SPEECH
RESERVE BANK OF ZIMBABWE GOVERNOR DR J P MANGUDYA
I as requested to come a say a few words at this Congress. I have been listening to the CFU President’s speech, where he said “God bless Zimbabwe”. I was thinking to myself, Zimbabwe has the land, it has the markets, it has the people, but production has been going down. So in my presentation today, instead of talking on what I was asked about compensation, I thought I will also show a few slides as to where I see agriculture.
I have come from a breakfast meeting where we were talking about capacity utilization and it was agreed that production is going down. Down-stream industries are also being blamed, agriculture being one of them. The output from agriculture is low into manufacturing, which is also going down. It is not efficient. I thought I would talk today of breaking the vicious cycle.
I have also been influenced by some bible reading – Proverbs 28v 19, which says he who works his land has plenty, but he who sleeps on the land gets nothing and the people suffer. This basically covers productivity.
I am also happy with the 10 point plan spoken of by the President, when he spoke about revitalising agriculture. Which is what we are trying to do. Revitalising agriculture is very important because it contributes to about 30% of exports in Zimbabwe, 23% towards employment and contributes 12.7% of GDP. We can do better than this. Agriculture is a sector identified by ZimAsset for value addition and employment and is very important. I thought I would show you the official type of productivity in Zimbabwe for agriculture. Because of low productivity, we have low income and exports. Low in terms of cotton and tobacco.
In this country we have four main exports, which are tobacco, gold, platinum and diamonds. If there are low yields in agriculture, there is low income, low income – low exports and low exports which leads to food insecurity and high inputs.
People are importing everything in this country including gooseberries! We used to just pick them from the land. We are even importing prickly pears, because there is low productivity, we import everything. High food inputs. If we look at our balance of payments it is negative, because of imports. As a result we have high non-performing loans for farmers.
Let’s be serious about farming, if we want to remove those constraints. That is why Government has created Zimbabwe Asset Management, a company to deal with non-developing loans. We need to remove this disease, before it gets bigger and bigger and engulfs all of us. As a result of non-performing loans there is no investment into farming. No investment into farming leads to low yields again. This is what we call a vicious cycle of low productivity. How do we break this vicious cycle? There are many ways of breaking it.
This slide shows how much money has gone from banking into agriculture. 16.8% of money from the banks has gone into agriculture. It has also gone to individuals, which is not good at all, because we want more money going into the productive sector. We want to change this pattern of finance and more money to go towards the productive sectors of the economy.
The next slide shows how the banks have been performing over a period of time. Bank loans to agriculture were $50b in 2009 and $500b in 2015 and the banks are going to loan more to agriculture this season. So at least money is going towards agriculture. What is not there is efficient use of resources in this country, but money is going to agriculture, but we are not being efficient and utilizing the resources. This is a dollarized economy, and therefore we need to respect the US Dollar.
This is a slide of all sorts of funding, government support, banking credit, micro finance institutions, corporate funding arrangements and contract farming arrangements. Contract farming arrangements remove the risk of non- payment, risk of marketing and risk in terms of ownership.
The challenges we face in the economy are a lack of entrepreneurship, which also affects agriculture, low productivity – lack of competitiveness, lack of suitable collateral, high cost of credit, limited irrigated facilities and side marketing, which affects business as well as agriculture. However lack of productivity is what I am trying to raise here.
Also the exchange rate of our neighbouring countries against the US Dollar has been going down. They are depreciating their currencies to maintain credit competitiveness and by so doing, our growth has become more expensive and we are now importing more. High cost of credit. We are talking of repayment of arrears to the financial institutions. What we are trying to ensure is that we improve the country risk of Zimbabwe, so money becomes cheaper, its availability becomes higher and long term funding comes to Zimbabwe. We are trying to address the high cost of credit in this country.
We do not want 6 month funding, or 9 months before you sell the seed to the seed houses. Therefore it is urgent to sort out non-performing loans. We are trying to address these issues. Lack of suitable collateral – now days the land has no security. Limited irrigation facilities – We need to have more irrigation. As a result of climate changes, we need to harvest water and ensure water is used efficiently. Side marketing is also a problem.
On the rates of interest, we have now put guidelines for banks depending on the risk profile of a customer of a bank, the rates should be between 6% – 18%. Prime borrowers being between 6% – 10%, between 10% – 13% being the middle class and high risk between 15% – 18%. Therefore the rate of interest should reflect the risk base of an investment. So if your bank is charging 22% then the bank thinks you are very risky.
Measures have been put in place some facilities within the banking sector to ensure it is stable and banks that have a short supply of money should borrow from us. We are working on land portfolios away from individuals, in order to protect the agriculture sector. We are also implementing a resolution on non-developing loans, to ensure that at the end of the day, they do not drag down the economy.
