Enterprise Finance in Zimbabwe
A key objective of this study is to ascertain whether imperfect access to credit is a major cause for Africa's lackluster performance in manufacturing.
To achieve this, the authors:
- Conducted exhaustive interviews with Zimbabwean firms, key high level bank staff and a few small to medium size African businesses;
- Reviewed the recent history and economic structure of Zimbabwe through a large body of literature to find out enterprise finance concepts applicable to its developing economy. The concept of contract enforcement shows that it can subsume many information asymmetries.
The paper discusses the financial sector of Zimbabwe, complete with legal institutions, and instruments. The pattern of enterprise finance in the country shows that firm size and ethnicity play an important role in access to external finance. The authors review the differences among firms in access and cost of various forms of credit in detail.
The authors state that the results of the study indicate that:
- Credit transactions are more flexible than often believed;
- Enforcement concerns are central to the credit screening process;
- Zimbabwe benefits from the existence of several overlapping reputation mechanisms that sanction contract performance.
As per the authors, firm growth and investment are affected by credit constraints in two ways:
- Restricting the capacity to expand;
- Limiting their ability to survive liquidity shocks;
In the end, the results of the survey assess the growth potential of firms. The authors derive detailed policy prescriptions and implications for various categories, though they pay special emphasis on the promotion of indigenous enterprises.
