Government urged to review interest rates

Though interest rates have tumbled from over 600 percent to about 200 percent this is not good enough for businesses to borrow and operate profitably, the regional manager of the Matebeleland branch of the Zimbabwe National Chamber of Commerce, Cain Mpofu said.

Addressing delegates to a symposium organised by the Matebeleland Chapter of the National Economic Consultative Forum last week, Mpofu said while the business community applauded the central bank for its new monetary policy, the road to recovery was still full of landmines.

He said measures introduced by the central bank had had a significant impact on curbing corruption. They had also reduced dishonesty among citizens, while the clean up of the financial sector had ensured that they delivered services satisfactorily.

“You have opened up a road, a wide road that should help us to navigate through, but what seems to have been forgotten is to remove the landmines on this road. Business is finding it difficult to use the road,” Mpofu said.

He said the major obstacle was high interest rates which made it impossible for business to borrow. He said though the rates had dropped from over 600 percent to around 200 percent they were still prohibitive.

“We are not able to offer any solutions but we believe that since you came up with a policy that has so far seen a number of things improve, you have the capacity to come up with a suitable solution,” Mpofu said.

He also queried to what extent the in duplum rule applied today. Under the in duplum rule, a borrower should not pay interest that is more than the principal, or money borrowed. But at present, several companies have been crippled by exorbitant interest charged.

Mpofu also said the central bank should seriously consider extending the productive sector facility to the commercial sector because producers could not distribute their own products.

Central bank deputy governor responsible for national development and economic research, Nicholas Ncube, said the bank had already widened targetted sectors which would benefit under the concessional Productive Sector Finance Facility.

Under this facility companies could borrow at an interest rate of 30 percent per annum but this had since been increased to 50 percent with effect from this month.

He said though manufacturing and agriculture dominated the use of the facility with agriculture taking 42.2 percent and manufacturing 41.2 percent, the facility had been widened to include construction, transport, communication and small and medium enterprises (SMEs).

The fund was mainly for working capital purposes such as raw materials, wages and salaries, fuel, repairs and maintenance. But longer term borrowing for capital equipment, including buildings for the development of agriculture, commercial and industrial purposes had been accommodated and so was pre and post shipment financing.

Ncube said $165 billion had been set aside for the utilities sector while a further $20 billion had been set aside for local authorities. Local authorities must produce externally audited accounts for 2003 by 31 July to qualify for the facility.

Applications must also be accompanied by turnaround plans to rid the authorities of bottlenecks including staff levels, board and management structures.

Speaking at the same meeting, a member of the Affirmative Action Group, said while his organisation welcomed the money transfer programme under Homelink, he was worried that people, especially cross-border traders, were still not able to obtain foreign currency from banks yet the central bank had stated that as much as US$750 000 was flowing in every day.

He said that lack of access to foreign currency or these people tended to fuel the black market.

Ncube acknowledged that foreign currency inflows had improved with some US$657 million flowing into the country by mid-June. This was more than double the amount officially received the whole of last year.

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