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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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S biyam executive director baz

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


S biyam executive director baz

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


Real gdp growth yoy

Real GDP Growth (yoy%)


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


S biyam executive director baz

2011 Deposits Structure

Over 90% of Deposits are Short Term


Sectoral credit distribution

Sectoral Credit Distribution


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 greenfield projects

Mining Greenfield Projects


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:


The golden opportunity surging gold prices since 1995

The Golden Opportunity……..Surging Gold Prices since 1995


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


Green field mining projects capital intensive industry

Green Field Mining Projects ……….capital intensive industry


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


Thank you

THANK YOU


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