We have put together the Zimbabwe Asset Management Company, to deal with non-performing loans. The company will ascertain whether you qualify. Once you qualify it will approach us for funding. A credit reference system is also being put in place to weed out the serial defaulters who go from bank to bank without paying money. The banking sector should deal with the shortfalls in the economy in terms of money. The banking sector stability is very important; it is the backdrop for economy development. If a banking sector is not stable, the economy will not be stable. Therefore we have taken it upon ourselves to ensure there is a stable banking sector in Zimbabwe.
Our policies also continue to ensure that we talk about financial inclusion, export finance schemes, so that if we are exporting we need to provide bridging finance and export finance facilities. For example if one is doing horticulture and does not have a market, one can go through normal banking facilities to approach RBZ to provide export finance facilities so that those who are exporting can obtain cheaper money into the economy and increase exports.
Why is the Central Bank doing this? There are only four sources of currency in this economy, which are also the source of liquidity. Exports, diaspora remittances are a function of loans, grants received which is a function of Foreign Direct Investment. These are the four sources of foreign exchange in the country. They are the same source of liquidity to the country. Therefore anything that disturbs those four are not good for stability; likewise anything that positively impacts those four will result in more income in Zimbabwe and help the exporters to do their job.
We are also talking of diversification and the resuscitation of the bond market, so that we get long term money in Zimbabwe for agricultural produce. The GoZ is promoting value addition to encourage productivity and contract farming is one of the ways of doing it.
Cabinet has approved a joint venture bill. It has to go to parliament. Contract farming and land use agreements are being utilized and these are the modus operandi under which one can utilise land in Zimbabwe. Contract farming is working well. I have seen some joint ventures with tobacco as well as land use agreements.
There is a resuscitation of ARDA and there are private public partnerships through CSC.
On the land security, GoZ is finalising with the banks and ourselves on the transferability of leases to ensure that the lease becomes an instrument to be used in collateral. Another major issue in the lease agreement is transferability. However with the new Constitution protecting the land, it is now easy to deal with the 99 year leases. The whole idea is to ensure the leases become bankable, we monetise the land, we get value out of the land and we can at least have more resources going to the land, then it will produce.
On compensation, which is what I was asked to speak about only, Mr President, the Government is very clear on the land issue, but we need to do valuations to ascertain compensation. The Government has never refused to compensate farmers, those who lost their farms, but this needs to be done methodically and I know the Ministry of Lands and Rural Resettlement is in the process of doing valuations and being assisted by development partners.
After this exercise has been done, we can sit down and say how best do we do it. This is why we are saying we need to clear our arrears first, so that we can now go forward with our lives. Otherwise we are going to create debt, over another debt and the economy will suffocate.
So it is a process of valuation, after valuation we can sit down and see how best to compensate you. First there must be a clearing of arrears, in order to get a good standing, which will enable us to get funding for this whole process. So we are moving, we are re-engaging into this position.
Going forward; farming is a business. Agriculture is the backbone of this economy. Agriculture needs to perform to ensure the economy expands. Growth in Zimbabwe’s economy is dependent on what happens with agriculture. If agriculture does not perform its economy will not be strong. Promotion and capacitation of farmers is what should be done. Promote and capacitate those farmers that are serious.
I often look out of the plane window at Zimbabwe and there is a lot of land under-utilized in Zimbabwe compared to other countries. Zimbabwe needs to utilize the land efficiently.
Farmers must move away from the culture of non-payment of loans, I cannot avoid saying this. I am a banker myself and if you go to Psalm 37 v 21, it says that the wicked borrow without re-paying. Why is it wicked, because money from the banks is not our money, it is money belonging to other depositors. The strength of the banking sector will help the strength of the economy. So we need to ensure we are not part and parcel of non-developing loans. If you cannot pay, there are two options. Either you negotiate with the bank to restructure or you sell the assets and repay the loan. Non- payment is not an option. Talking of tax incentives. Why should someone have an incentive if they are not performing? We must ensure this is supervised. If the incentive helps you perform, then that is good and we will be happy to receive your submission.
Planning is also key to farming, although I know for yourselves compensation and land tenure is key. However it is now 15 years down the line and we now need to speak with one voice and work as a team. Commercial value addition is very critical. We need to work on exports in agriculture. Zimbabwe used to export a lot of horticulture. Kenya has now overtaken Zimbabwe. We need to go back to where we were before.
We want agriculture to transform the lives of people and wipe out poverty, it should overhaul the entire economy. If we do this we will attain the Sustainable Development Goals (SDGs) 1 – 3 of the 17 SDGs which were agreed upon by the whole world and the UNDP.
These are:-
- End poverty
- End hunger
- Ensure healthy lives
I do not think the leaders of the whole world made a mistake in coming up with these SDGs. The first three are to do with agriculture. We only end poverty when agriculture is strong. Hunger occurs when there is not food security. We need to attain these goals by 2030.
It is very simple. When I look around this room, I see people who are serious. Let us look to farming to produce goods and services.
Mr Chairman, I would like to take this opportunity to thank you for inviting me to say a few words and I would like to ensure you that as central bank, as Government, we want to take steps to ensure that the farming sector in Zimbabwe, is a respectable sector so that we can grow the economy. I want to thank you and God bless you.