Zimbabwe’s economic performance weakened in 2012 following three consecutive years of GDP acceleration. The estimated GDP growth of 4.4 percent for 2012 represents a significant slowdown when compared to the growth rates of 5.4 percent, 9.6 percent and 10.6 percent experienced in 2009, 2010 and 2011, respectively. Most major sectors of the economy registered lower growth rates in 2012 and this weighed down overall economic performance. Mining and Quarrying grew by 10.1 percent in 2012 compared to 25.1 percent in 2011 and 60.1 percent in 2010. The manufacturing sector grew by a mere 2.3 percent, from 15.0 percent in 2011. The other major sectors which registered lower growth rates in 2012 include Agriculture, Hunting and Fishing; Electricity and Water; Construction; Distribution, Hotels and Restaurants as well as Transport and Communications. The weaker growth rate experienced in 2012 was due to a number of factors, including drought, electricity supply challenges, liquidity constraints, and a failure by the manufacturing sector to cope with cheap imports. The economy is expected to register a slightly higher GDP growth rate of 5 percent in 2013
Zimbabwe’s economic performance weakened in 2012 following three consecutive years of GDP acceleration. The estimated GDP growth of 4.4 percent for 2012 represents a significant slowdown when compared to the growth rates of 5.4 percent, 9.6 percent and 10.6 percent experienced in 2009, 2010 and 2011, respectively. Most major sectors of the economy registered lower growth rates in 2012 and this weighed down overall economic performance. Mining and Quarrying grew by 10.1 percent in 2012 compared to 25.1 percent in 2011 and 60.1 percent in 2010. The manufacturing sector grew by a mere 2.3 percent, from 15.0 percent in 2011. The other major sectors which registered lower growth rates in 2012 include Agriculture, Hunting and Fishing; Electricity and Water; Construction; Distribution, Hotels and Restaurants as well as Transport and Communications. The weaker growth rate experienced in 2012 was due to a number of factors, including drought, electricity supply challenges, liquidity constraints, and a failure by the manufacturing sector to cope with cheap imports. The economy is expected to register a slightly higher GDP growth rate of 5 percent in 2013 and 5.7 percent in 2014.
Year on year inflation has remained quite subdued and has been on a downward trend during the first six months of 2013. Inflation fell from 2.98 percent in February to 1.87 percent in June, 2013. The decline in inflation is largely due to the falling value of the South African Rand.
This performance trend shows that the creation of the Government of National Unity formed in 2009 and its adoption of a multicurrency regime brought macroeconomic stability and sustained growth for a period of five years. However, this recovery has been quite fragile due to political uncertainty, the high debt burden of about US$10 billion and huge arrears amounting to about US$6.5 billion, as well as the unsustainable current account deficit of about 30 percent of GDP. Zimbabwe has had limited access to concessional lines of credit required for infrastructural development and retooling the manufacturing sector. Further, most of the facilities availed carry a significant risk premium and have largely been short term in tenure. These factors and the absence of a lender of last resort function at the central bank have spawned the liquidity challenges that have characterized the Zimbabwean economy during the last five years. The Minister of Finance’s Budget Statement for 2013 and the Reserve Bank Governor’s Monetary Policy Statement issued in January highlight high cost of capital, steep lending rates and a high proportion of non-performing loans as among the challenges faced by the productive sectors of the economy.
Access to Finance
Despite these challenges, the Zimbabwean financial sector remains well developed and quite stable. According to the Reserve Bank Governor’s Monetary Policy Statement issued in January 2013, the country had 22 operating banking institutions (comprising 16 commercial banks, 2 merchant banks, 3 building societies and 1 savings bank), 16 asset management companies and 150 microfinance institutions. The 22 operating banking institutions exclude two troubled banks, namely Interfin which was under curatorship, and Royal Bank which was under liquidation. The Reserve Bank advised that while the troubled banks had adversely affected other financial institutions, they were too small and too weak to have a systemic impact on the economy.
