Sanderson Abel
Bank credit is important for the efficient performance of any business enterprise which requires additional funds for capitalisation, working capital, and rehabilitation, as well as for the creation of new investments. In any entrepreneurial endeavour, funds are required to bring together the other factors of production – land, labour, and capital – before production can take place.
This is why credit becomes very important in the economy. The availability of adequate financing including credit is very critical as it influences what is to be produced, who produces it, and how much is to be produced.
This derives from the intermediary role of banks, i.e., as a link between surplus and deficit units in the economic system.
The ability of the banks to provide adequate financing depends in the greater part, on the ability of the demand side to plan their productive activities ahead of time and thus allow the financial services sector to also line up funding accordingly.
The conditions prevailing in the country at the moment no longer require the business as usual approach but rather an approach that is informed through proper planning.
For example the financial sector is plagued by a lack of long-term sources of funding which are required by the productive sectors.
The need to recapitalise industry and develop long term infrastructure on farms requires that the financial sector provide long term credit but the economy currently has no capacity to generate these sources.
The international financial markets are currently hesitant to provide funding with long-term tenure hence making it impossible for the agricultural sector to be financed long-term.
Faced with such a situation, there is need to plan as a country and this should cascade down to the industry level.
Planning can be defined as the process of thinking about and organising the activities required for achieving a desired goal.
This thought process is essential for the creation and refinement of a plan, or its integration with other plans; that is, it combines forecasting of developments with the preparation of scenarios of how to react to them.
An important but often ignored aspect of planning is the relationship it holds with forecasting.
Forecasting can be described as predicting what the future will look like, whereas planning predicts what the future should look like.
Hence at a national level the need to plan is important.
One of the most interesting comments received every year is the incorrect perception about the reluctance of the banking sector to fund agriculture.
A closer look at the situation will reveal that it is not the reluctance of the banks but poor planning that hinders financial support to agriculture.
There is need for the various stakeholders involved in the sector to seriously consider putting plans down well before the season starts.
Without projections of what the various stakeholders are planning to produce it becomes difficult for the banks to plan for the sector.
As a starting point, there is need for the Government and farmer’s organisations to ensure that in June/July of each year, plans for the next agricultural season are in place and avoid the last minute rush in search of resources.
This would ensure the availability of realistic estimates and assessment of financing available from governments, donors and the private sector within short, medium and long-term time frames.
This would allow banks where necessary to seek lines of credit based on clearly drawn out plans.
Without these plans the banks will make arrangements solely based on their expectations which might be divorced from reality.
Some crops like tobacco will be the most beneficiaries while important food crops such as maize will suffer hence the economy loses out as there will be need to import these.
Despite the SMEs sector now being the bedrock of the economy after the collapse of the majority of the industries in the country, there is general no proper register for all SMEs and their locations.
It is in such situations that banks face a dilemma on how they can assist the sector. Despite its importance there is no proper planning save for a few associations that have been formed but even then it is difficult to determine the total amount that is required to grow this sector.
In this situation the SMEs themselves, industry associations and the Government are found flat footed and not able to account and plan for such an important sector in the economy.
The SME and agriculture examples above show the shortfalls that have engulfed us as Zimbabweans that proper planning and projecting the future has been our short coming in as much as we endeavour to seek finance.
Without proper projections from the stakeholders, it puts the banking sector at a precarious position on planning for the various sectors of the economy.
With the scarcity of resources, this situation will cause some sectors to be oversupplied with resources while others are starved.
It is important for stakeholders in various sectors to take planning as part and parcel of their daily activities.
Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on abel@baz.org.zw or on numbers 04-744686 and 0772463008.