/ 20 April 2013

SA holds Zim fate in its pocketbook

Sa Holds Zim Fate In Its Pocketbook

Despite the potential risk of lending Zimbabwe R900-million, analysts believe financial aid that comes with strict conditions from the South African government could help to bring stability to our cash-strapped neighbour.

The treasury offered no denials to media reports on the loan, saying instead that it could not comment on "ongoing" talks.

It appears, however, that conditions to the loan are a main focus of negotiations between the countries. "South African and Zimbabwean authorities are engaged in ­ongoing discussions around the terms and conditions pertaining to a loan ­facility through the respective reserve banks, aimed at increasing liquidity in the financial markets and offering longer-term loans to small and medium-size enterprises," ­treasury spokesperson Phumza Macanda said on Wednesday.

On Monday, Zimbabwe Finance Minister Tendai Biti was widely quoted as saying he was aware the South African Cabinet had made a "positive" decision on budgetary assistance for the country.

The South African government responded to media speculation saying that talks were still ongoing. Cabinet may make public its decision at the end of the week.

After Biti wrote to the South African and Angolan governments asking for a reported $150-million, he met with Finance Minister Pravin Gordhan in September last year to discuss financial aid.

Empty state coffers
Zimbabwe is expecting to hold elections this year but is struggling with empty state coffers, and tensions within the unity government run by Morgan Tsvangirai's Movement for Democratic Change and Robert Mugabe's Zanu-PF remain.

The possibility of aid, however, goes back as far as 2009 when South Africa agreed to explore "support measures" for Zimbabwe under its short-term economic recovery programme. These included budgetary support grants, a line of credit and export credit facilities for Zimbabwe.

No firm decision came from September's meeting, except an agreement to consider "a line of credit" as well as further budgetary support for Zimbabwe.

In a joint statement from the ­ministers, Zimbabwe's continued "significant economic constraints" were highlighted, including "cash flow challenges arising from revenue collections that are below target, a high debt over-hang, an uncompetitive business environment, infrastructural deficits and limited access to lines of credit for business".

Analysts have posited that the South African government could use conditions attached to the loan to push for greater democratic reforms from Zimbabwe's leaders, helping to bring further stability to the country.

It could also be used to shore up the position of South African companies that face the wrath of Zimbabwe's tough indigenisation policy. The law requires foreign companies to transfer 51% of ownership to local Zimbabweans.

 "Given South Africa's desire to play a leadership role and be a stabiliser for the region, such financial support is good in principle, especially if the government can set conditions that would increase South Africa's leverage in Zimbabwe, as well as gain long-term commercial benefits including ensuring favourable treatment for South African companies in that country," said independent political analyst Mzukisi Qobo.

It would be expensive for South Africa in the long run to be non­committal with its neighbours, Qobo said, because it was affected, through increasingly porous borders, by hardship and political uncertainty in Zimbabwe.

According to Dawie Roodt, the chief economist at the Efficient Group, the loan was a political question rather than a budgetary issue for the South African government.

The facility would likely be set up between the South African Reserve Bank and its Zimbabwean counterpart, utilising foreign exchange reserves, with no implications for South Africa's budget, he said.

Zimbabwe was "a risky place", and no loan should be extended without very strict conditions, said Roodt. "The rest of the world is imposing sanctions on Zimbabwe and we are lending them money."

When it came to key indicators of wealth and wellbeing, such as gross domestic product per capita and life expectancy, Zimbabwe's economy had been knocked back to levels last seen in the 1950s thanks to misrule, said Roodt.

Opposition parties have also questioned the proposed lending plan and called for clarity on the motivation for the loan, the terms of repayment and whether any conditions will be attached.

Ian Davidson, the Democratic Alliance's spokesperson on international relations and co-operation, said the loan should not be extended without "strict preconditions".

These included commitments to electoral and media reforms ahead of the upcoming elections, assurances that the loan would not be used to fund Zanu-PF's election campaign, commitments that political reforms required by the Southern African Development Community be implemented and putting in place measures to ensure free and fair elections.