Zim $200 bn facility to rescue business sector

Zimbabwe has set up an ambitious Zim $200 billion (about US $35.6 million) loan facility to breathe life into the country's struggling businesses. The Zimbabwe Development Bank (ZDB) and the Small Enterprises Development Corporation (SEDCO) have been appointed to handle and disburse the funds, which are expected to target companies facing economic hardship, particularly those close to bankruptcy or operating below capacity. To qualify for a loan, companies should have the potential to generate foreign currency and create jobs. They are also expected to promote local ownership and improve production capacity. A statement released by the ZDB suggested that the money be channelled into working capital, refurbishment of existing equipment and the acquisition of additional machinery and equipment. The ongoing shortage of foreign currency has forced many companies to suspend imports of spare parts and new equipment. Since Zimbabwe's economic troubles began almost four years ago, thousands of employees have been retrenched, while others were sent on forced leave as businesses grappled with spiralling operating costs. According to the Confederation of Zimbabwe Industries (CZI), more than 750 companies have closed down since 2002. Manufacturers are burdened with rising production costs, persistent fuel shortages and regular power cuts. At the same time, markets for their products have suffered a major contraction because of shrinking disposable incomes. The imposition of price controls and a depreciating currency caused major manufacturers to suspend exports. The International Monetary Fund (IMF) has said the central bank should stop bailing out companies with cheap money initiatives because such schemes promote inflation, which now stands at 314 percent. The central bank has said it will struggle to bring this down to 200 percent by December. It would be difficult for companies to retire their debts from the loan facility, as some of them were already battling to pay back the productive sector facility (PSF), set up earlier in the year by the central bank, economists told IRIN. The PSF offers loans at 50 percent interest, while minimum lending rates are pegged at around 200 percent. According to economist John Robertson, "Manufacturers that borrow money will not be able to pay the money back. That is why commercial banks are reluctant to lend them money."