Zimbabwe continues to experience a high level of financial exclusion as well as usage of informal financial products and services. This is reflected in the findings of the 2011 FinScope Survey, the 2012 World Bank Global Financial Index (Global Findex) Database and the2013 Micro, Small and Medium Enterprises (MSME) FinScope Survey. The 2011 FinScope Survey found that 40 percent of all Zimbabweans aged 18 years and above were financially excluded, meaning that they did not use either formal or informal products to manage their lives. This tallies with the findings of the MSME FinScope, which revealed that 43 percent of all MSME business owners in Zimbabwe were financially excluded. According to the 2011 FinScope Survey, 22 percent of all adult Zimbabweans only used informal financial products and services. The MSME FinScope shows that 40 percent of all business owners in this category only used informal financial products and services to run their enterprises. FinScope 2011 found that 38 percent of all adult Zimbabweans were formally served, that is they used both bank and non-bank formal products. This figure tallies with the Findex finding that 40 percent of all Zimbabweans above the age of 15 years have an account with a formal financial institution. The MSME FinScope survey revealed that only 18 percent of business people in this category were formally served, with only 14 percent of the business owners being banked. With respect to credit, Finscope 2011 found that only 5 percent of all adults above the age of 18 years of age borrow from a bank (3 percent) or other formal financial institution (2 percent) while 15 percent were informally served by unregulated institutions such as cooperatives and farmers’ associations. Thirty one per cent borrowed from friends and relatives and 49 percent did not borrow at all. Most MSME business owners (85 percent) do not borrow at all to finance their operations. Only 2 percent of them access bank credit products while another 2 percent access other formal credit sources. Seven percent borrow from friends and relatives.
Following the findings of the 2011 FinScope survey, the Zimbabwean authorities have put in place various measures with a view to improving financial inclusion in the country. A Memorandum of Understanding between the central bank and commercial banks seeks to reduce bank charges and lending rates as well as increase deposit rates. The authorities also envisage the establishment of an Ombudsman for the financial sector, a Microfinance Advisory Council as well as the finalization of a Microfinance Bill. The 2013 Monetary Policy Statement pointed out that there was going to be a consumer awareness campaign launched so that consumers of financial products become more aware of their rights. Further, the central bank stipulated that commercial banks were required to provide at least 30 percent of their lending to small and medium enterprises. These initiatives are meant to foster confidence in the financial sector, particularly commercial banks, and, in the process, improve financial inclusion.
As at 31thMay, 2013, total credit provided by the financial sector amounted to US$3595.19 million, which represents a growth of 18,7 percent when compared to the figure for May, 2012- significant, but much less than the 36.45 percent growth experienced in the year previous. The deceleration in lending was due to factors including a declining growth of deposits and the uncertainties in the economy that arise in an election year. Commercial banks dominated lending at US$3063.68m million or 85.2 percent of total. Lending continues to be largely for the short term requirements of working capital (77.10 percent) and consumer durables (15.17 percent). A sectoral analysis of loans and advances by commercial banks shows that most of the lending went to households (18.54 percent), the sectors of agriculture (17.92 percent), manufacturing (17.49 percent) and distribution (16.94 percent). The proportion of lending to the construction sector continues to be low and was only 1.55 percent. Total lending by building societies as at the end of May 2013,at US$427.60, was 11.9 percent of total lending. The portion of building society lending which went towards mortgage advances was US$307.3 million or 8.55 percent of total advances by the financial sector.
According to RBZ statistics, mortgage lending was US$278.1 million dollars as at the end of December, 2012 compared to US$199.5 million for December, 2011, which represents a growth of 39.4 percent. When compared to the position as at December, 2012, mortgage to the end of May, 2013 grew by 10.5 percent.
Mortgage lending is largely undertaken by Central African Building Society (CABS), CBZ Bank, FBC Bank and ZB Building Society. CABS remains the largest mortgage lender in Zimbabwe. In 2012, the financial institution advanced a total of US$26 095 546 in housing mortgage loans. These were made up of US$5 614 887 for ‘high density,’ generally low income housing development, while US$20 480 659 was for the ‘low density’ medium and high income category. As at 31st December, 2012, CABS’s housing mortgage loan book was US$96 431 384 comprising US$87 279 9869 for medium and low density’ housing development and US$9 151 398 for the ‘high density’ sector. In 2013, the financial institution increased its lending significantly and by June it had extended mortgage advances amounting to US$27 942 391, which surpasses the annual figure for 2012. CABS is a beneficiary of a 5 year loan from the PTA Bank and a ten year facility from Shelter Afrique, which are meant to increase the tenure of mortgage lending to customers. Mortgage loans are charged at 15 percent variable interest over 10 years, with a 75 percent loan to value and 25 percent repayment to income.
