Government pins hopes on 99-year leases
Economist Eddie Cross
GOVERNMENT has once again begun talking up the country’s banks to accept as collateral the 99-year leases given to resettled black farmers following the 2000 land reform programme.
The renewed push to unlock funding for farmers comes as increased pressure is being brought to bear on President Robert Mugabe’s government to turnaround the country’s economy.
Finance Minister Patrick Chinamasa is largely pinning his hopes of a turnaround on the agricultural sector.
He envisages growth in the agriculture sector at 14,4 percent next year.
This year, the sector shrunk by -4,2 percent.
Agriculture is widely regarded as the mainstay of the country’s economy which could easily propel the turnaround efforts.
Yet without any funding, government’s plans for the sector, which needs finance of US$2 billion to get back on its feet, would be a pipedream.
Yet, the tug of war between government and banks over the 99-year leases has been on and off since 2000.
The banks have been cautious to extend any finance to the resettled black farmers in the absence of security of tenure.
This has angered government, which in turn accuses the banking sector of deliberately sabotaging its efforts to revive agriculture.
Once the breadbasket of the southern African region, Zimbabwe is now a net importer of grain after agriculture suffered its heaviest knock following the chaotic 2000 land invasions that were principally led by war veterans.
An estimated 4 500 farmers were affected by the violent land seizures, which has resulted in chronic food shortages and poor production on farms since then.
Ben Freeth, a former white commercial farmer and executive director of the Mike Campbell Foundation, this week said the latest overtures by government to force banks to accept 99-year leases would not work.
“As far as the lease agreement is concerned, it is not bankable…No bank will extend credit without collateral security. Whatever the government tells them, the banks will not comply with something that puts their business into jeopardy. Like any business, banks need security, to ensure viability of their operations,” he said.
Freeth noted that also unsettling is a clause in the 99-year lease agreements which allow for the government to cancel a lease held by a farmer in 90 days.
“…for that to be written in the lease, it shows they want to keep people with 99-year leases on edge. Which is how their system of patronage works,” said Freeth.
Bankers Association of Zimbabwe (BAZ) president, Charity Jinya earlier this month said the Ministry of Lands would make an announcement over the 99-year leases at an “appropriate time”.
An official at BAZ who is not authorised to speak to the press this week said the association had put forward its recommendations to government
“The long and short of it is that discussions indeed have been held with the government and it is now all in the hands of government,” he said.
Bankers’ Association of Zimbabwe president, Charity Jinya
It is understood that among some of the pre-conditions banks have put to government before extending credit is that they require an assurance that the farmers would stay on the land for a long time. The banks are also demanding that investments done on the land in building immovable infrastructure such as houses and other farm structures, which promote productivity should be secured.
The banks also want farmer’s access to stable markets for their produce and access to a reasonable and predictable transfer market for buyers so as to enable compensation for any permanent improvements made on the farm. The banks also want to hold both moveable and immovable property as collateral in exchange for the loans.
Wonder Chabikwa, president of the Zimbabwe Commercial Farmers Union, which represents a majority of black commercial farmers said unions were not being updated about the negotiations.
“The last time we heard about 99-year leases becoming bankable was in March or April this year…Even if we are to borrow using the 99-year lease agreements as collateral, the money is expensive, which means that the loans are not suitable for farming since lending rates are pegged between 12 percent and 18 percent,” he said.
Eddie Cross, an economist and legislator for the Movement for Democratic Change, said he expected little headway to be made in the latest round of talks.
“It’s all just grandstanding, it will not work. The banks will continue to refuse them (99-year leases), because they need to be able to sell at a market rate. The government is afraid that the whites will buy these up once again. The 99-year leases will not be transferable on the open market,” Cross told the Financial Gazette this week.
Vivid Gwede, a political commentator, said it was important that the 99-year leases be made bankable in order to sustainably finance agriculture in Zimbabwe following the disruptive land redistribution exercise of 2000.
“But the mere announcement will not work like magic. Unfortunately, to be sure, there are also other things involved in the mix for the plan to work. It appears that the bankers are still not sure of the transferability of the leases. The real reason for that lack of confidence by the bankers is that land ownership in Zimbabwe has been and is still much politicised,” he said.
“Land ownership needs to be depoliticised first. The banking sector is already showing signs that there is no money, while lending rates are still generally very high for the farmers should they eventually access the scarce money. I do not expect the leases to work like magic, but a lot of confidence building with the financial sector is needed beyond what is written on paper,” Gwede added.
With its back against the wall, it will be curious to see if government would indeed bend over backwards and accede to demands by the banking sector.