The government of Zimbabwe is nearing an agreement to repay around US$1.8bn in arrears owed to multilateral institutions, which would enable to country to return to the international markets.
Although multilateral lenders and DFIs would likely be the first foreign institutions to begin operations in the country, there is unlikely to be an immediate return to the country.
“It is going to take a bit of time before foreign lenders and DFIs can fully return to operations in Zimbabwe,” said Michael Musau, Lending Officer for Eastern Africa at Shared Interest.
Before any operations are likely to begin, however, there will need to be a change in the current political system. What follows would have an impact on the willingness of multilaterals and DFIs to operate in Zimbabwe.
“There is still underlying political risk, and we do not know what the next chapter in the country's political space will look like.”
Politics would also play a role in the removal of currency controls that are likely to inhibit the immediate return of not just concessional lenders, but also of foreign lenders. Musau noted that the Zimbabwean bond market is not yet sufficiently mature to handle the demand of large institutions.
“I would strongly argue that the arbitrary taxation expropriates investors’ returns.”
Although the majority of any lending activity in Zimbabwe will for a while concern governments and GREs, yield-hungry international entities could be attracted by risky instruments. There is a link between local corporates and international players in what has come to be known as the ‘dash for trash’, Musau said.
He added that international firms have often bought risky government instruments through local intermediaries.
“Profitable projects have never been in short supply,” he continued.