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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
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
Introduction
2012 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
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-10
-15
-20
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%
Real GDP Growth (yoy%)
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10
5
0
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.
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
• 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)
SOURCE : RBZ MONETARY POLICY STATEMENT, January 2012
2011 Deposits Structure
Over 90% of Deposits are Short Term
Sectoral Credit Distribution
Utilization of Bank Credit
Capital
Expenditure, 7.2
%
Pre & Post Shipment , 2.2%
Raw Materials &
Restocking, 42.6
%
Recurring and
Consumer
Durable, 48.0%
2011 Utilization of Bank Credit by Purpose
• Source: RBZ MPS July 2011
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
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
Agriculture
Manufacturing
Infrastructure
Mining
Other sectors
Agriculture Financing
Requirements
• Agriculture Financing Requirements
exceed a $1 billion annually in respect
of Crop Financing.
–
–
–
–
Land Preparation
Seeds & Fertilizers
Fuels & Utilities
labour
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
Substantial Financing Requirements:
Energy & Power
Roads & Railways
Water and Sanitation
Airports, Universities, Hospitals
Irrigation & Dams
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 Financing Requirements
Mining requires over substantial
resources for capitalization:
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)
The Golden Opportunity……..
Surging Gold Prices since 1995
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
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
27
Project Funding Cycle
Lower risk, lower
reward
Corporate
Lending
High risk, high
reward
Venture
Capital
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Project
Finance
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
Exploration
Construction
Ramp-up
• 3-7 years
• Shareholder funded
• Extremely high risk
• Cost: $10-15m
• 2-3 years
• Shareholder funded
• Very high risk
• Cost: $20-200m
• 2 years
• Debt/Equity funded
• High risk
• Cost: $10-100m
Operation
Wind down
Closure
• 15-20 years
• Debt/equity funded
• Moderate risk
• Benefit: $0-100m
• 5 years
• Debt/equity funded
• Moderate-high risk
• Benefit: $0-100m
• 3 years
• Equity funded
• Moderate-high risk
• Cost: $5-100m
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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?
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
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