Pooled funds: A viable source of foreign investment capital

18 Aug, 2017 - 00:08 0 Views

eBusiness Weekly

Albert Norumedzo
The concept of aggregating financial resources to create capacity is the core concept behind the principle of banking.

In simple terms, a bank is an intermediary financial institution that aggregates savings from different sources (often referred to as providers of capital) and lends these savings to businesses and individuals for consumption and investment (seekers of capital).

Zimbabwe’s economic history has, in a significant way, helped shape the demographics of modern-day immigration as many Zimbabweans migrated to foreign countries in search of better economic fortunes.

The United Kingdom, particularly its capital of London, received a significant number of Zimbabweans who became economic refugees at the mercy of an unforgiving economic environment.

General stakeholder consensus is that Zimbabweans are spread out across South Africa, Botswana, the United Kingdom, Canada, the United States, New Zealand, Australia and, in recent times, Dubai.

The neighbours to the south (South Africa) are estimated to be holding the bulk of Zimbabwe’s Diaspora community.

South Africa alone is estimated to be hosting between one million to three million Zimbabweans, most of whom, if not all, still have significant ties to family and property in Zimbabwe.

A 2010 UNDP working paper titled “The Potential Contribution of the Zimbabwe Diaspora to Economic Recovery” reported that a sizeable number of Zimbabweans can be observed in almost every country across the globe.

The United Kingdom is believed to be hosting the second largest number of Zimbabwean immigrants, with community-based organisations estimating the total number of Zimbabweans living in the United Kingdom to be anywhere between 200 000 to 500 000, including undocumented immigrants.

Since Independence, the number of Zimbabwean migrants into Europe has grown exponentially mainly driven by economic push factors.

Zimbabweans are among the highest number of foreign African professionals working in South Africa, Australia and Canada.

True to form and nature, a good number of Zimbabweans living abroad have managed to do exceptionally well, with some being captains of industry, occupying top positions in both the private and the public sectors.

Even in music, arts and entertainment industries like the high-paying Hollywood movie business, we have a few Zimbabweans featuring in the limelight.

In sporting disciplines across the globe, Zimbabwe has managed to export a number of good sportsman across all disciplines, especially in neighbouring South Africa.

Diaspora remittances through the formal channel are expected to be around $750 million in 2017 from $779 in 2016 and $939 million in 2015.

The bulk of these remittances are directed towards consumptive expenditure.

Total Diaspora remittances, including informal Diaspora remittances, are expected to rise to $1,2 billion by 2019.

If a mere 10 percent of this projection could be mobilised for investment purposes, the country could mobilise at least $120 million for investment into real sectors from the Diaspora, and the acceleration effect of this investment would be compounded as proceeds/profits are reinvested in Zimbabwe.

In realisation of the growing contribution of Diaspora remittances to the much-needed foreign currency, the Reserve Bank of Zimbabwe introduced a Diaspora Remittance Incentive Scheme (DRIS), and this, among other incentives — monetary or otherwise — can go a long way in mobilising Diaspora direct investment.

Many countries have taken advantage of the growing Diaspora population to set up financial systems and infrastructure that allows for small savings to be aggregated and directed towards massive economic projects. Reports indicate that India has raised over $1 billion dollars since 2005 from its Diaspora population through financial instruments such as bonds and pooled funds.

Kenya has also made significant strides in mobilising financial resources from the Diaspora through Savings and Credit Cooperative Organisations (SACCOs) spread across countries with decent numbers of Kenyan citizens working abroad.

It is believed that these small organisations raise over $100 million annually, which is invested in real sectors of the Kenyan economy.

In their individual capacities, Zimbabweans living in the Diaspora may lack the necessary financial muscle to raise the required minimum investment to make credible investment into real sectors of the economy, but in a collective set up through aggregation of funds via collective investment schemes, Zimbabweans in the Diaspora can raise the required capital to own, operate and grow multimillion dollar industries.

A Collective Investment Scheme can be broadly defined as a platform through which many different investors put their money together or pool their money into a portfolio, and then this pooled money is invested across a number of economic projects.

This concept is the original economic concept behind banking as we know it; many multi-billion dollar corporations started off as collective investment schemes.

Government, through the Ministry of Macro Economic Planning and Investment Promotion, must engage the Diaspora and capital market stakeholders to come up with special economic incentives that encourage the establishment, growth and development of pooled funding structures so that the economic potential in Zimbabwe’s Diaspora can be transferred to tangible economic growth and development.

Investment professionals should come up with tangible investment opportunities that can be packaged and promoted in the Diaspora, while Government should create a conducive investment climate with appropriate policy and incentives to encourage investment into the identified investment opportunities.

A lot of ailing companies that have ended up falling in the hands of vulture foreign investment funds, often at very minimal capital investment, could as well have been taken up by Zimbabweans living abroad.

When it comes to promoting investment in Zimbabwe, the current trends give evidence that due to both internal and external factors, it has proved to be a hard sell, especially to foreigners who derive their understanding of the economic and political climate from foreign media, which in most cases is negatively biased.

Given this revelation, it is evident that it would be easier to mobilise financial resources from Zimbabweans who are familiar with the territory and the systems, if certain things and policies are addressed.

The best ambassadors for this country are Zimbabweans living abroad.

When they start to be incentivised to invest back home through enabling platforms, this can also assist in gaining access to foreign capital, which some of them can attract due to the relationships that they have created over the years.

Policy makers, capital market participants and Diaspora organisations must come together to create viable capital mobilising platforms like pooled funds to raise the much-needed capital to rebuild industry, and even start new industries through importing technologies and knowledge from the Diaspora.

Albert Norumedzo is an Equity and Alternative Investment Analyst who writes in his own capacity.

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