Zimbabwe's ailing SOEs owe Chinese, Indian banks US$1.7billion

ZIMBABWE has accessed loans of up to USS$1.7 billion from Chinese and Indian banks to shore up technically insolvent state-owned enterprises (SOEs), a leading regional financier has revealed.

According to the Office of the President and Cabinet's department of policy analysis, coordination and development planning, US$30 billion is needed to recapitalise state enterprises that have been weighed down by corruption and weak governance frameworks.

In an appraisal by the African Development Bank (AfDB) Institutional Support for State Enterprises Reform (Isser) project released last month, the Abidjan headquartered development finance institution said Zimbabwe's 108 SOEs need urgent far reaching reforms.

AfDB said the weak corporate governance and financial oversight, corruption, poor financial and operational performance, and ineffective monitoring and evaluation, had limited the SOEs potential to deliver services.

"The active portfolio of on-lent loans has an outstanding debt of US$1, 7 billion, as at end December 2022, with accumulated arrears and penalties of US$190 million," reads part of the paper.

"To support economic development, the government has over the past years been borrowing from China Exim Bank and India Exim Bank for purposes of on-lending to SOEs.

"NetOne, TelOne, Civil Aviation Authority of Zimbabwe and Zimbabwe Power Company are the major beneficiaries of on-lent loans for the moderniSation of telecommunications systems, upgrading of airports and expansion of power generation projects."

The Isser project's overarching development objective is to strengthen governance and management of public entities, thereby reducing fiscal risks and facilitating economic recovery. It will end in 2026.

According to the AfDB, SOEs which benefitted from the on-lent loans are now required to open dedicated debt servicing sinking funds to ensure timely debt servicing.

A portion of these resources from the SOEs operations are ring fenced for the purposes of timely debt service payments.

"During the period January to December 2022, treasury issued guarantees amounting to US$176, 7 million and ZW$L11, 24 billion," the paper added.

"All these were maturing within a year and benefitted six SEPs (Zimbabwe Electricity Transmission and Distribution Company (ZETDC), Infrastructure Development Bank of Zimbabwe, Agriculture Finance Corporation (AFC), Zimbabwe National Road Administration, Sable Chemicals and Silo Foods).

"Outstanding guarantees as at end December 2022, amounted to US$1, 6 billion (76.2%) and ZW$L41,4 billion (67,4%), from issued guarantees of US$2,1 billion and ZWL$61,4 billion, respectively."

The AfDB said treasury would scale up monitoring of these guaranteed facilities through on-sight project site inspections to ensure that resources were being utilised for their intended purposes.

"Non-performing SEPs (state enterprises and parastatals) or economic challenges may lead to accumulation of arrears to suppliers and service providers," the AfDB said.

"By December 2022, arrears to service providers amounted to ZW$L$8 billion from ZWL$4 billion in December 2021..

"As at June 2023, ZETDC owed US$102, 9 million, as arrears of electricity imports.

"While comprehensive data may not be available, a study in 2022 noted that "vicious circle of debt exists between SEPs, other government departments, and local authorities"."

The bank said that some SEPs and government departments had struggled to meet their statutory obligations and for services rendered by local authorities such as waste collection and water provision.

"In 2014, SEPs owed each other more than US$1 billion and much of the country's US$6,1 billion of the public debt at the time was attributed to losses by poorly managed SEPs," the AfDB said.

Zimbabwe's SEPs once contributed about 40% of the gross domestic product, which has since fallen to a 14% contribution with commercial SEPs contributing about 7, 5%.