CBZ Bank had the second largest housing mortgage loan book in 2012. As at 31st December, 2012 its mortgage loan book was US$89 980 277. CBZ disbursed a total of US$32 794 493.53 worth of housing mortgage loans in 2012 and had advanced US$25 715 195.47 by July, 2013. CBZ charges interest rates ranging between 14 per cent and 18 per cent over tenures ranging from 2 to 10 years. In his 2013 budget speech, the Minister of Finance advised that CBZ Bank had made a commitment to provide US$10 million to fund housing for civil servants. Government would provide a matching amount in order to create a US$20 million Housing Fund for civil servants. The facility is not yet operational. CBZ is also a beneficiary of the lines of credit from the PTA Bank and Shelter Afrique.
FBC Building Society also extended mortgage lending to its customers but its annual report does not state how much this was. The financial institution had a long term (over 5 years tenure) book of US$11242 430, in which the mortgage loans are incorporated. The building society is also enjoying facilities from the PTA Bank and Shelter Afrique. ZB Building Society had a mortgage book of US$5 880 248 as at 31st December, 2012.
As the microfinance sector recovers, it is resuming its role of lending small amounts for housing purposes. However, the Zimbabwe Association of MicroFinance Institutions (ZAMFI) pointed out that it did not have members who are specialized in the business of solely providing housing finance.
The National Development Loan Facility is a revolving fund that was created in 2010 with an initial allocation of US$25million. In 2012 Government provided an additional US$7.9 million to the fund, followed by an amount of US$6.9 million in 2013. In his budget speech for 2013, the Minister of Finance advised that 10 percent of the resources provided would be used to fund rural housing programmes. The Infrastructure Development Bank of Zimbabwe IDBZ acts as a project manager and financier on behalf of the Ministry of National Housing and Social Amenities.
During the past four years, Zimbabwe has been recovering from a decade of economic decline and instability. The economic decline worsened poverty levels and annual average gross household incomes, currently estimated at US$2545, are still very low. According to available statistics, 62.6 percent of Zimbabweans are deemed as poor while 16.2 percent are considered very poor. The low levels of income, coupled with high levels of illiquidity have negatively affected affordability. There is a high default risk due to retrenchments. As at June, 2013, 6.86 per cent of CABS’s loans in high density areas were in arrears. While building societies and commercial banks are beginning to introduce medium term facilities, most lending is on a short term basis. Financial institutions have limited access to offshore lines of credit and there is a reluctance by the public to commit funds for long periods. Maximum repayment periods of 10 years currently apply on loans.
Lending rates are still high in Zimbabwe due to the high cost of funds for financial institutions. While the authorities have made efforts to contain lending rates and bank charges, interest rates charged by building societies remain at an average of 15 percent. The Memorandum of Understanding between the Reserve Bank and banks provides for an additional penalty of ten percentage points for any defaulting clients. Further, those home builders who access consumer bank loans for purposes of buying a residential stand or constructing a house pay higher interest rates of as much as 20 percent, depending on the institution.
Despite the high cost of funds, financial institutions have developed innovations to reduce the cost of borrowing for low income clients. CABS offers a low priced mortgage product for borrowers in high density areas on which an interest rate of 12 per cent is charged as opposed to 15 percent that applies to borrowers in low density areas. Further, in an effort to enable low income earners to access housing finance, building societies collaborate with employers to provide loans at subsidized rates. CBZ has introduced a product called ‘the Cash-Plus Housing Savings Product’ targeted at the informal sector. It involves the potential borrower saving with the institution for 12 months after which the client then qualifies for a loan equivalent to his/her savings.
The harsh liquidity environment has also created an opportunity for Zimbabweans to buy land from local authorities and land developers on a staggered basis – something which was rare in the past. Deposits for some schemes are as low as US$660.00 with monthly instalments spread over periods of 3 to 5 years. This flexibility is an improvement from the past when either one had to have cash or a mortgage facility to pay for the property.
The major housing objective of Zimbabwe’s national strategy, the Medium Term Plan (2011-2015), is to eliminate the housing backlog and halve the housing dependency ratio at the household level by the year 2015. This is quite a daunting challenge considering that the Ministry of National Housing and Social Amenities estimates the current national housing waiting list to be 1.25 million. The number is likely to be higher considering that some local authorities do not collect and submit returns to the ministry. Further, most home-seekers have stopped renewing annually after losing hope following lengthy periods of fruitless waiting. Others cannot register as they do not have the required documentation while others are unaware of the system. Harare’s waiting list is about 500 000 while those of Gweru, Mutare and Bulawayo are about 17000, 50000 and 100000 respectively. The responsible ministry is keen to have periodic national surveys undertaken so that an accurate position is ascertained.
