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Unlocking Zimbabwe's dead capital

14 Oct 2019 at 14:18hrs | Views
Agriculture remains central to Zimbabwe' economic revival hopes even though its contribution has declined to less than 12% of Gross Domestic Product (GDP) in 2018. Agriculture has strong backward and forward integration to the manufacturing sector for provision of raw materials and agricultural inputs. It also provides employment (Directly and indirectly) to over 65% of the country's economically active population while contributing over US$1.2 billion to the country's export earnings. Zimbabwe is endowed with 390,757 km2 of land, of which 167,000 km2 of that land is suitable for agriculture. Even though only 37% of the total land receives rainfall considered adequate for agriculture, the country boasts of 2 200 dams and numerous renewable sources of water such as rivers which are being underutilized for agricultural production purposes.

There is no doubt that Zimbabwe's land reform program was necessary to address the colonial era land injustices that had seen less than 5 000 white commercial farmers owning 51% of the total land (mostly fertile land as well), leaving the native communal farmers with less than 22% of the poor infertile lands, while the remaining 27% was set aside for forestry, national parks and other government developments. Over 250 000 families were resettled on 7 000 farms (11 million hectares of land) acquired during the Fast Track Land Reform Program (FTLRP) of 2000. It is widely evident that the land reform program infringed on property rights, agriculture investment, and financial support from bilateral institutions and could have been implemented in a smarter way with the corporation of various stakeholders.

It is also a fact that Zimbabwe's agricultural production is now a pale shadow of what it used to be before 2000 and the country is spending over US$700 million to import maize, wheat, soya and other agric foodstuffs each year despite pouring over US$5 billion in command agriculture in the past 4 seasons. Productivity remains very low with a national average of less than 1 ton per hectare for maize compared to Zambia's 2.5 tons/ha and South Africa's 5 tons/ha.

The Land Reform Program also dealt a major blow to the country's food security status, employment rate, industrial capacity utilization and export earnings. Nevertheless there have been some success stories notably in tobacco farming where small scale farmers have been critical in the delivery of record high 253 and 258 million kgs of tobacco in 2017/18 and 2018/19 agricultural seasons respectively. Tobacco farming has recovered spectacularly in the last decade from the 2009 farming season when production had plummeted to less than 50 million kgs. Currently tobacco farming provides direct employment to more than 175 000 small scale farmers who supply over 80% of the crop and supports over 1.2 million direct dependents. The sector also adds 50 000 indirect jobs in the value chain with auction houses, merchants, processors, cigarette manufacturers, input suppliers, retailers and financiers being direct benefactors. Zimbabwe is now the largest producer of the golden leaf in Africa and 6th largest in the world. Horticulture exports are also growing as new A1 and A2 farmers are gradually catching up and setting up irrigation schemes to facilitate all year round production.

The land reform program is now complete and the compensation of former commercial farmers for developments done on the land is a positive gesture by the government towards normalizing relations. The government is expected to continue engaging the few remaining commercial farmers with a view to give leases to those willing to produce at large scale since the country needs all hands on the deck to import substitute agricultural products. The government should also desist from unilateral decisions that may further infringe property rights considering that there are large tracts of underutilized and uninhabited land in the countryside. The success of small scale farmers in tobacco farming and the food insecurity bedeviling the country has presented a few lessons that are key in growing agricultural output going forward.

Land is dead capital without title deeds
An estimated US$5.3 billion worth of value vanished from the economy as a result of the Land Reform Programme in 2000. This loss in wealth equaled 65% of Zimbabwe's GDP in 2003, which the World Bank estimated at the time to be US$8.3 billion. Most of Zimbabwe's resettled farmers have no bankable title to their land which makes it worthless in asset terms and difficult to access credit from financial institutions. The issued 99 year leases are not transferable, hence not appealing to the banking sector in an environment where confidence and policy consistency are in short supply.

The government should create a legal framework that makes the lease transferable, and allow banks to hold the lease or any movable property as collateral for any credit advanced to farmers. Apart from compelling the borrowers (farmers) to service their loans, this will uncover the country's economic value and mitigate risk for the financiers to support agricultural production. Without title deeds for private sector funding, agricultural productivity will remain depressed as most small scale farmers lack capital to produce at commercial level. Years of government funding to resettled farmers have created a vicious circle of high level corruption that burdens the tax payer. The culture of viewing government subsidies as a charitable benefit is quite entrenched and borders on political lines thereby making it difficult to control. Farming is a business where the loans availed to improve agriculture production need to be paid back.

The need for irrigation equipment
Zimbabwe's rainfall patterns have adversely changed in the last few years due to climate change and over 60% of the country receives rainfall levels that are not adequate for cultivation. The government needs to channel funding towards small scale irrigation pumps and pipes that can be procured in the local market. The equipment should be closely tied to the farmers' track record so as to limit chancers. Successful irrigation schemes do not only guarantee food security but allow all year round production by small scale farmers who mainly rely on rainfall and are being adversely affected by droughts.

Value Chain Financing
The success demonstrated in tobacco farming in the last 4 seasons points to the importance of access to markets, structured financing, smart support systems and off-take agreements to agricultural production locally. Smart value chain financing models that allow financial institutions to take the central role in contracting inputs producers, engaging support institutions, recruiting farmers and funding produce off takers (Such as marketing authorities, millers, processors and exporters) in the local market can revolutionize agriculture production across the whole value chain without creating artificial shortages or demand gaps in the middle. These specialized value chain roles cannot be left to the government alone because it has limited scope to maximize efficiency.

The land reform program was poorly implemented from start to finish and many lessons have been learnt. A large number of poorly resourced and a connected few acquired farms with no scope to produce commercially or treat land as capital. The government needs to go beyond providing 99 year leases by ensuring security of tenure and transferability of deeds on the market. Without which land will remain dead capital which contributes no value to the country's GDP. The government cannot continue to channel billions to funding agriculture directly while importing millions of cereal to avert starvation year in year out. Small scale irrigation equipment and increased funding through private sector led out grower schemes present sustainable opportunities to unlock the country's dead capital.

Victor Bhoroma is economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or alternatively follow him on Twitter @VictorBhoroma1.


Source - Victor Bhoroma
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