1. Boosting Competitiveness through Reviewing
Productive-Sector Value Chains, Cost Structures
By
Dr. K. Mlambo
Deputy Governor
Reserve Bank of Zimbabwe

2. Presentation Outline
INTRODUCTION
WHY ZIMBABWE IS NOT COMPETITIVE
THE ROLE OF BANKS AND VALUE CHAIN FINANCING
CONSTRAINTS TO VALUE CHAIN FINANCING
RBZ INITIATIVES TO BOOST COMPETITIVENESS
OTHER HIGH LEVEL SUGGESTIONS FOR IMPROVING
PRODUCTIVE SECTOR VALUE CHAINS
2

3. INTRODUCTION
 Competitiveness a key driver for growth and development
However, Zimbabwe continues to rank poorly competitiveness
rankings by international organisations
Ranked 125 out of 144 countries in the 2016 Global Competitiveness Report
Ranked 155 out of 189 countries in the World Bank’s 2016 Ease of Doing
Business Report
 Suggests a need to deal with some of the challenges affecting
competitiveness in the economy
3

4.  A competitiveness position reflects the state of efficiencies and
other operational dynamics in various value chains across the
productive industries
 These value chains comprise a set of players who conduct a
linked sequence of value-adding activities involved in bringing a
product from its raw material stage to the final consumer.
4
WHY IS ZIMBABWE UNCOMPETITIVE?

5.  The 2016 Zimbabwe National Competitiveness Report identifies
three areas affecting competitiveness in Zimbabwe:
Costs and fees relating to Government
 e.g. Taxes, EMA fees, tariffs and trade taxes
Utility charges by public enterprises and municipalities
 Energy Costs
Private sector inefficiencies and structural rigidities
5
WHY IS ZIMBABWE UNCOMPETITIVE?

6.  Challenges of operating in a dollarised environment:
 Lack of liquidity
 Strong USD against trading partner currencies, esp.
ZAR, which affects export competiveness
 Shortage of Capital as a binding constraint (for retooling,
new investment, technology, product development, etc)
6
OTHER FACTORS AFFECTING COMPETITIVENESS IN
ZIMBABWE

7. Example: Transport Costs and Time to Trade
Comparisons
Cost to
Export
(US$ per
container)
Cost to
Import
(US$ per
container)
Import
to
Export
Cost
Ratio
Time
to
Export
(days)
Time
to
Import
(days)
Cost to
Export
as % of
Freight
Value
Cost to
Import
as % of
Freight
Value
Zimbabwe 3 765 5 660 1.50 53 71 18.8% 28.3%
Botswana 3 045 3 610 1.19 27 35 15.2% 18.1%
South
Africa
1 705 1 980 1.16 16 21 8.5% 9.9%
Zambia 2 765 3 560 1.29 44 49 13.8% 17.8%
SSA 2 108 2 793 1.32 31 38 10.5% 14.0%

8. ROLE OF BANKING SECTOR AND VALUE CHAIN
FINANCING
 Finance plays a critical role in development
 Intermediates between savings and investments (get to decide
which firms use society’s savings)
 In an economy, banks (Corrigan (1982):
provide transaction services and administer national payments
provide back-up liquidity to the economy
are a conduit for monetary policy
 Banks and other financial institutions help solve the problems of
adverse selection and moral hazard, thus reduce the cost of
finance

9. ROLE OF BANKING SECTOR AND VALUE CHAIN
FINANCING
How important is bank financing in Zimbabwe? Loan/GDP ratio (1/4 of the
economy)
9
8.6%
17.6%
24.7%
28.4%
26.8% 26.5% 26.0%
2009 2010 2011 2012 2013 2014 2015
LOAN TO GDP RATIO: 2009/15

10. 10
Manufacturing,
15.38%
Mining,
12.04%
Agriculture,
15.05%
Services,
10.13%Construction,
State, 0.52%
Distribution,
12.07%
Financial
Services, 1.99%
Individuals,
16.57%
Other,
14.98%
DISTRIBUTION OF CREDIT BY SECTOR (JUNE 2016)

11. CHALLENGES CONSTRAINING BANKING SECTOR
SUPPORT TO INDUSTRY
 Limited access to credit lines which affects funding costs
 Lack of long-term investible resources
 High non-performing loans has led to risk aversion
 Changing economic structure and associated growth in
informalisation especially SMEs
 Other issues internal to banks such as weak corporate
governance and risk management practices
11

12. COSTS OF FUNDS (%) RELATIVELY HIGH IN ZIMBABWE
12
6
4
11.5 11.4
7
10.5
0
2
4
6
8
10
12
14
Botswana Mauritius Zambia Zimbabwe South
Africa
Kenya
 Financing costs
are comparatively
higher in
Zimbabwe and
Zambia, compared
to other countries.
 In Zimbabwe,
interest are too
high given use of
USD
 Spreads large in
Zimbabwe given
–ve inflation

