By Justice Zhou
Presidential Affairs Minister Didymus Mutasa believes nothing would be wrong if Zimbabwe were to“mortgage” its minerals to raise international finance as the country battles to stem economic meltdown.
As part of a desperate strategy to source funds for its new economic blue print, the cash-strapped government of President Robert Mugabe is considering securitizing the country’s mineral wealth to eastern and other “friendly” emerging economies such as China.
The proceeds would allegedly go towards revamping infrastructure, offsetting the country's 10.7 billion dollar external debt, and reviving industry among others. The strategy is seen providing a solution to the nagging liquidity crisis.
Mutasa appears to be unaware of the the current government's recklessness in dealing with the financial system and foreign businesses operating in the country.
The idea that he and others are trying to sell before any prospective foreign lender can blindly lay into the securitization drive is that everything will be tied to collateral, anyway. And nobody would be in for the usual raw deals—never mind Zimbabwe’s poor credit history.
In a country where the rule of law and property rights are hardly respected at times, the hostile indigenisation drive has already packaged Zimbabwe as a bad investment destination on the global financial and economic arena.
Zimbabwe is in fact dicing with disastrous and interminable default. However, this sort of proposal would without doubt be cause for alarm to any potential financier irrespective of origin.
Yet securitization may come in handy for borrowers with a good international credit rating and favourable risk profiles, being a viable source of long-term credit.
If the 2008 global financial crisis is any guide, it would be a miracle if any adverse and sub-investment-grade country was to succeed in luring wary international investors or lenders to rev up its coffers by way of such a risky approach.
Several financial institutions and western governments found themselves in dire straits as a result of such dodgy undertakings and are reeling in debt and financial trouble even to this day.
This should have provided enough lessons to Mutasa and his government colleagues.
By tinkering with such a half-backed strategy, Zimbabwe is venturing into perilous territory that could plunge the country into a sea of debt, putting its creditworthiness in danger once and for all. It’s actually skating on thin financial ice right now.
Take for instance the root of the collapse of the giant global lender Lehman Brothers in September 2008, whose ripple effects almost brought the world’s financial system to its knees. What of the Eurozone sovereign debt crisis?
It all emanated from these precarious securitization activities, whereby borrowers were duped into recklessly dicing with money that did not belong to them.
These are glaring examples of how gambling with risky and complex debt instruments can put economies into mayhem than can be easily fixed. It’s there in our midst for Mutasa and all of us to see.
Cash is increasingly becoming a coward.International capital markets have become more and more jittery and selective following that crisis. Hence, low-cost capital nowadays can only be easily made available to investment-grade public and private sector entities..
Of course, it’s every government’s responsibility to see to it that it raises finances to execute its goals.
With economic expansion expected to decelerate to a pace of 3.4 percent this year, down from a previous projection of 5 percent, and the jobless rate set to rise more than the current 80 percent, there isn’t a way to bail Zimbabwe out except by looking to foreign sources of finance.
But there are plenty of less-hazardous methods of sourcing capital that could be relied on without leaving policymakers in an irrevocable bind.
It’s apparent that Mutasa and his fellow Zanu Pf partners in government are avoiding these safer ways of obtaining international funding, such as foreign direct investment and aid because their policies aren’t up to the mark.
So they would rather trade their souls to the Chinese for one wish, planning to “mortgage” the country’s resources no matter the high risk associated with this financial procedure. In the process they are selling the whole nation down the river, just for a song.
If the government were to forge ahead with its securitization initiative, it would have prepared an ideal pathway into a debt trap. It won’t be easy to liberate the country once it falls into such a trap, if circumstances surrounding Greece are anything to draw lessons from.
At least Greece has its well-off European peers to look to for bailouts when things get pear-shaped in that part of the world. But what would become of cash-strapped Zimbabwe? Can it do the same without bankrupting its fellow SADC buddies?
Zimbabwe should juggle around with its foreign funding options. Securitization shouldn’t be one of them at the moment because the existing political and economic conditions don’t allow for that.
Or else the government is dicing with default and disaster. Prospective investors also run the risk of finding themselves at some point having unsuspectingly acquired asset-backed debt securities that don’t have “assets” backing them at all, given Zanu Pf’s bad property rights track record. Forewarned is forearmed.
