With no access to major foreign credit, Zimbabwe has had to dip into its budget to fund infrastructure projects.
The government admits this is inflationary, as contractors are using Zimdollar payments to buy US dollars on the market, which they need to pay for inputs. Government now pays contractors 50% of their contracts in US dollars, but this has not helped ease pressure on the Zimdollar.
Government estimates that Zimbabwe needs about US$40 billion to fund critical infrastructure over the next five years. But, unlike peer economies that can borrow money abroad to fund infrastructure, Zimbabwe has been shut out of debt markets due to arrears and must fund some projects on its own.
Recently, African Development Bank president, Akinwumi Adesina was in Zimbabwe to discuss the country’s debt clearance plan. Here, he spoke on infrastructure, and what options there are to fund it.
“What you find is that in many African countries today, more than 80% of debt that you see is infrastructure-related debt. That’s because infrastructure is like backbone; if you have a backbone, you can sit straight, if you don’t, you can’t. But governments alone cannot and should not bear the full cost of infrastructure development.
There must be space for private partnerships for infrastructure.
The other way is to ensure that development is not only done with external debt. As we rebuild the domestic economy, (we can have) domestic financing using pension funds, the funds need to be invested in infrastructure. Today, the pension funds and the sovereign wealth funds of Africa, they have about US$2.1 trillion in assets under management, yet Africa has up to US$108 billion a year of the infrastructure financing gap.
It doesn’t take brain surgery to see that if we just simply devoted a small part of the institutional investment that we have into financing infrastructure we’d close that. Same for Zimbabwe, same for everyone else.
I really believe that it’s time we look at our pension funds and make sure they are investing in infrastructure as an asset class, to make sure the economy has the kind of infrastructure that it needs to be able to grow.
The last thing I’d say about this is the importance of making sure that any transaction that you get into, one reads the fine print. The capacity to negotiate, to always get the best deal from any financing that you get, is very important.
One thing that we have at AfDB is the African Legal Support Facility that we use to help support countries to negotiate debt, negotiate investment, negotiate concessions, whether it is royalties you’re getting, making sure that that negotiation is not asymmetrical, and that it’s in the best interest of the countries.
My hope is that when we get to the end of this, and clear the debts for Zimbabwe, resolve the issue of the debt, is that Zimbabwe will also have access to concessional financing that will allow it to be able to develop.