Zimbabwe Financial Experts Question Government’s Latest Agro-Finance Plan
16 December 2011
Some see the program as a desperation move as agricultural experts warn that
many Zimbabwean farmers have found it more difficult than ever to purchase
the seed and fertilizer they need
Violet Gonda | Washington
Zimbabwe Bankers Association President John Mushayavanhu said: “The main
problem is that these bills are only 50% government guaranteed which mean
the other 50% is unsecured.”
Finance has become a major hurdle to the recovery of Zimbabwe’s agricultural
sector, but experts say Harare’s latest proposed solution looks like a
non-starter.
Small Zimbabwean farmers chronically lack cash to purchase seed and
fertilizer, which was often supplied by the state Grain Marketing Board in
the past. The banking sector doesn’t consider a long-term lease on farmland
to be good collateral given the uncertainties of ownership following a
decade of disruptive land reform.
The government and a banking partner are now moving to float $100 million in
agro-bills guaranteed in part by the government. But financial experts doubt
investors will jump into such notes as they will have to count on farmers to
repay half of the debt.
The Commercial Bank of Zimbabwe is the Harare government’s financial market
partner in the launch of the latest agricultural financing instrument to be
brought forth.
An inter-ministerial committee on commercial financing of agriculture led by
Deputy Prime Minister Arthur Mutambara drew up the latest farm finance
scheme, which proposes to match up investors with farmers who need capital.
The basic instrument is a US$10,000 agro-bill bearing a 10 percent coupon –
though the envisioned tender operation could result in a higher yield or
market interest rate, to which a two percent processing fee will be added.
Harare hopes to raise $100 million through this mechanism – not only to
finance the 2012 cropping season but to pay down US$21 million the Grain
Marketing Board owes farmers and US$18.6 million the government itself owes
seed houses and fertilizer companies, plus another US$4.5 million to
“kick-start” seed and fertilizer makers.
So in fact only about $56 million will go to finance farmers, the rest
covering government debts and costs, but the government is offering only a
50 percent repayment guarantee. This is likely to discourage the kinds of
risk-averse investors the program proposes to attract, particularly
ultra-cautious pension funds and insurers.
Though the funds will go to meet official debts and costs, investors will
have to rely on farmers making good on their commitments to repay following
harvest.
So investors must be willing to bet that the government will make good on
its guarantee, that the upcoming harvest will be a good one – some are not
optimistic given longer-term weather signals – and that farmers receiving
funds will do the right thing.
Nonetheless, Mutambara expressed confidence investors will step up to buy
agro-bills, helping cashless farmers pay for their inputs.
“Our banks have not been forthcoming in terms of grain production. They have
done good work in supporting cotton, they have done good work in supporting
tobacco. So what we have done is come up with a scheme that gives incentives
to the banks to put their money into agriculture for a profit,” Mutambara
said.
“We have given them the liquid asset status, tax exemption and a 50%
government guarantee. This will allow every farmer in the country, communal,
A2, A1 to have access to inputs without paying anything but with a stop
order where they will pay after they have harvested,” Mutambara said.
CBZ Chief Executive John Mangudya said the government has done all it can to
make the securities attractive to investors including insurance companies
and banks.
Some see the program as a desperation move as agricultural experts warn that
farmers have found it more difficult than ever to access the seed and
fertilizer they need.
Zimbabwe Bankers Association President John Mushayavanhu said the planting
season started last month so it is somewhat late to be raising funds.
“But the main problem is that these bills are only 50% government guaranteed
which mean the other 50% is unsecured,” Mushayavanhu said.
“Obviously the risk that investors and bankers are taking is higher than
would have been the case if they had been 100% government guaranteed.”
Economist John Robertson said the scheme will only work if financial
institutions are willing to guarantee the 50 percent not covered by the
government, but opined that the risk is too high for most players given
currently low expectations for 2012 harvest.
“A thing like this has to be done properly and on time for the people who
have borrowed the money to have a chance to get a good enough crop, to earn
enough money to pay back the loans,” Robertson said.
But CBZ’s Mangudya said there is still time to make a difference,
particularly as this is not the only scheme put in place to bolster farmers.
“There are NGOs that are providing assistance. There are commercial
transactions that the banks are financing … and the government has put in
place some other schemes – the $30 million facility, the $45 million
facility. This is only in addition to what is happening on the ground.”
Mangudya and Mutambara emphasized that funds from agro-bills would be
accessed by all farmers – be they small communal cultivators or larger
commercial players.
But Mushayavanhu of the Bankers Association said such a scheme is only
feasible with commercial farmers, as most small-scale bankers are unable to
meet lending requirements, which could impede their access in this case.
“Unless the government is going to disburse the money directly to those
farmers – in which case then the risk is with government,” Mushayavanhu
said.
Less skeptical is analyst Masimba Kuchera, who says that although the
Reserve Bank of Zimbabwe went broke from 2004 to 2008 supporting similar
agricultural schemes, this initiative could help wean farmers from
government dependency.
Yet Kuchera doesn’t see banks other than CBZ jumping in as it is not clear
how they’ll get their funds back from defaulters without holding any
collateral.
Mutambara insists the government will push on using what he calls “moral
persuasion” to convince bankers to seek profits where few have been
forthcoming.
The government and its private sector partner have launched and promoted the
program, so it remains to be seen how many investors will convert capital to
seed money.