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Enterprise finance in Zimbabwe (English)

This report is part of a series of studies on enterprise finance undertaken in Sub-Saharan Africa under the auspices of the multi-donor Regional Program for Enterprise Development (RPED). The report is organized as follows. Chapter one provides background information on Zimbabwe, its economic structure, and its recent history. Chapter two reviews theoretical and empirical literature in search for concepts applicable to enterprise finance in a developing country setting. The authors organize some of these concepts around the theme of contract enforcement and show how it subsumes many information asymmetries and transaction costs. The financial sector of Zimbabwe is briefly described in chapter three. Financial instruments and legal institutions are discussed and the attitude of financial institutions scrutinized. Chapter four focuses on the pattern of enterprise finance in Zimbabwe. Differences among firms in access and cost of various forms of credit are reviewed in detail. Firm size and ethnicity are shown to play an important role in access to external finance. Enforcement problems and information asymmetries are examined in chapter five. Results indicate that credit transactions are more flexible than often believed and that enforcement concerns are central to the credit screening process. They also demonstrate that Zimbabwe benefits from the existence of several overlapping reputation mechanisms that sanction contract performance. Firm growth and investment are reviewed in chapter six. Credit constraints affect firm performance in two ways by restricting their capacity to expand, and by limiting their ability to survive liquidity shocks. The authors synthesize the results at the end of chapter six by constructing a typology of firms and assessing their potential for growth and expansion. Policy implications are presented in chapter seven. Detailed policy prescriptions are derived for various categories of firms. A special emphasis is put on the promotion of indigenous enterprises.

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Citation

Fafchamps,Marcel Pender, John Robinson,Hannah Elizabeth

Enterprise finance in Zimbabwe (English). Regional Program on Enterprise Development (RPED) case study series,no. 40 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/389241468140649660/Enterprise-finance-in-Zimbabwe