Zimbabwe firms squeezed as interest rates soar

Local companies are battling to access affordable long-term funding as traditional capital avenues remain largely closed, leaving the productive sector grappling with what industry players describe as "punitive" borrowing costs.

The domestic debt market remains thin, with no meaningful bond issuances, while the Zimbabwe Stock Exchange (ZSE) has struggled to facilitate significant capital raises.

Currently, borrowing costs for ZimGold (ZiG) loans are priced above 45 percent, while United States dollar facilities range between 10 percent and 16 percent. Offshore loans, when available, are mostly short term and come at even higher costs.

As a result, industry says it is increasingly relying on retained earnings as funding options narrow.

Confederation of Zimbabwe Industries (CZI) Matabeleland Chapter president Mr Stephen Ncube said bank loans are largely short term and expensive.

"When banks come to the party, it is mostly working capital and for a short term at high interest rates," he said.

He urged authorities to rebuild confidence in the capital market.

"The capital market needs to be deepened and regulated and guarded against capital flight to avoid the issues we had with merchant banks before. This will improve confidence in investors to participate more," Mr Ncube said.

In its latest trading update, ZSE-listed brick manufacturer Willdale Limited said liquidity constraints continued to limit access to working capital and capital expenditure funding.

The company reported that limited working capital negatively affected production, with extrusion volumes down 28 percent and fired production down 52 percent.

Chief executive officer Mr Nyasha Matonda said the company had resorted to selling stands in Haydon Industrial Park after failing to secure funding from local banks.

"Since we started selling stands, our working capital condition has significantly improved," he said.

Another ZSE-listed firm, Art Holdings Limited, also reported constrained liquidity and persistently high borrowing costs. Although demand for Exide batteries and Eversharp pens improved, production disruptions linked to working capital shortages and logistical delays weighed on volumes for the period ended December 31, 2025.

SME Association of Zimbabwe (SMEAZ) founder and executive officer Mr Farai Mutambanengwe said small and medium enterprises are turning to in-house funding schemes and informal borrowing.

"SMEs mainly are getting short-term funding through microfinance institutions or other arrangements. For example, we have a savings and credit cooperative; others just borrow informally, but it is difficult to borrow through the bank," he said.

Without title deeds or collateral, many SMEs find formal bank loans inaccessible.

Despite perceptions of a credit freeze, the Bankers Association of Zimbabwe (BAZ) maintains that the sector remains active, with lending focused on high-priority productive sectors.

According to the Mid-Term Monetary Policy Statement, 71,79 percent of total banking sector lending is directed towards manufacturing, agriculture and mining.

BAZ chief executive officer Mr Fanwell Mutogo rejected claims that banks are reluctant to lend.

"While we understand the frustration regarding the cost and availability of capital, the narrative that banks are a ‘non-starter' is not supported by the data. Banks are fully committed to their intermediation role," he said.

He acknowledged, however, that most external lines of credit accessed through institutions such as Afreximbank, Trade and Development Bank (TDB) and the European Investment Bank are short-term trade finance facilities lasting between 12 and 24 months — far shorter than the five- to ten-year retooling capital industries require.

On interest rates, Mr Mutogo said banks are constrained by macroeconomic conditions.

"With the bank policy rate at 35 percent to curb money supply growth, commercial lending rates must align with this benchmark to remain positive in real terms," he said, adding that as ZiG inflation stabilises, borrowing costs are expected to gradually adjust.

Economist Mr Malone Gwadu said Zimbabwean corporates have limited funding alternatives outside banks and capital markets, which remain underdeveloped.

"This is why most companies are on a cost-containment overdrive as internally generated funds at the moment are the only viable option," he said.

Economist Mr Enoch Rukarwa noted that both traditional sources of capital — debt and equity — are constrained.

"Debt in Zimbabwe continues to be very costly. On the USD side, you are looking at interest rates averaging between 15 percent and 25 percent, and on the ZiG, you are looking at rates northwards of 40 percent," he said.

On the equity side, activity on platforms such as the Zimbabwe Stock Exchange and the Victoria Falls Stock Exchange has remained subdued, largely due to macroeconomic instability and limited patient capital.

With both debt and equity tight, companies are focusing on organic growth, minimising overheads, preserving cash and prioritising incremental expansion funded from retained earnings.

Analysts say that while Zimbabwe's capital landscape remains constrained, businesses that adapt to the prevailing dollarised and cash-driven environment may still find opportunities for sustainable growth.