13. LACK OF LONG TERM SOURCES OF FINANCE
L02 – Main changes in the BPM6 13
Under 30 Days
12.9%
Over 30 Days
18.9%
Demand
55.8%
savings
12.3%
Short-term deposits dominate investible resources

14. NON-PERFORMING LOANS (NPLs)
7.6%
13.5%
15.9%
20.5%
15.9%
14.3%
10.8% 10.8%
10.1%
0%
5%
10%
15%
20%
25%
2011 2012 2013 SEPT'2014 DEC'2014 SEPT'2015 DEC'2015 MARCH'2016 JUNE'201614

15. BOOSTING COMPETITIVENESS THROUGH VALUE CHAIN
FINANCING
Value chain financing is comprehensive approach to productive
sector financing which offers opportunities to reduce cost and
risk in financing
 For the banking sector it entails looking beyond the direct
recipient of finance to understand the competitiveness and risks in
the sector as a whole and to craft products that best fit the
needs of the businesses in the chain

16. BOOSTING COMPETITIVENESS THROUGH VALUE CHAIN
FINANCING (cont’d)
 Often, the finance available to value chains is not only from
financial institutions but from others within the chain as well
 Value chain financing helps the chains become more inclusive,
by making resources available for smallholders or SMEs to
integrate into higher value markets.

17. Source: IFC, 2011 17
Finance and Supporting Services
Example of Agricultural Value Chain

18. Role of Reserve Bank & Banking Sector in Promoting
Competitiveness
 The role of Reserve Bank in promoting competitiveness and Ease of
Doing Business is two dimensional: direct and indirect.
 Directly the Reserve Bank is instituting measures to promote
competiveness and the ease of getting credit, in particular:
Lowering lending rates from above 35% to 15-18%
Establishing a Credit Registry to deal with agency problems
Movable Collateral Registry to broaden range of eligible instruments
Resolution of NPLs through establishment of ZAMCO

19. OTHER RBZ INITIATIVES TO ENHANCE PRODUCTION
SECTOR VALUE CHAINS AND COST STRUCTURES
 RBZ resuscitated the inter-bank market, to allow for increase circulation of
credit, at lower margins
 Increased the threshold for external loans without prior Exchange Control
approval from US$10m to US$20m to ease of securing offshore loans
 Introduced an export incentive of up to 5% (will also cover tobacco farmers)
 Other measures to minimize cash shortages (daily withdrawal limits; use of
plastic money; nostro stabilization facilities)
 Foreign currency management system (priority list)
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20. Role of Reserve Bank in Promoting Competitiveness
 Indirectly, the Reserve Bank plays a facilitatory role to the attainment of
factors that promote the Competiveness and Ease of Doing Business.
 e.g. As part of the National Financial Inclusion Strategy, RBZ has
partnered with financial institutions and development partners in
operationalising the value chain financing model through implementing
projects that can be replicated across the country
 The initial focus is on small-scale agriculture and rural financing and
beneficiaries will be supported in groups / clusters
 Each model project is envisaged to have high impact in transforming people’s
lives and will involve many actors along the value chain.

21. RBZ INITIATIVES ON VALUE CHAINS
 Each model project is expected to address the following minimum
expectations:
 Production requirements
 Financing
 Capacity building programs
 Access to markets
 Access to an information centre; and
 Use of digital finance, agent banking etc as enablers.

22. OTHER HIGH LEVEL SUGGESTIONS FOR FURTHER IMPROVING
PRODUCTIVE SECTOR VALUE CHAIN COMPETITIVENESS
 Development of efficient infrastructure: There is need for elaborate
and transparent policies on Private-Public Partnerships to enable
participation of the private sector in infrastructure development
 Adoption of Policies for Innovation that encourage creativity and
adoption of new technology
Institute policies that foster entrepreneurship development and
formalisation of MSMEs. Policies should encourage formation of
technically innovative SMEs which improves competitiveness.
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23. OTHER HIGH LEVEL SUGGESTIONS FOR FURTHER IMPROVING
PRODUCTIVE SECTOR VALUE CHAIN COMPETITIVENESS
 Adoption of Policies for Cluster Development: e.g. take advantage of
particular resources in specific regions and form clusters around them. Clusters
can also be linked to specific scientific and educational institutions
 Policy Consistency: Business thrives where there is policy consistency which
provides certainty and supports business continuity. Policy consistency breeds
business confidence
 Flexibility of Labour Laws: The labour laws should promote productivity
based rewards instead of promoting labour security. 23

24. • Competitiveness remains a key pillar for sustainable economic development
in Zimbabwe
• Collaborative effort is required to deal with the key competitiveness
challenges in the country
• The country needs to expeditiously deal with Ease of Doing Business
Reforms
• Finance is to promoting competitiveness and reviving productive value
chains
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CONCLUSION

25. THANK YOU