In a bid to help ease the economic crisis in Zimbabwe, diamond-rich Botswana has offered a $95 million loan to its neighbour. The credit line which is earmarked for the private sector and revival of struggling industries could restore confidence in the southern African country.
Although this is a drop in the ocean to what Zimbabwe requires for total economic recovery, Botswana’s offer of credit could help revive the former’s strangled economy that has fallen apart over the past 20 years.
It is estimated that Zimbabwe needs in excess of $10 billion for total recovery – but owing to the country’s low credit worthiness and policy inconsistency, it has trouble securing credit.
Botswana’s President Mokgweetsi Masisi, who was in Zimbabwe for a bi-national summit last week, said that his country had increased the credit facility from 600 million Botswana pula to a billion pula.
The Botswana credit facility to Zimbabwe will depend on the conclusion of a Bilateral Investment Protection Agreement between the two countries.
However, the money is not coming from the pocket of Botswana’s government. Rather it is private financial institutions who will be extending credit to Zimbabwean private sector businesses, while the two governments will guarantee the loans.
The currency crisis in Zimbabwe
Zimbabwe is in its worst economic crisis in a decade and in dire need of credit line facilities. Lack of local currency has affected economic activities as local companies suffer from a shortage of working capital. As a result, regional and international companies have stayed away from the country fearing the economy’s volatility.
The country has been struggling to lock down inflation forcing it to adopt a floating currency such as the recently introduced Real Time Gross Settlement (RTGS) dollar.
The RTGS is an electronic currency trading against the US dollar and other currencies but has little value and cannot be used outside Zimbabwe. Though some view it as a progressive move to introduce such a measure, investors are still struggling to take out their profits from Zimbabwe.
Change of mindset
It is unusual for an African country to offer a bailout or credit deal to a struggling neighbour country, as most nations on the continent are highly dependent on borrowing from international money lending institutions like the International Monetary Fund.
Zimbabwean economist Vince Musewe says Botswana’s gesture is what African countries should do to cut over-dependence on international lending institutions.
“Africa should build savings and have integrated capital markets that can be able to lend support within the continent. This is the route that we should take to cut off over dependency on aid,” he told DW.
Musewe noted that trade between African countries is a key issue towards developing Africa and that countries should take advantage of a huge market base derived from the continent’s one billion population.
President, Confederation of Zimbabwe Industries, Sifelani Jabangwe said Botswana’s offered credit facility would be beneficial to both countries. “This is a change of mindset. We needed not to go far away to look for investment and bailout. The combination of the best of the two countries, Zimbabwe and Botswana, will create a strong bloc that can compete within the region,” Jabangwe said.