The 2012 National Housing Policy seeks to address the challenge of the huge housing backlog through a partnering and facilitating approach to housing development and management so as to leverage community and private sector initiatives. In this regard, the policy aims to strengthen the role of local authorities as well as facilitate and encourage the participation of civil society and the private sector in housing development.
Even so, the government plays a pivotal role in housing development through direct provision of houses as well as land. Since 2010, the Zimbabwe Government has availed a total of US38.9 million for the development of housing on and off site infrastructure as well as the construction of at least 2904 housing units across the country in Harare, Marondera, Kwekwe, Mutare, Bulawayo, Chipinge, Masvingo, Gwanda and Chiredzi. Individuals on the waiting list and who can afford to pay the required deposits and instalments access the housing with a loan from the National Housing Development Loan Facility.
Financial institutions are also promoting housing developments projects. In late 2012, Harare City Council signed an agreement with CABS to build 3102 core houses for low income earners in Budiriro, Harare. Each core house would be on 300 square metres of land and is estimated to cost US$12,000. Beneficiaries will pay an initial deposit and then CABS will provide mortgage finance which would be repaid over a stipulated period. Implementation of the project is expected soon. The building society is undertaking another housing in Hatcliffe, Harare involving 971 housing units, also on 300 square metres. The other building societies are implementing their own schemes across the country. CBZ is set to service 1095 low cost residential stands in Nehosho, Gweru, for the construction of low cost housing which will benefit low income groups. ZB Building Society has developed 800 residential stands ranging in size from 300 to 2000 square metres and will offer mortgage finance to beneficiaries to enable them to build houses. The building society has also entred into a partnership with Beitbridge Town Council involving the building of 150 low cost housing units which would be offered to beneficiaries on a 10 year mortgage.
In late 2011, Fidelity Life Assurance Company launched a housing project on a 34 hectare plot in Manressa, Harare. The project involved developing housing stands which would then be sold to home seekers. The company is currently engaged with the City of Harare so as to undertake a US$20 million housing development project to the South of Harare.
Damofalls, one of the most active land development companies in Zimbabwe, is implementing projects for housing development in various cities which include Ruwa, Norton, Kwekwe and Darwendale. Other property developers such as the DATco Group are also active across the country.
According to their umbrella body, the Zimbabwe National Association of Housing Cooperatives (ZINAHCO), cooperatives have provided the bulk of housing units which were constructed during the past decade.The association argues that even during the hyperinflation era, cooperatives continued to develop housing units when all the other players had suspended operations. The cooperatives acquire land from either a private owner, Government or a local authority and then service it using subscriptions from members. Figures from the City Of Harare indicate that indeed cooperatives are a powerful force in housing provision. In the year 2011, the city allocated 2954 stands to 41 cooperatives.
ZINAHCO is also implementing a scheme involving the construction of core houses in Chiredzi, Harare, Chitungwiza, Mutare, Kariba, Bulawayo, Redcliff and Mvuma. The organization intended to build 713 units during the years 2012/2013 but they only accessed funding for 559 units. To date they have completed 389 houses while the balance is work in progress. The houses are sold to members of ZINAHCO who pay for them over a period of 6 years. The cooperative body pointed out that the loan extended to members was concessional but was slightly above break-even point to ensure sustainability of the programme. The funding for the project was provided by Homeless International. ZINAHCO has also forged partnerships with other donors such as Rooftops Canada, Shelter Norway, Swedish Cooperatives Centre and CIDA. Through these partnerships, the association provides its members with skills in the areas of cooperative management, financial literacy, livelihood skills, contract management and construction services, amongst others.
ZINAHCO is of the view that the major impediments to meaningful supply of housing in Zimbabwe are limited access to land, challenges in accessing finance and poor government capacity in providing off site bulk infrastructure. They also pointed out that there was need to revamp outdated legislation which frustrates housing development.
The delivery of serviced stands is an approach being adopted to improve access to affordable housing. In July, Bulawayo City Council announced that it was going to release 2131 stands ranging in size from 200m2 to 600m2, in four residential suburbs. The local authority requires residents to pay a deposit of 35 percent of the value of the stand and the balance in monthly instalments. The Zimbabwe Project Housing Trust has also embarked on a programme to provide over 4000 low income residential stands in Rangemore, Bulawayo. These initiatives anticipate a self-build housing process that is common throughout the country.
