‘Fund tobacco using local resources’
The Reserve Bank of Zimbabwe (RBZ) last week revealed it approved offshore loans worth US$1,3 billion last year, indicating 23 percent increase from 2019, and the bulk of the money went to the agriculture sector mainly to fund the tobacco production.
Of the US$1,3 billion external loans approved, US$737 million, or 55 percent went to agriculture with tobacco accounting for the bulk. Similarly, in 2019 agriculture accounted for US$802 million, or 79 percent of US$1 billion worth of facilities.
This amplifies growing calls on the need to fund tobacco using local money if the country is to get more value from the commodity. While tobacco is regarded as one of Zimbabwe’s largest foreign currency earners, net earnings to the country are quite insignificant as the bulk of the export proceeds go towards loan repayment plus interests.
This season, about 145 000 farmers were registered to grow tobacco with 96 percent funded under contract schemes. While there are about 30 registered merchants, major players are foreign owned companies who also finance local contractors.
Prior to land reform programme, which began at the turn of the millennium, tobacco was funded by local money and the country derived maximum value from the crop.
Then, banks were willing to offer credit to farmers. But in the absence of land titles by many beneficiaries of land reform, local financial institutions are reluctant to lend.
Section 72 of the Constitution sets out the State’s rights and powers over land and this remains a major challenge of financial institutions to offer credit to farmers holding 99 year leases and offer letters.
Analysts say the country needs to revert to a funding model where local money funds agriculture.
“Without bankability in the form of 99 years leases, it will be very difficult for local banks to provide credit to farmers because that security is needed,” said an official with a local commercial bank who declined to be named. “So we will continue having the current situation of foreign money funding tobacco.”
Finance and Economic Development Minister Professor Mthuli Ncube, recently said that to ensure the country derives maximum value from tobacco farming, there was need to harness domestic facilities to finance the crop as opposed to foreign loans.
Reserve Bank governor, Dr John Mangudya weighed in saying: “It’s good on paper (the contract scheme) but there are many costs involved which are passed on to farmers and this render them less viable. The model is now expensive and needs to be reviewed so that we can have kind of an equitable mix of contract and auction.”
Zimbabwe, which ranks among the world’s largest producers of the “golden leaf”, has a dual marketing system where the produce is sold through both auction and contract.
The auction system used to be the marketing model in the world, but “free-funded” tobacco volumes have shrunk as most farmers who benefited under the land reform joined contract schemes as they lack capacity to borrow due to lack of collateral.-ebusinessweekly.co.zw
