INVESTORS are avoiding plunging into foreign currency-challenged African nations as they fear barriers to repatriating profits and dividends, an expert said.
The revelation comes at a time when Zimbabwe is in desperate need of investment as the country has a capital requirement of at least $40 billion and has debt estimated at over $20 billion.
In an interview with NewsDay Business on the sidelines of the annual meetings of the African Development Bank in Kenya on Monday, the regional head of the World Bank’s Multilateral Investment Guarantee Agency, Nkem Onwuamaebgu, disclosed that investors want markets where they can take their money.
“This is not an understatement or an understatement. But if you are an incoming foreign investor, you are looking for hard currency. You raise funding in hard currency. You generate income in local currency but then you have to distribute the investment income in the form of dividends,” said Onwuamaebgu.
“You have to be able to convert your local currency into hard currency in order to make that investment repatriation to serve your investors. If you can’t find the foreign currency, if you have the local currency and you basically can’t convert and transfer, then you can’t meet that commitment.”
He said many investors wanted to invest in hard currency, knowing they would be able to repatriate when needed, but that it was becoming increasingly difficult.
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“It’s gotten worse since COVID-19 and after the wars started in Europe. With the disruption of the supply chain, the cost of financing has increased and all these factors have now contributed to the fact that many of our countries in Africa are truly over-indebted,” said Onwuamaebgu.
“So even if they haven’t taken on new funding, the funding they already have is much more expensive. Thus, they are using even more of their scarce foreign exchange resources to repay and keep their existing debt profile up to date and this has effectively limited foreign exchange for other activities.”
He added that the group has also seen an increase in foreign currency challenges.
“So it’s actually gotten worse, and the long-term impact is that if those investments are based on their ability to achieve that kind of mitigation, then those investments will go forward. And that is kind of a shame,” Onwuamaebgu said.
“Obviously, looking at local currency type financing solutions so you don’t have the mismatch is one solution, but then the local currency might be too expensive or you don’t have enough liquidity in the local market or it’s short term.”
The central bank last year assured foreign investors in Zimbabwe that they would be given priority to repatriate all their profits and dividends to their home countries.
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