The demand for residential property remains high in Zimbabwe, though activity has been hampered by low disposable incomes and the deterioration in liquidity conditions, particularly during the first half of 2013.The market is still active, albeit at subdued levels, particularly for medium density houses, flats and cluster units. Prices for units in this category up to a value of US$150,000 have witnessed an increase due to the high demand. Prices in this category have been firm because of affordability factors, in particular the fact that most companies and building societies are prepared to extend loans up to these values. More expensive homes are taking much longer to sell and have witnessed price stagnation. The property market, particularly at the higher end, is largely a buyers’ market at the moment as players adopt a wait and see attitude with respect to elections and the likely policy thrust in the aftermath. It is anticipated that the aftermath of the elections will see increased activity as the policy direction becomes more certain. However, the low disposable incomes are going to remain an inhibiting factor on the market for some years to come.
Despite the tight liquidity conditions, rentals continue to go up. Rental increases of 10 to 35 percent have been common since the end of 2012 but largely for high and medium density properties. In the same vein, the prices of serviced stands went up significantly in all areas – in some areas by as much as 50 percent during the last 12 months.
Policy and Regulation
The introduction of the National Housing Policy in 2012 provides an opportunity for the Government of Zimbabwe to address a number of factors that impeded housing development in the past. In addition to stimulating housing delivery through state and non-state partnerships, the new policy addresses the need for more housing designs and development models and an increased range of permissible building materials and construction models. This will also involve a relook at legislation and some by-laws which some stakeholders believe are no longer relevant.
Zimbabwe also needs to address the prevailing economic challenges which are making it difficult to access funding for infrastructural and mortgage financing. The country requires long term funding to address infrastructure bottlenecks needed for effective housing delivery. The Government also needs to address the prevailing tight liquidity conditions which are not conducive for credit growth. Zimbabwe requires more capacity to avail loans for both land and housing development. It is hoped that the process of addressing the huge debt overhang and arrears which has commenced will gather momentum and unlock an increased envelope and greater opportunities for robust economic performance.
The Land Development Bill will regulate the activities of land developers. The legislation will provide for the registration and regulation of the conduct of land developers. It is expected that this will provide more protection to the public from unscrupulous land developers.
The thrust by the Ministry of Finance and the Reserve Bank of Zimbabwe to improve financial inclusion is also expected to improve opportunities for housing finance in the country. In particular, the introduction of a Microfinance Act is expected to increase competition for traditional financial institutions to the benefit of borrowers.
Zimbabwe has experienced a number of positive political developments during 2013. The major political parties managed to agree on a draft new constitution which was endorsed through a peaceful referendum. The draft constitution was then approved by both houses of Parliament and signed into law. Despite the haggling on dates, national elections were conducted in a peaceful environment. The atmosphere has also been tranquil after the announcement of the election results and it is hoped this will be sustained.
Despite the liquidity challenges, the country has a stable macroeconomic environment. Zimbabwe continues to enjoy low inflation and has implemented prudent fiscal policy characterized by a cash budgeting system. However, the country faces challenges on the external account. It is hoped that the process of normalization of relations with Multilateral Financial Institutions will gather momentum and pave the way for a solution to the debt and arrears challenge. Such a development would lead to significant inflows which are required to address the current liquidity problems. It would also spur the performance of the economy, leading to increased household incomes.
It is hoped that the establishment of a PPC cement production plant in northern Zimbabwe will support further growth in housing supply as the cement capacity of the country increases. These developments and the measures being put in place by the authorities to foster increased financial inclusion provide hope that the housing finance situation will witness significant improvement in the foreseeable future. It would appear the Medium Term Plan as well as the Housing Policy accurately articulate what is required in order to improve housing delivery in Zimbabwe. What is required is committed implementation by all stakeholders.
-Zimbabwe Government, 2012 The 2013 National Budget Statement: “Beyond the Enclave: Unleashing Zimbabwe’s Growth Potential”, Government Printers, Harare.
-Reserve Bank of Zimbabwe, 2013 Monetary Policy Statement, Reserve Bank, Harare.
-Zimbabwe National Statistical Agency, 2013 Poverty Income Consumption and Expenditure Survey 2011/12 Report
-Government of Zimbabwe, 2012 National Housing Policy 2012, Government Printers, Harare
-Government of Zimbabwe, 2011 Zimbabwe Medium Term Plan 2011-2015, Government Printers, Harare.
-Government of Zimbabwe, 2012 The National Budget: Sustaining Inclusive Growth with Jobs, Government Printers, Harare.