adminSanderson Abel
Zimbabwe is an agriculture-based economy and hence financial support to the sector is of paramount importance. The current scenario of illiquidity affecting agricultural financing can be resolved if there is concerted effort among the various stakeholders (Government, farmers, input suppliers, banks, insurance companies etc.) through frank discussions and proper planning.
Instead of importing maize and wheat, we can turn the economy to be a net exporter of the two crops, hence generating foreign currency for the country.
There are in place various initiatives supportive of the agriculture sector and one aspect that is evident is that these initiatives have been hitherto uncoordinated and hence they are failing to give a clear picture of the real situation on the ground.
This is despite the fact that these various initiatives are important for the development of the sector.
As a starting point, there is need for the Government, banks and farming organisations to ensure that as early as June/July of each year, plans for the next agricultural season are in place in order to avoid the last minute rush by farmers looking for resources when the rains have already started falling.
This would ensure the availability of realistic estimates and assessment of financing available from the Government, donors and the private sector within short, medium and long-term time frames.
In the 2015/2016 agricultural season, banks have set aside just over US$1.0 billion to support the sector. This amount represents almost 20 percent of total deposits estimated at about US$5 billion.
This amount is a significant figure given that banks pledged a similar amount last year. The banks sector financing supports ancillary sectors such as fertiliser and seed producers and various agricultural marketing organisations and is a good move given that the success of the agricultural financing is in the provision of lifeblood in the whole agriculture value chain.
As usual a large proportion of this funding ends up financing tobacco, which is a worrisome thing but it is also because the dominance of tobacco financing is because of the level of orderliness in the sector and the competitiveness of the crop.
However, the continued support to agriculture by the banking sector is contingent upon the ability of banks to mobilise resources domestically and offshore for lending to productive sectors of the economy including agriculture. A culture of saving therefore has to be encouraged if agriculture is to be fully funded by banks and the farmers themselves should be the first to make deposits with the banks.
The farmers instead of only being capacity developed in the technical aspects of farming should be endowed with the skills of financial management so as to be able to understand farming as a business rather than a hobby.
The Government support to agriculture though the fiscus is also important. There is need for the national budget to adhere to the international and regional commitments, specifically the Maputo declaration.
At the Second Ordinary Assembly of the African Union in July 2003 in Maputo, African Heads of State and Government endorsed the “Maputo Declaration on Agriculture and Food Security in Africa”.
The Declaration contained several important decisions regarding agriculture, but prominent among them was the “commitment to the allocation of at least 10 percent of national budgetary resources to agriculture and rural development policy implementation within five years”. If the Government is to commit approximately 10 percent of the 2016 budget, this would go a long way to complement the banking sector resources.
Supportive of these actions there is urgent need for the country to develop “bank friendly” legislation which will both boost agricultural productivity and financing. Legislation required should ensure:
Enforcing the repayment of loans and advances availed to the farmers by the financial system and other financiers.
An effective stop order system to ensure creditors are paid upfront when the farmers are paid and any loophole around side marketing are eliminated
Creation of agricultural revolving loan and savings fund to address various challenges that face agriculture. This would act as a buffer for the farmers where they can borrow if they cannot get assistance from the banks or the Government. The banks could be the custodian of the funds though managed through a committee system.
Strengthening the marketing structures of the agricultural sector. This would ensure that there is a well-functioning pricing framework for the agricultural commodities. More importantly would be the need for the determination of producer prices before the farming season begins so that decisions are made whether to venture into those products or not
Strengthening the agricultural value chain so that financial and technical support assists all agents involved in agricultural production. Also associated with this is the need to strengthen agro-dealer networks throughout the country
Strengthening the security of tenure on agricultural land so that the component of bankability of leases is resolved and all title holders can easily approach financial institutions for assistance.
In line with the Zim-Asset there is need to fast track the Warehouse Receipt Act and Warehouse Receipt System to be operationalised to ensure that the farmers are able to use the receipts for securing the loans from the banks.
- Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. He can be contacted on [email protected] or on 04-744686, 0772463008. Feedback on this article can also be channelled via the BAZ Website www.baz.org.zw
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