Total deposits in 2011 grew by 41% to US$3.25 billion.
  • 90% of deposits are short term
monetary developments deposits growth us millions
MONETARY DEVELOPMENTSDEPOSITS GROWTH (US$ millions)

SOURCE : RBZ MONETARY POLICY STATEMENT, January 2012

slide12

2011 Deposits Structure

Over 90% of Deposits are Short Term

utilization of bank credit
Utilization of Bank Credit

2011 Utilization of Bank Credit by Purpose

  • Source: RBZ MPS July 2011
utilization of bank credit1
Utilization of Bank Credit
  • About 7% of bank credit is committed towards capital expenditure by the private sector
  • This highlights the acute capital deficit conditions of the country and the need for urgent remedial measures
banking sector conditions
Banking Sector Conditions
  • Tight Liquidity Conditions
    • Since December 2011, Delayed Payments Settlement across most banks
  • Absence of interbank market
  • Limited interbank trading instruments
  • Slow Deposits Growth
  • Transitory deposits
capital financing requirements
Capital Financing Requirements
  • Agriculture
  • Manufacturing
  • Infrastructure
  • Mining
  • Other sectors
agriculture financing requirements
Agriculture Financing Requirements
  • Agriculture Financing Requirements exceed a $1 billion annually in respect of Crop Financing.
    • Land Preparation
    • Seeds & Fertilizers
    • Fuels & Utilities
    • labour
manufacturing
Manufacturing
  • CZI has highlighted that industry requires as much as $2 billion to recapitalize.
    • Factory re-tooling
    • New Equipment & Technology
    • R & D (New product development)
    • New Markets
infrastructure development
Infrastructure Development
  • Substantial Financing Requirements:
    • Energy & Power
    • Roads & Railways
    • Water and Sanitation
    • Airports, Universities, Hospitals
    • Irrigation & Dams
financing greenfield projects
Financing Greenfield Projects
  • Greenfield Projects require special financing because of their unique status
  • Typically Greenfield Projects are:
  • Capital hungry (particularly in mining)
  • High risk with uncertain outcomes
  • Require Longer term financing
  • Open new frontiers for innovation and technology
  • Venture capital financing
mining financing requirements
Mining Financing Requirements
  • Current estimates show as much as US$5 – US$6 billion recapitalization requirements over the next 5 years.
    • Gold (US$1 billion)
    • Platinum (US$1.2 billion)
    • Nickel (US$110 m)
    • Chrome (US$118 m)
    • Diamonds (US$339 m)
    • Coal (US$225 m)
  • Mining requires over substantial resources for capitalization:
opportunities in mining
Opportunities in Mining
  • Zimbabwe has over 40 different minerals – Green Field mining Projects
  • Major Minerals are:
    • Platinum (45%)
    • Gold (24%)
    • Diamonds (14%)
    • Chrome
    • Coal
    • Nickel
mining financing requirements1
Mining Financing Requirements
  • Growth in the medium to long-term can only occur with additional investment in the sector.
    • There is need for:
      • exploration financing;
      • expansion of current projects; and
      • Greenfield Projects & new mines development
  • Infrastructure development is key
    • Power and energy
    • Efficient transport systems (railway networks)
    • Beit Bridge Boarder Post chaos
project funding cycle
Project Funding Cycle

Lower risk, lower reward

High risk, high reward

typical cost of a large scale mine over its life
Typical cost of a large scale mine over its life

Gross outlay to get a mine to production up to $315m and up to 12years

role of fdi in financing mining
Role of FDI in Financing Mining
  • Long Term Funding is key for sustained mining sector growth
  • Venture Capital Financing
    • High risk/ high return
  • Shareholders Equity
  • Debt Financing
  • Structured Financing
  • Syndicated Loans
what is required
What is Required?
  • Political and Macroeconomic stability
  • Genuine Domestic stakeholder Engagement
    • Stakeholder Consensus driven Policies
  • Genuine External Stakeholder Engagement
    • External Debt and Arrears
    • Visible Investment Promotion
  • Secure Tenure; Investment security
  • Policy consistency
  • Conducive Investment Environment.
concluding remarks
Concluding Remarks
  • At present, the banking sector in Zimbabwe cannot meet national financing requirements, let alone financing Greenfield Projects
  • Access to capital is key for growth
  • Size matters in financial affairs - For a small open economy with low domestic savings, FDI is critical for growth
  • Improving the investment environment becomes an integral part of proactive economic development policy
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