THE Reserve Bank of Zimbabwe (RBZ) was engaging banks to reduce interest rates on loans to stimulate production across various sectors of the economy, Vice-President Constantino Chiwenga has said.
Speaking at the official opening of the Zimbabwe International Trade Fair (ZITF) business conference in Bulawayo yesterday, Chiwenga said interest rates should be reduced to encourage production in the manufacturing sector.
“Government is prioritising the resuscitation of closed, ailing and the opening of new industries in Bulawayo and across the country,” he said.
“As you may be aware, most companies are now shells with old and antiquated equipment, resulting in inefficient production.”
Chiwenga said it was important to recapitalise industries through collaborative efforts between the government and the private sector.
“The government has taken a number of steps to assist the local manufacturing industry by facilitating a number of facility frameworks such as Afreximbank,” he said.
“The Reserve Bank of Zimbabwe has also engaged the Bankers’ Association of Zimbabwe to reduce interest rates on loans for productive purposes.”
Interest rates are capped at 12% per annum and are considered high compared to other countries in the region.
Just last month, South Africa’s central bank cut interest rates to a two-year low of 6,5%.
Interest rates have been cited as one of the impediments deterring firms from borrowing to finance working capital requirements.
“The success of the reindustrialisation agenda requires that our industries are competitive both in the regional and international markets,” Chiwenga said.
“The essence is to invest in inefficiency manufacturing processes that will give us a competitive edge on the global markets in terms of product pricing.
“Once we become competitive, the growth possibilities of our manufacturing sector can be achieved.”
In his January 2017 monetary policy statement, central bank governor John Mangudya capped lending rates to 12% per annum and 3% for bank charges that include application fees, facility fees and administration fee, which went into effect on April 1.
Mangudya said this was to make lending cheaper for producers in order to capitalise with the goal of exporting products.
In the Confederation of Zimbabwe Industries manufacturing survey, 70% of the respondents said financial products for the manufacturing sector should have low interest rates and reasonable terms to match.
The industries that experienced the most difficulty in accessing finance from banks in the survey were producers of chemicals and petroleum products, wood and furniture, metal and metal products, clothing and footwear, and non-metallic mineral products, among others.
Players have also called for an introduction of grace periods for recapitalisation loans and extensions on payment periods beyond five years with a view that each sub sector should have tailored made lending options.
Chiwenga also urged local industry to take advantage of free trade agreements that the government would have signed.
“Therefore, I call upon business to take advantage of these initiatives and venture into untapped opportunities that are being created by these mega trade agreements,” he said.
“Government is also currently seized with harmonising investment laws and regulations to attract foreign investment.
“We are capacitating the one-stop stop investment centre in order to reduce the bureaucracy and red tape.
“Government is also intensifying implementation of ease of doing business reforms another important variable form to our re-industrialisation.”
The government is in the process of ratifying the Africa Continental Free Trade Agreement.